CAMPBELL SOUP COMPANY OVERVIEW
This Management's Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements presented in "Financial Statements and Supplementary Data," as well as the information contained in "Risk Factors."
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to
Executive Summary
We are a manufacturer and marketer of high-quality, branded food and beverage products. We operate in a highly competitive industry and experience competition in all of our categories. In 2022, we delivered solid full-year results while advancing our strategic plan in a volatile macroeconomic environment. During 2022, we navigated through a challenging environment marked by supply chain pressures, particularly around labor and high inflation. We enhanced and accelerated our recruiting efforts and hiring and onboarding processes, which improved our ability to meet sustained consumer demand. Our improved supply chain execution combined with inflation-driven pricing, continued supply chain productivity improvements and cost savings initiatives partially mitigated ongoing inflationary pressures experienced in 2022. We expect that inflation will continue to be a headwind in 2023. In addition, we expect a pre-tax headwind of approximately$35 million in 2023 related to lower net periodic pension and postretirement benefit income.
Strategy
Our strategy is to unlock our full growth potential by focusing on our core brands in two divisions withinNorth America while delivering on the promise of our purpose - Connecting people through food they love. Our strategic plan is based on four pillars: build a winning team and culture; accelerate profitable growth; fuel investments and margins with targeted cost savings; and deliver on the promise of our purpose all as further discussed below. We plan to continue our focus on building a winning team and culture by investing in our employee experience and improving employee engagement, prioritizing our inclusion and diversity strategy and investing in strategic capabilities and digitization that support our core brands inNorth America . In addition, we plan to continue to deliver on the promise of our purpose with consumer transparency initiatives, progress on our sustainability goals and strengthening our connection to the communities in which we operate.
We believe that we can accelerate our profitable growth model by growing market share and driving integrated business planning programming throughout the company. We expect to grow market share through the development of more consumer-
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oriented product quality, marketing and innovation plans and prioritizing growth
channels and retailers within our defined portfolio roles. In addition, we
expect to continue to focus on accelerating the growth of our Snacks brands
while also sustaining the growth in U.S. soup and our other core brands. We
expect that changes in consumer behavior driven by the COVID-19 pandemic will
continue to support ongoing elevated consumer demand for food at home, relative
to pre-pandemic levels. We plan to capitalize on this opportunity by addressing
evolving consumer needs through our unique and differentiated portfolio.
We also expect to fuel investments and margins by continuing to focus on
mitigating the effects of inflation. We implemented price increases beginning in
2022 and continue to pursue our multi-year cost savings initiatives with
targeted annualized cost savings of $1 billion for continuing operations by the
end of 2025, with $850 million in synergies and run-rate cost savings achieved
through 2022. See "Restructuring Charges and Cost Savings Initiatives" for
additional information on these initiatives.
Business Trends
Our businesses are being influenced by a variety of trends that we anticipate will continue in the future, including: cost inflation; changing consumer preferences; and a competitive and dynamic retail environment.
Our strategy is designed, in part, to capture growing consumer preferences for snacking and convenience. For example, we believe that consumers are changing their eating habits by increasing the type and frequency of snacks they consume and are continuing in-home eating behaviors that were driven by the COVID-19 pandemic. Retailers continue to use their buying power and negotiating strength to seek increased promotional programs funded by their suppliers and more favorable terms, including customized products funded by their suppliers. Any consolidations among retailers would continue to create large and sophisticated customers that may further this trend. Retailers also continue to grow and promote store brands that compete with branded products, especially on price. Throughout 2022 we experienced elevated demand for our retail products versus pre-pandemic levels, but volumes were lower than fiscal 2021. In the first half of the year we experienced lower net sales due primarily to supply constraints based on materials availability and in the second half of the year, although supply significantly improved volumes declined due to inflation-driven pricing actions. We anticipate that demand related to at-home food consumption will remain elevated through 2023. We also anticipate that 2023 will continue to be a dynamic macroeconomic environment, and expect input cost inflation to continue. We will continue to take actions to mitigate a portion of this inflationary pressure, but we do not expect such benefits will fully offset the incremental costs in 2023. Based on benefit obligations and plan assets as ofJuly 31, 2022 , net periodic pension and postretirement benefit income excluding any actuarial losses or gains is estimated to be approximately$35 million lower in 2023, subject to the impact of interim remeasurements. The decrease in 2023 is due to increases in discount rates used to determine the benefit obligations and a decline in the market value of plan assets.
Business Divestitures
We completed the sale of our Kelsen business onSeptember 23, 2019 . OnDecember 23, 2019 , we completed the sale of our Arnott's business and certain other international operations, including the simple meals and shelf-stable beverages businesses inAustralia andAsia Pacific (the Arnott's and other international operations). Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott's and other international operations (collectively referred to asCampbell International ) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Snacks reportable segment. In addition, onOctober 11, 2019 , we completed the sale of our European chips business. The results of the European chips business through the date of sale were reflected in continuing operations within the Snacks reportable segment. In the fourth quarter of 2021, we completed the sale of our Plum baby food and snacks business. The results of the Plum baby food and snacks business through the date of sale were reflected in continuing operations within the Meals & Beverages reportable segment.
See Notes 3 and 6 to the Consolidated Financial Statements for additional information on these divestitures and reportable segments.
Summary of Results
This Summary of Results provides significant highlights from the discussion and analysis that follows.
There were 52 weeks in 2022 and 2021. There were 53 weeks in 2020.
•Net sales increased 1% in 2022 to$8.562 billion as inflation-driven pricing and sales allowances were partially offset by volume declines, the impact from the divestiture of the Plum baby food and snack business and increased 18 --------------------------------------------------------------------------------
promotional spending. Volumes declined primarily due to supply constraints driven by labor and materials availability and price elasticities.
•Gross profit, as a percent of sales, decreased to 30.7% in 2022 from 33.2% a year ago. The decrease was primarily due to higher cost inflation, mark-to-market adjustments on outstanding undesignated commodity hedges and unfavorable volume/mix, partially offset by inflation-driven pricing actions and supply chain productivity improvements. •Earnings per share from continuing operations were$2.51 in 2022, compared to$3.30 a year ago. The current year included expenses of$.34 and the prior year included gains of$.45 per share from items impacting comparability as discussed below.
