Campbell Soup Company 2017 Annual Report1 Campbell Place, Camden, NJ 08103-1799investor.campbellsoupcompany.comCampbell Soup Company2017 ANNUAL REPORTFellow Shareholders,Growth…It has been elusive for years, as the entire food industry grapples with the seismic shifts that have altered the consumer, food and retail landscapes.The drive to deliver sustainable, profitabletop-line growth has been a consistent theme during my tenure as Campbell’s CEO. Our growth strategy has been focusedon two critical areas: strengthening our core business and expanding into faster-growingspaces to diversify our portfolio.Both were necessities to address these seismic shifts: the massive changes in demographics; the evolving consumer preferences toward health and well-being, centered on fresh and real food; technological advancements reshaping the consumer shopping experience; and tumultuous socio-economic forces. These shifts have not only accelerated and converged, they have essentially reset consumer behavior. In this environment, companies and brands must differentiate themselves or risk extinction.Over the last six years, we have made significant progress on transforming Campbell’s portfolio toward faster-growingspaces, particularly health and well-being. Our commitment to health and well-being is unwavering. We chose this path becausewe recognized the dramatic changes taking place in our industry and that real and healthier food was better for our consumers and better for our business. Let me state it clearly and unambiguously:Our ultimate goal is to “Be the leading health and well-being food company.”When people look for something real to eat and something that tastes good, they are going to look for the food Campbell makes. We chose this path not because it is expedient, but because we believe it represents the future of the food industry and that it will lead to differentiated performance for our shareholders.Denise M. MorrisonPresident and Chief Executive Officer 3. Continuing to Diversify Campbell’s Portfolio in Fresh Foods and Health and Well-BeingCampbell is a leading player in health and well-being based on the percentage of our sales from such products. We have nearly $1 billion in annual net sales from fresh products; our products provide 15 billion servings of vegetables and more than 2.4 million tons of whole grains to consumers annually; and our organic portfolio is in the top 10 in the industry and growing at double digits.2 Campbell’s goal to lead in health and well-being is attainable. But to truly lead the industry, we will need to redouble our efforts and move with urgency to evolve our portfolio. We will continue to invest in health and well-being across the business, focusing on food with attributes such as natural, organic, functional and fresh.2IRI Total US – MULO for the calendar year ending 12/31/16, CAGR based on 2013-201603FRESH ANDHEALTH & WELL-BEING0104REAL FOOD, TRANSPARENCY& SUSTAINABILITYDIGITAL & E-COMMERCESNACKING024. Increasing Campbell’s Presence in the Faster-Growing Snacking CategoryConsumers are continuously looking for new and better snacking solutions. Not only have the types of snacks expanded, but also the moments in which consumers look to snack across the day. Ninety percent of consumers snack multiple times a day and more than 50 percent of all U.S. eating occasions are snacks.3We see an opportunity to leverage brands across our entire portfolio to participate in snacking occasions outside our cookie and baked snacks business. Our goal is to make snacks with real food ingredients accessible to all consumers, and we are pursuing an enterprise-wide snack-ing strategy designed to accelerate our efforts.We plan to broaden our snacking business beyond cookies and baked snacks to include soup, mini meals and fresh snacks. This expanded snacking market is worth approximately $125 billion in the U.S. alone and growing around 3 percent.4 We are aiming to add approximately $200 million in sales over the next five years attributable to these efforts.3Hartman Group, 2016. Hartman Group, 20144BCG analysis, industry press releases, IRI 2016 State of Snacking, Mintel BFY Snacks 2016OUR GROWTH AGENDAAND FOUR STRATEGIC IMPERATIVESARE THE ROADMAPIt is not enough to simply say what we aspire to be. We need to tell you how we will achieve it. Our growth agenda, with our purpose, Real food that matters for life’s moments, as a North Star, informs everything we do — from resource allocations to external development. Our four strategic imperatives provide a blueprint to become the leading health and well-being food company and to deliver improved sales growth. 1. Building Greater Trustwith Consumers Through Real Food, Transparency and SustainabilityOur purpose continues to be the single most important change in our company’s culture in the last few years. It has fundamentally altered the way we think, talk and act about our food.Our purpose has led us to take principled positions about the most pressing issues facing the food industry, including transparency. At times, we have had philosophical differences with many of our peers and our trade association on important issues. As a result, we intend to withdraw from the Grocery Manufacturers Association at the end of 2017. This was not a financial decision. It was driven by our purpose and our principles.As we strive to be the most transparent food company in the world, Campbell is partnering with the Sage Project to raise the bar on food transparency. Combining technology with design, the Sage Project is creating online food labels for the digital world, making information about calories, nutrition, ingredients and attributes open, accessible and easy for consumers to understand. Campbell is embracing the platform because we believe it delivers the information consumers are increasingly demanding.These efforts complement our planned ongoing investment of $50 million over the next several years to make the kind of food that consumers are seeking and that we are proud to serve at our own tables. We are making steady progress toward our commitment to remove artificial colors and flavors from our food, while increasing the use of vegetables and whole grains and using chicken with no antibiotics. We have also completed our work to remove BPA from the lining of our soup cans in the U.S. and Canada.2. Accelerating Digital Marketingand E-Commerce EffortsConsumer options for how and where they buy groceries are changing rapidly. Shoppers today have immediate access to pricing, product information and reviews, literally in the palm of their hand. E-commerce is a series of tools, technologies and behaviors that, over time, build consumer expectations of convenience. It happened in entertainment. It happened in apparel. And now it is happening in food.Today, the percentage of food sold online is in the low single digits. By 2021, we project online grocery sales to reach $66 billion annually in the U.S.1 Over the next five years, we expect to generate $300 million of sales in this space.To accelerate our digital and e-commerce efforts, we are building an e-commerce unit in North America to deliver the products and services our consumers demand and to drive growth, while working to scale our digital marketing capabilities. We also expect to partner with leading e-commerce companies. For example, Campbell invested $10 million and formed a strategic partnership with online meal kit company Chef’d to test new concepts for fresh, healthy recipes and to integrate our products into their popular meal kits. More importantly, we will gain insights from their data and analytics and participate firsthand in emerging e-commerce models.To compete and thrive in this environment, we need to enhance our distribution capabilities to meet customer and consumer needs today and in the future. That is why we are investing in a network of distribution centers to create a more flexible distribution system to serve our e-commerce channels.1Proprietary Campbell EstimateOUR GROWTH AGENDAOur Growth Agenda is rooted in our purpose, Real food that matters for life’s moments. We believe our four strategic imperatives will help us realize Campbell’s goal of being the leading health and well-being food company and drive the greatest value for our shareholders over time.Formed’17Announced exit of operationsin Russia.AcquiredPlum Organics.Acquired Bolthouse Farms.SoldEuropean simplemeals business.Articulated Purpose & Growth Agenda.Real Food Philosophy & Values.AcquiredKelsen Group.EstablishedAcquired Garden Fresh Gourmet.’11’13’14’16FundedPartnered withCo-packagreements with La Costeña& Jumex.’12’15Significant multi-year cost savings initiative.Majorenterprise redesign & portfolio roles.3 Campbell Soup CompanyCampbell Soup Company 4DEFINING HEALTHAND WELL-BEING Health and well-being means different things to different people. In fact, research shows that many consumers’ beliefs around this topic simply do not align with traditional definitions. No amount of advertising or government classification will convince them otherwise. Consumers associate healthy with fresh, naturally functional and organic foods. At Campbell, we believe in putting consumers first. Understanding consumer beliefs is central to decoding the meaning of health and well-being.Our definition begins with real food: food made with simple, recognizable and desirable ingredients from plants and animals; food crafted with care using ethical sourcing and sustainable practices; and food that is safe, delicious and available at a fair price — all three without compromise.Real food has become a non-negotiable demand. People have simply come to expect it. Campbell is listening and taking our cues on health and well-being from consumers.On the well-being side that means food that is engaging, comforting and provides a sense of purpose, a reward and a small moment of satisfaction or celebration. A cookie or a biscuit and a well-being product do not have to be mutually exclusive. We are focused on delivering the benefits our consumers believe are important, including fresh and organic foods; naturally functional foods that provide energy, endurance and digestive health; and food that is relatable and tailored to individual needs through personalized nutrition.Campbell holds an advantaged position among our peers. We exceed most other food companies in terms of the amount of vegetables and whole grains in our foods. Plus, we have a heritage of providing safe and simple foods that are affordable and accessible. We also have a powerful connection with consumers, especially families. Our brands have and will continue to play an important role in “the moments that matter” in peoples’ lives.The significant actions we have taken have helped to redefine the way people view Campbell. If consumers are looking for fresh foods, clean labels or organic offerings, they can now find it in Campbell’s portfolio. 2 Campbell Soup CompanyRaised the bar on transparency withDefining the future of food requires different approaches and an ecosystem of innovative partners. A prime example is the partnership we announced with Chef’d, a leading meal kit marketplace. They possess deep competencies in consumer insights, the shopper’s path to purchase, digital marketing and analytics, and fulfillment capabilities. Campbell will gain valuable knowledge in emerging e-commerce trends and business models.+ Les C. VinneyChairman of the BoardIn fiscal 2017, Campbell Soup Company continued to live into its purpose – Real food that matters for life’s moments – anddeclared its ultimate goal to “Be the leading health and well-being food company.” However, it was a challenging year. The entire industry struggled to achieve top-line growth, and our ongoing effort to expand our presence in the faster-growing, on-trend packaged fresh category through Campbell Fresh fell short of expectations. Despite these challenges, Campbell was able to deliver another year of earnings growth.Following the 2017 Annual Meeting, Charles R. Perrin will retire from the Board. Charlie has served with distinction, providing strategic counsel and outstanding leadership to management and the Board since 1999. In March 2017, we welcomed Fabiola R. Arredondo, former Yahoo! executive, founder and managing partner of Siempre Holdings and an experienced director, to the Campbell Board. The Board has also nominated Howard M. Averill, Chief Financial Officer of Time Warner Inc., for election at the 2017 Annual Meeting.On behalf of the Campbell Board, I commend Denise and the Campbell Leadership Team for their steadfast efforts in a challenging environment. I also thank my fellow directors for their service and ongoing commitment to Campbell Soup Company. And, most importantly, I thank our shareholders for their continuing support.Fiscal 2017 ResultsAs I mentioned, the operating environment for the packaged foods industry remains challenging. Despite multiple headwinds, we delivered another year of adjusted earnings growth.* This year, sales decreased 1 percent to $7.890 billion driven by a 1 percent decline* in organic sales, reflecting lower volume and higher promotional spending. The company reported earnings per share (EPS) of $2.89. Adjusted EPS increased 3 percent to $3.04 per share, compared with $2.94 per share a year ago.*Our Americas Simple Meals and Beverages division continued to deliver against its portfolio role with sales performance in line with the categories in which we compete and margin expansion. Global Biscuits and Snacks delivered strong profit performance. We believe the key executional issues in our C-Fresh division are largely behind us, and that this business will return to profitable growth in fiscal 2018.We are pleased with the progress of the multi-year cost-savings program we launched in 2015. As of the end of fiscal 2017, we achieved $325 million in annual cost savings, which is a year ahead of our original expectations. As announced earlier this year, we have increased our target by $150 million and now expect to deliver $450 million in cost savings by the end of fiscal 2020. We remain committed to managing costs aggressively and reinvesting a portion of the savings back into the business in fiscal 2018 to position the company for long-term growth.* These amounts are adjusted for certain items not considered to be part of the ongoing business. For a reconciliation of non-GAAP financial measures, see page 8The Leading Health andWell-being Food CompanyCampbell is the biggest small food company, with the entrepreneurial spirit of a small company and the scale and resources of a large company. To be the leading health and well-being food company, we are leveraging the best of big and small to deliver value to our consumers, customers and shareholders.The seismic shifts I first sensed and shared six years ago have not only accelerated and converged, they have become more urgent. Consumers no longer settle. They demand. Those companies who cannot — or choose not to — respond are running out of time, and will soon be out of luck. Like radio broadcasters who assumed TV was just a passing fancy, food companies who cannot envision their roles evolving into health and well-being food companies may very well face a similar fate. Campbell is listening to consumers and responding to their signals about health and well-being.In closing, I want to thank our Board of Directors, the Campbell Leadership Team, our employees and our shareholders. With your ongoing support, I am confident that being the leading health and well-being food company will lead to growth rates that outperform the industry over time.Best,Denise M. MorrisonPresident and Chief Executive OfficerFinancial Highlights(dollars in millions, except per share amounts) 2017 2016Results of OperationsNet Sales $ 7,890$ 7,961Gross Profit $ 3,059$ 2,780 Percent of Sales 38.8% 34.9%Earnings before interest and taxes $ 1,400$ 960Net earnings attributable to Campbell Soup Company $ 887$ 563 Per share — diluted $ 2.89$ 1.81Other InformationNet cash provided by operating activities $ 1,291$ 1,491Capital expenditures $ 338$ 341Dividends per share $ 1.40$ 1.248In 2017, Net earnings attributable to Campbell Soup Company included the following: a restructuring charge, related costs and administrative expenses of $37 ($0.12 per share) associated with restructuring and cost savings initiatives; gains of $116 ($0.38 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; impairment charges of $180 ($0.59 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit; and a tax benefit and reduction to interest expense of $56 ($0.18 per share) primarily associated with the sale of intercompany notes receivable to a financial institution. In 2016, Net earnings attributable to Campbell Soup Company included the following: a restructuring charge and administrative expenses of $49 ($0.16 per share) associated with restructuring and cost savings initiatives; losses of $200 ($0.64 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; an impairment charge of $127 ($0.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit; and a gain of $25 ($0.08 per share) associated with a settlement of a claim related to the Kelsen acquisition.See below for a reconciliation of the impact of these items on reported results.Reconciliation of GAAP and Non-GAAP Financial MeasuresThe following information is provided to reconcile certain non-GAAP financial measures disclosed in the Letter to Shareholders to reported sales and earnings results. These non-GAAP financial measures are measures of performance not defined by accounting principles generally accepted in the United States and should be considered in addition to, not in lieu of, GAAP reported measures. We believe that presenting certain non-GAAP financial measures facilitates comparison of our historical operating results and trends in our underlying operating results, and provides transparency on how we evaluate our business. For instance, we believe that organic net sales, which exclude the impact of currency, are a better indicator of our ongoing business performance. We also believe that the financial information excluding certain transactions not considered to be part of the ongoing business improves the comparability of year-to-year earnings results. Consequently, we believe that investors may be able to better understand our earnings results if these transactions are excluded from the results. (dollars in millions) 20172016 % ChangeNet Sales$ 7,890$ 7,961 -1%Volume and Mix -1%Price and Sales Allowances 0%Promotional Spending -1%Organic Growth -1%Currency 0%Total -1%The sum of the individual amounts does not add due to rounding. 