CPB-10.28.2012-10Q
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 October 28, 2012 | 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 314,417,337 shares of capital stock outstanding as of November 29, 2012.
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 |
| October 28, 2012 | | October 30, 2011 |
Net sales | $ | 2,336 |
| | $ | 2,161 |
|
Costs and expenses | | | |
Cost of products sold | 1,471 |
| | 1,307 |
|
Marketing and selling expenses | 254 |
| | 261 |
|
Administrative expenses | 162 |
| | 145 |
|
Research and development expenses | 29 |
| | 30 |
|
Other expenses / (income) | 13 |
| | — |
|
Restructuring charges | 22 |
| | 2 |
|
Total costs and expenses | 1,951 |
| | 1,745 |
|
Earnings before interest and taxes | 385 |
| | 416 |
|
Interest expense | 36 |
| | 30 |
|
Interest income | 3 |
| | 2 |
|
Earnings before taxes | 352 |
| | 388 |
|
Taxes on earnings | 109 |
| | 125 |
|
Net earnings | 243 |
| | 263 |
|
Less: Net earnings (loss) attributable to noncontrolling interests | (2 | ) | | (2 | ) |
Net earnings attributable to Campbell Soup Company | $ | 245 |
| | $ | 265 |
|
Per Share — Basic | | | |
Net earnings attributable to Campbell Soup Company | $ | .78 |
| | $ | .82 |
|
Dividends | $ | .29 |
| | $ | .29 |
|
Weighted average shares outstanding — basic | 314 |
| | 320 |
|
Per Share — Assuming Dilution | | | |
Net earnings attributable to Campbell Soup Company | $ | .78 |
| | $ | .82 |
|
Weighted average shares outstanding — assuming dilution | 316 |
| | 322 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(unaudited)
(millions)
|
| | | | | | | | | | | |
| Three months ended October 28, 2012 |
| Pre-tax amount | | Tax (expense) benefit | | After-tax amount |
Net earnings | | | | | $ | 243 |
|
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | $ | 12 |
| | $ | — |
| | 12 |
|
Cash-flow hedges: | | | | | |
Unrealized gains (losses) arising during period | — |
| | — |
| | — |
|
Reclassification adjustment included in net earnings | — |
| | — |
| | — |
|
Pension and other postretirement benefits: | | | | | |
Net actuarial gain (loss) arising during the period | — |
| | — |
| | — |
|
Reclassification of net actuarial loss included in net earnings | 30 |
| | (11 | ) | | 19 |
|
Other comprehensive income (loss) | $ | 42 |
| | $ | (11 | ) | | $ | 31 |
|
Total comprehensive income (loss) | | | | | 274 |
|
Total comprehensive income (loss) attributable to noncontrolling interests | | | | | (2 | ) |
Total comprehensive income (loss) attributable to Campbell Soup Company | | | | | $ | 276 |
|
| Three months ended October 30, 2011 |
| Pre-tax amount | | Tax (expense) benefit | | After-tax amount |
Net earnings | | | | | $ | 263 |
|
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | $ | (41 | ) | | $ | (20 | ) | | (61 | ) |
Cash-flow hedges: | | | | | |
Unrealized gains (losses) arising during period | 6 |
| | (2 | ) | | 4 |
|
Reclassification adjustment included in net earnings | 3 |
| | (1 | ) | | 2 |
|
Pension and other postretirement benefits: | | | | | |
Net actuarial gain (loss) arising during the period | 6 |
| | (2 | ) | | 4 |
|
Reclassification of net actuarial loss included in net earnings | 20 |
| | (8 | ) | | 12 |
|
Other comprehensive income (loss) | $ | (6 | ) | | $ | (33 | ) | | $ | (39 | ) |
Total comprehensive income (loss) | | | | | $ | 224 |
|
Total comprehensive income (loss) attributable to noncontrolling interests | | | | | (2 | ) |
Total comprehensive income (loss) attributable to Campbell Soup Company |
| |
| | $ | 226 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(unaudited)
(millions, except per share amounts)
|
| | | | | | | |
| October 28, 2012 | | July 29, 2012 |
Current assets | | | |
Cash and cash equivalents | $ | 361 |
| | $ | 335 |
|
Accounts receivable, net | 892 |
| | 553 |
|
Inventories | 963 |
| | 714 |
|
Other current assets | 185 |
| | 169 |
|
Total current assets | 2,401 |
| | 1,771 |
|
Plant assets, net of depreciation | 2,409 |
| | 2,127 |
|
Goodwill | 2,721 |
| | 2,013 |
|
Other intangible assets, net of amortization | 1,081 |
| | 496 |
|
Other assets | 135 |
| | 123 |
|
Total assets | $ | 8,747 |
| | $ | 6,530 |
|
Current liabilities | | | |
Short-term borrowings | $ | 1,507 |
| | $ | 786 |
|
Payable to suppliers and others | 702 |
| | 571 |
|
Accrued liabilities | 680 |
| | 598 |
|
Dividend payable | 98 |
| | 93 |
|
Accrued income taxes | 105 |
| | 22 |
|
Total current liabilities | 3,092 |
| | 2,070 |
|
Long-term debt | 2,940 |
| | 2,004 |
|
Deferred taxes | 461 |
| | 298 |
|
Other liabilities | 1,157 |
| | 1,260 |
|
Total liabilities | 7,650 |
| | 5,632 |
|
Commitments and contingencies |
| |
|
Campbell Soup Company shareowners’ equity | | | |
Preferred stock; authorized 40 shares; none issued | — |
| | — |
|
Capital stock, $.0375 par value; authorized 560 shares; issued 542 shares | 20 |
| | 20 |
|
Additional paid-in capital | 311 |
| | 329 |
|
Earnings retained in the business | 9,736 |
| | 9,584 |
|
Capital stock in treasury, at cost | (8,223 | ) | | (8,259 | ) |
Accumulated other comprehensive loss | (745 | ) | | (776 | ) |
Total Campbell Soup Company shareowners’ equity | 1,099 |
| | 898 |
|
Noncontrolling interests | (2 | ) | | — |
|
Total equity | 1,097 |
| | 898 |
|
Total liabilities and equity | $ | 8,747 |
| | $ | 6,530 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Cash Flows
(unaudited)
(millions)
|
| | | | | | | |
| Three Months Ended |
| October 28, 2012 | | October 30, 2011 |
Cash flows from operating activities: | | | |
Net earnings | $ | 243 |
| | $ | 263 |
|
Adjustments to reconcile net earnings to operating cash flow | | | |
Restructuring charges | 22 |
| | 2 |
|
Stock-based compensation | 25 |
| | 22 |
|
Depreciation and amortization | 98 |
| | 63 |
|
Deferred income taxes | (2 | ) | | 27 |
|
Other, net | 35 |
| | 32 |
|
Changes in working capital | | | |
Accounts receivable | (258 | ) | | (238 | ) |
Inventories | (125 | ) | | (131 | ) |
Prepaid assets | (14 | ) | | (15 | ) |
Accounts payable and accrued liabilities | 143 |
| | 126 |
|
Pension fund contributions | (76 | ) | | (59 | ) |
Receipts from (payments of) hedging activities | 1 |
| | (7 | ) |
Other | (11 | ) | | (12 | ) |
Net cash provided by operating activities | 81 |
| | 73 |
|
Cash flows from investing activities: | | | |
Purchases of plant assets | (41 | ) | | (35 | ) |
Sales of plant assets | 3 |
| | — |
|
Business acquired, net of cash acquired | (1,567 | ) | | — |
|
Other, net | (9 | ) | | 1 |
|
Net cash used in investing activities | (1,614 | ) | | (34 | ) |
Cash flows from financing activities: | | | |
Net short-term borrowings (repayments) | 411 |
| | (65 | ) |
Long-term borrowings | 1,250 |
| | — |
|
Dividends paid | (92 | ) | | (95 | ) |
Treasury stock purchases | (17 | ) | | (85 | ) |
Treasury stock issuances | 20 |
| | 16 |
|
Excess tax benefits on stock-based compensation | 3 |
| | — |
|