Net Earnings attributable to
The following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations •In 2022, we recognized actuarial losses on our pension and postretirement plans in Other expenses / (income) of$44 million ($33 million after tax, or$.11 per share). In 2021, we recognized actuarial gains in Other expenses / (income) of$203 million ($155 million after tax, or$.51 per share); •In 2022, we recognized losses in Cost of products sold of$59 million ($44 million after tax, or$.15 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges. In 2021, we recognized gains in Cost of products sold of$50 million ($38 million after tax, or$.12 per share) associated with unrealized mark-to-market adjustments on outstanding undesignated commodity hedges; •We implemented several cost savings initiatives in recent years. In 2022, we recorded Restructuring charges of$5 million and implementation costs and other related costs of$20 million in Administrative expenses,$5 million in Cost of products sold and$1 million in Marketing and selling expenses (aggregate impact of$24 million after tax, or$.08 per share) related to these initiatives. In 2021, we recorded Restructuring charges of$21 million and implementation costs and other related costs of$28 million in Administrative expenses,$3 million in Cost of products sold and$1 million in Marketing and selling expenses (aggregate impact of$40 million after tax, or$.13 per share) related to these initiatives. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
•In 2022, we recorded a loss in Interest expense of
•In 2021, we recorded a loss in Other expenses / (income) of$11 million (and a gain of$3 million after tax, or$.01 per share) on the sale of our Plum baby food and snacks business; and
•In 2021, we recorded a
The items impacting comparability are summarized below:
2022 2021
Earnings EPS Earnings EPS
(Millions, except per share amounts) Impact Impact Impact Impact
Earnings from continuing operations attributable to
$ 757 $ 2.51 $ 1,008 $ 3.30 Loss from discontinued operations $ - $
-
Continuing operations: Pension and postretirement actuarial gains (losses)$ (33) $ (.11) $ 155 $ .51 Commodity mark-to-market gains (losses) (44) (.15) 38 .12
Restructuring charges, implementation costs and other related costs
(24) (.08) (40) (.13)
Loss on debt extinguishment (3) (.01) - -
Gain associated with divestiture - - 3 .01
Deferred tax charge - - (19) (.06)
Impact of items on Earnings from continuing
operations(1) $ (104) $
(.34)
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(1)Sum of the individual amounts may not add due to rounding.
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Earnings from continuing operations were $757 million ($2.51 per share) in 2022,
compared to $1.008 billion ($3.30 per share) in 2021. After adjusting for items
impacting comparability, earnings from continuing operations decreased
reflecting lower gross profit, lower other income and higher administrative
expenses, mostly offset by lower marketing and selling expenses, lower interest
expense and a lower effective tax rate. Earnings per share benefited from a
reduction in the weighted average diluted shares outstanding.
See "Discontinued Operations" for additional information.
Net Earnings attributable to
In addition to the 2021 items that impacted comparability of Net earnings discussed above, the following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations •In 2020, we recognized actuarial losses on our pension and postretirement plans in Other expenses / (income) of$164 million ($125 million after tax, or$.41 per share);
•In 2020, we recognized gains in Cost of products sold of
•In 2020, we recorded Restructuring charges of$9 million and implementation costs and other related costs of$48 million in Administrative expenses,$9 million in Cost of products sold,$2 million in Marketing and selling expenses and$1 million in Research and development expenses (aggregate impact of$52 million after tax, or$.17 per share) related to the cost savings initiatives discussed above. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
•In 2020, we recorded a loss in Other expenses / (income) of
•OnApril 26, 2020 , we entered into an agreement to sell our limited partnership interest inAcre Venture Partners, L.P. (Acre). The transaction closed onMay 8, 2020 . In the third quarter of 2020, we recorded a loss in Other expenses / (income) of$45 million ($35 million after tax, or$.12 per share) as a result of the pending sale. See Note 14 to the Consolidated Financial Statements for additional information; and
•In 2020, we recorded a loss in Interest expense of
Discontinued Operations
•In 2020, we recognized net gains of
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--------------------------------------------------------------------------------The items impacting comparability are summarized below:
2021 2020
Earnings EPS Earnings EPS
(Millions, except per share amounts) Impact Impact Impact Impact
Earnings from continuing operations attributable to
$ 1,008 $ 3.30 $ 592 $ 1.95 Earnings (loss) from discontinued operations$ (6) $
(.02)
Continuing operations: Pension and postretirement actuarial gains (losses)$ 155 $ .51 $ (125) $ (.41) Commodity mark-to-market gains 38 .12 2 .01
Restructuring charges, implementation costs and other related costs
(40) (.13) (52) (.17)
Gains (charges) associated with divestitures 3 .01 (37) (.12)
Deferred tax charge (19) (.06) - -
Investment losses - - (35) (.12)
Loss on debt extinguishment - - (57) (.19)
Impact of items on Earnings from continuing operations
Discontinued operations: Gains associated with divestitures $ - $
-
Impact of items on Earnings (loss) from discontinued operations
$ - $
-
__________________________________________
(1)Sum of the individual amounts may not add due to rounding.
Earnings from continuing operations were$1.008 billion ($3.30 per share) in 2021, compared to$592 million ($1.95 per share) in 2020. After adjusting for items impacting comparability, earnings from continuing operations decreased reflecting a lower gross profit margin and sales volume declines, partially offset by lower marketing and selling expenses, lower interest expense and higher other income. The additional week contributed approximately$.04 per share to Earnings from continuing operations in 2020.
See "Discontinued Operations" for additional information.
DISCUSSION AND ANALYSIS
Sales
An analysis of net sales by reportable segment follows:
% Change
(Millions) 2022 2021 2020 2022/2021 2021/2020
Meals & Beverages $ 4,607 $ 4,621 $ 4,747 - (3)
Snacks 3,955 3,855 3,944 3 (2)
$ 8,562 $ 8,476 $ 8,691 1 (2)
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An analysis of percent change of net sales by reportable segment follows:
2022 versus 2021 Meals & Beverages(2) Snacks(2) Total(2)
Volume and mix (6)% (6)% (6)%
Price and sales allowances 8 8 8
Decreased/(increased) promotional spending(1) (2) - (1)
Divestiture (1) - (1)
-% 3% 1%
2021 versus 2020 Meals & Beverages Snacks(2) Total(2)
Volume and mix (2)% (1)% (2)%
Price and sales allowances - - -
Decreased/(increased) promotional spending(1) 1 1 1
Divestiture - (1) -
Estimated impact of 53rd week (2) (2) (2)
(3)% (2)% (2)%
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(1)Represents revenue reductions from trade promotion and consumer coupon redemption programs. (2)Sum of the individual amounts does not add due to rounding.
