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	Commission File Number
October 30, 2022	1-3822

CAMPBELL SOUP COMPANY

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Capital Stock, par value $.0375	CPB	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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.  ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  ☑ Yes  ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

There were 299,467,564 shares of capital stock outstanding as of December 1, 2022.

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TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		3
	Item 1. Financial Statements	3
	Consolidated Statements of Earnings	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Balance Sheets	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statements of Equity	7
	Notes to Consolidated Financial Statements	8
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3. Quantitative and Qualitative Disclosure About Market Risk	30
	Item 4. Controls and Procedures	30
PART II - OTHER INFORMATION		31
	Item 1. Legal Proceedings	31
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
	Item 6. Exhibits	31
INDEX TO EXHIBITS		31
SIGNATURES		32

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CAMPBELL SOUP COMPANY

Consolidated Statements of Earnings

(unaudited)

(millions, except per share amounts)

 

	Three Months Ended
	October 30, 2022		October 31, 2021
Net sales	$	2,575	$	2,236
Costs and expenses
Cost of products sold	1,741		1,514
Marketing and selling expenses	201		170
Administrative expenses	158		156
Research and development expenses	21		21
Other expenses / (income)	18		(1)
Restructuring charges	—		—
Total costs and expenses	2,139		1,860
Earnings before interest and taxes	436		376
Interest expense	47		47
Interest income	1		—
Earnings before taxes	390		329
Taxes on earnings	93		68
Net earnings	297		261
Less: Net earnings (loss) attributable to noncontrolling interests	—		—
Net earnings attributable to Campbell Soup Company	$	297	$	261
Per Share — Basic
Net earnings attributable to Campbell Soup Company	$	.99	$	.86
Weighted average shares outstanding — basic	299		302
Per Share — Assuming Dilution
Net earnings attributable to Campbell Soup Company	$	.99	$	.86
Weighted average shares outstanding — assuming dilution	301		303

See accompanying Notes to Consolidated Financial Statements.

3

CAMPBELL SOUP COMPANY

Consolidated Statements of Comprehensive Income

(unaudited)

(millions)

	Three Months Ended
	October 30, 2022						October 31, 2021
	Pre-tax amount		Tax benefit (expense)		After-tax amount		Pre-tax amount		Tax benefit (expense)		After-tax amount
Net earnings (loss)					$	297					$	261
Other comprehensive income (loss):
Foreign currency translation:
Foreign currency translation adjustments	$	(8)	$	—	(8)		$	—	$	—	—
Cash-flow hedges:
Unrealized gains (losses) arising during the period	7		(2)		5		3		(1)		2
Reclassification adjustment for losses (gains) included in net earnings	(4)		1		(3)		—		—		—
Other comprehensive income (loss)	$	(5)	$	(1)	(6)		$	3	$	(1)	2
Total comprehensive income (loss)					$	291					$	263
Total comprehensive income (loss) attributable to noncontrolling interests					—						—
Total comprehensive income (loss) attributable to Campbell Soup Company					$	291					$	263

See accompanying Notes to Consolidated Financial Statements.

4

CAMPBELL SOUP COMPANY

Consolidated Balance Sheets

(unaudited)

(millions, except per share amounts)

	October 30, 2022		July 31, 2022
Current assets
Cash and cash equivalents	$	130	$	109
Accounts receivable, net	733		541
Inventories	1,361		1,246
Other current assets	80		67
Total current assets	2,304		1,963
Plant assets, net of depreciation	2,312		2,343
Goodwill	3,973		3,979
Other intangible assets, net of amortization	3,187		3,198
Other assets	401		409
Total assets	$	12,177	$	11,892
Current liabilities
Short-term borrowings	$	858	$	814
Payable to suppliers and others	1,447		1,334
Accrued liabilities	534		621
Dividends payable	112		114
Accrued income taxes	82		3
Total current liabilities	3,033		2,886
Long-term debt	3,994		3,996
Deferred taxes	1,078		1,074
Other liabilities	603		603
Total liabilities	8,708		8,559
Commitments and contingencies
Campbell Soup Company shareholders' equity
Preferred stock; authorized 40 shares; none issued	—		—
Capital stock, $.0375 par value; authorized 560 shares; issued 323 shares	12		12
Additional paid-in capital	375		415
Earnings retained in the business	4,224		4,040
Capital stock in treasury, at cost	(1,140)		(1,138)
Accumulated other comprehensive income (loss)	(4)		2
Total Campbell Soup Company shareholders' equity	3,467		3,331
Noncontrolling interests	2		2
Total equity	3,469		3,333
Total liabilities and equity	$	12,177	$	11,892

See accompanying Notes to Consolidated Financial Statements.