2017 2016 Earnings % Change EPS % ChangeDiluted DilutedEarnings EPS Earnings EPS(dollars in millions, except per share amounts) Impact ImpactImpact Impact 2017/2016 2017/2016Net earnings attributable toCampbell Soup Company, as reported $ 887 $ 2.89$563 $1.81Restructuring charges, implementation costsand other related costs37 0.1249 0.16Pension and postretirement benefitmark-to-market adjustments (116) (0.38)200 0.64Impairment charges 180 0.59127 0.41Sale of notes (56) (0.18)- -Claim settlement - - (25) (0.08)Adjusted Net earnings attributableto Campbell Soup Company $ 932 $ 3.04$914 $2.94 2% 3%Chairman’s MessageCampbell Soup Company 8Les C. VinneyChairman of the BoardIn fiscal 2017, Campbell Soup Company continued to live into its purpose – Real food that matters for life’s moments – and declared its ultimate goal to “Be the leading health and well-being food company.” However, it was a challenging year. The entire industry struggled to achieve top-line growth, and our ongoing effort to expand our presence in the faster-growing, on-trend packaged fresh category through Campbell Fresh fell short of expectations. Despite these challenges, Campbell was able to deliver another year of earnings growth.Following the 2017 Annual Meeting, Charles R. Perrin will retire from the Board. Charlie has served with distinction, providing strategic counsel and outstanding leadership to management and the Board since 1999. In March 2017, we welcomed Fabiola R. Arredondo, former Yahoo! executive, founder and managing partner of Siempre Holdings and an experienced director, to the Campbell Board. The Board has also nominated Howard M. Averill, Chief Financial Officer of Time Warner Inc., for election at the 2017 Annual Meeting.On behalf of the Campbell Board, I commend Denise and the Campbell Leadership Team for their steadfast efforts in a challenging environment. I also thank my fellow directors for their service and ongoing commitment to Campbell Soup Company. And, most importantly, I thank our shareholders for their continuing support.Fiscal 2017 ResultsAs I mentioned, the operating environment for the packaged foods industry remains challenging. Despite multiple headwinds, we delivered another year of adjusted earnings growth.* This year, sales decreased 1 percent to $7.890 billion driven by a 1 percent decline* in organic sales, reflecting lower volume and higher promotional spending. The company reported earnings per share (EPS) of $2.89. Adjusted EPS increased 3 percent to $3.04 per share, compared with $2.94 per share a year ago.*Our Americas Simple Meals and Beverages division continued to deliver against its portfolio role with sales performance in line with the categories in which we compete and margin expansion. Global Biscuits and Snacks delivered strong profit performance. We believe the key executional issues in our C-Fresh division are largely behind us, and that this business will return to profitable growth in fiscal 2018.We are pleased with the progress of the multi-year cost-savings program we launched in 2015. As of the end of fiscal 2017, we achieved $325 million in annual cost savings, which is a year ahead of our original expectations. As announced earlier this year, we have increased our target by $150 million and now expect to deliver $450 million in cost savings by the end of fiscal 2020. We remain committed to managing costs aggressively and reinvesting a portion of the savings back into the business in fiscal 2018 to position the company for long-term growth.* These amounts are adjusted for certain items not considered to be part of the ongoing business. For a reconciliation of non-GAAP financial measures, see page 8The Leading Health andWell-being Food CompanyCampbell is the biggest small food company, with the entrepreneurial spirit of a small company and the scale and resources of a large company. To be the leading health and well-being food company, we are leveraging the best of big and small to deliver value to our consumers, customers and shareholders.The seismic shifts I first sensed and shared six years ago have not only accelerated and converged, they have become more urgent. Consumers no longer settle. They demand. Those companies who cannot — or choose not to — respond are running out of time, and will soon be out of luck. Like radio broadcasters who assumed TV was just a passing fancy, food companies who cannot envision their roles evolving into health and well-being food companies may very well face a similar fate. Campbell is listening to consumers and responding to their signals about health and well-being.In closing, I want to thank our Board of Directors, the Campbell Leadership Team, our employees and our shareholders. With your ongoing support, I am confident that being the leading health and well-being food company will lead to growth rates that outperform the industry over time.Best,Denise M. MorrisonPresident and Chief Executive OfficerFinancial Highlights(dollars in millions, except per share amounts) 2017 2016Results of OperationsNet Sales $ 7,890 $ 7,961Gross Profit $ 3,059 $ 2,780 Percent of Sales 38.8% 34.9%Earnings before interest and taxes $ 1,400 $ 960Net earnings attributable to Campbell Soup Company $ 887$ 563 Per share — diluted $ 2.89$ 1.81Other InformationNet cash provided by operating activities $ 1,291 $ 1,491Capital expenditures $ 338$ 341Dividends per share $ 1.40 $ 1.248In 2017, Net earnings attributable to Campbell Soup Company included the following: a restructuring charge, related costs and administrative expenses of $37 ($0.12 per share) associated with restructuring and cost savings initiatives; gains of $116 ($0.38 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; impairment charges of $180 ($0.59 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit; and a tax benefit and reduction to interest expense of $56 ($0.18 per share) primarily associated with the sale of intercompany notes receivable to a financial institution. In 2016, Net earnings attributable to Campbell Soup Company included the following: a restructuring charge and administrative expenses of $49 ($0.16 per share) associated with restructuring and cost savings initiatives; losses of $200 ($0.64 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; an impairment charge of $127 ($0.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit; and a gain of $25 ($0.08 per share) associated with a settlement of a claim related to the Kelsen acquisition.See below for a reconciliation of the impact of these items on reported results.Reconciliation of GAAP and Non-GAAP Financial MeasuresThe following information is provided to reconcile certain non-GAAP financial measures disclosed in the Letter to Shareholders to reported sales and earnings results. These non-GAAP financial measures are measures of performance not defined by accounting principles generally accepted in the United States and should be considered in addition to, not in lieu of, GAAP reported measures. We believe that presenting certain non-GAAP financial measures facilitates comparison of our historical operating results and trends in our underlying operating results, and provides transparency on how we evaluate our business. For instance, we believe that organic net sales, which exclude the impact of currency, are a better indicator of our ongoing business performance. We also believe that the financial information excluding certain transactions not considered to be part of the ongoing business improves the comparability of year-to-year earnings results. Consequently, we believe that investors may be able to better understand our earnings results if these transactions are excluded from the results. (dollars in millions) 2017 2016 % ChangeNet Sales $ 7,890 $ 7,961 -1%Volume and Mix -1%Price and Sales Allowances 0%Promotional Spending -1%Organic Growth -1%Currency 0%Total -1%The sum of the individual amounts does not add due to rounding. 2017 2016 Earnings % Change EPS % ChangeDiluted DilutedEarnings EPS Earnings EPS(dollars in millions, except per share amounts) Impact Impact Impact Impact 2017/2016 2017/2016Net earnings attributable toCampbell Soup Company, as reported $ 887 $ 2.89$563 $1.81Restructuring charges, implementation costsand other related costs 37 0.1249 0.16Pension and postretirement benefitmark-to-market adjustments (116) (0.38)200 0.64Impairment charges 180 0.59127 0.41Sale of notes (56) (0.18)- -Claim settlement - - (25) (0.08)Adjusted Net earnings attributableto Campbell Soup Company $ 932 $ 3.04$914 $2.94 2% 3%Chairman’s MessageCampbell Soup Company 8 Les C. VinneyChairman of the BoardIn fiscal 2017, Campbell Soup Company continued to live into its purpose – Real food that matters for life’s moments – and declared its ultimate goal to “Be the leading health and well-being food company.” However, it was a challenging year. The entire industry struggled to achieve top-line growth, and our ongoing effort to expand our presence in the faster-growing, on-trend packaged fresh category through Campbell Fresh fell short of expectations. Despite these challenges, Campbell was able to deliver another year of earnings growth. Following the 2017 Annual Meeting, Charles R. Perrin will retire from the Board. Charlie has served with distinction, providing strategic counsel and outstanding leadership to management and the Board since 1999. In March 2017, we welcomed Fabiola R. Arredondo, former Yahoo! executive, founder and managing partner of Siempre Holdings and an experienced director, to the Campbell Board. The Board has also nominated Howard M. Averill, Chief Financial Officer of Time Warner Inc., for election at the 2017 Annual Meeting.On behalf of the Campbell Board, I commend Denise and the Campbell Leadership Team for their steadfast efforts in a challenging environment. I also thank my fellow directors for their service and ongoing commitment to Campbell Soup Company. And, most importantly, I thank our shareholders for their continuing support.Fiscal 2017 ResultsAs I mentioned, the operating environment for the packaged foods industry remains challenging. Despite multiple headwinds, we delivered another year of adjusted earnings growth.* This year, sales decreased 1 percent to $7.890 billion driven by a 1 percent decline* in organic sales, reflecting lower volume and higher promotional spending. The company reported earnings per share (EPS) of $2.89. Adjusted EPS increased 3 percent to $3.04 per share, compared with $2.94 per share a year ago.*Our Americas Simple Meals and Beverages division continued to deliver against its portfolio role with sales performance in line with the categories in which we compete and margin expansion. Global Biscuits and Snacks delivered strong profit performance. We believe the key executional issues in our C-Fresh division are largely behind us, and that this business will return to profitable growth in fiscal 2018.We are pleased with the progress of the multi-year cost-savings program we launched in 2015. As of the end of fiscal 2017, we achieved $325 million in annual cost savings, which is a year ahead of our original expectations. As announced earlier this year, we have increased our target by $150 million and now expect to deliver $450 million in cost savings by the end of fiscal 2020. We remain committed to managing costs aggressively and reinvesting a portion of the savings back into the business in fiscal 2018 to position the company for long-term growth.* These amounts are adjusted for certain items not considered to be part of the ongoing business. For a reconciliation of non-GAAP financial measures, see page 8 The Leading Health andWell-being Food CompanyCampbell is the biggest small food company, with the entrepreneurial spirit of a small company and the scale and resources of a large company. To be the leading health and well-being food company, we are leveraging the best of big and small to deliver value to our consumers, customers and shareholders.The seismic shifts I first sensed and shared six years ago have not only accelerated and converged, they have become more urgent. Consumers no longer settle. They demand. Those companies who cannot — or choose not to — respond are running out of time, and will soon be out of luck. Like radio broadcasters who assumed TV was just a passing fancy, food companies who cannot envision their roles evolving into health and well-being food companies may very well face a similar fate. Campbell is listening to consumers and responding to their signals about health and well-being.In closing, I want to thank our Board of Directors, the Campbell Leadership Team, our employees and our shareholders. With your ongoing support, I am confident that being the leading health and well-being food company will lead to growth rates that outperform the industry over time.Best,Denise M. MorrisonPresident and Chief Executive OfficerFinancial Highlights(dollars in millions, except per share amounts) 2017 2016Results of OperationsNet Sales $ 7,890 $ 7,961Gross Profit $ 3,059 $ 2,780 Percent of Sales 38.8% 34.9%Earnings before interest and taxes $ 1,400 $ 960Net earnings attributable to Campbell Soup Company $ 887 $ 563 Per share — diluted $ 2.89 $ 1.81Other InformationNet cash provided by operating activities $ 1,291 $ 1,491Capital expenditures $ 338 $ 341Dividends per share $ 1.40 $ 1.248In 2017, Net earnings attributable to Campbell Soup Company included the following: a restructuring charge, related costs and administrative expenses of $37 ($0.12 per share) associated with restructuring and cost savings initiatives; gains of $116 ($0.38 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; impairment charges of $180 ($0.59 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit; and a tax benefit and reduction to interest expense of $56 ($0.18 per share) primarily associated with the sale of intercompany notes receivable to a financial institution. In 2016, Net earnings attributable to Campbell Soup Company included the following: a restructuring charge and administrative expenses of $49 ($0.16 per share) associated with restructuring and cost savings initiatives; losses of $200 ($0.64 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; an impairment charge of $127 ($0.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit; and a gain of $25 ($0.08 per share) associated with a settlement of a claim related to the Kelsen acquisition.See below for a reconciliation of the impact of these items on reported results.Reconciliation of GAAP and Non-GAAP Financial MeasuresThe following information is provided to reconcile certain non-GAAP financial measures disclosed in the Letter to Shareholders to reported sales and earnings results. These non-GAAP financial measures are measures of performance not defined by accounting principles generally accepted in the United States and should be considered in addition to, not in lieu of, GAAP reported measures. We believe that presenting certain non-GAAP financial measures facilitates comparison of our historical operating results and trends in our underlying operating results, and provides transparency on how we evaluate our business. For instance, we believe that organic net sales, which exclude the impact of currency, are a better indicator of our ongoing business performance. We also believe that the financial information excluding certain transactions not considered to be part of the ongoing business improves the comparability of year-to-year earnings results. Consequently, we believe that investors may be able to better understand our earnings results if these transactions are excluded from the results. (dollars in millions) 2017 2016 % ChangeNet Sales $ 7,890 $ 7,961 -1%Volume and Mix -1%Price and Sales Allowances 0%Promotional Spending -1%Organic Growth -1%Currency 0%Total -1%The sum of the individual amounts does not add due to rounding. 2017 2016 Earnings % Change EPS % Change Diluted Diluted Earnings EPS Earnings EPS(dollars in millions, except per share amounts) Impact Impact Impact Impact 2017/2016 2017/2016Net earnings attributable to Campbell Soup Company, as reported $ 887 $ 2.89 $563 $1.81 Restructuring charges, implementation costs and other related costs 37 0.12 49 0.16Pension and postretirement benefit mark-to-market adjustments (116) (0.38) 200 0.64Impairment charges 180 0.59 127 0.41Sale of notes (56) (0.18) - -Claim settlement - - (25) (0.08)Adjusted Net earnings attributable to Campbell Soup Company $ 932 $ 3.04 $914 $2.94 2% 3% Chairman’s MessageCampbell Soup Company 8 9 Campbell Soup CompanyBOARD OF DIRECTORS(As of September 2017)Les C. VinneyChairman of Campbell Soup Company, Retired President and Chief Executive Officerof STERIS CorporationDenise M. MorrisonPresident and Chief Executive Officerof Campbell Soup CompanyFabiola R. ArredondoFounder and Managing Partner of Siempre Holdings 2, 4Bennett DorranceManaging Director and Co-founderof DMB Associates 2, 4Randall W. LarrimoreRetired President and Chief Executive Officerof United Stationers Inc. 2, 4Marc B. LautenbachPresident and Chief Executive Officer of Pitney Bowes Inc. 1, 2Mary Alice D. MalonePresident of Iron Spring Farm, Inc. 3,4Sara MathewRetired Chairman and Chief Executive Officerof The Dun & Bradstreet Corporation 1, 3Keith R. McLoughlinFormer Chief Executive Officer of AB Electrolux 2, 4Charles R. PerrinRetired Chairman and Chief Executive Officerof Avon Products, Inc. 1, 3Nick ShreiberRetired President and Chief Executive Officerof Tetra Pak Group 2, 4Tracey T. TravisExecutive Vice President andChief Financial Officerof The Estée Lauder Companies Inc. 1, 3Archbold D. van BeurenRetired Senior Vice Presidentof Campbell Soup Company 1, 3CAMPBELL LEADERSHIP TEAM(As of September 2017)Denise M. Morrison*President and Chief Executive OfficerMark R. Alexander*President, Americas Simple Meals and BeveragesCarlos J. Barroso*Senior Vice President, Global Research and Development and QualityEdward L. Carolan*President, Campbell FreshAdam G. Ciongoli*Senior Vice President and General Counsel Anthony P. DiSilvestro*Senior Vice President and Chief Financial OfficerRobert Furbee*Senior Vice President, Global Supply ChainBethmara Kessler*Senior Vice President, Integrated Global ServicesLuca Mignini*President, Global Biscuits and SnacksRobert W. Morrissey*Senior Vice President andChief Human Resources OfficerJames SterbenzSenior Vice President, U.S. SalesEmily P. WaldorfVice President, Corporate Strategy* Executive OfficersCommittees1 Audit2 Compensation & Organization3 Finance & Corporate Development4 Governance9 Campbell Soup CompanyBOARD OF DIRECTORS(As of September 2017)Les C. VinneyChairman of Campbell Soup Company, Retired President and Chief Executive Officerof STERIS CorporationDenise M. MorrisonPresident and Chief Executive Officerof Campbell Soup CompanyFabiola R. ArredondoFounder and Managing Partner of Siempre Holdings 2, 4Bennett DorranceManaging Director and Co-founderof DMB Associates 2, 4Randall W. LarrimoreRetired President and Chief Executive Officerof United Stationers Inc. 2, 4Marc B. LautenbachPresident and Chief Executive Officer of Pitney Bowes Inc. 1, 2Mary Alice D. MalonePresident of Iron Spring Farm, Inc. 3,4Sara MathewRetired Chairman and Chief Executive Officerof The Dun & Bradstreet Corporation 1, 3Keith R. McLoughlinFormer Chief Executive Officer of AB Electrolux 2, 4Charles R. PerrinRetired Chairman and Chief Executive Officerof Avon Products, Inc. 1, 3Nick ShreiberRetired President and Chief Executive Officerof Tetra Pak Group 2, 4Tracey T. TravisExecutive Vice President andChief Financial Officerof The Estée Lauder Companies Inc. 1, 3Archbold D. van BeurenRetired Senior Vice Presidentof Campbell Soup Company 1, 3CAMPBELL LEADERSHIP TEAM(As of September 2017)Denise M. Morrison*President and Chief Executive OfficerMark R. Alexander*President, Americas Simple Meals and BeveragesCarlos J. Barroso*Senior Vice President, Global Research and Development and QualityEdward L. Carolan*President, Campbell FreshAdam G. Ciongoli*Senior Vice President and General Counsel Anthony P. DiSilvestro*Senior Vice President and Chief Financial OfficerRobert Furbee*Senior Vice President, Global Supply ChainBethmara Kessler*Senior Vice President, Integrated Global ServicesLuca Mignini*President, Global Biscuits and SnacksRobert W. Morrissey*Senior Vice President andChief Human Resources OfficerJames SterbenzSenior Vice President, U.S. SalesEmily P. WaldorfVice President, Corporate Strategy* Executive OfficersCommittees1 Audit2 Compensation & Organization3 Finance & Corporate Development4 Governance UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
_________________________________________________________________________________
For the Fiscal Year Ended
July 30, 2017
Commission File Number
1-3822
CAMPBELL SOUP COMPANY
21-0419870
I.R.S. Employer Identification No.