In 2022, Meals & Beverages sales were comparable with prior year. Excluding the impact from the divestiture of the Plum baby food and snacks business, sales increased primarily due to increases inU.S. soup and foodservice, partially offset by declines in V8 beverages. Inflation-driven pricing and sales allowances were partially offset by increased promotional spending. Volume decreased primarily due to supply constraints driven by labor and materials availability and price elasticities. Sales ofU.S. soup increased 3%, due to increases in ready-to-serve soups, condensed soups and broth. In 2021, Meals & Beverages sales decreased 3%. Excluding the impact of the 53rd week, sales decreased primarily due to declines in foodservice, partially offset by gains in V8 beverages. Foodservice sales were negatively impacted by shifts in consumer behavior and continued COVID-19 related restrictions. Including a 1-point impact from the additional week, sales ofU.S. soup decreased 1% due to declines in condensed soups and ready-to-serve soups, partially offset by gains in broth. In 2022, Snacks sales increased 3% driven by sales of our power brands which increased 7%. Sales increased due to increases in cookies and crackers, primarily Goldfish crackers, and in salty snacks, primarilySnyder's of Hanover pretzels and Kettle Brand potato chips which more than offset declines in Late July snacks, partially offset by declines in non-core businesses. Inflation-driven pricing and sales allowances were partly offset by volume declines. Volumes declined driven by supply constraints due to labor and materials availability and price elasticities. In 2021, Snacks sales decreased 2%. Excluding the impact of the 53rd week and the divestiture of the European chips business, sales were comparable driven by volume declines mostly offset by lower levels of promotional spending. Declines in partner brands and Lance sandwich crackers were mostly offset by gains in salty snacks, including Late July snacks andSnyder's of Hanover pretzels, and in Goldfish crackers. Partner brands consist of third-party branded products that we sell. Gross Profit Gross profit, defined as Net sales less Cost of products sold, decreased by$184 million in 2022 from 2021 and decreased by$188 million in 2021 from 2020. As a percent of sales, gross profit was 30.7% in 2022, 33.2% in 2021 and 34.5% in 2020. 22
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The 250 basis-point decrease and the 130 basis-point decrease in gross profit margin in 2022 and 2021, respectively, were due to the following factors:
Margin Impact
2022 2021
Cost inflation, supply chain costs and other factors(1) (810) (320)
Volume/mix(2) (130)
(40)
Lower/(higher) level of promotional spending (50) 80
Productivity improvements 130 150
Price and sales allowances 610 (10)
Lower restructuring-related costs - 10
(250) (130)
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(1)2022 includes an estimated positive margin impact of 30 basis points from the benefit of cost savings initiatives, which was more than offset by cost inflation and other factors, including a 130 basis-point impact from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges. 2021 includes an estimated positive margin impact of a 60 basis-point benefit from the change in unrealized mark-to-market adjustments on outstanding undesignated commodity hedges and 50 basis points from the benefit of cost savings initiatives, which were more than offset by cost inflation and other factors.
(2)Includes the impact of operating leverage.
Marketing and Selling Expenses
Marketing and selling expenses as a percent of sales were 8.6% in 2022, 9.6% in 2021 and 10.9% in 2020. Marketing and selling expenses decreased 10% in 2022 from 2021. The decrease was primarily due to lower advertising and consumer promotion expense (approximately 10 points). The reduction in advertising and consumer promotion expense was primarily due to supply constraints. Marketing and selling expenses decreased 14% in 2021 from 2020. The decrease was primarily due to lower advertising and consumer promotion expense (approximately 7 points); increased benefits from cost savings initiatives (approximately 2 points); lower incentive compensation (approximately 2 points); lower selling expenses (approximately 1 point) and lower costs related to marketing overhead (approximately 1 point). The decrease in advertising and consumer promotion expense was primarily due to elevated levels in 2020.
Administrative Expenses
Administrative expenses as a percent of sales were 7.2% in 2022, 7.1% in 2021 and 7.2% in 2020. Administrative expenses increased 3% in 2022 from 2021. The increase was primarily due to expenses related to the settlement of certain legal claims (approximately 3 points) and higher general administrative costs (approximately 3 points), partially offset by increased benefits from cost savings initiatives (approximately 3 points). Administrative expenses decreased 4% in 2021 from 2020. The decrease was primarily due to lower incentive compensation (approximately 4 points); lower costs associated with cost savings initiatives (approximately 3 points); increased benefits from cost savings initiatives (approximately 2 points) and higher charitable contributions in 2020 (approximately 2 points), partially offset by higher information technology costs (approximately 4 points); higher inflation and other factors (approximately 2 points) and higher benefit-related costs (approximately 1 point).
Other Expenses / (Income)
Other expenses in 2022 included the following:
•$41 million of amortization of intangible assets; and
•$23 million of net periodic benefit income, including pension and
postretirement actuarial losses of
Other income in 2021 included the following:
•$285 million of net periodic benefit income, including pension and
postretirement actuarial gains of
•$27 million of income from transition services fees;
•$42 million of amortization of intangible assets; and
•$11 million loss on the sale of the Plum baby food and snacks business.
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--------------------------------------------------------------------------------Other expenses in 2020 included the following:
•$73 million of net periodic benefit expense, including pension and
postretirement actuarial losses of
•$64 million loss on the sale of the European chips business;
•$45 million loss on Acre;
•$43 million of amortization of intangible assets; and
•$10 million of income from transition services fees.
Operating Earnings
Segment operating earnings decreased 3% in 2022 from 2021 and decreased 6% in 2021 from 2020.