5

CAMPBELL SOUP COMPANY

Consolidated Statements of Cash Flows

(unaudited)

(millions)

	Three Months Ended
	October 30, 2022		October 31, 2021
Cash flows from operating activities:
Net earnings	$	297	$	261
Adjustments to reconcile net earnings to operating cash flow
Stock-based compensation	15		14
Pension and postretirement benefit expense (income)	11		(9)
Depreciation and amortization	91		83
Deferred income taxes	3		20
Other	25		22
Changes in working capital
Accounts receivable	(198)		(137)
Inventories	(118)		(40)
Other current assets	(10)		(5)
Accounts payable and accrued liabilities	123		87
Other	(12)		(8)
Net cash provided by operating activities	227		288
Cash flows from investing activities:
Purchases of plant assets	(77)		(69)
Purchases of route businesses	(1)		—
Sales of route businesses	—		1
Net cash used in investing activities	(78)		(68)
Cash flows from financing activities:
Short-term borrowings, including commercial paper	557		371
Short-term repayments, including commercial paper	(512)		(395)
Dividends paid	(115)		(116)
Treasury stock purchases	(41)		(63)
Treasury stock issuances	2		1
Payments related to tax withholding for stock-based compensation	(18)		(17)
Other	—		(1)
Net cash used in financing activities	(127)		(220)
Effect of exchange rate changes on cash	(1)		—
Net change in cash and cash equivalents	21		—
Cash and cash equivalents — beginning of period	109		69
Cash and cash equivalents — end of period	$	130	$	69

See accompanying Notes to Consolidated Financial Statements.

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CAMPBELL SOUP COMPANY

Consolidated Statements of Equity

(unaudited)

(millions, except per share amounts)

	Campbell Soup Company Shareholders’ Equity
	Capital Stock						Additional Paid-in Capital		Earnings Retained in the Business		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests
	Issued			In Treasury											Total Equity
	Shares	Amount		Shares	Amount
Balance at August 1, 2021	323	$	12	(21)	$	(1,021)	$	414	$	3,742	$	5	$	2	$	3,154
Net earnings (loss)									261				—		261
Other comprehensive income (loss)											2		—		2
Dividends ($.37 per share)									(113)						(113)
Treasury stock purchased				(1)	(63)										(63)
Treasury stock issued under management incentive and stock option plans				1	46		(42)		(8)						(4)
Balance at October 31, 2021	323	$	12	(21)	$	(1,038)	$	372	$	3,882	$	7	$	2	$	3,237
Balance at July 31, 2022	323	$	12	(24)	$	(1,138)	$	415	$	4,040	$	2	$	2	$	3,333
Net earnings (loss)									297				—		297
Other comprehensive income (loss)											(6)		—		(6)
Dividends ($.37 per share)									(113)						(113)
Treasury stock purchased				(1)	(41)										(41)
Treasury stock issued under management incentive and stock option plans				1	39		(40)		—						(1)
Balance at October 30, 2022	323	$	12	(24)	$	(1,140)	$	375	$	4,224	$	(4)	$	2	$	3,469

See accompanying Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

(unaudited)

1. Basis of Presentation and Significant Accounting Policies

In this Form 10-Q, unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.

The financial statements reflect all adjustments which are, in our opinion, necessary for a fair statement of the results of operations, financial position and cash flows for the indicated periods. The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our Annual Report on Form 10-K for the year ended July 31, 2022.

The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year. Our fiscal year ends on the Sunday nearest July 31, which is July 30, 2023.

2. Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In September 2022, the Financial Accounting Standards Board (FASB) issued guidance that enhances the transparency of supplier finance programs by requiring disclosure of the key terms of these programs and a related rollforward of these obligations to understand the effect on working capital, liquidity and cash flows. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods in those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our disclosures.

3. Accumulated Other Comprehensive Income (Loss)

The components of Accumulated other comprehensive income (loss) consisted of the following:

(Millions)	Foreign Currency Translation Adjustments(1)		Cash-Flow Hedges(2)		Pension and Postretirement Benefit Plan Adjustments(3)		Total Accumulated Comprehensive Income (Loss)
Balance at August 1, 2021	$	6	$	(4)	$	3	$	5
Other comprehensive income (loss) before reclassifications	—		2		—		2
Losses (gains) reclassified from accumulated other comprehensive income (loss)	—		—		—		—
Net current-period other comprehensive income (loss)	—		2		—		2
Balance at October 31, 2021	$	6	$	(2)	$	3	$	7
Balance at July 31, 2022	$	—	$	—	$	2	$	2
Other comprehensive income (loss) before reclassifications	(8)		5		—		(3)
Losses (gains) reclassified from accumulated other comprehensive income (loss)	—		(3)		—		(3)
Net current-period other comprehensive income (loss)	(8)		2		—		(6)
Balance at October 30, 2022	$	(8)	$	2	$	2	$	(4)

_____________________________________

(1)Included no tax as of October 30, 2022, July 31, 2022, October 31, 2021 and August 1, 2021.

(2)Included tax expense of $1 million as of October 30, 2022, no tax as of July 31, 2022 and October 31, 2021, and a tax benefit of $1 million as of August 1, 2021.

(3)Included tax expense of $1 million as of October 30, 2022, July 31, 2022, October 31, 2021, and August 1, 2021.

Amounts related to noncontrolling interests were not material.

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The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:

	Three Months Ended
(Millions)	October 30, 2022		October 31, 2021		Location of Loss (Gain) Recognized in Earnings
Losses (gains) on cash-flow hedges:
Commodity contracts	$	(3)	$	(1)	Cost of products sold
Foreign exchange forward contracts	(1)		1		Cost of products sold
Total before tax	(4)		—
Tax expense (benefit)	1		—
Loss (gain), net of tax	$	(3)	$	—

4. Goodwill and Intangible Assets

Goodwill

The following table shows the changes in the carrying amount of goodwill:

(Millions)	Meals & Beverages		Snacks		Total
Net balance at July 31, 2022	$	993	$	2,986	$	3,979
Foreign currency translation adjustment	(6)		—		(6)
Net balance at October 30, 2022	$	987	$	2,986	$	3,973

Intangible Assets

The following table summarizes balance sheet information for intangible assets, excluding goodwill:

	October 30, 2022						July 31, 2022
(Millions)	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Amortizable intangible assets
Customer relationships	$	830	$	(192)	$	638	$	830	$	(181)	$	649
Non-amortizable intangible assets
Snyder's of Hanover					$	620					$	620
Lance					350						350
Kettle Brand					318						318
Pace					292						292
Pacific Foods					280						280
Various other Snacks(1)					689						689
Total trademarks					$	2,549					$	2,549
Total net intangible assets					$	3,187					$	3,198

____________________________________

(1)Associated with the acquisition of Snyder's-Lance, Inc. (Snyder's-Lance).

Amortization of intangible assets was $11 million for both the three-month periods ended October 30, 2022 and October 31, 2021. As of October 30, 2022, amortizable intangible assets had a weighted-average remaining useful life of 16 years. Amortization expense for the next 5 years is estimated to be approximately $41 million per year.

As of our 2022 annual 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 included Pacific Foods and certain other Snacks trademarks.

The estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as

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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.