Other, net | (17 | ) | | — |
|
Net cash provided by (used in) financing activities | 1,558 |
| | (229 | ) |
Effect of exchange rate changes on cash | 1 |
| | (9 | ) |
Net change in cash and cash equivalents | 26 |
| | (199 | ) |
Cash and cash equivalents — beginning of period | 335 |
| | 484 |
|
Cash and cash equivalents — end of period | $ | 361 |
| | $ | 285 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Equity
(unaudited)
(millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Campbell Soup Company Shareowners’ 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 31, 2011 | 542 |
| | $ | 20 |
| | (222 | ) | | $ | (8,021 | ) | | $ | 331 |
| | $ | 9,185 |
| | $ | (427 | ) | | $ | 8 |
| | $ | 1,096 |
|
Net earnings (loss) |
| |
| |
| |
| |
| | 265 |
| |
| | (2 | ) | | 263 |
|
Other comprehensive income (loss) |
| |
| |
| |
| |
| |
| | (39 | ) | | — |
| | (39 | ) |
Dividends ($.29 per share) |
| |
| |
| |
| |
| | (95 | ) | |
| |
| | (95 | ) |
Treasury stock purchased |
| |
| | (3 | ) | | (85 | ) | |
| |
| |
| |
| | (85 | ) |
Treasury stock issued under management incentive and stock option plans | | | | | 1 |
| | 45 |
| | (18 | ) | | | | | | | | 27 |
|
Balance at October 30, 2011 | 542 |
| | $ | 20 |
| | (224 | ) | | $ | (8,061 | ) | | $ | 313 |
| | $ | 9,355 |
| | $ | (466 | ) | | $ | 6 |
| | $ | 1,167 |
|
Balance at July 29, 2012 | 542 |
| | $ | 20 |
| | (230 | ) | | $ | (8,259 | ) | | $ | 329 |
| | $ | 9,584 |
| | $ | (776 | ) | | $ | — |
| | $ | 898 |
|
Net earnings (loss) |
| |
| |
| |
| |
| | 245 |
| |
| | (2 | ) | | 243 |
|
Other comprehensive income (loss) |
| |
| |
| |
| |
| |
| | 31 |
| | — |
| | 31 |
|
Dividends ($.29 per share) |
| |
| |
| |
| |
| | (93 | ) | |
| |
| | (93 | ) |
Treasury stock purchased |
| |
| | — |
| | (17 | ) | |
| |
| |
| |
| | (17 | ) |
Treasury stock issued under management incentive and stock option plans |
|
| |
|
| | 1 |
| | 53 |
| | (18 | ) | |
|
| |
|
| |
| | 35 |
|
Balance at October 28, 2012 | 542 |
| | $ | 20 |
| | (229 | ) | | $ | (8,223 | ) | | $ | 311 |
| | $ | 9,736 |
| | $ | (745 | ) | | $ | (2 | ) | | $ | 1,097 |
|
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(unaudited)
(currency in millions, except per share amounts)
| |
1. | Basis of Presentation and Significant Accounting Policies |
The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the indicated periods. The accounting policies used in preparing these financial statements are consistent with those applied in the Annual Report on Form 10-K for the year ended July 29, 2012. The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year.
| |
2. | Recent Accounting Pronouncements |
In December 2010, the Financial Accounting Standards Board (FASB) issued additional authoritative guidance on accounting for goodwill. The guidance clarifies the impairment test for reporting units with zero or negative carrying amounts. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2011. The company does not expect the adoption to have a material impact on the company's consolidated financial statements.
In June 2011, the FASB issued authoritative guidance requiring entities to present net income and other comprehensive income (OCI) in one continuous statement or two separate, but consecutive, statements of net income and comprehensive income. The option to present items of OCI in the statement of changes in equity has been eliminated. In December 2011, the FASB issued an amendment to defer a requirement in the June 2011 standard that called for reclassification adjustments from accumulated other comprehensive income to be measured and presented by income statement line item in net income and also in OCI. The new requirements are effective for annual reporting periods beginning after December 15, 2011, and for interim reporting periods within those years. The company adopted the guidance in the first quarter of 2013. The adoption impacted the presentation of financial statements but did not have a material impact on the company’s consolidated financial statements.
In December 2011, the FASB issued guidance related to disclosures about offsetting (netting) of assets and liabilities in the statement of financial position. The guidance requires entities to disclose gross information and net information about both instruments and transactions that are offset in the statement of financial position, and instruments and transactions subject to an agreement similar to a master netting arrangement. The scope includes financial instruments and derivative instruments. The disclosures are required for fiscal years and interim periods within those years beginning on or after January 1, 2013. Disclosures required under the guidance will be provided for all comparative periods presented. The adoption will impact disclosures but will not have a material impact on the company’s consolidated financial statements.
In July 2012, the FASB issued revised guidance intended to simplify how an entity tests indefinite-lived intangible assets for impairment. The amendments will allow an entity first to assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. An entity will no longer be required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative test unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The company does not expect the adoption to have a material impact on the company’s consolidated financial statements.
On August 6, 2012, the company completed the acquisition of BF Bolthouse Holdco LLC (Bolthouse Farms) from a fund managed by Madison Dearborn Partners, LLC, a private equity firm, for $1,550 in cash, subject to customary purchase price adjustments. As of October 28, 2012, the preliminary purchase price adjustments resulted in an increase of the purchase price of $20. The company funded the acquisition through a combination of short- and long-term borrowings.
The acquisition of Bolthouse Farms provides the company with a new growth platform. Bolthouse Farms is a vertically integrated food and beverage company focused on developing, manufacturing and marketing fresh carrots and proprietary, high value-added natural, healthy products. Bolthouse Farms' U.S. and Canadian market-leading super-premium refrigerated beverages complement the company's V8 beverage business. Bolthouse Farms' leading U.S. and Canadian market position in fresh carrots anchors its business and provides significant cash flow. In addition, Bolthouse Farms' prominent position in the high-growth packaged fresh category augments the company's existing chilled soup business in North America, and offers opportunities for expansion into adjacent packaged fresh segments that respond directly to significant consumer trends.
The company incurred pre-tax transactions costs of $10 ($7 after tax) in the first quarter of 2013 and $5 ($3 after tax) during the fourth quarter of 2012. The costs were recorded in Other expenses/(income).