An analysis of operating earnings by segment follows:
% Change
(Millions) 2022 2021 2020 2022/2021 2021/2020
Meals & Beverages $ 874 $ 922 $ 1,009 (5) (9)
Snacks 517 514 525 1 (2)
1,391 1,436 1,534 (3) (6)
Corporate income (expense) (223) 130 (418)
Restructuring charges(1) (5) (21) (9)
Earnings before interest and taxes $ 1,163 $
1,545
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(1)See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges.
Operating earnings from Meals & Beverages decreased 5% in 2022 versus 2021. The decrease was primarily due to lower gross profit and higher administrative expenses, partially offset by lower marketing and selling expenses. Gross profit margin declined driven by higher cost inflation and other supply chain costs as well as higher levels of promotional spending and unfavorable volume/mix, partially offset by the impact of pricing actions and supply chain productivity improvements. Operating earnings from Meals & Beverages decreased 9% in 2021 versus 2020. The decrease was primarily due to a lower gross profit margin and sales volume declines, partially offset by lower marketing and selling expenses and administrative expenses. Gross profit performance was impacted by higher cost inflation and other supply chain costs, as well as unfavorable volume/mix, partially offset by supply chain productivity improvements and lower levels of promotional activity. Operating earnings from Snacks increased 1% in 2022 versus 2021. The increase was primarily due to lower marketing and selling expenses and slightly higher gross profit, partially offset by higher administrative expenses due to the settlement of certain legal claims. Operating earnings from Snacks decreased 2% in 2021 versus 2020. The decrease primarily due to a lower gross profit margin and sales volume declines, partially offset by lower marketing and selling expenses. Gross profit performance was impacted by higher cost inflation and other supply chain costs, as well as unfavorable volume/mix, partially offset by supply chain productivity improvements and cost savings initiatives as well as lower levels of promotional spending.
Corporate expense in 2022 included the following:
•$59 million of unrealized mark-to-market losses on outstanding undesignated commodity hedges;
•$44 million of pension and postretirement actuarial losses; and
•costs of
Corporate income in 2021 included the following:
•$203 million of pension and postretirement actuarial gains;
•$50 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges;
•costs of
•a loss of
Corporate expense in 2020 included the following:
•$164 million of pension and postretirement actuarial losses;
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•a loss of
•costs of
•a loss of
•$2 million of unrealized mark-to-market gains on outstanding undesignated commodity hedges.
Interest Expense
Interest expense decreased to
Interest expense decreased to$210 million in 2021 from$345 million in 2020. The decrease in interest expense was due to a loss on extinguishment of debt of$75 million in 2020 and lower levels of debt.
Taxes on Earnings
The effective tax rate was 22.4% in 2022, 24.6% in 2021 and 22.7% in 2020.
The decrease in the effective tax rate in 2022 from 2021 was primarily due to a
The increase in the effective rate in 2021 from 2020 was primarily due to the$19 million deferred tax charge recognized in the second quarter of 2021 and a$27 million tax benefit on the$64 million loss on the sale of the European chips business in 2020.
Restructuring Charges and Cost Savings Initiatives
Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration
Beginning in fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure.
Over the years, we expanded these initiatives by continuing to optimize our
supply chain and manufacturing networks, including closing our manufacturing
facility in
OnMarch 26, 2018 , we completed the acquisition ofSnyder'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 integratedSnyder'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. Cost estimates for these expanded initiatives, as well as timing for certain activities, are continuing to be developed.
A summary of charges recorded in Earnings from continuing operations related to these initiatives is as follows:
Recognized as of
(Millions, except per share amounts) 2022 2021 2020 July 31, 2022
Restructuring charges $ 5 $ 21 $ 9 $ 264
Administrative expenses 20 28 48 359
Cost of products sold 5 3 9 84
Marketing and selling expenses 1 1 2 14
Research and development expenses - - 1 4
Total pre-tax charges $ 31 $ 53 $ 69 $ 725
Aggregate after-tax impact $ 24 $ 40 $ 52
Per share impact $ .08 $ .13 $ .17
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A summary of the pre-tax costs in Earnings from continuing operations associated with the initiatives is as follows:
(Millions) Recognized as ofJuly 31 ,
2022
Severance pay and benefits $
227
Asset impairment/accelerated depreciation
82
Implementation costs and other related costs 416 Total $ 725 The total estimated pre-tax costs for actions associated with continuing operations that have been identified to date are approximately$735 million to$740 million and we expect to incur the costs through 2023. These estimates will be updated as the expanded initiatives are developed. We expect the costs for actions associated with continuing operations that have been identified to date to consist of the following: approximately$230 million in severance pay and benefits; approximately$85 million in asset impairment and accelerated depreciation; and approximately$420 million to$425 million in implementation costs and other related costs. We expect these pre-tax costs to be associated with our segments as follows: Meals & Beverages - approximately 31%; Snacks - approximately 44%; and Corporate - approximately 25%. Of the aggregate$735 million to$740 million of pre-tax costs associated with continuing operations identified to date, we expect approximately$635 million to$640 million will be cash expenditures. In addition, we expect to invest approximately$445 million in capital expenditures through 2023, of which we invested$440 million as ofJuly 31, 2022 . The capital expenditures primarily relate to aU.S. warehouse optimization project, improvement of quality, safety and cost structure across theSnyder's-Lance manufacturing network, implementation of our existing SAP enterprise-resource planning system forSnyder's-Lance , transition of production of theToronto manufacturing facility to ourU.S. thermal plants, optimization of information technology infrastructure and applications and optimization of theSnyder's-Lance warehouse and distribution network.
We expect to fund the costs through cash flows from operations and short-term borrowings.
We expect the initiatives for actions associated with continuing operations,
once all phases are implemented, to generate annual ongoing savings of
approximately
Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs in Earnings from continuing operations associated with segments is as follows: (Millions) 2022 Costs Incurred to Date Meals & Beverages$ 2 $ 225 Snacks 22 321 Corporate 7 179 Total$ 31 $ 725
See Note 7 to the Consolidated Financial Statements for additional information.