5. Segment Information

Our reportable segments are as follows:

•Meals & Beverages, which consists of our soup, simple meals and beverages products in retail and foodservice in the U.S. and Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Pacific Foods broth, soups and non-dairy beverages; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; V8 juices and beverages; and Campbell’s tomato juice. The segment also includes snacking products in foodservice and Canada; and

•Snacks, which consists of Pepperidge Farm cookies*, crackers, fresh bakery and frozen products, including Goldfish crackers*, Snyder’s of Hanover pretzels*, Lance sandwich crackers*, Cape Cod potato chips*, Kettle Brand potato chips*, Late July snacks*, Snack Factory pretzel crisps*, Pop Secret popcorn, Emerald nuts, and other snacking products in retail in the U.S. We refer to the * brands as our "power brands." The segment also includes the retail business in Latin America.

We evaluate segment performance before interest, taxes and costs associated with restructuring activities and impairment charges. Unrealized gains and losses on outstanding undesignated commodity hedging activities are excluded from segment operating earnings and are recorded in Corporate as these open positions represent hedges of future purchases. Upon closing of the contracts, the realized gain or loss is transferred to segment operating earnings, which allows the segments to reflect the economic effects of the hedge without exposure to quarterly volatility of unrealized gains and losses. Only the service cost component of pension and postretirement expense is allocated to segments. All other components of expense, including interest cost, expected return on assets, amortization of prior service credits and recognized actuarial gains and losses are reflected in Corporate and not included in segment operating results. Asset information by segment is not discretely maintained for internal reporting or used in evaluating performance.

	Three Months Ended
(Millions)	October 30, 2022		October 31, 2021
Net sales
Meals & Beverages	$	1,455	$	1,266
Snacks	1,120		970
Total	$	2,575	$	2,236

	Three Months Ended
(Millions)	October 30, 2022		October 31, 2021
Earnings before interest and taxes
Meals & Beverages	$	331	$	280
Snacks	153		128
Corporate income (expense)(1)	(48)		(32)
Restructuring charges(2)	—		—
Total	$	436	$	376

_______________________________________

(1)Represents unallocated items. There were pension actuarial losses of $15 million and $6 million in the three-month periods ended October 30, 2022, and October 31, 2021, respectively. Costs related to the cost savings initiatives were $3 million and $4 million in the three-month periods ended October 30, 2022, and October 31, 2021, respectively. Unrealized mark-to-market adjustments on outstanding undesignated commodity hedges were gains of $5 million and losses of $3 million in the three-month periods ended October 30, 2022, and October 31, 2021, respectively.

(2)See Note 6 for additional information.

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Our net sales based on product categories are as follows:

	Three Months Ended
(Millions)	October 30, 2022		October 31, 2021
Net sales
Soup	$	893	$	797
Snacks	1,173		1,003
Other simple meals	315		264
Beverages	194		172
Total	$	2,575	$	2,236

Soup includes various soup, broths and stock products. Snacks include cookies, pretzels, crackers, popcorn, nuts, potato chips, tortilla chips and other salty snacks and baked products. Other simple meals include sauces, gravies, pasta, beans and canned poultry. Beverages include V8 juices and beverages, Campbell’s tomato juice and Pacific Foods non-dairy beverages.

6. Restructuring Charges and Cost Savings Initiatives

Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration

Continuing Operations

Beginning in fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure.

Over the years, we expanded these initiatives by continuing to optimize our supply chain and manufacturing networks, as well as our information technology infrastructure.

On March 26, 2018, we completed the acquisition of Snyder's-Lance. Prior to the acquisition, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We continued to implement this program and identified opportunities for additional cost synergies as we integrated Snyder's-Lance.

In 2022, we expanded these initiatives as we continue to pursue cost savings by further optimizing our supply chain and manufacturing network and through effective cost management. Cost estimates for these expanded initiatives, as well as timing for certain activities, are continuing to be developed.

A summary of the pre-tax charges recognized in the Consolidated Statements of Earnings related to these initiatives is as follows:

	Three Months Ended
(Millions)	October 30, 2022		October 31, 2021		Recognized as of October 30, 2022
Restructuring charges	$	—	$	—	$	264
Administrative expenses	3		2		362
Cost of products sold	—		2		84
Marketing and selling expenses	—		—		14
Research and development expenses	—		—		4
Total pre-tax charges	$	3	$	4	$	728

A summary of the pre-tax costs associated with the initiatives is as follows:

(Millions)	Recognized as of October 30, 2022
Severance pay and benefits	$	227
Asset impairment/accelerated depreciation	82
Implementation costs and other related costs	419
Total	$	728

The total estimated pre-tax costs for actions that have been identified 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 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

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$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 30%; Snacks - approximately 44%; and Corporate - approximately 26%.