The acquisition of Bolthouse Farms contributed $171 to Net sales and resulted in a reduction of $3 to Net earnings from August 6, 2012 through October 28, 2012. Net earnings reflect the transaction costs incurred in 2013, 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, plant assets, and related tax effects.
The following unaudited pro forma summary information presents consolidated information as if the acquisition had occurred on August 1, 2011. The pro forma amounts include transaction costs, 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, plant assets, and related tax effects. The pro forma results are not necessarily indicative of the combined results had the acquisition been completed at August 1, 2011, nor are they indicative of future combined results.
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| | | | | | | |
| Three months ended October 28, 2012 | | Three months ended October 30, 2011 |
Net sales | $ | 2,349 |
| | $ | 2,324 |
|
Net earnings attributable to Campbell Soup Company | $ | 245 |
| | $ | 254 |
|
Earnings per share attributable to Campbell Soup Company | $ | 0.78 |
| | $ | 0.78 |
|
The acquired assets and assumed liabilities include the following: |
| | | | |
| | August 6, 2012 |
Cash | | $ | 3 |
|
Accounts receivable | | 76 |
|
Inventories | | 122 |
|
Other current assets | | 8 |
|
Plant assets | | 336 |
|
Goodwill | | 695 |
|
Other intangible assets | | 580 |
|
Other assets | | 8 |
|
Notes payable | | (1 | ) |
Accounts payable | | (59 | ) |
Accrued liabilities | | (30 | ) |
Long-term debt | | (1 | ) |
Deferred income taxes | | (152 | ) |
Other liabilities | | (15 | ) |
Total of assets acquired and liabilities assumed | | $ | 1,570 |
|
The purchase price allocation is preliminary and is subject to finalization of appraisals, which will be completed in 2013.
The excess of the purchase price over the estimated fair values of the identifiable assets was recorded as $695 of goodwill. Of this amount, $281 is expected to be deductible for tax purposes. The goodwill was primarily attributable to future growth opportunities, fit with the company's strategy to grow in healthy beverages, as well as any intangible assets that did not qualify for separate recognition. The goodwill is included in the Bolthouse and Foodservice segment.
The fair value of intangible assets based on the preliminary results of appraisals is as follows:
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| | | | | | | | | | |
| | Type | | Life | | Value |
Trademarks | | Non-amortizable | | Indefinite | | $ | 383 |
|
Customer relationships | | Amortizable | | 20 years | | 132 |
|
Distributor relationship | | Amortizable | | 7 years | | 2 |
|
Technology and patents | | Amortizable | | 9 | to | 17 years | | 43 |
|
Formula and recipes | | Amortizable | | 5 years | | 20 |
|
Total identifiable assets | | | | | | | | $ | 580 |
|
| |
4. | Accumulated Other Comprehensive Income |
The components of Accumulated other comprehensive income (loss) consisted of the following:
|
| | | | | | | |
| October 28, 2012 | | July 29, 2012 |
Foreign currency translation adjustments, net of tax (1) | $ | 273 |
| | $ | 261 |
|
Cash-flow hedges, net of tax (2) | (10 | ) | | (10 | ) |
Unamortized pension and postretirement benefits, net of tax (3): | | | |
Net actuarial loss | (1,015 | ) | | (1,034 | ) |
Prior service credit | 7 |
| | 7 |
|
Total Accumulated other comprehensive loss | $ | (745 | ) | | $ | (776 | ) |
_______________________________________
| |
(1) | Included a tax expense of $12 as of October 28, 2012, and July 29, 2012. The amount related to noncontrolling interests was not material. |
| |
(2) | Included a tax benefit of $6 as of October 28, 2012, and July 29, 2012 . |
| |
(3) | Included a tax benefit of $570 as of October 28, 2012, and $581 as of July 29, 2012. |
| |
5. | 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 July 29, 2012 | $ | 322 |
| | $ | 872 |
| | $ | 561 |
| | $ | 112 |
| | $ | 146 |
| | $ | 2,013 |
|
Acquisition | — |
| | — |
| | — |
| | — |
| | 695 |
| | 695 |
|
Foreign currency translation adjustment | — |
| | (9 | ) | | 22 |
| | — |
| | — |
| | 13 |
|
Balance at October 28, 2012 | $ | 322 |
| | $ | 863 |
| | $ | 583 |
| | $ | 112 |
| | $ | 841 |
| | $ | 2,721 |
|
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
|
| | | | | | | |
| October 28, 2012 | | July 29, 2012 |
Intangible Assets: | | | |
Non-amortizable intangible assets | $ | 876 |
| | $ | 485 |
|
Amortizable intangible assets | 213 |
| | 21 |
|
| 1,089 |
| | 506 |
|
Accumulated amortization | (8 | ) | | (10 | ) |
Total net intangible assets | $ | 1,081 |
| | $ | 496 |
|
Non-amortizable intangible assets consist of trademarks, which include Bolthouse Farms, Pace, Royco, Liebig, Blå Band and Touch of Taste.
Amortizable intangible assets consist substantially of customer relationships, process technology and formulas and recipes. Amortization related to these assets was $3 and less than $1 for the three-month period ended October 28, 2012 and October 30, 2011, respectively. The estimated aggregated amortization expense for 2013 and for each of the four succeeding fiscal years is approximately $15 per year. Asset useful lives range from 5 to 20 years.
| |
6. | Business and Geographic Segment Information |
The company manages operations through 13 operating segments based on product type and geographic location and has 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 aggregates the following operating segments: U.S. Soup and U.S. Sauces. The U.S. Soup retail business includes the following products: Campbell’s condensed and ready-to-serve soups; and Swanson broth and stocks. The U.S. Sauces retail business includes the following products: Prego pasta sauces; Pace Mexican sauces; Campbell’s canned gravies, pasta and beans; and Swanson canned poultry.
The Global Baking and Snacking segment aggregates the following operating segments: Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail; and Arnott’s biscuits in Australia and Asia Pacific.
The International Simple Meals and Beverages segment aggregates the simple meals and beverages operating segments outside of the U.S., including Europe, the retail business in Canada, and the businesses 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.
The company evaluates 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.
|
| | | | | | | | |
| | October 28, 2012 | | October 30, 2011 |
Net sales | | | | |
U.S. Simple Meals | | $ | 896 |
| | $ | 874 |
|
Global Baking and Snacking | | 574 |
| | 568 |
|
International Simple Meals and Beverages | | 354 |
| | 359 |
|
U.S. Beverages | | 189 |
| | 198 |
|
Bolthouse and Foodservice | | 323 |
| | 162 |
|
Total | | $ | 2,336 |
| | $ | 2,161 |
|
|
| | | | | | | | |
| | October 28, 2012 | | October 30, 2011 |
Earnings before interest and taxes | | | | |
U.S. Simple Meals | | $ | 274 |
| | $ | 260 |
|
Global Baking and Snacking | | 85 |
| | 88 |
|
International Simple Meals and Beverages | | 47 |
| | 43 |
|
U.S. Beverages | | 30 |
| | 30 |
|
Bolthouse and Foodservice | | 34 |
| | 27 |
|
Corporate(1) | | (63 | ) | | (30 | ) |
Restructuring charges(2) | | (22 | ) | | (2 | ) |
Total | | $ | 385 |
| | $ | 416 |
|
_______________________________________
| |
(1) | Represents unallocated corporate expenses. |
| |
(2) | See Note 7 for additional information. |
The company’s global net sales based on product categories are as follows:
|
| | | | | | | | |
| | October 28, 2012 | | October 30, 2011 |
Net sales | | | | |
Simple Meals | | $ | 1,422 |
| | $ | 1,310 |
|
Baked Snacks | | 612 |
| | 602 |
|
Beverages | | 302 |
| | 249 |
|
Total | | $ | 2,336 |
| | $ | 2,161 |
|
Simple Meals include condensed and ready-to-serve soups, broths, sauces, carrot products, and refrigerated salad dressings. Baked Snacks include cookies, crackers, biscuits, and other baked products.