New Jersey
State of Incorporation
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
Capital Stock, par value $.0375
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes
No
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 and posted on its corporate web site, if any, every
Interactive Data 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).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
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
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.
No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of January 27, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate
market value of capital stock held by non-affiliates of the registrant was approximately $11,934,667,846. There were 300,528,501
shares of capital stock outstanding as of September 20, 2017.
Yes
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on November 15, 2017, are
incorporated by reference into Part III.
TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Capital Stock, Related Shareholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . .
Item 7A. Quantitative and Qualitative Disclosure about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . .
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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PART I
This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements reflect our current expectations regarding our future results of operations, economic
performance, financial condition and achievements. These forward-looking statements can be identified by words such as
"anticipate," "believe," "estimate," "expect," "will," "goal," and similar expressions. One can also identify forward-looking
statements by the fact that they do not relate strictly to historical or current facts. These statements reflect our current plans and
expectations and are based on information currently available to us. They rely on several assumptions regarding future events and
estimates which could be inaccurate and which are inherently subject to risks and uncertainties. Risks and uncertainties include,
but are not limited to, those discussed in "Risk Factors" and in the "Cautionary Factors That May Affect Future Results" in
"Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this Report. Our consolidated
financial statements and the accompanying notes to the consolidated financial statements are presented in "Financial Statements
and Supplementary Data."
Item 1. Business
The Company
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated
subsidiaries.
We are a manufacturer and marketer of high-quality, branded food and beverage products. We organized as a business
corporation under the laws of New Jersey on November 23, 1922; however, through predecessor organizations, we trace our
heritage in the food business back to 1869. Our principal executive offices are in Camden, New Jersey 08103-1799.
In 2013, we acquired BF Bolthouse Holdco LLC (Bolthouse Farms) and Plum, PBC (formerly Plum Inc.) (Plum). In 2014,
we acquired Kelsen Group A/S (Kelsen) and divested our European simple meals business. In 2015, we acquired the assets of
Garden Fresh Gourmet. In 2017, we entered into an agreement to acquire Pacific Foods of Oregon, Inc. for $700 million. For
additional information on this pending acquisition, see our Form 8-K filed with the U.S. Securities and Exchange Commission
on July 6, 2017. See also Note 3 to the Consolidated Financial Statements for additional information on our recent acquisitions.
Reportable Segments
We manage our businesses in three segments focused mainly on product categories. The segments are:
• The Americas Simple Meals and Beverages segment, which includes the retail and food service businesses in the U.S.,
Canada and Latin America. The segment includes the following products: Campbell’s condensed and ready-to-serve
soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner
sauces; Swanson canned poultry; Plum food and snacks; V8 juices and beverages; and Campbell’s tomato juice;
• The Global Biscuits and Snacks segment, which includes: Pepperidge Farm cookies, crackers, bakery and frozen products
in U.S. retail; Arnott’s biscuits in Australia and Asia Pacific; and Kelsen cookies globally. The segment also includes the
simple meals and shelf-stable beverages business in Australia and Asia Pacific; and
• The Campbell Fresh segment, which includes: Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages
and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips; and the U.S. refrigerated
soup business.
Beginning in 2018, the business in Latin America will be managed as part of the Global Biscuits and Snacks segment. See Note
6 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding our reportable segments.
Ingredients and Packaging
The ingredients and packaging materials required for the manufacture of our food and beverage products are purchased from
various suppliers. These items are subject to price fluctuations from a number of factors, including changes in crop size, cattle
cycles, crop disease and/or crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs,
currency fluctuations, government-sponsored agricultural programs, import and export requirements, drought, water scarcity,
temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be beyond
our control during the growing and harvesting seasons. To help reduce some of this price volatility, we use a combination of
purchase orders, short- and long-term contracts, inventory management practices and various commodity risk management tools
for most of our ingredients and packaging. Ingredient inventories are at a peak during the late fall and decline during the winter
and spring. Since many ingredients of suitable quality are available in sufficient quantities only during certain seasons, we make
commitments for the purchase of such ingredients in their respective seasons. At this time, we do not anticipate any material
restrictions on the availability of ingredients or packaging that would have a significant impact on our businesses. For information
on the impact of inflation, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
3
Customers
In most of our markets, sales and merchandising activities are conducted through our own sales force and/or third-party brokers
and distribution partners. In the U.S., Canada and Latin America, our products are generally resold to consumers through retail
food chains, mass discounters, mass merchandisers, club stores, convenience stores, drug stores, dollar stores and other retail,
commercial and non-commercial establishments. Pepperidge Farm also has a direct-store-delivery distribution model that uses
independent contractor distributors. In the Asia Pacific region, our products are generally resold to consumers through retail food
chains, convenience stores and other retail, commercial and non-commercial establishments. We make shipments promptly after
acceptance of orders.
Our five largest customers accounted for approximately 39% of our consolidated net sales in 2017, 40% in 2016 and 38% in
2015. Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 20% of our consolidated net sales
in 2017, 2016 and 2015. All of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates. No other customer
accounted for 10% or more of our consolidated net sales. For additional information on our customers, see "Management’s
Discussion and Analysis of Financial Condition and Results of Operations."
Trademarks and Technology
As of September 20, 2017, we owned over 3,700 trademark registrations and applications in over 160 countries. We believe
our trademarks are of material importance to our business. Although the laws vary by jurisdiction, trademarks generally are valid
as long as they are in use and/or their registrations are properly maintained and have not been found to have become generic.
Trademark registrations generally can be renewed indefinitely as long as the trademarks are in use. We believe that our principal
brands, including Arnott's, Bolthouse Farms, Campbell's, Garden Fresh Gourmet, Goldfish, Kjeldsens, Milano, Pace, Pepperidge
Farm, Plum, Prego, Swanson, and V8, are protected by trademark law in the major markets where they are used.
Although we own a number of valuable patents, we do not regard any segment of our business as being dependent upon any
single patent or group of related patents. In addition, we own copyrights, both registered and unregistered, proprietary trade secrets,
technology, know-how, processes and other intellectual property rights that are not registered.
Competition
We operate in a highly competitive industry and experience competition in all of our categories. This competition arises
from numerous competitors of varying sizes across multiple food and beverage categories, and includes producers of generic and
store brand products, as well as other branded food and beverage manufacturers. All of these competitors vie for trade merchandising
support and consumer dollars. The number of competitors cannot be reliably estimated. The principal areas of competition are
brand recognition, taste, quality, nutritional value, price, advertising, promotion, convenience and service.
Working Capital
For information relating to our cash flows from operations and working capital items, see "Management’s Discussion and
Analysis of Financial Condition and Results of Operations."
Capital Expenditures
During 2017, our aggregate capital expenditures were $338 million. We expect to spend approximately $400 million for
capital projects in 2018. Major capital projects based on planned spend in 2018 include a U.S. warehouse optimization project,
insourcing of manufacturing for certain simple meal products, and ongoing refrigeration system replacement projects.
Research and Development
During the last three fiscal years, our expenditures on research and development activities relating to new products and the
improvement and maintenance of existing products were $98 million in 2017, $124 million in 2016, and $117 million in 2015.
The decrease from 2016 to 2017 was primarily due to gains on pension and postretirement benefit mark-to-market adjustments
in the current year compared to losses in the prior year; increased benefits from cost savings initiatives; and lower incentive
compensation costs, partially offset by inflation and other factors, and investments in long-term innovation. The increase from
2015 to 2016 was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments and increased
costs to support long-term innovation, partially offset by benefits from cost savings initiatives.
Regulation
The manufacture and sale of consumer food products is highly regulated. In the U.S., our activities are subject to regulation
by various federal government agencies, including the Food and Drug Administration, U.S. Department of Agriculture, Federal
Trade Commission, Department of Labor, Department of Commerce and Environmental Protection Agency, as well as various
state and local agencies. Our business is also regulated by similar agencies outside of the U.S.
4
Environmental Matters
We have requirements for the operation and design of our facilities that meet or exceed applicable environmental rules and
regulations. Of our $338 million in capital expenditures made during 2017, approximately $14 million was for compliance with
environmental laws and regulations in the U.S. We further estimate that approximately $13 million of the capital expenditures
anticipated during 2018 will be for compliance with U.S. environmental laws and regulations. We believe that continued compliance
with existing environmental laws and regulations (both within the U.S. and elsewhere) will not have a material effect on capital
expenditures, earnings or our competitive position. In addition, we continue to monitor existing and pending environmental laws
and regulations within the U.S. and elsewhere relating to climate change and greenhouse gas emissions. While the impact of these
laws and regulations cannot be predicted with certainty, we do not believe that compliance with these laws and regulations will
have a material effect on capital expenditures, earnings or our competitive position.
Seasonality
Demand for soup products is seasonal, with the fall and winter months usually accounting for the highest sales volume. Sales
of Kelsen products are also highest in the fall and winter months due primarily to holiday gift giving, including the Chinese New
Year. Demand for our other products is generally evenly distributed throughout the year.
Employees
On July 30, 2017, we had approximately 18,000 employees.
Financial Information
Financial information for our reportable segments and geographic areas is found in Note 6 to the Consolidated Financial
Statements. For risks attendant to our foreign operations, see "Risk Factors."
Websites
Our primary corporate website can be found at www.campbellsoupcompany.com. We make available free of charge at this
website (under the "Investor Center — Financial Information — SEC Filings" caption) all of our reports (including amendments)
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, including our annual
report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. These reports are made available
on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.
All websites appearing in this Annual Report on Form 10-K are inactive textual references only, and the information in, or
accessible through, such websites is not incorporated into this Annual Report on Form 10-K, or into any of our other filings with
the Securities and Exchange Commission.
Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this Report, the following risks and uncertainties could materially adversely
affect our business, financial condition and results of operations. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may impair our business operations and financial condition.
Operational Risk Factors
We operate in a highly competitive industry
We operate in the highly competitive food and beverage industry and experience competition in all of our categories. The
principal areas of competition are brand recognition, taste, quality, nutritional value, price, advertising, promotion, convenience
and service. A number of our primary competitors are larger than us and have substantial financial, marketing and other resources.
In addition, reduced barriers to entry and easier access to funding are creating new competition. A strong competitive response
from one or more of these competitors to our marketplace efforts, or a continued shift towards store brand offerings, could result
in us reducing prices, increasing marketing or other expenditures, and/or losing market share.
Our results are dependent on strengthening our core businesses while diversifying into faster-growing spaces
Our strategy is focused on strengthening our core businesses while diversifying our portfolio into faster-growing spaces. Our
core businesses are concentrated in slower-growing center-store categories in traditional retail grocery channels. Factors that may
impact our success include our ability to:
•
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identify and capture market share in faster-growing spaces;
identify and capitalize on customer or consumer trends, including those related to fresh or organic products;
design and implement effective retail execution plans;
design and implement effective advertising and marketing programs, including digital programs; and
secure or maintain sufficient shelf space at retailers.
5
If we are not successful in addressing these factors, or if there are changes in the underlying growth rates of the categories in which
we compete, our strategy may not be successful and/or our business or financial results may be adversely impacted.
We may be adversely impacted by a changing customer landscape and the increased significance of some of our customers
Our businesses are largely concentrated in the traditional retail grocery trade, which has experienced slower growth than
alternative retail channels, such as dollar stores, drug stores, club stores, Internet-based retailers and meal-delivery services. This
trend towards alternative channels is expected to continue in the future. If we are not successful in expanding sales in alternative
retail channels, our business or financial results may be adversely impacted. In addition, retailers with increased buying power
and negotiating strength are seeking more favorable terms, including increased promotional programs funded by their suppliers.