Of the aggregate $735 million to $740 million of pre-tax costs identified to date, we expect approximately $635 million to $640 million will be cash expenditures. In addition, we expect to invest approximately $450 million in capital expenditures, of which we invested $440 million as of October 30, 2022. We expect to invest in substantially all of the capital expenditures through 2023. The capital expenditures primarily relate to a U.S. warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, implementation of our existing SAP enterprise-resource planning system for Snyder's-Lance, transition of production within our Meals & Beverages manufacturing network, optimization of information technology infrastructure and applications and optimization of the Snyder’s-Lance warehouse and distribution network.

A summary of the restructuring activity and related reserves at October 30, 2022, is as follows:

(Millions)	Severance Pay and Benefits		Implementation Costs and Other Related Costs(1)	Total Charges
Accrued balance at July 31, 2022	$	7
2023 charges	—		3	$	3
2023 cash payments	(2)
Accrued balance at October 30, 2022	$	5

__________________________________ 

(1)Includes other costs recognized as incurred that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. The costs are included in Administrative expenses in the Consolidated Statements of Earnings.

Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs associated with segments is as follows:

	October 30, 2022
(Millions)	Three Months Ended		Costs Incurred to Date
Meals & Beverages	$	—	$	225
Snacks	—		321
Corporate	3		182
Total	$	3	$	728

7. Earnings per Share (EPS)

For the periods presented in the Consolidated Statements of Earnings, the calculations of basic EPS and EPS assuming dilution vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and other share-based payment awards, except when such effect would be antidilutive. The earnings per share calculation for the three-month periods ended October 30, 2022, and October 31, 2021, excludes approximately 1 million stock options that would have been antidilutive.

8. Pension and Postretirement Benefits

Components of net benefit expense (income) were as follows:

	Three Months Ended
	Pension				Postretirement
(Millions)	October 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Service cost	$	4	$	4	$	—	$	—
Interest cost	17		10		2		1
Expected return on plan assets	(27)		(30)		—		—
Amortization of prior service cost	—		—		—		—
Actuarial losses	15		6		—		—
Net periodic benefit expense (income)	$	9	$	(10)	$	2	$	1

The actuarial losses resulted from the remeasurement of a U.S. pension plan for the three-month period ended

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October 30, 2022 and a U.S. and a Canadian pension plan for the three-month period ended October 31, 2021. These remeasurements were each due to lump sum distributions that exceeded or are expected to exceed service and interest costs resulting in settlement accounting for the plans. The actuarial losses recognized for the three-month periods ended October 30, 2022, and October 31, 2021, were primarily due to losses on plan assets, partially offset by increases in discount rates used to determine the benefit obligation.

9. Leases

The components of lease costs were as follows:

	Three Months Ended
(Millions)	October 30, 2022		October 31, 2021
Operating lease cost	$	20	$	19
Finance lease - amortization of right-of-use (ROU) assets	4		4
Short-term lease cost	17		13
Variable lease cost(1)	50		52
Total	$	91	$	88

__________________________________________

(1)Includes labor and other overhead in our service contracts with embedded leases.

The following tables summarize the lease amounts recorded in the Consolidated Balance Sheets:

	Operating Leases
(Millions)	Balance Sheet Classification	October 30, 2022		July 31, 2022
ROU assets, net	Other assets	$	235	$	239
Lease liabilities (current)	Accrued liabilities	$	59	$	62
Lease liabilities (noncurrent)	Other liabilities	$	176	$	177
	Finance Leases
(Millions)	Balance Sheet Classification	October 30, 2022		July 31, 2022
ROU assets, net	Plant assets, net of depreciation	$	24	$	28
Lease liabilities (current)	Short-term borrowings	$	13	$	14
Lease liabilities (noncurrent)	Long-term debt	$	13	$	16