2013 Initiatives
On September 27, 2012, the company announced several initiatives to improve its U.S. supply chain cost structure and increase asset utilization across its U.S. thermal plant network. The company expects to eliminate approximately 727 positions in connection with the initiatives, which include the following:
| |
• | The company will close its thermal plant in Sacramento, California, which produces soups, sauces and beverages. The closure will result in the elimination of approximately 700 full-time positions and will be completed in phases, with plans to cease operations in July 2013. The company plans to shift the majority of Sacramento's soup, sauce and beverage production to its thermal plants in Maxton, North Carolina; Napoleon, Ohio; and Paris, Texas. |
| |
• | The company will also close its spice plant in South Plainfield, New Jersey, which will result in the elimination of 27 positions. The company will consolidate spice production at its Milwaukee, Wisconsin, plant in 2013. |
In the first quarter of 2013, the company recorded a restructuring charge of $22 related to these initiatives. In addition, approximately $21 of costs related to these initiatives were recorded in Cost of products sold, primarily representing accelerated depreciation and other exit costs. The aggregate after-tax impact of restructuring charges and related costs was $27, or $.09 per share. A summary of the pre-tax costs and remaining costs associated with the initiatives is as follows:
|
| | | | | | | | | | | |
| Total Program | | Recognized as of October 28, 2012 | | Remaining Costs to be Recognized |
Severance pay and benefits | $ | 25 |
| | $ | (20 | ) | | $ | 5 |
|
Accelerated depreciation | 75 |
| | (21 | ) | | 54 |
|
Other exit costs | 15 |
| | (2 | ) | | 13 |
|
Total | $ | 115 |
| | $ | (43 | ) | | $ | 72 |
|
Of the aggregate $115 of pre-tax costs, the company expects approximately $38 will be cash expenditures. In addition, the company expects to invest approximately $27 in capital expenditures, primarily to relocate and refurbish a beverage filling and packaging line.
A summary of the restructuring activity and related reserves associated with these initiatives at October 28, 2012 is as follows:
|
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended | |
| | | | October 28, 2012 | |
| | Accrued Balance at | | | | Cash | | Accrued Balance at |
| | July 29, 2012 | | Charges | | Payments | | October 28, 2012 |
Severance pay and benefits | | $ | — |
| | $ | 20 |
| | $ | — |
| | $ | 20 |
|
Other exit costs | | — |
| | — |
| | — |
| | — |
|
| | $ | — |
| | 20 |
| | $ | — |
| | $ | 20 |
|
Accelerated depreciation | | | | 21 |
| | | | |
Other non-cash exit costs | | | | 2 |
| | | | |
Total charges | | | | $ | 43 |
| | | | |
A summary of restructuring charges incurred to date associated with segments is as follows:
|
| | | | | | | | | | | |
| U.S. Simple Meals | | U.S. Beverages | | Total |
Severance pay and benefits | $ | 15 |
| | $ | 5 |
| | $ | 20 |
|
Accelerated depreciation | 16 |
| | 5 |
| | 21 |
|
Other exit costs | 1 |
| | 1 |
| | 2 |
|
| $ | 32 |
| | $ | 11 |
| | $ | 43 |
|
The company expects to incur additional pre-tax costs of approximately $72 by segment as follows: U.S. Simple Meals $54 and U.S. Beverages $18. Segment operating results do not include restructuring charges as segment performance is evaluated excluding such charges.
2011 Initiatives
On June 28, 2011, the company announced a series of initiatives to improve supply chain efficiency and reduce overhead costs across the organization to help fund plans to drive the growth of the business. The company also announced its intent to exit the Russian market. Details of the initiatives include:
| |
• | In Australia, the company is investing in a new system to automate packing operations at its biscuit plant in Virginia. This investment will occur through the second quarter of 2013 and will result in the elimination of approximately 190 positions. Further, the company improved asset utilization in the U.S. by shifting production of ready-to-serve soups from Paris, Texas, to other facilities in 2012. In addition, the manufacturing facility in Marshall, Michigan, was closed in 2011, and manufacturing of Campbell’s Soup at Hand microwavable products was consolidated at the Maxton, North Carolina, plant in 2012. |
| |
• | The company streamlined its salaried workforce by approximately 510 positions around the world, including approximately 130 positions at its world headquarters in Camden, New Jersey. These actions were substantially completed in 2011. As part of this initiative, the company outsourced a larger portion of its U.S. retail merchandising activities to its current retail sales agent, Acosta Sales and Marketing, and eliminated approximately 190 positions. |
| |
• | In connection with exiting the Russian market, the company has eliminated approximately 50 positions. The exit process commenced in 2011 and was substantially completed in 2012. |
In 2012, the company recorded a restructuring charge of $10 ($6 after tax or $.02 per share). Of the amount recorded in 2012, $2 ($1 after tax) was recorded in the first quarter. In the fourth quarter of 2011, the company recorded $63 ($41 after tax or $.12 per share). A summary of the pre-tax charges and remaining costs associated with the initiatives is as follows:
|
| | | | | | | | | | | |
| Total Program | | Recognized as of October 28, 2012 | | Remaining Costs to be Recognized |
Severance pay and benefits | $ | 43 |
| | $ | (41 | ) | | $ | 2 |
|
Asset impairment/accelerated depreciation | 23 |
| | (23 | ) | | — |
|
Other exit costs | 9 |
| | (9 | ) | | — |
|
Total | $ | 75 |
| | $ | (73 | ) | | $ | 2 |
|
Of the aggregate $75 of pre-tax costs, approximately $50 represents cash expenditures, the majority of which was spent in 2012. In addition, the company expects to invest approximately $40 in capital expenditures in connection with the actions, of which approximately $21 has been invested as of October 28, 2012. The initiatives are expected to be completed by the end of 2013.
A summary of the restructuring activity and related reserves associated with these initiatives at October 28, 2012 is as follows: |
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | |
| | | | October 28, 2012 | | |
| | Accrued Balance at | | | | Cash | | Foreign Currency Translation | | Accrued Balance at |
| | July 29, 2012 | | Charges | | Payments | | Adjustment | | October 28, 2012 |
Severance pay and benefits | | $ | 14 |
| | $ | — |
| | $ | (3 | ) | | $ | — |
| | $ | 11 |
|
Other exit costs | | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
| | $ | 16 |
| | — |
| | $ | (3 | ) | | $ | — |
| | $ | 13 |
|
A summary of restructuring charges incurred to date associated with each segment 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 | $ | 10 |
| | $ | 13 |
| | $ | 12 |
| | $ | 3 |
| | $ | 1 |
| | $ | 2 |
| | $ | 41 |
|
Asset impairment/accelerated depreciation | 20 |
| | — |
| | 3 |
| | — |
| | — |
| | — |
| | 23 |
|
Other exit costs | 2 |
| | — |
| | 3 |
| | — |
| | — |
| | 4 |
| | 9 |
|
| $ | 32 |
| | $ | 13 |
| | $ | 18 |
| | $ | 3 |
| | $ | 1 |
| | $ | 6 |
| | $ | 73 |
|
The company expects to incur additional pre-tax costs of approximately $2 in the Global Baking and Snacking segment. Segment operating results do not include restructuring charges as segment performance is evaluated excluding such charges.