These customers may use more of their shelf space for their store brand products. If we are unable to use our scale, marketing
expertise, product innovation and category leadership positions to respond to these customer dynamics, our business or financial
results could be adversely impacted.
In 2017, our five largest customers accounted for approximately 39% of our consolidated net sales, with the largest customer,
Wal-Mart Stores, Inc. and its affiliates, accounting for approximately 20% of our consolidated net sales. There can be no assurance
that our largest customers will continue to purchase our products in the same mix or quantities or on the same terms as in the past.
Disruption of sales to any of these customers, or to any of our other large customers, for an extended period of time could adversely
affect our business or financial results.
We may not realize the anticipated benefits from our cost reduction, organizational design or other initiatives
We are pursuing a multi-year cost savings initiative with targeted annualized cost savings of $450 million by the end of 2020.
In addition, we are making other organizational changes, including changes to our sales and supply chain functions. These initiatives
will require a substantial amount of management and operational resources. Our management team must successfully execute the
administrative and operational changes necessary to achieve the anticipated benefits of the initiatives. These and related demands
on our resources may divert the organization's attention from other business issues, have adverse effects on existing business
relationships with suppliers and customers and impact employee morale. From time-to-time, we may also implement other
information technology or related initiatives. Our success is partly dependent upon properly executing, and realizing cost savings
or other benefits from, these often complex initiatives. Any failure to implement our initiatives could adversely affect our business
or financial results.
Our results may be adversely affected by our inability to complete or realize the projected benefits of acquisitions,
divestitures and other strategic transactions
We expect to continue to seek acquisitions and other strategic transactions. Our ability to meet our objectives with respect to
acquisitions and other strategic transactions may depend in part on our ability to identify suitable counterparties, negotiate favorable
financial and other contractual terms, obtain all necessary regulatory approvals on the terms expected and complete those
transactions. Potential risks also include:
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the inability to integrate acquired businesses into our existing operations in a timely and cost-efficient manner;
diversion of management's attention from other business concerns;
potential loss of key employees, suppliers and/or customers of acquired businesses;
assumption of unknown risks and liabilities;
the inability to achieve anticipated benefits, including revenues or other operating results;
operating costs of acquired businesses may be greater than expected;
the inability to promptly implement an effective control environment; and
the risks inherent in entering markets or lines of business with which we have limited or no prior experience.
Acquisitions outside the U.S. may present added unique challenges and increase our exposure to risks associated with foreign
operations, including foreign currency risks and risks associated with local regulatory regimes.
For divestitures, our ability to meet our objectives may depend in part on our ability to identify suitable buyers, negotiate
favorable financial and other contractual terms and obtain all necessary regulatory approvals on the terms expected. Potential risks
of divestitures may also include the inability to separate divested businesses or business units effectively and efficiently from our
existing business operations and to reduce or eliminate associated overhead costs.
Disruption to our supply chain could adversely affect our business
Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing or
distribution capabilities, or to the capabilities of our suppliers or contract manufacturers, due to factors that are hard to predict or
beyond our control, such as product or raw material scarcity, adverse weather conditions, natural disasters, fire, terrorism,
pandemics, strikes or other events. Production of the agricultural commodities used in our business may also be adversely affected
6
by drought, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients, crop size,
cattle cycles, crop disease and/or crop pests. Failure to take adequate steps to mitigate the likelihood or potential impact of such
events, or to effectively manage such events if they occur, may adversely affect our business or financial results, particularly in
circumstances when a product is sourced from a single supplier or location. Disputes with significant suppliers or contract
manufacturers, including disputes regarding pricing or performance, may also adversely affect our ability to manufacture and/or
sell our products, as well as our business or financial results.
Our non-U.S. operations pose additional risks to our business
In 2017, approximately 19% of our consolidated net sales were generated outside of the U.S. Sales outside the U.S. are
expected to continue to represent a significant portion of consolidated net sales. Our business or financial condition may be
adversely affected due to the risks of doing business in markets outside of the U.S., including but not limited to the following:
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unfavorable changes in tariffs, quotas, trade barriers or other export and import restrictions;
the difficulty and/or costs of complying with a wide variety of laws, treaties and regulations, including anti-corruption
laws and regulations such as the U.S. Foreign Corrupt Practices Act;
the difficulty and/or costs of designing and implementing an effective control environment across diverse regions and
employee bases;
the adverse impact of foreign tax treaties and policies;
political or economic instability, including the possibility of civil unrest, public corruption, armed hostilities or terrorist
acts;
the possible nationalization of operations;
the difficulty of enforcing remedies and protecting intellectual property in various jurisdictions; and
restrictions on the transfer of funds to and from countries outside of the U.S., including potential adverse tax consequences.
In addition, we hold assets and incur liabilities, generate revenue, and pay expenses in a variety of currencies other than the
U.S. dollar, primarily the Australian dollar and the Canadian dollar. Our consolidated financial statements are presented in
U.S. dollars, and we must translate our assets, liabilities, sales and expenses into U.S. dollars for external reporting purposes. As
a result, changes in the value of the U.S. dollar due to fluctuations in currency exchange rates or currency exchange controls may
materially and adversely affect the value of these items in our consolidated financial statements, even if their value has not changed
in their local currency.
Our results may be adversely impacted by increases in the price of raw and packaging materials
The raw and packaging materials used in our business include tomato paste, grains, beef, poultry, dairy, vegetables, steel,
glass, paper and resin. Many of these materials are subject to price fluctuations from a number of factors, including changes in
crop size, cattle cycles, crop disease and/or crop pests, product scarcity, demand for raw materials, commodity market speculation,
energy costs, currency fluctuations, government-sponsored agricultural programs, import and export requirements, drought, water
scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be
beyond our control. To the extent any of these factors result in an increase in raw and packaging material prices, we may not be
able to offset such increases through productivity or price increases or through our commodity hedging activity.
Price increases may not be sufficient to cover increased costs, or may result in declines in sales volume due to pricing
elasticity in the marketplace
We expect to pass along to customers some or all cost increases in raw and packaging materials and other inputs through
increases in the selling prices of, or decreases in the packaging sizes of, some of our products. Higher product prices or smaller
packaging sizes may result in reductions in sales volume. To the extent the price increases or packaging size decreases are not
sufficient to offset increased raw and packaging materials and other input costs, and/or if they result in significant decreases in
sales volume, our business results and financial condition may be adversely affected.
If our food products become adulterated or are mislabeled, we might need to recall those items, and we may experience
product liability claims and damage to our reputation
We have in the past and we may, in the future, need to recall some of our products if they become adulterated or if they are
mislabeled, and we may also be liable if the consumption of any of our products causes injury to consumers. A widespread product
recall could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the
unavailability of product for a period of time. We could also suffer losses from a significant adverse product liability judgment.
A significant product recall or product liability claim could also result in adverse publicity, damage to our reputation, and a loss
of consumer confidence in the safety and/or quality of our products, ingredients or packaging. In addition, if another company
recalls or experiences negative publicity related to a product in a category in which we compete, consumers might reduce their
overall consumption of products in this category.
7
Our results may be adversely impacted if consumers do not maintain their favorable perception of our brands
We have a number of iconic brands with significant value. Maintaining and continually enhancing the value of these brands
is critical to the success of our business. Brand value is based in large part on consumer perceptions. Success in promoting and
enhancing brand value depends in large part on our ability to provide high-quality products. Brand value could diminish significantly
due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about
our products, packaging and/or ingredients (whether or not valid), our failure to maintain the quality of our products, the failure
of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers. The
growing use of social and digital media by consumers increases the speed and extent that information and opinions can be shared.
Negative posts or comments about us, our brands, products or packaging on social or digital media could seriously damage our
brands and reputation. If we do not maintain the favorable perception of our brands, our results could be adversely impacted.
We may be adversely impacted by inadequacies in, or security breaches of, our information technology systems
Our information technology systems are critically important to our operations. We rely on our information technology systems
(some of which are outsourced to third parties) to manage the data, communications and business processes for all of our functions,
including our marketing, sales, manufacturing, logistics, customer service, accounting and administrative functions. If we do not
allocate and effectively manage the resources necessary to build, sustain and protect an appropriate technology infrastructure, our
business or financial results could be adversely impacted. Furthermore, our information technology systems may be vulnerable
to material security breaches (including the access to or acquisition of customer, consumer or other confidential data), cyber-based
attacks or other material system failures. We periodically test our systems to attempt to detect vulnerabilities. If we are unable to
prevent or adequately respond to and resolve these events, our operations may be impacted, and we may suffer other adverse
consequences such as reputational damage, litigation, remediation costs and/or penalties under various data privacy laws and
regulations. Although unauthorized users have attempted and continue to attempt to infiltrate our information technology systems,
we are not aware of a material security breach and all immaterial security breaches we have detected have been successfully
remediated.
An impairment of the carrying value of goodwill or other indefinite-lived intangible assets could adversely affect our
financial results and net worth
As of July 30, 2017, we had goodwill of $2.115 billion and other indefinite-lived intangible assets of $912 million. Goodwill
and indefinite-lived intangible assets are initially recorded at fair value and not amortized, but are tested for impairment at least
annually or more frequently if impairment indicators arise. We test goodwill at the reporting unit level by comparing the carrying
value of the net assets of the reporting unit, including goodwill, to the unit's fair value. Similarly, we test indefinite-lived intangible
assets by comparing the fair value of the assets to their carrying values. Fair value for both goodwill and other indefinite-lived
intangible assets is determined based on a discounted cash flow analysis. If the carrying values of the reporting unit or indefinite-
lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets are considered impaired and reduced
to fair value. Factors that could result in an impairment include a change in revenue growth rates, operating margins, weighted
average cost of capital, future economic and market conditions or assumed royalty rates. See "Significant Accounting Estimates"
for additional information on past impairments. We may be required in the future to record additional impairment of the carrying
value of goodwill or other indefinite-lived intangible assets, which could adversely affect our financial results and net worth.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and
brands
We consider our intellectual property rights, particularly our trademarks, to be a significant and valuable aspect of our business.
We protect our intellectual property rights through a combination of trademark, patent, copyright and trade secret protection,
contractual agreements and policing of third-party misuses of our intellectual property. Our failure to obtain or adequately protect
our intellectual property or any change in law that lessens or removes the current legal protections of our intellectual property may
diminish our competitiveness and adversely affect our business and financial results.
Competing intellectual property claims that impact our brands or products may arise unexpectedly. Any litigation or disputes
regarding intellectual property may be costly and time-consuming and may divert the attention of our management and key
personnel from our business operations. We also may be subject to significant damages or injunctions against development, launch
and sale of certain products. Any of these occurrences may harm our business and financial results.
We may be adversely impacted by increased liabilities and costs related to our defined benefit pension plans
We sponsor a number of defined benefit pension plans for certain employees in the U.S. and various non-U.S. locations. The
major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of securities and other
investments. Changes in regulatory requirements or the market value of plan assets, investment returns, interest rates and mortality
rates may affect the funded status of our defined benefit pension plans and cause volatility in the net periodic benefit cost, future
funding requirements of the plans and the funded status as recorded on the balance sheet. A significant increase in our obligations
or future funding requirements could have a material adverse effect on our financial results.
8
We may not be able to attract and retain the highly skilled people we need to support our business
We depend on the skills and continued service of key personnel, including our experienced management team. In addition,
our ability to achieve our strategic and operating goals depends on our ability to identify, hire, train and retain qualified individuals.
We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel
or fail to attract, train and retain other talented personnel. Any such loss or failure may adversely affect our business or financial
results. In addition, activities related to identifying, recruiting, hiring and integrating qualified individuals may require significant
time and expense. We may not be able to locate suitable replacements for any key employees who leave, or offer employment to
potential replacements on reasonable terms, each of which may adversely affect our business and financial results.
Market Conditions and Other General Risk Factors
We face risks related to recession, financial and credit market disruptions and other economic conditions
Customer and consumer demand for our products may be impacted by weak economic conditions, recession, equity market
volatility or other negative economic factors in the U.S. or other nations. Similarly, disruptions in financial and/or credit markets
may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors. In addition, changes
in tax or interest rates in the U.S. or other nations, whether due to recession, financial and credit market disruptions or other reasons,
may adversely impact us.
Adverse changes in the global climate or extreme weather conditions could adversely affect our business or operations
Our business or financial results could be adversely affected by changing global temperatures or weather patterns or by extreme
or unusual weather conditions. Adverse changes in the global climate or extreme or unusual weather conditions could:
•
•
•
•
unfavorably impact the cost or availability of raw or packaging materials, especially if such events have an adverse impact
on agricultural productivity or on the supply of water;
disrupt our ability, or the ability of our suppliers or contract manufacturers, to manufacture or distribute our products;
disrupt the retail operations of our customers; or
unfavorably impact the demand for, or the consumer's ability to purchase, our products.
In addition, there is growing concern that the release of carbon dioxide and other greenhouse gases into the atmosphere may be
impacting global temperatures and weather patterns and contributing to extreme or unusual weather conditions. This growing
concern may result in more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of
greenhouse gases. Adoption of such additional regulation may result in increased compliance costs, capital expenditures and other
financial obligations that could adversely affect our business or financial results.
Legal and Regulatory Risk Factors
We may be adversely impacted by legal and regulatory proceedings or claims
We are party to a variety of legal and regulatory proceedings and claims arising out of the normal course of business. Since
these actions are inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such
proceedings or claims, or that our assessment of the materiality or immateriality of these matters, including any reserves taken in
connection with such matters, will be consistent with the ultimate outcome of such proceedings or claims. The marketing of food
products has come under increased regulatory scrutiny in recent years, and the food industry has been subject to an increasing
number of proceedings and claims relating to alleged false or deceptive marketing under federal, state and foreign laws or
regulations. In addition, the independent contractor distribution model, which is used by Pepperidge Farm, has come under increased
legal and regulatory scrutiny in recent years. We are a defendant in state law class action litigation challenging the independent
contractor classification of a small percentage of the total Pepperidge Farm distribution network. We are contesting class
certification and the merits as appropriate and plan to defend against these claims vigorously. In the event we are unable to
successfully defend ourselves against these proceedings or claims, or if our assessment of the materiality of these proceedings or
claims proves inaccurate, our business or financial results may be adversely affected. In addition, our reputation could be damaged
by allegations made in proceedings or claims (even if untrue).
Increased regulation or changes in law could adversely affect our business or financial results
The manufacture and marketing of food products is extensively regulated. Various laws and regulations govern the processing,
packaging, storage, distribution, marketing, advertising, labeling, quality and safety of our food products, as well as the health
and safety of our employees and the protection of the environment. In the U.S., we are subject to regulation by various government
agencies, including the Food and Drug Administration, the Department of Agriculture, the Federal Trade Commission, the
Occupational Safety and Health Administration and the Environmental Protection Agency, as well as various state and local
agencies. We are also regulated by similar agencies outside the U.S.