The following table summarizes cash flow and other information related to leases:

	Three Months Ended
(Millions)	October 30, 2022		October 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	20	$	19
Financing cash flows from finance leases	$	4	$	4
ROU assets obtained in exchange for lease obligations:
Operating leases	$	15	$	14
Finance leases	$	—	$	13

10. Financial Instruments

The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity prices. In addition, we are exposed to price changes related to certain deferred compensation obligations. In order to manage these exposures, we follow established risk management policies and procedures, including the use of derivative contracts such as swaps, rate locks, options, forwards and commodity futures. We enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our

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derivative programs include instruments that qualify for hedge accounting treatment and instruments that are not designated as accounting hedges.

Concentration of Credit Risk

We are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate counterparty credit risk, we enter into contracts only with carefully selected, leading, credit-worthy financial institutions, and distribute contracts among several financial institutions to reduce the concentration of credit risk. We did not have credit risk-related contingent features in our derivative instruments as of October 30, 2022, or July 31, 2022.

We are also exposed to credit risk from our customers. During 2022, our largest customer accounted for approximately 22% of consolidated net sales. Our five largest customers accounted for approximately 47% of our consolidated net sales in 2022.

We closely monitor credit risk associated with counterparties and customers.

Foreign Currency Exchange Risk

We are exposed to foreign currency exchange risk, primarily the Canadian dollar, related to intercompany transactions and third-party transactions. We utilize foreign exchange forward purchase and sale contracts to hedge these exposures. The contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge portions of our forecasted foreign currency transaction exposure with foreign exchange forward contracts for periods typically up to 18 months. The notional amount of foreign exchange forward contracts accounted for as cash-flow hedges was $121 million as of October 30, 2022, and $140 million as of July 31, 2022. Changes in the fair value on the portion of the derivative included in the assessment of hedge effectiveness of cash-flow hedges are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows. For derivatives that are designated and qualify as hedging instruments, the initial fair value of hedge components excluded from the assessment of effectiveness is recognized in earnings under a systematic and rational method over the life of the hedging instrument and is presented in the same statement of earnings line item as the earnings effect of the hedged item. Any difference between the change in the fair value of the hedge components excluded from the assessment of effectiveness and the amounts recognized in earnings is recorded as a component of other comprehensive income (loss). The notional amount of foreign exchange forward contracts that are not designated as accounting hedges was $18 million as of October 30, 2022, and $13 million as of July 31, 2022.

Interest Rate Risk

We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. There were no interest rate swaps outstanding as of October 30, 2022, or July 31, 2022.

Commodity Price Risk

We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, diesel fuel, natural gas, soybean oil, aluminum, cocoa, corn, soybean meal and butter. Commodity futures, options and swap contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge a portion of commodity requirements for periods typically up to 18 months. The notional amount of commodity contracts designated as cash-flow hedges was $3 million as of July 31, 2022. There were no commodity contracts designated as cash-flow hedges as of October 30, 2022. Changes in the fair value on the portion of the derivative included in the assessment of hedge effectiveness of cash-flow hedges are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows. The notional amount of commodity contracts not designated as accounting hedges was $281 million as of October 30, 2022, and $254 million as of July 31, 2022. The change in fair value on undesignated instruments is recorded in Cost of products sold.

We have a supply contract under which prices for certain raw materials are established based on anticipated volume requirements over a twelve-month period. Certain prices under the contract are based in part on certain component parts of the raw materials that are in excess of our needs or not required for our operations, thereby creating an embedded derivative requiring bifurcation. We net settle amounts due under the contract with our counterparty. The notional amount was approximately $15 million as of October 30, 2022, and $39 million as of July 31, 2022. The change in fair value on the embedded derivative is recorded in Cost of products sold.

Deferred Compensation Obligation Price Risk

We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of the Vanguard Extended Market Index Plus Fund, the Vanguard Institutional Index Institutional Plus Fund, the Vanguard Short-Term Bond Index Fund and the Vanguard Total International Stock Index Fund. These contracts are not designated as hedges for accounting purposes. Unrealized gains (losses) and settlements are included in Administrative

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