Discontinued Operations
We completed the sale of our Kelsen business onSeptember 23, 2019 , for$322 million . We also completed the sale of the Arnott's and other international operations onDecember 23, 2019 , for$2.286 billion . The purchase price was subject to certain post-closing adjustments, which resulted in$4 million of additional proceeds in the third quarter of 2020. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott's and other international operations, orCampbell International , as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Snacks reportable segment. 26 --------------------------------------------------------------------------------
Results of discontinued operations were as follows:
(Millions) 2020 Net sales$ 359 Earnings before taxes from operations$ 53 Taxes on earnings from operations 17
Gain on sales of businesses / costs associated with selling the businesses
1,039
Tax expense on sales / costs associated with selling the businesses
39
Earnings from discontinued operations $ 1,036 In addition, in the third quarter of 2021, we recognized a
The sale of the Arnott's and other international operations resulted in a
substantial capital gain for tax purposes. We were able to utilize capital
losses in 2020, which were offset with valuation allowances as of
LIQUIDITY AND CAPITAL RESOURCES
We expect foreseeable liquidity and capital resource requirements to be met through anticipated cash flows from operations; long-term borrowings; short-term borrowings, which may include commercial paper; credit facilities; and cash and cash equivalents. We believe that our sources of financing will be adequate to meet our future requirements. We generated cash flows from operations of$1.181 billion in 2022, compared to$1.035 billion in 2021. The increase in 2022 was primarily due to changes in working capital, partially offset by lower cash earnings. We generated cash flows from operations of$1.035 billion in 2021, compared to$1.396 billion in 2020. The decline in 2021 was primarily due changes in working capital, mostly from a significant increase in accounts payable in the prior year and lower accrued liabilities in the current year. Current assets are less than current liabilities as a result of our level of current maturities of long-term debt and short-term borrowings and our focus to lower core working capital requirements. We had negative working capital of$923 million as ofJuly 31, 2022 , and$119 million as ofAugust 1, 2021 . Total debt maturing within one year was$814 million as ofJuly 31, 2022 , and$48 million as ofAugust 1, 2021 . Capital expenditures were$242 million in 2022,$275 million in 2021 and$299 million in 2020. Capital expenditures are expected to total approximately$325 million in 2023. Capital expenditures in 2022 included improvement of the quality and cost structure of theSnyder's-Lance manufacturing network, the continued implementation of our existing SAP enterprise-resource planning system forSnyder's-Lance and cookie and cracker capacity expansion for our Snacks business. Capital expenditures in 2021 included the continued implementation of our existing SAP enterprise-resource planning system forSnyder's-Lance , chip capacity expansion projects, aMilano cookie capacity expansion project and a Goldfish cracker capacity expansion project. Capital expenditures in 2020 included implementation of our existing SAP enterprise-resource planning system forSnyder's-Lance , aMilano cookie capacity expansion project, chip capacity expansion projects and a Goldfish cracker capacity expansion project. In Snacks, we have a direct-store-delivery distribution model that uses independent contractor distributors. In order to maintain and expand this model, we routinely purchase and sell routes. The purchase and sale proceeds of the routes are reflected in investing activities. We completed the sale of our Kelsen business onSeptember 23, 2019 , for$322 million . OnSeptember 30, 2019 , we repaid$399 million of our senior unsecured term loan facility using net proceeds from the Kelsen sale and the issuance of commercial paper. In addition, onOctober 11, 2019 , we completed the sale of our European chips business for £63 million, or$77 million . We completed the sale of the Arnott's and other international operations onDecember 23, 2019 , for$2.286 billion . The purchase price was subject to certain post-closing adjustments, which resulted in$4 million of additional proceeds in the third quarter of 2020. We used the net proceeds from the sale to reduce our debt through a series of actions. OnDecember 31, 2019 , we repaid the$100 million outstanding balance on our senior unsecured term loan facility. OnJanuary 22, 2020 , we completed the redemption of all$500 million outstanding aggregate principal amount of our 4.25% Senior Notes due 2021. OnJanuary 24, 2020 , we settled tender offers to purchase$1.2 billion in aggregate principal amount of certain unsecured debt, comprising$329 million of 3.30% Senior Notes due 2021,$634 million of 3.65% Senior Notes due 2023, and$237 million of 3.80% Senior Notes due 2043. Except for the$237 million of 3.80% Senior Notes due 2043, the Senior Notes settled under the tender offer were issued in connection with our acquisition ofSnyder's-Lance . The consideration for the redemption and the tender offers was$1.765 billion , including$65 million of premium. We recognized a loss of$75 million (including$65 million 27 -------------------------------------------------------------------------------- of premium, fees and other costs paid with the tender offers and unamortized debt issuance costs), which was recorded in Interest expense in the Consolidated Statement of Earnings. In addition, we paid accrued and unpaid interest on the purchased notes through the dates of settlement. The net divestiture proceeds remaining after these debt reduction activities were used to reduce commercial paper borrowings.