The accounting guidance for earnings per share provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.
The computation of basic and diluted earnings per share attributable to common shareowners is as follows:
|
| | | | | | | |
| Three Months Ended |
| October 28, 2012 | | October 30, 2011 |
Net earnings attributable to Campbell Soup Company | $ | 245 |
| | $ | 265 |
|
Less: net earnings allocated to participating securities | — |
| | (2 | ) |
Net earnings available to Campbell Soup Company common shareowners | $ | 245 |
| | $ | 263 |
|
| | | |
Weighted average shares outstanding — basic | 314 |
| | 320 |
|
Effect of dilutive securities: stock options and other share-based payment awards | 2 |
| | 2 |
|
Weighted average shares outstanding — diluted | 316 |
| | 322 |
|
| | | |
Net earnings attributable to Campbell Soup Company per common share: | | | |
Basic | $ | .78 |
| | $ | .82 |
|
Diluted | $ | .78 |
| | $ | .82 |
|
There were no antidilutive stock options for the three-month periods ended October 28, 2012 and October 30, 2011.
| |
9. | Noncontrolling Interests |
The company owns a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support the development of the company’s business in China. The joint venture began operations on January 31, 2011. The noncontrolling interest’s share in the net loss was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings.
The company owns a 70% controlling interest in a Malaysian food products manufacturing company. The earnings attributable to the noncontrolling interest have historically been less than $1 annually. The earnings were not material in 2013 or 2012.
The noncontrolling interests in these entities were included in Total equity in the Consolidated Balance Sheets and Consolidated Statements of Equity.
| |
10. | Pension and Postretirement Benefits |
The company sponsors certain defined benefit pension plans and postretirement benefit plans for employees. Components of benefit expense were as follows:
|
| | | | | | | | | | | | | | | |
| Pension | | Postretirement |
| October 28, 2012 | | October 30, 2011 | | October 28, 2012 | | October 30, 2011 |
Service cost | $ | 14 |
| | $ | 14 |
| | $ | 1 |
| | $ | 1 |
|
Interest cost | 27 |
| | 31 |
| | 4 |
| | 4 |
|
Expected return on plan assets | (44 | ) | | (45 | ) | | — |
| | — |
|
Amortization of prior service cost | — |
| | — |
| | — |
| | — |
|
Recognized net actuarial loss | 27 |
| | 18 |
| | 3 |
| | 2 |
|
Net periodic benefit expense | $ | 24 |
| | $ | 18 |
| | $ | 8 |
| | $ | 7 |
|
A contribution of $75 was made to U.S. pension plans and contributions of $1 were made to non-U.S. pension plans during the three-month period ended October 28, 2012. Additional contributions to U.S. pension plans are not expected this year. Contributions to non-U.S. pension plans are expected to be approximately $11 during the remainder of the year.
| |
11. | Short-term Borrowings and Long-term Debt |
On August 6, 2012, the company completed the acquisition of Bolthouse Farms from a fund managed by Madison Dearborn Partners, LLC, a private equity firm, for $1,550 in cash, subject to customary purchase price adjustments. As of October 28, 2012, the preliminary purchase price adjustments resulted in an increase of the purchase price of $20. The acquisition was funded through a combination of short- and long-term borrowings. Approximately $326 was funded through the issuance of commercial paper. The terms of long-term borrowings, which were issued on August 2, 2012, were as follows:
| |
• | $400 floating rate notes that mature on August 1, 2014. Interest on the notes is based on 3-month U.S. dollar LIBOR plus 0.3%. Interest is payable quarterly and commenced on November 1, 2012; |
| |
• | $450 of 2.50% notes that mature on August 2, 2022. Interest is payable semi-annually commencing on February 2, 2013. The company may redeem the notes in whole or in part at any time at a redemption price of 100% of the principal amount plus accrued interest or an amount designed to ensure that the note holders are not penalized by the early redemption; and |
| |
• | $400 of 3.80% notes that mature on August 2, 2042. Interest is payable semi-annually commencing on February 2, 2013. The company may redeem the notes in whole or in part at any time at a redemption price of 100% of the principal amount plus accrued interest or an amount designed to ensure that the note holders are not penalized by the early redemption. |
The principal market risks to which the company is exposed are changes in foreign currency exchange rates, interest rates, and commodity prices. In addition, the company is exposed to equity price changes related to certain deferred compensation obligations. In order to manage these exposures, the company follows established risk management policies and procedures, including the use of derivative contracts such as swaps, options, forwards and commodity futures. These derivative contracts are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures. The company does not enter into derivative contracts for speculative purposes and does not use leveraged instruments. The company’s derivative programs include both instruments that qualify and that do not qualify for hedge accounting treatment.
Concentration of Credit Risk
The company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate counterparty credit risk, the company only enters into contracts with carefully selected, leading, credit-worthy financial institutions, and distributes contracts among several financial institutions to reduce the concentration of credit risk. The company does not have credit-risk-related contingent features in its derivative instruments as of October 28, 2012. During 2012, the company's largest customer accounted for approximately 17% of consolidated net sales. The company closely monitors credit risk associated with counterparties and customers.
Foreign Currency Exchange Risk
The company is exposed to foreign currency exchange risk related to its international operations, including non-functional currency intercompany debt and net investments in subsidiaries. The company is 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 Australian dollar, Canadian dollar, euro, Swedish krona, New Zealand dollar, British pound and Japanese yen. The company utilizes 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. The company hedges portions of its 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, cross-currency swap contracts are entered into for periods consistent with the underlying debt. As of October 28, 2012, cross-currency swap contracts mature between 5 and 33 months. The notional amount of foreign exchange forward and cross-currency swap contracts accounted for as cash-flow hedges was $160 at October 28, 2012 and $156 at July 29, 2012. 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 $891 and $908 at October 28, 2012 and July 29, 2012, respectively.
Interest Rate Risk
The company manages its 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 its variable-to-total debt ratio within targeted guidelines. Receive fixed rate/pay variable rate interest rate swaps are accounted for as fair-value hedges. The notional amount of outstanding fair-value interest rate swaps totaled $500 at October 28, 2012 and at July 29, 2012. These swaps mature between 1 and 11 months. The company manages its 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 the forecasted debt issuances. Pay fixed rate/receive variable rate forward starting interest rate swaps are accounted for as cash-flow hedges. The notional amount of outstanding forward starting interest rate swaps totaled $250 at October 28, 2012 and $600 at July 29, 2012. Forward starting interest rate swaps with a notional value of $400 were settled in August 2012, at a loss of $2, which was recorded in other comprehensive income (loss). The loss on the forward starting interest rate swaps will be amortized over the life of the 10-year debt issued in August 2012.