Governmental and administrative bodies within the U.S. are considering a variety of tax, trade and other regulatory reforms.
Changes in legal or regulatory requirements (such as new food safety requirements and revised nutrition facts labeling and serving
9
size regulations), or evolving interpretations of existing legal or regulatory requirements, may result in increased compliance cost,
capital expenditures and other financial obligations that could adversely affect our business or financial results.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive offices are company-owned and located in Camden, New Jersey. The following table sets forth our
principal manufacturing facilities and the business segment that primarily uses each of the facilities:
Principal Manufacturing Facilities
Inside the U.S.
California
Bakersfield (CF)
Dixon (ASMB)
Stockton (ASMB)
Connecticut
Bloomfield (GBS)
Florida
Lakeland (GBS)
Illinois
Downers Grove (GBS)
Outside the U.S.
Australia
Huntingwood (GBS)
Marleston (GBS)
Shepparton (GBS)
Virginia (GBS)
Michigan
Ferndale (CF)
Grand Rapids (CF)
New Jersey
East Brunswick (GBS)
North Carolina
Maxton (ASMB)
Ohio
Napoleon (ASMB)
Willard (GBS)
Pennsylvania
Denver (GBS)
Downingtown (GBS)
Canada
Toronto (ASMB)
Denmark
Nørre Snede (GBS)
Ribe (GBS)
Texas
Paris (ASMB)
Utah
Richmond (GBS)
Washington
Everett (CF)
Prosser (CF)
Wisconsin
Milwaukee (ASMB)
Indonesia
Jawa Barat (GBS)
Malaysia
Selangor Darul Ehsan (GBS)
______________________________
ASMB - Americas Simple Meals and Beverages
GBS - Global Biscuits and Snacks
CF - Campbell Fresh
Each of the foregoing manufacturing facilities is company-owned, except the Selangor Darul Ehsan, Malaysia, and the East
Brunswick, New Jersey, facilities, which are leased. We also maintain principal business unit offices in Norwalk, Connecticut;
Santa Monica, California; Emeryville, California; Toronto, Canada; Nørre Snede, Denmark; and North Strathfield, Australia.
We believe that our manufacturing and processing plants are well maintained and, together with facilities operated by our
contract manufacturers, are generally adequate to support the current operations of the businesses.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not applicable.
10
Executive Officers of the Company
The following is a list of our executive officers as of September 20, 2017:
Name
Mark R. Alexander
Carlos J. Barroso
Edward L. Carolan
Adam G. Ciongoli
Anthony P. DiSilvestro
Robert J. Furbee
Bethmara Kessler
Luca Mignini
Denise M. Morrison
Robert W. Morrissey
Present Title & Business Experience
Senior Vice President. We have employed Mr. Alexander in an executive
or managerial capacity for at least five years.
Senior Vice President. President and Founder of CJB and Associates,
LLC, an R&D consulting firm (2009 - 2013).
Senior Vice President. We have employed Mr. Carolan in an executive or
managerial capacity for at least five years.
Senior Vice President and General Counsel. Executive Vice President
and General Counsel of Lincoln Financial Group (2012 - 2015) and
Group General Counsel and Secretary of Willis Group Holdings, PLC
(2007 - 2012).
Senior Vice President and Chief Financial Officer. We have employed
Mr. DiSilvestro in an executive or managerial capacity for at least five
years.
Senior Vice President. We have employed Mr. Furbee in an executive or
managerial capacity for at least five years.
Senior Vice President. Vice President of Campbell Soup Company (2014
- 2016), Senior Vice President of Warner Music Group (2013 - 2014) and
Managing Director of The Fraud and Risk Advisory Group (2008 -
2013).
Senior Vice President. Chief Executive Officer of the Findus Italy
division of IGLO Group (2010 - 2012).
President and Chief Executive Officer. We have employed Ms. Morrison
in an executive or managerial capacity for at least five years.
Senior Vice President and Chief Human Resources Officer. We have
employed Mr. Morrissey in an executive or managerial capacity for at
least five years.
Year First
Appointed
Executive
Officer
2009
2013
2015
Age
53
58
48
49
2015
58
55
53
55
63
59
2004
2017
2016
2013
2003
2012
All of the executive officers were appointed at the November 2016 meeting of the Board of Directors, except Mr. Furbee was
appointed at the May 2017 meeting with this appointment being effective as of June 1, 2017.
PART II
Item 5. Market for Registrant’s Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market for Registrant’s Capital Stock
Our capital stock is listed and principally traded on the New York Stock Exchange. On September 20, 2017, there were 19,235
holders of record of our capital stock. Market price and dividend information with respect to our capital stock are set forth in Note
20 to the Consolidated Financial Statements. Future dividends will be dependent upon future earnings, financial requirements and
other factors.
Return to Shareholders* Performance Graph
The information contained in this Return to Shareholders Performance Graph section shall not be deemed to be "soliciting
material" or "filed" or incorporated by reference in future filings with the Securities and Exchange Commission, or subject to the
liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent we specifically
incorporate it by reference into a document filed under the Securities Exchange Act of 1933, as amended, or the Exchange Act.
The following graph compares the cumulative total shareholder return (TSR) on our stock with the cumulative total return of
the Standard & Poor’s 500 Stock Index (the S&P 500) and the Standard & Poor’s Packaged Foods Index (the S&P Packaged Foods
Group). The graph assumes that $100 was invested on July 27, 2012, in each of our stock, the S&P 500 and the S&P Packaged
Foods Group, and that all dividends were reinvested. The total cumulative dollar returns shown on the graph represent the value
that such investments would have had on July 28, 2017.
11
* Stock appreciation plus dividend reinvestment.
Campbell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P Packaged Foods Group . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
100
100
100
2013
147
125
136
2014
134
145
144
2015
162
162
180
2016
210
171
211
2017
182
198
199
12
Issuer Purchases of Equity Securities
Period
5/1/17 - 5/31/17. . . . . . . . . . . . . . . . . . . . . . . . . . .
6/1/17 - 6/30/17. . . . . . . . . . . . . . . . . . . . . . . . . . .
7/3/17 - 7/28/17. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Number
of Shares
Purchased (1)
Average
Price Paid
Per Share (2)
840,649 (4)
305,694
1,289,997
2,436,340 (4)
$58.25 (4)
$55.29
$51.69
$54.40 (4)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs (3)
783,564
305,694
1,289,997
2,379,255
Approximate
Dollar Value of
Shares that may yet
be Purchased
Under the Plans or
Programs
($ in Millions) (3)
$1,454
$1,437
$1,371
$1,371
____________________________________
(1) Shares purchased are as of the trade date.
(2) Average price paid per share is calculated on a settlement basis and excludes commission.
(3) During the fourth quarter of 2017, we had a publicly announced strategic share repurchase program. Under this program,
which was announced on March 22, 2017 and effective May 1, 2017, our Board of Directors authorized the purchase of up
to $1.5 billion of our stock. The program has no expiration date. Pursuant to our longstanding practice, under a separate 2017
authorization, we expect to continue purchasing shares sufficient to offset the impact of dilution from shares issued under our
incentive compensation plans.
(4)
Includes 57,085 shares repurchased in open-market transactions at an average price of $57.61 primarily to offset the dilutive
impact to existing shareholders of issuances under stock compensation plans.
Item 6. Selected Financial Data
Fiscal Year
2017(1)
2016(2)
2015(3)
2014(4)
2013(5)
(Millions, except per share amounts)
Summary of Operations
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,890
1,400
Earnings before interest and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings attributable to Campbell Soup Company . . . . . . . . . . . . . .
Financial Position
Plant assets - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,454
7,726
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,536
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,645
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share Data
1,293
887
887
887
—
Earnings from continuing operations attributable to Campbell Soup
Company - basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.91
Earnings from continuing operations attributable to Campbell Soup
Company - assuming dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings attributable to Campbell Soup Company - basic. . . . . . . . .
Net earnings attributable to Campbell Soup Company - assuming
dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Statistics
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 338
305
Weighted average shares outstanding - basic . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding - assuming dilution. . . . . . . . . . . .
2.89
2.91
1.40
2.89
307
13
$7,961
$ 8,082
$ 8,268
$ 8,052
960
849
563
—
563
563
1,054
949
666
—
666
666
1,267
1,148
1,474
1,349
774
81
855
866
934
(231)
703
712
$2,407
$ 2,347
$ 2,318
$ 2,260
7,837
3,533
1,533
8,077
4,082
1,377
8,100
4,003
1,602
8,290
4,438
1,192
$ 1.82
$ 2.13
$ 2.50
$ 3.00
1.81
1.82
2.13
2.13
2.48
2.76
1.81
1.248
2.13
1.248
2.74
1.248
2.97
2.27
2.25
1.16
$ 341
$ 380
$ 347
$ 336
309
311
312
313
314
316
314
317
____________________________________
(All per share amounts below are on a diluted basis)
In March 2016, the Financial Accounting Standards Board (FASB) issued guidance that amends accounting for share-based
payments, including the accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classification
in the statement of cash flows. We adopted the guidance in 2017. In accordance with the prospective adoption of the recognition
of excess tax benefits and deficiencies in the Consolidated Statements of Earnings, we recognized a $6 million tax benefit in Taxes
on earnings in 2017.
In April 2015, the FASB issued guidance that requires debt issuance costs to be presented in the balance sheet as a reduction from
the carrying value of the associated debt liability, consistent with the presentation of a debt discount. We adopted the guidance in
2016 and retrospectively adjusted all prior periods.
In November 2015, the FASB issued guidance that requires deferred tax liabilities and assets to be classified as noncurrent in the
balance sheet. We adopted the guidance in 2016 on a prospective basis and modified the presentation of deferred taxes in the
Consolidated Balance Sheet as of July 31, 2016.
The 2014 fiscal year consisted of 53 weeks. All other periods had 52 weeks.
(1) The 2017 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a
restructuring charge, related costs and administrative expenses of $37 million ($.12 per share) associated with restructuring
and cost savings initiatives; gains of $116 million ($.38 per share) associated with mark-to-market adjustments for defined
benefit pension and postretirement plans; impairment charges of $180 million ($.59 per share) related to the intangible assets
of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit; and a tax
benefit and reduction to interest expense of $56 million ($.18 per share) primarily associated with the sale of intercompany
notes receivable to a financial institution.
(2) The 2016 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a
restructuring charge and administrative expenses of $49 million ($.16 per share) associated with restructuring and cost savings
initiatives; losses of $200 million ($.64 per share) associated with mark-to-market adjustments for defined benefit pension
and postretirement plans; a gain of $25 million ($.08 per share) associated with a settlement of a claim related to the Kelsen
acquisition; and an impairment charge of $127 million ($.41 per share) related to the intangible assets of the Bolthouse Farms
carrot and carrot ingredients reporting unit.
(3) The 2015 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a
restructuring charge and administrative expenses of $78 million ($.25 per share) associated with restructuring and cost savings
initiatives and losses of $87 million ($.28 per share) associated with mark-to-market adjustments for defined benefit pension
and postretirement plans.
(4) The 2014 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a
restructuring charge and related costs of $36 million ($.11 per share) associated with restructuring initiatives; losses of $19
million ($.06 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; a
loss of $6 million ($.02 per share) on foreign exchange forward contracts used to hedge the proceeds from the sale of the
European simple meals business; $7 million ($.02 per share) tax expense associated with the sale of the European simple
meals business; and the estimated impact of the additional week of $25 million ($.08 per share). Earnings from discontinued
operations included a gain of $72 million ($.23 per share) on the sale of the European simple meals business.
(5) The 2013 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a
restructuring charge and related costs of $87 million ($.27 per share) associated with restructuring initiatives; gains of $183
million ($.58 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans;
and $7 million ($.02 per share) of transaction costs related to the acquisition of Bolthouse Farms. Earnings from discontinued
operations were impacted by an impairment charge on the intangible assets of the simple meals business in Europe of $263
million ($.83 per share) and tax expense of $18 million ($.06 per share) representing taxes on the difference between the book
value and tax basis of the business.
Selected Financial Data should be read in conjunction with the Notes to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement
to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated
financial statements presented in "Financial Statements and Supplementary Data," as well as the information contained in "Risk
Factors."
14
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated
subsidiaries.
Executive Summary
We are a manufacturer and marketer of high-quality, branded food and beverage products. We operate in a highly competitive
industry and experience competition in all of our categories. We manage our businesses in three divisions focused mainly on
product categories. The divisions, which represent our operating and reportable segments, are: Americas Simple Meals and
Beverages; Global Biscuits and Snacks; and Campbell Fresh. See "Business - Reportable Segments" for a description of the
products included in each segment.
Our goal is to be the leading health and well-being food company. Guided by our purpose - Real food that matters for life’s
moments, we are pursuing this goal through a dual strategy of strengthening our core businesses while expanding into faster-
growing spaces. We believe that this commitment to health and well-being will build shareholder value by driving sustainable,
profitable net sales growth.
Industry Trends
Our businesses are being influenced by a variety of trends that we anticipate will continue in the future, including: shifting
demographics; changing consumer preferences for food; technological and digital advancements that are reshaping the retailer
landscape and the consumer shopping experience; and socioeconomic shifts.
We believe Millennials and Generation Z are replacing Baby Boomers as the key influencers of societal and cultural norms
in the U.S. and are increasingly focused on health and well-being. We expect consumers to continue to seek products that they
associate with health and well-being, including fresh, naturally functional and organic foods. While demanding products with
these qualities, consumers also continue to gravitate toward store brands and value offerings. Consumers are also changing their
eating habits by increasing the type and frequency of snacks consumed.
Digital media and technology are changing the way consumers purchase food. Although e-commerce represents only a small
percent of total food sales, we anticipate it will accelerate rapidly through the growth of pure-play e-tailers, increased focus of
brick and mortar retailers on e-commerce and the continued growth of meal delivery services. Consumers are also increasingly
using technology to customize their diets for their individual lifestyle, physiology and health goals.
Retailers continue to use their buying power and negotiating strength to seek increased promotional programs funded by their
suppliers and more favorable terms. We expect consolidations among retailers will continue to create large and sophisticated
customers that may further this trend. In addition, new and existing retailers continue to grow and promote store brands that
compete with branded products.
Strategic Imperatives
We are responding to the above-described industry trends by continuing to focus on four strategic imperatives:
• Building greater trust with consumers through real food, transparency and sustainability;
• Accelerating digital marketing and e-commerce efforts;
• Continuing to diversify our portfolio in fresh foods and health and well-being; and
•
Increasing our presence in the faster-growing snacking category.