On
Dividend payments were$451 million in 2022,$439 million in 2021 and$426 million in 2020. Annual dividends declared were$1.48 per share in 2022,$1.46 per share in 2021 and$1.40 per share in 2020. The 2022 fourth quarter dividend was$.37 per share. The declaration of dividends is subject to the discretion of our Board and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board deems relevant to its analysis and decision making. InJune 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. TheJune 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under the anti-dilutive program may be made in open-market or privately negotiated transactions. InSeptember 2021 , the Board approved a strategic share repurchase program of up to$500 million (September 2021 program). TheSeptember 2021 program has no expiration date, but it may be suspended or discontinued at any time. Repurchases under theSeptember 2021 program may be made in open-market or privately negotiated transactions. In 2022, we repurchased 3.8 million shares at a cost of$167 million . Of this amount,$42 million was used to repurchase shares pursuant to ourJune 2021 program and$125 million was used to repurchase share pursuant to ourSeptember 2021 program. As ofJuly 31, 2022 , approximately$172 million remained available under theJune 2021 program and approximately$375 million remained under theSeptember 2021 program. In 2021, we repurchased approximately 1 million shares at a cost of$36 million . See Note 16 to the Consolidated Financial Statements and "Market for Registrant's Capital Stock, Related Shareholder Matters and Issuer Purchases ofEquity Securities " for additional information. OnMarch 4, 2022 , we completed the redemption of all$450 million outstanding aggregate principal amount of our 2.50% Senior Notes dueAugust 2, 2022 . The consideration for the redemption was$453 million , including$3 million of premium. We recognized a loss of$4 million (including the$3 million of premium and other costs), which was recorded in Interest expense in the Consolidated Statement of Earnings. In addition, we paid accrued and unpaid interest on the redeemed notes through the date of settlement. We used a combination of cash on hand and short-term debt to fund the redemption. InMarch 2021 , we repaid our 3.30%$321 million notes and floating rate$400 million notes, and inMay 2021 , we repaid our 8.875%$200 million notes. The repayments were funded with available cash and commercial paper issuances. OnApril 24, 2020 , we issued senior unsecured notes in an aggregate principal amount of$1 billion , consisting of$500 million aggregate principal amount of notes bearing interest at a fixed rate of 2.375% per annum, dueApril 24, 2030 , and$500 million aggregate principal amount of notes bearing interest at a fixed rate of 3.125% per annum, dueApril 24, 2050 . OnMay 1, 2020 , we used$300 million of the net proceeds to repay$300 million of borrowings outstanding under a revolving credit facility. As ofJuly 31, 2022 , we had$814 million of short-term borrowings due within one year, of which$235 million was comprised of commercial paper borrowings. As ofJuly 31, 2022 , we issued$32 million of standby letters of credit. OnNovember 2, 2020 , we entered into a committed revolving credit facility totaling$1.85 billion scheduled to mature onNovember 2, 2023 . OnSeptember 27, 2021 , we replaced the facility with a new$1.85 billion committed revolving facility that matures onSeptember 27, 2026 . This facility remained unused atJuly 31, 2022 , except for$1 million of standby letters of credit that we issued under it. The facility contains customary covenants, including a financial covenant with respect to a minimum consolidated interest coverage ratio of consolidated adjusted EBITDA to consolidated interest expense (as each is defined in the credit facility) of not less than 3.25:1.00, measured quarterly, and customary events of default for credit facilities of this type. Loans under this facility will bear interest at the rates specified in the facility, which vary based on the type of loan and certain other customary conditions. The facility supports our commercial paper program and other general corporate purposes. We expect to continue to access the commercial paper markets, bank credit lines and utilize cash flows from operations to support our short-term liquidity requirements.
We are in compliance with the covenants contained in our credit facilities and debt securities.
InSeptember 2020 , we filed a registration statement with theSecurities 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. 28 --------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
Contractual Obligations
We have short- and long-term material cash requirements related to our contractual obligations that arise in the normal course of business. In addition to principal and interest payments on our outstanding debt obligations, our contractual obligations primarily consist of purchase commitments, lease payments and pension and postretirement benefits.
See Note 12 to the Consolidated Financial Statements for a summary of our principal payments for short-term borrowings and long-term debt obligations as ofJuly 31, 2022 . Interest payments for short-term borrowings and long-term debt as ofJuly 31, 2022 are approximately as follows:$165 million in 2023;$290 million in 2024 through 2025;$220 million in 2026 through 2027; and$1.2 billion from 2028 through maturity. Purchase commitments represent purchase orders and long-term purchase arrangements related to the procurement of ingredients, supplies, machinery, equipment and services. As ofJuly 31, 2022 , purchase commitments totaled approximately$1.535 billion . Approximately$1.27 billion of these purchase commitments will be settled in the ordinary course of business in the next 12 months and the balance of$265 million from 2024 through 2027.
See Note 10 to the Consolidated Financial Statements for a summary of our lease
obligations as of
As ofJuly 31, 2022 , we recognized a pension liability of$120 million and a postretirement benefit obligation of$172 million . As ofJuly 31, 2022 , we also recognized a pension asset of$146 million based on the funded status of certain plans. See Note 9 to the Consolidated Financial Statements and "Significant Accounting Estimates" for further discussion of our pension and postretirement benefit obligations.
Off-Balance Sheet Arrangements and Other Commitments
We guarantee approximately 4,800 bank loans made to independent contractor distributors by third-party financial institutions for the purchase of distribution routes. The maximum potential amount of the future payments under existing guarantees we could be required to make is$500 million as ofJuly 31, 2022 . Our guarantees are indirectly secured by the distribution routes. We do not expect that we will be required to make material guarantee payments as a result of defaults on the bank loans guaranteed. These obligations and commitments impact our liquidity and capital resource needs. We expect foreseeable liquidity and capital resource requirements to be met through anticipated cash flows from operations; long-term borrowings; short-term borrowings, which may include commercial paper; credit facilities; and cash and cash equivalents. We believe that our sources of financing will be adequate to meet our future requirements.
MARKET RISK SENSITIVITY
The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. We manage our foreign currency exposures by utilizing foreign exchange forward contracts. We enter into foreign exchange forward contracts for periods consistent with related underlying exposures, and the contracts do not constitute positions independent of those exposures. We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and we may utilize interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, diesel fuel, natural gas, soybean oil, aluminum, cocoa, corn, soybean meal and butter. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. The information below summarizes our market risks associated with significant financial instruments as ofJuly 31, 2022 . Fair values included herein have been determined based on quoted market prices or pricing models using current market rates. The information presented below should be read in conjunction with Notes 12, 13 and 15 to the Consolidated Financial Statements. We are exposed to foreign currency exchange risk, primarily the Canadian dollar, related to third-party transactions and intercompany transactions. We utilize foreign exchange forward purchase and sale contracts to hedge these exposures. The notional amounts of the contracts as ofJuly 31, 2022 , andAugust 1, 2021 , were$153 million and$147 million , respectively. The aggregate fair value of all contracts was a gain of$2 million as ofJuly 31, 2022 , and a loss of$2 million as ofAugust 1, 2021 . A hypothetical 10% fluctuation in exchange rates would impact the fair value of our outstanding foreign exchange contracts by$17 million as ofJuly 31, 2022 , and as ofAugust 1, 2021 , which would generally be offset by inverse changes on the underlying hedged items.