Commodity Price Risk
The company principally uses 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. The company also enters into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of diesel fuel, soybean oil, aluminum, wheat, natural gas and cocoa, 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. The company hedges a portion of commodity requirements for periods typically up to 12 months. There were no commodity contracts accounted for as cash-flow hedges as of October 28, 2012 and July 29, 2012. The notional amount of commodity contracts not designated as accounting hedges was $81 at October 28, 2012 and $95 at July 29, 2012.
Equity Price Risk
The company enters into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of the company’s capital stock, the total return of the Vanguard Institutional Index, the total return of the Vanguard Total International Stock Index and, beginning in April 2012, the total return of the Vanguard Short-Term Bond Index. Under these contracts, the company pays variable interest rates and receives from the counterparty either the total return on company 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; the total return of the iShares MSCI EAFE Index, which is expected to approximate the total return of the Vanguard Total International Stock Index; or the total return of the Vanguard Short-Term Bond Index. These contracts were not designated as hedges for accounting purposes and are entered into for periods typically not exceeding 12 months. The notional amounts of the contracts as of October 28, 2012 and July 29, 2012 were $77 and $75, respectively.
The following table summarizes the fair value of derivative instruments recorded in the Consolidated Balance Sheets as of October 28, 2012, and July 29, 2012:
|
| | | | | | | | | |
| Balance Sheet Classification | | October 28, 2012 | | July 29, 2012 |
Asset Derivatives | | | | | |
Derivatives designated as hedges: | | | | | |
Foreign exchange forward contracts | Other current assets | | $ | — |
| | $ | 1 |
|
Forward starting interest rate swaps | Other current assets | | — |
| | 1 |
|
Interest rate swaps | Other current assets | | 9 |
| | 4 |
|
Forward starting interest rate swaps | Other assets | | 4 |
| | 1 |
|
Interest rate swaps | Other assets | | — |
| | 9 |
|
Total derivatives designated as hedges | | | $ | 13 |
| | $ | 16 |
|
Derivatives not designated as hedges: | | | | | |
Commodity derivative contracts | Other current assets | | $ | 6 |
| | $ | 8 |
|
Cross-currency swap contracts | Other current assets | | 8 |
| | 19 |
|
Deferred compensation derivative contracts | Other current assets | | — |
| | 1 |
|
Foreign exchange forward contracts | Other current assets | | 1 |
| | 1 |
|
Total derivatives not designated as hedges | | | 15 |
| | 29 |
|
Total asset derivatives | | | $ | 28 |
| | $ | 45 |
|
|
| | | | | | | | | |
| Balance Sheet Classification | | October 28, 2012 | | July 29, 2012 |
Liability Derivatives | | | | | |
Derivatives designated as hedges: | | | | | |
Cross-currency swap contracts | Accrued liabilities | | $ | 25 |
| | $ | — |
|
Foreign exchange forward contracts | Accrued liabilities | | 1 |
| | — |
|
Cross-currency swap contracts | Other liabilities | | — |
| | 25 |
|
Total derivatives designated as hedges | | | $ | 26 |
| | $ | 25 |
|
Derivatives not designated as hedges: | | | | | |
Commodity derivative contracts | Accrued liabilities | | $ | 3 |
| | $ | 4 |
|
Cross-currency swap contracts | Accrued liabilities | | 23 |
| | 25 |
|
Deferred compensation derivative contracts | Accrued liabilities | | 1 |
| | — |
|
Cross-currency swap contracts | Other liabilities | | 28 |
| | 29 |
|
Total derivatives not designated as hedges | | | $ | 55 |
| | $ | 58 |
|
Total liability derivatives | | | $ | 81 |
| | $ | 83 |
|
The following tables show the effect of the company’s derivative instruments designated as cash-flow hedges for the three-month periods ended October 28, 2012 and October 30, 2011, in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:
Derivatives Designated as Cash-Flow Hedges
|
| | | | | | | | | |
| | | Total Cash-Flow Hedge OCI Activity |
Three Months Ended October 28, 2012 and October 30, 2011 | | | 2013 | | 2012 |
OCI derivative gain/(loss) at beginning of year | | | $ | (16 | ) | | $ | (31 | ) |
Effective portion of changes in fair value recognized in OCI: | | | | | |
Foreign exchange forward contracts | | | — |
| | 7 |
|
Cross-currency swap contracts | | | — |
| | (1 | ) |
Amount of (gain) or loss reclassified from OCI to earnings: | Location in Earnings | | | | |
Foreign exchange forward contracts | Cost of products sold | | (1 | ) | | 1 |
|
Foreign exchange forward contracts | Other expenses/income | | — |
| | 1 |
|
Forward starting interest rate swaps | Interest expense | | 1 |
| | 1 |
|
OCI derivative gain/(loss) at end of quarter | | | $ | (16 | ) | | $ | (22 | ) |
Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next 12 months is a loss of $2. The ineffective portion and amount excluded from effectiveness testing were not material.
The following tables show the effect of the company’s derivative instruments designated as fair-value hedges in the Consolidated Statements of Earnings:
|
| | | | | | | | | | | | | | | | | |
| | | Amount of Gain or (Loss) Recognized in Earnings on Derivatives | | Amount of Gain or (Loss) Recognized in Earnings on Hedged Item |
Derivatives Designated as Fair-Value Hedges | Location of Gain or (Loss) Recognized in Earnings | | October 28, 2012 | | October 30, 2011 | | October 28, 2012 | | October 30, 2011 |
Interest rate swaps | Interest expense | | $ | (4 | ) | | $ | (5 | ) | | $ | 4 |
| | $ | 5 |
|
The following table shows the effects of the company’s derivative instruments not designated as hedges in the Consolidated Statements of Earnings:
|
| | | | | | | | | | |
| | | | Amount of Gain or (Loss) Recognized in Earnings on Derivatives |
Derivatives not Designated as Hedges | | Location of Gain or (Loss) Recognized in Earnings | | October 28, 2012 | | October 30, 2011 |
Foreign exchange forward contracts | | Cost of products sold | | $ | — |
| | $ | 1 |
|
Cross-currency swap contracts | | Other expenses/income | | (8 | ) | | 23 |
|
Commodity derivative contracts | | Cost of products sold | | — |
| | (5 | ) |
Deferred compensation derivative contracts | | Administrative expenses | | 2 |
| | 1 |
|
Total | | | | $ | (6 | ) | | $ | 20 |
|
| |
13. | Fair Value Measurements |
The company is required to categorize financial assets and liabilities based on the following fair value hierarchy:
| |
• | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| |
• | Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data. |
| |
• | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. When available, the company uses unadjusted quoted
market prices to measure the fair value and classifies such items as Level 1. If quoted market prices are not available, the company bases fair value upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Included in the fair value of derivative instruments is an adjustment for credit and nonperformance risk.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the company’s financial assets and liabilities that are measured at fair value on a recurring basis as of October 28, 2012, and July 29, 2012, consistent with the fair value hierarchy:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value as of October 28, 2012 | | Fair Value Measurements at October 28, 2012 Using Fair Value Hierarchy | | Fair Value as of July 29, 2012 | | Fair Value Measurements at July 29, 2012 Using Fair Value Hierarchy |
| Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | | | | | | | |
Interest rate swaps(1) | $ | 9 |
| | $ | — |
| | $ | 9 |
| | $ | — |
| | $ | 13 |
| | $ | — |
| | $ | 13 |
| | $ | — |
|
Forward starting interest rate swaps(1) | 4 |
| | — |
| | 4 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
|
Foreign exchange forward contracts(2) | 1 |
| | — |
| | 1 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
|
Cross-currency swap contracts(3) | 8 |
| | — |
| | 8 |
| | — |
| | 19 |
| | — |
| | 19 |