Building Greater Trust with Consumers through Real Food, Transparency and Sustainability
Our goal is to strengthen the trust of our consumers and customers through real food. For example, we are in the process of
removing artificial flavors and colors from certain of our products, increasing the use of vegetables and whole grains and
transitioning to chicken with no antibiotics. We have also removed Bisphenol A (BPA) from the lining of our U.S. and Canadian
soup cans. In addition, we recently entered into an agreement with the Sage Project to partner on customizable and digital labels
for our products that include nutrition facts and product attributes. We also support and remain committed to mandatory national
genetically modified organism labeling and implementation of the Food and Drug Administration's nutrition facts panel. Our
www.whatsinmyfood.com website promotes transparency by providing consumers with a wide range of details about how certain
of our foods and beverages are made and the choices behind the ingredients we use in those products.
Accelerating Digital Marketing and E-Commerce Efforts
We are responding to the growing consumer shift to digital and mobile technologies by investing in digital and e-commerce
across our company with a goal of building industry-leading capabilities. We are working to increase the scale of our digital
marketing capabilities using content, marketing technology and data analytics. We are building an experienced business team in
North America to pursue these initiatives. We are also pursuing digital and e-commerce innovation with new business models and
development of cross-portfolio e-commerce solutions. To support these efforts, we are developing a more flexible and cost effective
15
distribution system that we believe will position us well to grow with the expanding e-commerce market. We also plan to continue
partnering with leading e-commerce companies, such as our recently announced partnership with a meal-delivery service.
Continuing to Diversify our Portfolio in Fresh Foods and Health and Well-Being
Capitalizing on recent consumer and retailer trends, we are continuing to increase our portfolio's commitment to fresh food
and health and well-being through internal innovation, changes to recipes and our recent acquisitions. We expect to continue
expanding our product offerings in key growth areas, such as in the packaged fresh category and with organic and clean label
products. We are focusing on naturally functional foods by leveraging our vegetable and whole grain capabilities. While we are
working to develop brands and innovate these products, we are developing increased distribution capabilities in new channels that
also support this commitment.
Increasing our Presence in the Faster-Growing Snacking Category
Through a company-wide approach, we plan to expand our brand footprint by driving our existing snacking portfolio, pursuing
expansion in promising emerging markets, building global brands and leveraging global capabilities to build sustainable business
models. We are pursuing this goal with a plan to reach new consumers and existing consumers more frequently, including new
snacking products that are premium snacks and focused on health and well-being. We also intend to broaden our snacking business
beyond cookies and baked snacks to include soup, mini meals and fresh snacks. In addition, we expect to introduce snack products
with new packaging formats.
To support these four imperatives, we will continue to pursue different models of innovation, including internal and external
development, disciplined mergers and acquisitions, strategic partnerships and venture investing.
Cost Savings Initiative
We are pursuing a multi-year cost savings initiative with targeted annualized cost savings of $450 million by the end of 2020.
These savings are above and beyond our existing supply-chain productivity initiatives. See "Restructuring Charges and Cost
Savings Initiatives" for additional information on these initiatives. We expect to reinvest a portion of these savings into the
businesses that we have identified as high growth and that are consistent with our strategic imperatives.
Summary of Results
This Summary of Results provides significant highlights from the discussion and analysis that follows.
• Net sales decreased 1% in 2017 to $7.890 billion, primarily due to lower volume and increased promotional spending.
• Gross profit, as a percent of sales, increased to 38.8% from 34.9% a year ago. The increase was primarily due to gains
on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior
year, productivity improvements and increased benefits from cost savings initiatives, partially offset by higher supply
chain costs and cost inflation, and higher promotional spending.
• Administrative expenses decreased 24% to $488 million from $641 million a year ago. The decrease was primarily due
to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the
prior year, increased benefits from cost savings initiatives, lower incentive compensation costs and lower costs related
to the implementation of the new organizational structure and cost savings initiatives, partially offset by inflation and
investments in long-term innovation.
• Other expenses increased to $238 million in 2017 from $131 million in 2016, primarily due to non-cash impairment
charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and
the Garden Fresh Gourmet reporting unit in 2017. In 2016, we recorded a $141 million non-cash impairment charge on
the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit, partially offset by a gain from
the settlement of a claim related to the Kelsen acquisition.
• The effective tax rate was 31.4% in 2017, compared to 33.7% in 2016. In 2017, the effective rate reflected a tax benefit
of $52 million primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in
the recognition of foreign exchange losses on the notes for tax purposes.
• Earnings per share were $2.89 in 2017, compared to $1.81 a year ago. The current and prior year included expenses of
$.15 and $1.13 per share, respectively, from items impacting comparability as discussed below.
• Cash flow from operations was $1.291 billion in 2017, compared to $1.491 billion in 2016. The decline was primarily
due to lapping significant reductions in working capital in the prior year, as well as lower cash earnings and lower receipts
from hedging activities in the current year.
16
Net Earnings attributable to Campbell Soup Company - 2017 Compared with 2016
The following items impacted the comparability of earnings and earnings per share:
•
•
•
•
•
In 2017, we recognized gains of $178 million in Costs and expenses ($116 million after tax, or $.38 per share) associated
with mark-to-market adjustments for defined benefit pension and postretirement plans. In 2016, we recognized losses of
$313 million in Costs and expenses ($200 million after tax, or $.64 per share) associated with mark-to-market adjustments
for defined benefit pension and postretirement plans;
In 2015, we implemented a new enterprise design and initiatives to reduce costs and to streamline our organizational
structure. In 2017, we expanded these cost savings initiatives by further optimizing our supply chain network, primarily
in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent
acquisitions. In 2017, we recorded a pre-tax restructuring charge of $18 million and implementation costs and other
related costs of $36 million in Administrative expenses and $4 million in Cost of products sold (aggregate impact of $37
million after tax, or $.12 per share) related to these initiatives. In 2016, we recorded a pre-tax restructuring charge of $35
million and implementation costs and other related costs of $47 million in Administrative expenses related to these
initiatives. In 2016, we also recorded a reduction to pre-tax restructuring charges of $4 million related to the 2014
initiatives. The aggregate after-tax impact in 2016 of restructuring charges, implementation costs and other related costs
was $49 million, or $.16 per share. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and
Cost Savings Initiatives" for additional information;
In the second quarter of 2017, we performed an interim impairment assessment on the intangible assets of the Bolthouse
Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit as operating performance
was well below expectations and a new leadership team of the Campbell Fresh division initiated a strategic review which
led to a revised outlook for future sales, earnings, and cash flow. We recorded a non-cash impairment charge of $147
million ($139 million after tax, or $.45 per share) related to intangible assets of the Bolthouse Farms carrot and carrot
ingredients reporting unit and a non-cash impairment charge of $65 million ($41 million after tax, or $.13 per share)
related to the intangible assets of the Garden Fresh Gourmet reporting unit (aggregate pre-tax impact of $212 million,
$180 million after tax, or $.59 per share). In the fourth quarter of 2016, as part of the annual review of intangible assets,
we recorded a non-cash impairment charge of $141 million ($127 million after tax, or $.41 per share) related to the
intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit. The charges are included in Other
expenses / (income). See Note 5 to the Consolidated Financial Statements for additional information;
In 2017, we recorded a tax benefit of $52 million in Taxes on earnings primarily related to the sale of intercompany notes
receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax
purposes. In addition, we recorded a $6 million reduction to interest expense ($4 million after tax) related to premiums
and fees received on the sale of the notes. The aggregate impact was $56 million after tax, or $.18 per share. See Note
11 to the Consolidated Financial Statements for additional information; and
In 2016, we recorded a gain of $25 million ($.08 per share) in Other expenses / (income) from a settlement of a claim
related to the Kelsen acquisition. The claim was for a warranty breach and has no meaningful ongoing impact on Kelsen.
The items impacting comparability are summarized below:
(Millions, except per share amounts)
Net earnings attributable to Campbell Soup Company . . . . . . . . . . . . . . . . . . . . $
2017
2016
EPS
Impact
Earnings
Impact
EPS
Impact
Earnings
Impact
887
$
2.89
$
563
$
1.81
Pension and postretirement benefit mark-to-market adjustments . . . . . . . . . . . . $
Restructuring charges, implementation costs and other related costs . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Claim settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of items on Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$
116
(37)
(180)
56
—
(45) $
$
.38
(.12)
(.59)
.18
—
(.15) $
(200) $
(49)
(127)
—
25
(351) $
(.64)
(.16)
(.41)
—
.08
(1.13)
Net earnings attributable to Campbell Soup Company were $887 million ($2.89 per share) in 2017, compared to $563 million
($1.81 per share) in 2016. After adjusting for items impacting comparability, earnings increased primarily due to an improved
gross profit performance and lower administrative expenses, partially offset by lower sales. Earnings per share benefited from a
reduction in the weighted average diluted shares outstanding, primarily due to share repurchases under our strategic share repurchase
program.
17
Net Earnings attributable to Campbell Soup Company - 2016 Compared with 2015
In addition to the 2016 items that impacted comparability of Net earnings discussed above, the following items impacted the
comparability of earnings and earnings per share:
•
•
In 2015, we recognized losses of $138 million in Costs and expenses ($87 million after tax, or $.28 per share) associated
with mark-to-market adjustments for defined benefit pension and postretirement plans; and
In 2015, we recorded a pre-tax restructuring charge of $102 million and implementation costs of $22 million recorded
in Administrative expenses related to the 2015 initiatives (aggregate impact of $78 million after tax, or $.25 per share).
See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for
additional information.
The items impacting comparability are summarized below:
(Millions, except per share amounts)
2016
2015
Earnings
Impact
EPS
Impact
Earnings
Impact
EPS
Impact
Net earnings attributable to Campbell Soup Company . . . . . . . . . . . . . . . . . . . . $
563
$
1.81
$
666
$
2.13
Pension and postretirement benefit mark-to-market adjustments . . . . . . . . . . . . $
Restructuring charges, implementation costs and other related costs . . . . . . . . .
Impairment charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Claim settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of items on Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(200) $
(49)
(127)
25
(351) $
(.64) $
(.16)
(.41)
.08
(1.13) $
(87) $
(78)
—
—
(165) $
(.28)
(.25)
—
—
(.53)
Net earnings were $563 million ($1.81 per share) in 2016, compared to $666 million ($2.13 per share) in 2015. After adjusting
for items impacting comparability, earnings increased primarily due to an improved gross profit performance, lower administrative
expenses and lower marketing and selling expenses, partially offset by the negative impact of currency translation and a higher
effective tax rate.
Net earnings (loss) attributable to noncontrolling interests
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support our soup and broth business
in China.
We own a 70% controlling interest in a Malaysian food products manufacturing company.
In addition, beginning in 2016, we own a 99.8% interest in Acre Venture Partners, L.P., a limited partnership formed to make
venture capital investments in innovative new companies in food and food-related industries. See Note 14 to the Consolidated
Financial Statements for additional information.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling
interests in the Consolidated Statements of Earnings.
DISCUSSION AND ANALYSIS
Sales
An analysis of net sales by reportable segment follows:
(Millions)
Americas Simple Meals and Beverages . . . $
Global Biscuits and Snacks . . . . . . . . . . . . .
Campbell Fresh . . . . . . . . . . . . . . . . . . . . . .
$
2017
2016
2015
2017/2016
2016/2015
4,325
2,598
967
7,890
$
$
4,380
2,564
1,017
7,961
$
$
4,483
2,631
968
8,082
(1)%
1
(5)
(1)%
(2)%
(3)
5
(1)%
% Change
18
An analysis of percent change of net sales by reportable segment follows:
2017 versus 2016
Volume and Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increased)/Decreased Promotional Spending(1) . . . . .
Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas Simple
Meals and
Beverages(2)
Global Biscuits
and Snacks(2)
Campbell Fresh(2)
(1)%
(1)
—
(1)%
1%
—
1
1%
(5)%
1
—
(5)%
2016 versus 2015
Americas Simple
Meals and
Beverages
Global Biscuits
and Snacks(2)
Campbell Fresh(2)
Volume and Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2)%
Price and Sales Allowances. . . . . . . . . . . . . . . . . . . . .
Increased Promotional Spending(1) . . . . . . . . . . . . . . .
Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
—
(1)
—
1%
1
—
(4)
—
(2)%
(3)%
(3)%
—
(1)
—
10
5%
__________________________________________
(1) Represents revenue reductions from trade promotion and consumer coupon redemption programs.
(2) Sum of the individual amounts does not add due to rounding.
Total(2)
(1)%
(1)
—
(1)%
Total
(1)%
1
—
(2)
1
(1)%
In 2017, Americas Simple Meals and Beverages sales decreased 1% primarily due to declines in V8 beverages and soup,
partly offset by gains in Prego pasta sauces and Campbell's pasta. U.S. soup sales decreased 1% due to declines in condensed
soups and broth, partly offset by gains in ready-to-serve soups. Gains in ready-to-serve soups were primarily driven by Campbell’s
Chunky soups due to improved execution, including merchandising and dedicated advertising, as well as new items, and the launch
of Well Yes! soups. Promotional spending had a negative impact of 1% on sales, with increases on broth, in Canada and on V8
beverages. We increased promotional spending on broth and V8 beverages to remain competitive, and in Canada to hold certain
promoted prices following list price increases. For 2018, we were unable to reach an agreement with a large customer on a
promotional program for U.S. soup. As a result, we expect our U.S. soup sales to decline in 2018.
In 2016, Americas Simple Meals and Beverages sales decreased 2%. Sales decreased primarily due to declines in soup and
V8 beverages, partially offset by gains in Prego pasta sauces, Plum products and Pace Mexican sauces. U.S. soup sales decreased
4% primarily as a result of the impact of our net price realization actions and category declines, which were partly related to
warmer weather. Further details of U.S. soup include:
•
•
Sales of condensed soups were comparable to the prior year.
Sales of ready-to-serve soups declined 13%. The sales decrease in ready-to-serve soups was also due to marketing
execution issues on Campbell's Chunky soups.
• Broth sales increased 1%.
V8 beverages continued to be under pressure from competition from specialty and packaged fresh beverages.
In 2017, Global Biscuits and Snacks sales increased 1% reflecting a 1% favorable impact from currency translation. Excluding
the favorable impact of currency translation, segment sales were comparable to the prior year as gains in Pepperidge Farm were
offset by declines in Kelsen, mostly in the U.S., and in Arnott's in Indonesia. Pepperidge Farm sales increased due to gains in
Goldfish crackers and in cookies, benefiting from new items, partly offset by declines in fresh bakery and frozen products.
In 2016, Global Biscuits and Snacks sales decreased 3% reflecting a 4% negative impact from currency translation. Excluding
the negative impact of currency translation, segment sales increased primarily due to gains in Goldfish crackers and Arnott's
biscuits in Australia, partially offset by declines in Kelsen.
In 2017, Campbell Fresh sales decreased 5% primarily due to lower sales of refrigerated beverages and carrots, partly offset
by gains in refrigerated soup. The decrease in refrigerated beverages reflects the adverse impact of supply constraints related to
enhanced quality processes following the voluntary recall of Bolthouse Farms Protein PLUS drinks in June 2016. The carrot sales
performance reflects the market share impact of quality and execution issues experienced in 2016, as well as the adverse impact
of weather conditions in the second quarter of 2017.