As of
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100-basis-point increase in average interest rates applied to our variable-rate
debt balances throughout 2022 and 2021 would have increased annual interest
expense in those years by approximately
As ofJuly 31, 2022 , we had outstanding fixed-rate debt of$4.609 billion with a weighted average interest rate of 3.76%. As ofAugust 1, 2021 , we had outstanding fixed-rate debt of$5.059 billion with an average interest rate of 3.65%. The fair value of fixed-rate debt was$4.402 billion as ofJuly 31, 2022 and$5.576 billion as ofAugust 1, 2021 . As ofJuly 31, 2022 , andAugust 1, 2021 , a hypothetical 100-basis-point increase in interest rates would decrease the fair value of our fixed rate debt by approximately$274 million and$399 million , respectively, while a hypothetical 100-basis-point decrease in interest rates would increase the fair value of our fixed rate debt by approximately$318 million and$463 million , respectively. The impact of market interest rate fluctuations on our long-term debt does not affect our results of operations or financial position. We enter into commodity futures, options and swap contracts, and a supply contract under which prices for certain raw materials are established based on anticipated volume requirements to reduce the volatility of price fluctuations for commodities. As ofJuly 31, 2022 , the total notional amount of the contracts was$296 million , and the aggregate fair value of these contracts was a loss of$7 million . As ofAugust 1, 2021 , the total notional amount of these contracts was$246 million , and the aggregate fair value of these contracts was a gain of$53 million . A hypothetical 10% fluctuation in commodity prices would impact the fair value of our outstanding commodity contracts by approximately$30 million as ofJuly 31, 2022 , and as ofAugust 1, 2021 , which would generally be offset by inverse changes on the underlying hedged items. We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of theVanguard Extended Market Index Plus Fund , theVanguard Institutional Index Institutional Plus Fund , theVanguard Short-Term Bond Index Fund and the Vanguard Total International Stock Index Fund. Prior to 2022, we had entered into swap contracts which hedged a portion of exposures linked to the total return of our capital stock. As ofJuly 31, 2022 , andAugust 1, 2021 , we no longer hedge our exposure linked to the total return of our capital stock. The notional amount of the contracts was$50 million as ofJuly 31, 2022 , and$29 million as ofAugust 1, 2021 . The fair value of these contracts was a loss of$4 million as ofJuly 31, 2022 , and a gain of$3 million as ofAugust 1, 2021 . A hypothetical 10% fluctuation in equity price changes would impact the fair value of our outstanding swap contracts by$5 million as ofJuly 31, 2022 , and$3 million as ofAugust 1, 2021 , which would generally be offset by inverse changes on the underlying hedged items.
SIGNIFICANT ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in conformity with accounting principles generally accepted inthe United States . The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated Financial Statements for a discussion of significant accounting policies. The following areas all require the use of subjective or complex judgments, estimates and assumptions: Trade and consumer promotion programs - We offer various sales incentive programs to customers and consumers, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees and coupons. The mix between these forms of variable consideration, which are classified as reductions in revenue and recognized upon sale, and advertising or other marketing activities, which are classified as marketing and selling expenses, fluctuates between periods based on our overall marketing plans. The measurement and recognition of the costs for trade and consumer promotion programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors, including expected volume. Typically, programs that are offered have a very short duration. Historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial statements. Differences between estimates and actual costs are recognized as a change in estimate in a subsequent period. However, actual expenses may differ if the level of redemption rates and performance were to vary from estimates. Accrued trade and consumer promotion liabilities as ofJuly 31, 2022 andAugust 1, 2021 were$141 million and$121 million , respectively. Valuation of long-lived assets - Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if impairment exists. If impairment is determined to exist, the loss is calculated based on estimated fair value.Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually in the fourth quarter for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable.Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment.Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the 30 -------------------------------------------------------------------------------- fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average costs of capital and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. An impairment charge is recognized for the amount by which the carrying value of the reporting unit exceeds fair value, limited to the amount of goodwill in the reporting unit. Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair value is determined using a relief from royalty valuation method based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average costs of capital and assumed royalty rates. If the carrying value exceeds fair value, an impairment charge will be recorded to reduce the asset to fair value. As ofJuly 31, 2022 , the carrying value of goodwill was$3.979 billion . Based on our assessments, all of our reporting units had fair values that significantly exceeded carrying values.
As of
(Millions) Snyder's of Hanover$ 620 Lance 350 Kettle Brand 318 Pace 292 Pacific Foods 280 Various other Snacks(1) 689 Total$ 2,549
_____________________________________
(1)Associated with the acquisition of
As of the 2022 impairment testing, indefinite-lived trademarks with 10% or less of excess coverage of fair value over carrying value had an aggregate carrying value of$434 million and includedPacific Foods and certain other Snacks trademarks. Although assumptions are generally interdependent and do not change in isolation, sensitivities to changes are provided below. Holding all other assumptions in our 2022 impairment testing constant, changes in the assumptions below would reduce fair value of trademarks and result in impairment charges of approximately: Snyder's of Various Other (Millions) Hanover Lance Kettle Brand Pace Pacific Foods Snacks 1% increase in the $ - $ - $ (15) $ - $ (30)$ (25) weighted-average cost of capital 1% reduction in revenue growth $ - $ - $ - $ - $ (5)$ (15) 1% decrease in royalty rate $ - $ - $ (5) $ - $ (30)$ (60) While the 1% changes in assumptions would not result in impairment charges on certain trademarks as indicated above, some changes would reduce the excess coverage of fair value over carrying value to less than 10% for the Lance and Pace trademarks. The estimates of future cash flows used in impairment testing are made at a point in time, involve considerable management judgment, and are based upon assumptions about expected future operating performance, assumed royalty rates, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management's estimates due to changes in business conditions, operating performance and economic conditions. If assumptions are not achieved or market conditions decline, potential impairment charges could result. We will continue to monitor the valuation of our long-lived assets.
See also Note 5 to the Consolidated Financial Statements for additional information on goodwill and intangible assets.
Pension and postretirement benefits - We provide certain pension and postretirement benefits to employees and retirees. Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, turnover rates and health care trend rates. Independent actuaries, in accordance with accounting principles generally accepted inthe United States , perform the required calculations to determine expense. Actuarial gains and losses are recognized immediately in Other expenses / (income) in the Consolidated Statements of 31 --------------------------------------------------------------------------------
Earnings as of the measurement date, which is our fiscal year end, or more frequently if an interim remeasurement is required. We use the fair value of plan assets to calculate the expected return on plan assets.