| | — |
|
Commodity derivative contracts(4) | 6 |
| | 6 |
| | — |
| | — |
| | 8 |
| | 8 |
| | — |
| | — |
|
Deferred compensation derivative contracts(5) | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
|
Total assets at fair value | $ | 28 |
| | $ | 6 |
| | $ | 22 |
| | $ | — |
| | $ | 45 |
| | $ | 8 |
| | $ | 37 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value as of October 28, 2012 | | Fair Value Measurements at October 28, 2012 Using Fair Value Hierarchy | | Fair Value as of July 29, 2012 | | Fair Value Measurements at July 29, 2012 Using Fair Value Hierarchy |
| Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | | | | | | | |
Foreign exchange forward contracts(2) | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Cross-currency swap contracts(3) | 76 |
| | — |
| | 76 |
| | — |
| | 79 |
| | — |
| | 79 |
| | — |
|
Commodity derivative contracts(4) | 3 |
| | 3 |
| | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | — |
|
Deferred compensation derivative contracts(5) | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Deferred compensation obligation(6) | 115 |
| | 115 |
| | — |
| | — |
| | 109 |
| | 109 |
| | — |
| | — |
|
Total liabilities at fair value | $ | 196 |
| | $ | 118 |
| | $ | 78 |
| | $ | — |
| | $ | 192 |
| | $ | 113 |
| | $ | 79 |
| | $ | — |
|
___________________________________
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(1) | Based on LIBOR swap rates. |
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(2) | Based on observable market transactions of spot currency rates and forward rates. |
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(3) | Based on observable local benchmarks for currency and interest rates. |
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(4) | Based on quoted futures exchanges. |
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(5) | Based on LIBOR and equity index swap rates. |
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(6) | Based on the fair value of the participants’ investments. |
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings, excluding the current portion of long-term debt, approximate fair value. Cash equivalents of $156 at October 28, 2012 and $80 at July 29, 2012 represent fair value as these highly liquid investments have an original maturity of three months or less. Fair value of cash equivalents is based on Level 2 inputs. The fair value of long-term debt, including the current portion of long-term debt in Short-term borrowings, was $3,915 at October 28, 2012 and $2,663 at July 29, 2012. The carrying value was $3,650 at October 28, 2012 and $2,408 at July 29, 2012. The fair value of long-term debt is principally estimated using Level 2 inputs based on quoted market prices or pricing models using current market rates.
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14. | Share Repurchase Programs |
In June 2011, the Board authorized the purchase of up to $1,000 of company stock. This program has no expiration date, although the company suspended purchases under this program in July 2012. Approximately $750 remained available under this program as of October 28, 2012.
The company also repurchases shares to offset the impact of dilution from shares issued under the company’s stock compensation plans. During the three-month period ended October 28, 2012, the company repurchased approximately 480 thousand shares at a cost of $17.
During the three-month period ended October 30, 2011, the company repurchased 3 million shares at a cost of $85. Of this amount, $57 was used to repurchase shares pursuant to the company’s June 2011 publicly announced share repurchase program.
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15. | Stock-based Compensation |
The company provides compensation benefits by issuing unrestricted stock, restricted stock and restricted stock units (including time-lapse restricted stock units, EPS performance restricted stock units, total shareowner return (TSR) performance restricted stock units and strategic performance restricted stock units). In fiscal 2013, the company issued time-lapse restricted stock units, EPS performance restricted stock units, TSR performance restricted stock units and strategic performance restricted stock units. The company did not issue TSR performance restricted stock units in fiscal 2012. In previous fiscal years, the company also issued stock options and stock appreciation rights.
Total pre-tax stock-based compensation expense recognized in the Consolidated Statements of Earnings was $25 and $22 for the three-month periods ended October 28, 2012, and October 30, 2011, respectively. Tax-related benefits of $9 and $8 were also recognized for the three-month periods ended October 28, 2012, and October 30, 2011, respectively. Cash received from the exercise of stock options was $20 and $16 for the three-month periods ended October 28, 2012, and October 30, 2011, respectively, and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.
The following table summarizes stock option activity as of October 28, 2012:
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| | | | | | | | | | | | |
| Options | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| (Options in thousands) | | | | (In years) | | |
Outstanding at July 29, 2012 | 4,254 |
| | $ | 26.73 |
| | | | |
Granted | — |
| | $ | — |
| | | | |
Exercised | (785 | ) | | $ | 26.11 |
| | | | |
Terminated | — |
| | $ | — |
| | | | |
Outstanding at October 28, 2012 | 3,469 |
| | $ | 26.87 |
| | 1.5 | | $ | 27 |
|
Exercisable at October 28, 2012 | 3,469 |
| | $ | 26.87 |
| | 1.5 | | $ | 27 |
|
The total intrinsic value of options exercised during the three-month periods ended October 28, 2012 and October 30, 2011 was $7 and $2, respectively. As of January 2009, compensation related to stock options was fully expensed. The company measured the fair value of stock options using the Black-Scholes option pricing model.
The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units and strategic performance restricted stock units as of October 28, 2012:
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| | | | | | |
| Units | | Weighted- Average Grant-Date Fair Value |
| (Restricted stock units in thousands) | | |
Nonvested at July 29, 2012 | 3,951 |
| | $ | 33.19 |
|
Granted | 1,832 |
| | $ | 35.03 |
|
Vested | (1,104 | ) | | $ | 33.44 |
|
Forfeited | (59 | ) | | $ | 33.04 |
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Nonvested at October 28, 2012 | 4,620 |
| | $ | 33.89 |
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The fair value of time-lapse restricted stock units, EPS performance restricted stock units, and strategic performance restricted stock units is determined based on the quoted price of the company’s stock at the date of grant. Time-lapse restricted stock units are expensed on a straight-line basis over the vesting period, except for awards issued to retirement-eligible participants, which are expensed on an accelerated basis. EPS performance restricted stock units are expensed on a graded-vesting basis, except for awards issued to retirement-eligible participants, which are expensed on an accelerated basis. There were approximately 269 thousand EPS performance target grants outstanding at October 28, 2012 with a weighted-average grant-date fair value of $34.29. Strategic performance restricted stock units are expensed on a straight-line basis over the service period. Awards of the strategic performance restricted stock units will be earned based upon the achievement of two key metrics, net sales and EPS growth, compared to strategic plan objectives during a two-year period. There were approximately 1.8 million strategic performance target grants outstanding at October 28, 2012 with a grant-date fair value of $33.22. The actual number of EPS performance restricted stock units and strategic performance restricted stock units issued at the vesting date could range from 0% to 100% and 0% to 200%, respectively, of the initial grant, depending on actual performance achieved. Expense is estimated based on the number of awards expected to vest.