19
In 2016, Campbell Fresh sales increased 5% primarily due to the acquisition of Garden Fresh Gourmet, which was acquired
on June 29, 2015. Excluding the acquisition, sales declined reflecting lower sales in carrots and carrot ingredients, partially offset
by gains in refrigerated beverages and salad dressings. In 2016, carrot sales performance primarily reflected the adverse impact
of weather conditions on crop yields, and execution issues in response to those conditions, which led to customer dissatisfaction
and a loss of business in the second half of the year. The increase in refrigerated beverages was primarily due to new product
launches, partially offset by the impact of the voluntary recall of Bolthouse Farms Protein PLUS drinks in June 2016. In 2016,
promotional spending was increased to remain competitive and to support new product launches.
Gross Profit
Gross profit, defined as Net sales less Cost of products sold, increased by $279 million in 2017 from 2016 and decreased by
$2 million in 2016 from 2015. As a percent of sales, gross profit was 38.8% in 2017, 34.9% in 2016 and 34.4% in 2015.
The 3.9 percentage-point increase in gross profit percentage in 2017 and 0.5 percentage-point increase in gross profit percentage
in 2016 were due to the following factors:
Pension and postretirement benefit mark-to-market adjustments(1). . . . . . . . . . . . . . . . . . . . . . . . . .
Productivity improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Higher selling prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Higher level of promotional spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost inflation, supply chain costs and other factors(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Margin Impact
2017
3.3%
1.8
0.1
0.1
(0.4)
(1.0)
—
3.9%
2016
(1.2)%
2.0
0.6
0.4
(0.2)
(0.8)
(0.3)
0.5%
__________________________________________
(1) Pension and postretirement benefit mark-to-market gains were $85 in 2017 and losses were $176 million in 2016.
(2) 2017 includes a positive margin impact of 1 point from cost savings initiatives. 2016 includes a positive margin impact of
0.6 points from cost savings initiatives.
Marketing and Selling Expenses
Marketing and selling expenses as a percent of sales were 10.4% in 2017, 11.2% in 2016 and 10.9% in 2015. Marketing and
selling expenses decreased 9% in 2017 from 2016. The decrease was primarily due to gains on pension and postretirement benefit
mark-to-market adjustments in the current year compared to losses in the prior year (approximately 8 percentage points); increased
benefits from cost savings initiatives (approximately 2 percentage points); and lower incentive compensation costs (approximately
1 percentage point), partially offset by higher selling expenses (approximately 1 percentage point) and inflation (approximately
1 percentage point).
Marketing and selling expenses increased 1% in 2016 from 2015. The increase was due to increased losses on pension and
postretirement benefit mark-to-market adjustments (approximately 3 percentage points); higher advertising and consumer
promotion expenses (approximately 2 percentage points); lower marketing overhead expenses and lower selling expenses
(approximately 1 percentage point); and inflation (approximately 1 percentage point), partially offset by benefits from cost savings
initiatives (approximately 4 percentage points) and the impact of currency translation (approximately 2 percentage points). The
increase in advertising and consumer promotion expenses in 2016 was primarily in Global Biscuits and Snacks.
Administrative Expenses
Administrative expenses as a percent of sales were 6.2% in 2017, 8.1% in 2016 and 7.4% in 2015. Administrative expenses
decreased 24% in 2017 from 2016. The decrease was primarily due to gains on pension and postretirement benefit mark-to-market
adjustments in the current year compared to losses in the prior year (approximately 19 percentage points); increased benefits from
cost savings initiatives (approximately 3 percentage points); lower incentive compensation costs (approximately 3 percentage
points); and lower costs related to the implementation of the new organizational structure and cost savings initiatives (approximately
2 percentage points), partially offset by inflation (approximately 2 percentage points) and investments in long-term innovation
(approximately 1 percentage point).
Administrative expenses increased 7% in 2016 from 2015. The increase was primarily due to increased losses on pension and
postretirement benefit mark-to-market adjustments (approximately 7 percentage points); higher costs related to the implementation
of the new organizational structure and cost savings initiatives (approximately 4 percentage points); inflation (approximately 2
percentage points); and higher incentive compensation costs (approximately 1 percentage point), partially offset by benefits from
20
cost savings initiatives (approximately 6 percentage points) and the impact of currency translation (approximately 1 percentage
point).
Research and Development Expenses
Research and development expenses decreased $26 million, or 21%, in 2017 from 2016. The decrease was primarily due to
gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year
(approximately 25 percentage points); increased benefits from cost savings initiatives (approximately 2 percentage points); and
lower incentive compensation costs (approximately 2 percentage points), partially offset by inflation and other factors
(approximately 7 percentage points) and investments in long-term innovation (approximately 1 percentage point).
Research and development expenses increased $7 million, or 6%, in 2016 from 2015. The increase was primarily due to
increased losses on pension and postretirement benefit mark-to-market adjustments (approximately 9 percentage points) and
increased costs to support long-term innovation (approximately 3 percentage points), partially offset by benefits from cost savings
initiatives (approximately 6 percentage points).
Other Expenses / (Income)
Other expenses in 2017 included non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms
carrot and carrot ingredients reporting unit, and the Garden Fresh Gourmet reporting unit, which are part of the Campbell Fresh
segment. The impairment charges were recorded as a result of an interim impairment assessment on the intangible assets of these
reporting units in the second quarter. In addition, 2017 included $19 million of amortization of intangible assets.
Other expenses in 2016 included a non-cash impairment charge of $141 million on the intangible assets of the Bolthouse
Farms carrot and carrot ingredients reporting unit. The impairment charge was recorded as a result of our annual review of intangible
assets. In addition, 2016 included $20 million of amortization of intangible assets and a $25 million gain from a settlement of a
claim related to the Kelsen acquisition.
Other expenses in 2015 included $17 million of amortization of intangible assets and an impairment charge of $6 million
related to minor trademarks used in the Global Biscuits and Snacks segment.
See Note 5 to the Consolidated Financial Statements for additional information on the impairment charges.
Operating Earnings
Segment operating earnings increased 1% in 2017 from 2016 and increased 11% in 2016 from 2015.
An analysis of operating earnings by segment follows:
(Millions)
Americas Simple Meals and Beverages . . . . . . . . . . . . . . . . . . . . .
Global Biscuits and Snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Campbell Fresh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before interest and taxes. . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$ 1,120
454
(9)
1,565
(147)
(18)
2016
2015
2017/2016
2016/2015
% Change(2)
$ 1,069
$
422
60
1,551
(560)
(31)
5%
8
n/m
1%
13%
10
(2)
11%
948
383
61
1,392
(236)
(102)
1,054
$
1,400
$
960
$
__________________________________________
(1) See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges.
(2) n/m - Not meaningful.
Operating earnings from Americas Simple Meals and Beverages increased 5% in 2017 versus 2016. The increase was primarily
due to a higher gross profit percentage, benefiting from productivity improvements, and lower administrative expenses, partly
offset by volume declines.
Operating earnings from Americas Simple Meals and Beverages increased 13% in 2016 versus 2015. The increase was
primarily due to a higher gross profit percentage, benefiting from productivity improvements and increased net price realization,
as well as lower marketing and selling expenses, partially offset by volume declines.
Operating earnings from Global Biscuits and Snacks increased 8% in 2017 versus 2016. The increase was primarily due to
lower administrative expenses, lower marketing and selling expenses and the favorable impact of currency translation.
21
Operating earnings from Global Biscuits and Snacks increased 10% in 2016 versus 2015. The increase was primarily due to
a higher gross profit percentage, volume gains, lower selling expenses and lower administrative expenses, partly offset by the
negative impact of currency translation and higher advertising and consumer promotion expenses.
Operating earnings from Campbell Fresh decreased from $60 million in 2016 to a loss of $9 million in 2017. The decrease
was primarily due to lower volume and unfavorable mix; higher carrot costs, which were partly associated with the adverse impact
on crop yields of heavy rains in December and January of this fiscal year, as well as excess organic carrots; the cost impact of
both lower beverage operating efficiencies and enhanced quality processes; and higher administrative expenses.
Operating earnings from Campbell Fresh decreased 2% in 2016 versus 2015. The decrease was primarily due to higher carrot
costs, and the impact of the voluntary recall of Bolthouse Farms Protein PLUS drinks and the related production outages, partially
offset by productivity improvements and lower administrative expenses.
Corporate in 2017 included a $178 million gain associated with pension and postretirement benefit mark-to-market
adjustments, non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot
ingredients reporting unit and the Garden Fresh Gourmet reporting unit, and costs of $40 million related to the implementation
of our new organizational structure and cost savings initiatives. Corporate in 2016 included a $313 million loss associated with
pension and postretirement benefit mark-to-market adjustments, a non-cash impairment charge of $141 million on the intangible
assets of the Bolthouse Farms carrot and carrot ingredients reporting unit, costs of $47 million related to the implementation of
our new organizational structure and cost savings initiatives, and a $25 million gain from a settlement of a claim related to the
Kelsen acquisition. The remaining decrease in 2017 was primarily due to lower postretirement benefit costs as a result of
amortization of prior service credit, partially offset by investments in long-term innovation.
Corporate in 2015 included a $138 million loss associated with pension and postretirement benefit mark-to-market adjustments
and costs of $22 million related to the implementation of our new organizational structure and cost savings initiatives. The remaining
increase in 2016 was primarily due to an increase in pension benefit cost, resulting from a reduction in expected return on assets
partially offset by lower interest cost.
Interest Expense
Interest expense decreased to $112 million in 2017 from $115 million in 2016. In 2017, we recorded a $6 million reduction
to interest expense related to premiums and fees received from the sale of intercompany notes receivable to a financial institution.
Excluding the premium and fees, interest expense increased reflecting higher average interest rates on the debt portfolio, partially
offset by lower average levels of debt.
Interest expense increased to $115 million in 2016 from $108 million in 2015, reflecting higher average interest rates on the
debt portfolio, partially offset by lower average levels of debt.
Taxes on Earnings
The effective tax rate was 31.4% in 2017, 33.7% in 2016 and 29.8% in 2015.
The following items impacted the tax rate in 2017 and 2016:
•
•
•
•
In 2017, we recognized a tax benefit of $52 million primarily related to the sale of intercompany notes receivable to a
financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes;
In 2017, we recognized tax expense of $62 million on $178 million of pension and postretirement benefit mark-to-market
gains. In 2016, we recognized a tax benefit of $113 million on $313 million of pension and postretirement benefit mark-
to-market losses;
In 2017, we recognized a $32 million tax benefit on the $212 million impairment charges on the intangible assets of the
Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit. In 2016, we
recognized a $14 million tax benefit on the $141 million impairment charge on the trademark and goodwill associated
with the Bolthouse Farms carrot and carrot ingredients reporting unit;
In 2017, we recognized a $21 million tax benefit on $58 million of restructuring charges, implementation costs and other
related costs. In 2016, we recognized a $29 million tax benefit on $78 million of restructuring charges, implementation
costs and other related costs; and
•
In 2016, the $25 million gain from a settlement of a claim related to the Kelsen acquisition was not subject to tax.
In addition, in 2017 the effective rate was favorably impacted by the recognition of $6 million of excess tax benefits in
connection with the adoption of new accounting guidance on stock-based compensation in the first quarter. See Note 2 to the
Consolidated Financial Statements for additional information on the adoption of the new accounting guidance.
In 2015, we recognized a tax benefit of $51 million on $138 million of pension and postretirement benefit mark-to-market
losses and a $46 million tax benefit on $124 million of restructuring charges and implementation costs. After adjusting for the
22
items above, the remaining increase in the effective tax rate in 2016 was primarily due to lapping the favorable resolution of an
intercompany pricing agreement between the U.S. and Canada in 2015.
Restructuring Charges and Cost Savings Initiatives
2015 Initiatives
On January 29, 2015, we announced plans to implement a new enterprise design focused mainly on product categories. Under
the new structure, which we fully implemented at the beginning of 2016, our businesses are organized in the following divisions:
Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.
In support of the new structure, we designed and implemented a new Integrated Global Services organization to deliver shared
services across the company. We also streamlined our organizational structure, implemented an initiative to reduce overhead across
the organization and are pursuing other initiatives to reduce costs and increase effectiveness, such as adopting zero-based budgeting
over time. As part of these initiatives, we commenced a voluntary employee separation program available to certain U.S.-based
salaried employees nearing retirement who met age, length-of-service and business unit/function criteria. A total of 471 employees
elected the program. The electing employees remained with us through at least July 31, 2015, with some remaining beyond that
date.
In February 2017, we announced that we are expanding these cost savings initiatives by further optimizing our supply chain
network, primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating
our recent acquisitions. We have extended the time horizon for the initiatives from 2018 to 2020. Cost estimates for these expanded
initiatives, as well as timing for certain activities, are being developed.
A summary of the restructuring charges we recorded and charges incurred in Administrative expenses and Cost of products
sold related to the implementation of the new organizational structure and costs savings initiatives is as follows:
(Millions, except per share amounts)
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total pre-tax charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Aggregate after-tax impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Per share impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
A summary of the pre-tax costs associated with the initiatives is as follows:
(Millions)
2017
2016
2015
18
36
4
58
37
.12
$
$
$
35
47
—
82
52
.17
$
$
$
102
22
—
124
78
.25
Recognized as of
July 30, 2017
Severance pay and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Asset impairment/accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Implementation costs and other related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
135
12
117
264
The total estimated pre-tax costs for actions that have been identified are approximately $380 million to $420 million. This
estimate will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions that have been identified to date to consist of the following: approximately $135 million in
severance pay and benefits; approximately $20 million in asset impairment and accelerated depreciation; and approximately $225
million to $265 million in implementation costs and other related costs.We expect these pre-tax costs to be associated with our
segments as follows: Americas Simple Meals and Beverages - approximately 30%; Global Biscuits and Snacks - approximately
38%; Campbell Fresh - approximately 4%; and Corporate - approximately 28%.
Of the aggregate $380 million to $420 million of pre-tax costs identified to date, we expect approximately $350 million to
$390 million will be cash expenditures. In addition, we expect to invest approximately $180 million in capital expenditures through
2019 primarily related to the construction of a network of distribution centers for our U.S. thermal plants and insourcing of
manufacturing for certain simple meal products, of which we invested approximately $10 million as of July 30, 2017.
We expect to incur substantially all of the costs through 2019 and to fund the costs through cash flows from operations and
short-term borrowings.
23
We expect the initiatives for actions that have been identified to date to generate pre-tax savings of $390 million in 2018, and
once all phases are implemented, to generate annual ongoing savings of approximately $450 million beginning in 2020. The annual
pre-tax savings generated by the initiatives were as follows:
(Millions)
2017
2016
2015
Total pre-tax savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
325
$
215
$
85
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 incurred to date associated with segments
is as follows:
(Millions)
Americas Simple Meals and Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Global Biscuits and Snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Campbell Fresh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2017
Costs Incurred to
Date
21
12
4
21
58
$
$
92
78
6
88
264
2014 Initiatives
In 2014, we implemented initiatives to reduce overhead across the organization, restructure manufacturing and streamline
operations for our soup and broth business in China and improve supply chain efficiency in Australia.