In establishing the discount rate, we review published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent actuaries apply high-quality bond yield curves to the expected benefit payments of the plans. We use a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation of the relevant projected cash flows. The expected return on plan assets is a long-term assumption based upon historical experience and expected future performance, considering our current and projected investment mix. This estimate is based on an estimate of future inflation, long-term projected real returns for each asset class and a premium for active management. Within any given fiscal period, significant differences may arise between the actual return and the expected return on plan assets. Gains and losses resulting from differences between actual experience and the assumptions are determined at each measurement date. As ofJuly 31, 2022 , we recognized a pension liability of$120 million and a postretirement benefit obligation of$172 million . As ofJuly 31, 2022 , we also recognized a pension asset of$146 million based on the funded status of certain plans. Net periodic pension and postretirement benefit expense (income) and actuarial losses (gains) included within net periodic pension and benefit expense (income) were as follows: (Millions) 2022 2021 2020 Total net periodic pension and postretirement benefit expense (income)$ (7) $ (267) $ 93 Actuarial losses (gains)$ 44 $ (203) $ 164 The actuarial losses recognized in 2022 were primarily due to losses on plan assets, partially offset by increases in discount rates used to determine the benefit obligation. The actuarial gains recognized in 2021 were primarily due to higher than anticipated investment gains on plan assets and increases in discount rates used to determine the benefit obligation. The actuarial losses recognized in 2020 were primarily due to decreases in discount rates used to determine the benefit obligation, partially offset by higher than anticipated investment gains on plan assets. Based on benefit obligations and plan assets as ofJuly 31, 2022 , net periodic pension and postretirement benefit income excluding any actuarial losses or gains is estimated to be approximately$35 million lower in 2023, subject to the impact of interim remeasurements. The decrease in 2023 is due to increases in discount rates used to determine the benefit obligations and a decline in the market value of plan assets.
Significant weighted-average assumptions as of the end of the year were as follows:
2022 2021 2020
Pension
Discount rate for benefit obligations 4.58% 2.69% 2.47% Expected return on plan assets
6.40% 5.82% 6.01%
Postretirement
Discount rate for obligations 4.48% 2.37% 2.15%
Based on benefit obligations and plan assets as of
•a 50-basis-point increase in the discount rate would result in expense of
approximately
•a 50-basis-point decline in the discount rate would result in income of
approximately
•a 50-basis-point reduction in the estimated return on assets assumption would
result in expense of approximately
There were no contributions to pension plans in 2022, and
See also Note 9 to the Consolidated Financial Statements for additional information on pension and postretirement benefits.
Income taxes - The effective tax rate reflects statutory tax rates, tax planning
opportunities available in the various jurisdictions in which we operate and
management's estimate of the ultimate outcome of various tax audits and issues.
Significant judgment is required in determining the effective tax rate and in
evaluating tax positions. Income taxes are recorded based on amounts refundable
or payable in the current year and include the effect of deferred taxes.
Deferred tax assets and liabilities are recognized for the future impact of
differences between the financial statement carrying amounts of assets and
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liabilities and their respective tax bases, as well as for operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those differences are expected to be recovered or settled. Valuation allowances
are established for deferred tax assets when it is more likely than not that a
tax benefit will not be realized.
See also Notes 1 and 11 to the Consolidated Financial Statements for further discussion on income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for information on recent accounting pronouncements.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations regarding our future results of operations, economic performance, financial condition and achievements. These forward-looking statements can be identified by words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "pursue," "strategy," "target," "will" and similar expressions. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts, and may reflect anticipated cost savings or implementation of our strategic plan. These statements reflect our current plans and expectations and are based on information currently available to us. They rely on several assumptions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties. We wish to caution the reader that the following important factors and those important factors described in Part 1, Item 1A and elsewhere in this Report, or in our otherSecurities and Exchange Commission filings, could affect our actual results and could cause such results to vary materially from those expressed in any forward-looking statements made by, or on behalf of, us:
•impacts of, and associated responses to the COVID-19 pandemic on our business, suppliers, customers, consumers and employees;
•our ability to execute on and realize the expected benefits from our strategy, including growing sales in snacks and growing/maintaining our market share position in soup;
•the impact of strong competitive responses to our efforts to leverage brand power with product innovation, promotional programs and new advertising;
•the risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products and pricing and promotional strategies;
•our ability to realize projected cost savings and benefits from cost savings initiatives and the integration of recent acquisitions;
•disruptions in or inefficiencies to our supply chain and/or operations including the impacts of the COVID-19 pandemic;
•the risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging and transportation;
•risks related to the effectiveness of our hedging activities and our ability to respond to volatility in commodity prices;
•our ability to manage changes to our organizational structure and/or business processes, including selling, distribution, manufacturing and information management systems or processes;
•changes in consumer demand for our products and favorable perception of our brands;
•changing inventory management practices by certain of our key customers;
•a changing customer landscape, with value and e-commerce retailers expanding their market presence, while certain of our key customers maintain significance to our business;
•product quality and safety issues, including recalls and product liabilities;
•the possible disruption to the independent contractor distribution models used by certain of our businesses, including as a result of litigation or regulatory actions affecting their independent contractor classification;
•the uncertainties of litigation and regulatory actions against us;
•the costs, disruption and diversion of management's attention associated with activist investors;
•a disruption, failure or security breach of our or our vendors' information technology systems, including ransomware attacks;
•impairment to goodwill or other intangible assets;
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--------------------------------------------------------------------------------•our ability to protect our intellectual property rights;
•increased liabilities and costs related to our defined benefit pension plans;
•our ability to attract and retain key talent;
•goals and initiatives related to, and the impacts of, climate change, including from weather-related events;
•negative changes and volatility in financial and credit markets, deteriorating economic conditions and other external factors, including changes in laws and regulations; and •unforeseen business disruptions or other impacts due to political instability, civil disobedience, terrorism, armed hostilities (including the ongoing conflict betweenRussia andUkraine ), extreme weather conditions, natural disasters, other pandemics or other calamities. This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact our outlook. We disclaim any obligation or intent to update forward-looking statements made by us in order to reflect new information, events or circumstances after the date they are made.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The information presented in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Sensitivity" is incorporated herein by reference.
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