On July 1, 2011, the company issued approximately 400 thousand special retention time-lapse restricted stock units to certain executives to support successful execution of the company’s shift in strategic direction and leadership transition. These awards vest over a period of two years and are included in the table above. The grant-date fair value was $34.65.
As of October 28, 2012, total remaining unearned compensation related to nonvested time-lapse restricted stock units, EPS performance restricted stock units and strategic performance restricted stock units was $97, which will be amortized over the weighted-average remaining service period of 1.7 years. The fair value of restricted stock units vested during the three-month periods ended October 28, 2012 and October 30, 2011, was $38 and $35, respectively. The weighted-average grant-date fair value of the restricted stock units granted during three-month period ended October 30, 2011 was $32.38.
The following table summarizes TSR performance restricted stock units as of October 28, 2012:
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| Units | | Weighted- Average Grant-Date Fair Value |
| (Restricted stock units in thousands) | | |
Nonvested at July 29, 2012 | 2,143 |
| | $ | 37.94 |
|
Granted | 582 |
| | $ | 39.76 |
|
Vested | — |
| | $ | — |
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Forfeited | (1,213 | ) | | $ | 33.94 |
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Nonvested at October 28, 2012 | 1,512 |
| | $ | 41.86 |
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The company estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation. Assumptions used in the Monte Carlo simulation were as follows:
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| | |
| | 2013 |
Risk-free interest rate | | 0.30% |
Expected dividend yield | | 3.26% |
Expected volatility | | 15.07% |
Expected term | | 3 years |
Compensation expense is recognized on a straight-line basis over the service period. As of October 28, 2012, total remaining unearned compensation related to TSR performance restricted stock units was $32, which will be amortized over the weighted-average remaining service period of 2.2 years. In the first quarter of 2013, recipients of TSR performance restricted stock units earned 0% of the initial grants based upon the company’s TSR ranking in a performance peer group during a three-year period ended July 27, 2012. There were no TSR performance restricted stock units granted during 2012.
The excess tax benefits on the exercise of stock options and vested restricted stock presented as cash flows from financing activities were $3 for the three-month period ended October 28, 2012 and were not material for the period ended October 30, 2011.
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| October 28, 2012 | | July 29, 2012 |
Raw materials, containers and supplies | $ | 431 |
| | $ | 277 |
|
Finished products | 532 |
| | 437 |
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Total inventories | $ | 963 |
| | $ | 714 |
|
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17. | Supplemental Cash Flow Information |
Other cash used in operating activities for the three-month periods was comprised of the following:
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| | | | | | | |
| October 28, 2012 | | October 30, 2011 |
Benefit related payments | $ | (10 | ) | | $ | (10 | ) |
Other | (1 | ) | | (2 | ) |
| $ | (11 | ) | | $ | (12 | ) |
Item 2.
CAMPBELL SOUP COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Description of the Company
Campbell Soup Company is a manufacturer and marketer of high-quality, branded convenience food products.
On August 6, 2012, the company completed the acquisition of BF Bolthouse Holdco LLC (Bolthouse Farms) from a fund managed by Madison Dearborn Partners, LLC, a private equity firm, for $1.550 billion in cash, subject to customary purchase price adjustments. As of October 28, 2012, the preliminary purchase price adjustments resulted in an increase of the purchase price of $20 million. The company funded the acquisition through a combination of short- and long-term borrowings. See Notes 3 and 11 to the Consolidated Financial Statements for more information on the acquisition.
The company reports the results of operations in the following reportable segments: U.S. Simple Meals; Global Baking and Snacking; International Simple Meals and Beverages; U.S. Beverages; and Bolthouse and Foodservice.
Executive Summary
This Executive Summary provides significant highlights from the discussion and analysis that follows.
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• | Net sales increased 8% in the quarter to $2.336 billion, primarily due to the acquisition of Bolthouse Farms. |
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• | Gross profit, as a percent of sales, decreased to 37.0% in the current quarter from 39.5% a year ago. The decline was primarily attributable to the acquisition of Bolthouse Farms and the impact of restructuring-related costs recognized in the current year. |
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• | Net earnings per share for the quarter were $.78, compared to $.82 a year ago. The current year included $.10 per share of expense from items impacting comparability, as discussed below. |
Net earnings attributable to Campbell Soup Company
The following items impacted the comparability of net earnings and net earnings per share:
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• | In fiscal 2013, the company announced several initiatives to improve its U.S. supply chain cost structure and increase asset utilization across its U.S. thermal plant network. In the current quarter, the company recorded a pre-tax restructuring charge of $22 million and restructuring-related costs of $21 million in Cost of products sold (aggregate $27 million after tax or $.09 per share) related to the initiatives; and |
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• | In fiscal 2013, the company incurred transaction costs of $10 million ($7 million after tax or $.02 per share) associated with the acquisition of Bolthouse Farms. |
The items impacting comparability are summarized below:
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| | | | | | | | | | | | | | | |
| 2013 | | 2012 |
| Earnings Impact | | EPS Impact | | Earnings Impact | | EPS Impact |
| (Millions, except per share amounts) |
Net earnings | $ | 245 |
| | $ | .78 |
| | $ | 265 |
| | $ | 0.82 |
|
| | | | | | | |
Restructuring charges and related costs | $ | (27 | ) | | $ | (.09 | ) | | $ | — |
| | $ | — |
|
Acquisition transaction costs | (7 | ) | | (.02 | ) | | — |
| | — |
|
Impact of items on net earnings * | $ | (34 | ) | | $ | (.10 | ) | | $ | — |
| | $ | — |
|
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* The sum of the individual per share amounts does not add due to rounding.
Net earnings were $245 million compared to $265 million a year ago. After adjusting for items impacting comparability, net earnings increased primarily due to the impact of the acquisition of Bolthouse Farms, and lower advertising and consumer promotion expenses, partially offset by higher administrative expenses. Earnings per share benefited from a reduction in the weighted average diluted shares outstanding, reflecting the impact of the company’s strategic share repurchase program in prior quarters.
Net earnings (loss) attributable to noncontrolling interests
The company owns a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support the development of the company’s business in China. The joint venture began operations on January 31, 2011. The noncontrolling interest’s share in the net loss was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings.
The company also owns a 70% controlling interest in a Malaysian food products manufacturing company. The earnings were not material in 2013 or 2012.
DISCUSSION AND ANALYSIS
Sales
An analysis of net sales by reportable segment follows:
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| | | | | | | | | |
| 2013 | | 2012 | | % Change |
| (Millions) | |
U.S. Simple Meals | $ | 896 |
| | $ | 874 |
| | 3% |
Global Baking and Snacking | 574 |
| | 568 |
| | 1 |
International Simple Meals and Beverages | 354 |
| | 359 |
| | (1) |
U.S. Beverages | 189 |
| | 198 |
| | (5) |
Bolthouse and Foodservice | 323 |
| | 162 |
| | 99 |
| $ | 2,336 |
| | $ | 2,161 |
| | 8% |
An analysis of percent change of net sales by reportable segment follows:
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| | | | | | | | | | | |
| U.S. Simple Meals | | Global Baking and Snacking | | International Simple Meals and Beverages | | U.S. Beverages | | Bolthouse and Foodservice | |