In 2016, we recorded a reduction to restructuring charges of $4 million ($3 million after tax, or $.01 per share) related to the
2014 initiatives. As of July 31, 2016, we incurred substantially all of the costs related to the 2014 initiatives.
A summary of the pre-tax costs associated with the 2014 initiatives is as follows:
(Millions)
Total Program(1)
Change in
Estimate
Recognized as of
July 31, 2016
Severance pay and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
41
12
1
54
$
$
(4) $
—
—
(4) $
37
12
1
50
______________________________________
(1) Recognized as of August 2, 2015.
See Note 7 to the Consolidated Financial Statements for additional information.
LIQUIDITY AND CAPITAL RESOURCES
We expect foreseeable liquidity and capital resource requirements to be met through anticipated cash flows from operations;
long-term borrowings; short-term borrowings, including commercial paper; credit facilities; and cash and cash equivalents. We
believe that our sources of financing will be adequate to meet our future requirements.
We generated cash flows from operations of $1.291 billion in 2017, compared to $1.491 billion in 2016. The decline in 2017
was primarily due to lapping significant reductions in working capital in the prior year, as well as lower cash earnings and lower
receipts from hedging activities in the current year.
We generated cash flows from operations of $1.491 billion in 2016, compared to $1.206 billion in 2015. The increase in 2016
was primarily due to higher cash earnings and lower working capital requirements, primarily inventories.
Current assets are less than current liabilities as a result of our level of current maturities of long-term debt and short-term
borrowings and our focus to lower core working capital requirements by reducing trade receivables and inventories while extending
payment terms for accounts payables. We had negative working capital of $495 million as of July 30, 2017, and $647 million as
of July 31, 2016. Debt maturing within one year was $1.037 billion as of July 30, 2017, and $1.219 billion as of July 31, 2016.
Capital expenditures were $338 million in 2017, $341 million in 2016 and $380 million in 2015. Capital expenditures are
expected to total approximately $400 million in 2018. Capital expenditures in 2017 included projects to expand: Australian multi-
pack biscuit capacity (approximately $15 million); beverage and salad dressing capacity at Bolthouse Farms (approximately $8
million); and capacity at Garden Fresh (approximately $3 million); as well as the continued enhancement of our corporate
24
headquarters (approximately $11 million); replacement of a Pepperidge Farm refrigeration system (approximately $12 million);
and a U.S. warehouse optimization project (approximately $10 million). Capital expenditures in 2016 included projects to expand:
beverage and salad dressing capacity at Bolthouse Farms (approximately $22 million); biscuit capacity in Indonesia (approximately
$11 million); warehouse capacity in North America (approximately $11 million); cracker capacity at Pepperidge Farm
(approximately $9 million); and capacity in Malaysia (approximately $6 million); as well as the continued enhancement of our
corporate headquarters (approximately $15 million) and the ongoing initiative to simplify the soup-making process in North
America (also known as the soup common platform initiative) (approximately $5 million). Capital expenditures in 2015 included
projects to expand: cracker capacity at Pepperidge Farm (approximately $36 million); beverage and salad dressing capacity at
Bolthouse Farms (approximately $33 million); warehouse capacity at Bolthouse Farms (approximately $13 million); biscuit
capacity in Indonesia (approximately $13 million); and aseptic broth capacity (approximately $6 million); as well as the ongoing
soup common platform initiative in North America (approximately $30 million); and continued enhancement of our corporate
headquarters (approximately $12 million).
On June 29, 2015, we completed the acquisition of the assets of Garden Fresh Gourmet. The purchase price was $232 million,
and was funded through the issuance of commercial paper.
On July 6, 2017, we entered into an agreement to acquire Pacific Foods of Oregon, Inc. (Pacific Foods) for $700 million,
subject to customary purchase price adjustments related to the amount of Pacific Foods' cash, debt, working capital and transaction
expenses. We expect to fund the acquisition through debt. The closing of the transaction is subject to customary closing conditions
and termination rights. The agreement provides that if we fail to close the transaction when all conditions to closing have been
satisfied or if we are in breach of the agreement, we will be required to pay Pacific Foods a $50 million termination fee. On
August 21, 2017, the estate of a former Pacific Foods shareholder, Edward C. Lynch, filed a lawsuit against Pacific Foods and
certain of its directors, among others, seeking in excess of $250 million in damages. Because of the impediment that the lawsuit
creates to closing, on September 27, 2017, we noticed Pacific Foods that it has 60 days under the terms of the agreement to resolve
the issues arising from the suit if the transaction is to close. After the 60-day period, we may in our sole discretion extend the cure
period or terminate the agreement. We do not believe a termination of the agreement under these circumstances will result in any
termination fee payable by us. For additional information on this pending acquisition, see our Form 8-K filed with the U.S.
Securities and Exchange Commission on July 6, 2017.
In June 2017, we sold intercompany notes to a financial institution, including an AUD $280 million, or $224 million, note
with an interest rate of 4.88% that matures on September 18, 2018, and an AUD $190 million, or $152 million, note with an interest
rate of 6.98% that matures on March 29, 2021, but is payable upon demand. Interest on both notes is due semi-annually on
January 23 and July 23. The net proceeds were used for general corporate purposes.
In March 2015, we issued $300 million of 3.30% notes that mature on March 19, 2025. Interest on the notes is due semi-
annually on March 19 and September 19, commencing on September 19, 2015. The notes may be redeemed in whole, or in part,
at our option at any time at the applicable redemption price. In certain circumstances, we may be required to repurchase some or
all of the notes upon a change in control of our company and a downgrade of the notes below investment grade. The net proceeds
were used for general corporate purposes.
Dividend payments were $420 million in 2017, $390 million in 2016 and $394 million in 2015. Annual dividends declared
were $1.40 per share in 2017, and $1.248 per share in 2016 and 2015. The 2017 fourth quarter dividend was $.35 per share.
We repurchased approximately 8 million shares at a cost of $437 million in 2017, approximately 3 million shares at a cost of
$143 million in 2016, and approximately 5 million shares at a cost of $244 million in 2015. See Note 16 to the Consolidated
Financial Statements and "Market for Registrant's Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity
Securities" for more information.
As of July 30, 2017, we had $1.037 billion of short-term borrowings due within one year, of which $874 million was comprised
of commercial paper borrowings. As of July 30, 2017, we issued $48 million of standby letters of credit. We have a committed
revolving credit facility totaling $1.85 billion that matures in December 2021. This U.S. facility remained unused at July 30, 2017,
except for $1 million of standby letters of credit that we issued under it. The U.S. facility supports our commercial paper programs
and other general corporate purposes. In July 2016, we entered into a Canadian committed revolving credit facility that matures
in July 2019. As of July 30, 2017, the total commitment under the Canadian facility was CAD $170 million, or $137 million, and
we had borrowings of CAD $162 million, or $130 million, at a rate of 2.09% under this facility. The Canadian facility supports
general corporate purposes.
In July 2017, we filed a shelf registration statement with the Securities and Exchange Commission that registered an
indeterminate amount of debt securities. Under the registration statement, we may issue debt securities from time to time, depending
on market conditions.
We are in compliance with the covenants contained in our revolving credit facilities and debt securities.
25
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
Contractual Obligations
The following table summarizes our obligations and commitments to make future payments under certain contractual
obligations as of July 30, 2017. For additional information on debt, see Note 12 to the Consolidated Financial Statements. Operating
leases are primarily entered into for warehouse and office facilities and certain equipment. Purchase commitments represent
purchase orders and long-term purchase arrangements related to the procurement of ingredients, supplies, machinery, equipment
and services. These commitments are not expected to have a material impact on liquidity. Other long-term liabilities primarily
represent payments related to deferred compensation obligations. For additional information on other long-term liabilities, see
Note 19 to the Consolidated Financial Statements.
(Millions)
Debt obligations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest payments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative payments(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term payments(4) . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term cash obligations . . . . . . . . . . . . . . . . . . . . . . $
Contractual Payments Due by Fiscal Year
Total
2018
2019-2020
2021-2022
Thereafter
3,548
$
1,037
$
710
44
1,125
163
145
113
43
813
38
—
$
655
164
1
211
64
58
701
101
—
66
40
32
$
1,155
332
—
35
21
55
5,735
$
2,044
$
1,153
$
940
$
1,598
_______________________________________
(1) Excludes unamortized net discount/premium on debt issuances and debt issuance costs. For additional information on debt
(2)
obligations, see Note 12 to the Consolidated Financial Statements.
Interest payments for short- and long-term borrowings are based on principal amounts and coupons or contractual rates at
fiscal year end.
(3) Represents payments of foreign exchange forward contracts, commodity contracts and forward starting interest rate swaps.
(4) Represents other long-term liabilities, excluding unrecognized tax benefits, postretirement benefits and payments related to
pension plans. For additional information on pension and postretirement benefits, see Note 10 to the Consolidated Financial
Statements. For additional information on unrecognized tax benefits, see Note 11 to the Consolidated Financial Statements.
In July 2017, we entered into an agreement to acquire Pacific Foods for $700 million. For additional information on this
pending acquisition, see our Form 8-K filed with the U.S. Securities and Exchange Commission on July 6, 2017, and Note 3 to
the Consolidated Financial Statements.
Off-Balance Sheet Arrangements and Other Commitments
We guarantee approximately 2,000 bank loans to Pepperidge Farm independent contractor distributors by third-party financial
institutions used to purchase distribution routes. The maximum potential amount of the future payments under existing guarantees
we could be required to make is $204 million. Our guarantees are indirectly secured by the distribution routes. We do not believe
that it is probable that we will be required to make material guarantee payments as a result of defaults on the bank loans guaranteed.
See also Note 18 to the Consolidated Financial Statements for information on off-balance sheet arrangements.
INFLATION
We are exposed to the impact of inflation on our cost of products sold. We use a number of strategies to mitigate the effects
of cost inflation including increasing prices, commodity hedging and pursuing cost productivity initiatives such as global
procurement strategies and capital investments that improve the efficiency of operations.
MARKET RISK SENSITIVITY
The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity
prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. We manage our
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. International operations, which accounted for 19%
of 2017 net sales, are concentrated principally in Australia and Canada. We manage our foreign currency exposures by borrowing
in various foreign currencies and utilizing cross-currency swaps and foreign exchange forward contracts. We enter into cross-
currency swaps and foreign exchange forward contracts for periods consistent with 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.
26
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, soybean oil, natural gas, cocoa,
aluminum, butter, corn, soybean meal and cheese, which impact the cost of raw materials.
The information below summarizes our market risks associated with debt obligations and other significant financial instruments
as of July 30, 2017. Fair values included herein have been determined based on quoted market prices or pricing models using
current market rates. The information presented below should be read in conjunction with Notes 12, 13 and 15 to the Consolidated
Financial Statements.
The following table presents principal cash flows and related interest rates by fiscal year of maturity for debt obligations.
Interest rates disclosed on variable-rate debt represent the weighted-average rates at July 30, 2017. Notional amounts and related
interest rates of interest rate swaps are presented by fiscal year of maturity. For the swaps, variable rates are the weighted-average
forward rates for the term of each contract.
2018
(Millions)
Debt(1)
Fixed rate(2) . . . . . . . . . . . . . . . . . . . $ 153
Weighted-average interest rate . . . .
Variable rate(3) . . . . . . . . . . . . . . . . . $ 884
Weighted-average interest rate . . . .
Interest Rate Swaps
6.97%
1.34%
Expected Fiscal Year of Maturity
2019
2020
2021
2022
Thereafter
Total
$ 524
$
1
$ 700
$
1
$ 1,155
$ 2,534
4.66%
5.00%
5.57%
5.00%
3.17%
4.37%
$ 130
$ — $ — $ — $ — $ 1,014
2.09%
—%
—%
—%
—%
1.44%
Fair Value
of
Liabilities
$
$
2,620
1,015
Cash-flow swaps
Variable to fixed. . . . . . . . . . . . . . $ 300
Average pay rate . . . . . . . . . . . . .
3.09%
Average receive rate. . . . . . . . . . .
2.27%
$ — $ — $ — $ — $ — $
300
$
22
—%
—%
—%
—%
—%
—%
—%
—%
—%
—%
3.09%
2.27%
_______________________________________
(1) Expected maturities exclude unamortized net discount/premium on debt issuances and debt issuance costs.
(2) Represents $2.150 billion of USD borrowings, $376 million equivalent of AUD borrowings and $8 million equivalent of
borrowings in other currencies.
(3) Represents $874 million of USD borrowings, $130 million equivalent of CAD borrowings and $10 million equivalent of
borrowings in other currencies.
As of July 31, 2016, fixed-rate debt of approximately $2.56 billion with an average interest rate of 3.97% and variable-rate
debt of approximately $991 million with an average interest rate of 1.02% were outstanding. As of July 31, 2016, forward starting
interest rate swaps with a notional amount of $300 million were outstanding. The average rate to be received on these swaps was
1.47%, and the average rate to be paid was estimated to be 3.09% over the remaining life of the swaps.
We are exposed to foreign exchange risk related to our international operations, including non-functional currency
intercompany debt and net investments in subsidiaries.
We did not have any cross-currency swap contracts outstanding as of July 30, 2017, or July 31, 2016.
We are also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of
certain subsidiaries, including subsidiary debt. We utilize foreign exchange forward purchase and sale contracts to hedge these
exposures. The following table summarizes the foreign exchange forward contracts outstanding and the related weighted-average
contract exchange rates as of July 30, 2017.
(Millions)
Foreign Exchange Forward Contracts
Receive USD/Pay AUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receive USD/Pay CAD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receive AUD/Pay NZD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receive DKK/Pay USD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
27
Average
Contractual
Exchange Rate
(currency paid/
currency received)
Notional Value
192
150
35
31
1.3292
1.3167
1.0556
0.1482
We had an additional number of smaller contracts to purchase or sell various other currencies with a notional value of $12
million as of July 30, 2017. The aggregate fair value of all contracts was a loss of $18 million as of July 30, 2017. The total notional
value of foreign exchange forward contracts outstanding was $266 million, and the aggregate fair value was a loss of $10 million
as of July 31, 2016.
We enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations for commodities.
The notional value of these contracts was $90 million, and the aggregate fair value of these contracts was a gain of $5 million as
of July 30, 2017. The notional value of these contracts was $88 million, and the aggregate fair value of these contracts was a loss
of $1 million as of July 31, 2016.
We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked
to the total return of our capital stock, the total return of the Vanguard Institutional Index, and the total return of the Vanguard
Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty either: the
total return on our capital stock; the total return of the Standard & Poor's 500 Index, which is expected to approximate the total
return of the Vanguard Institutional Index; or the total return of the iShares MSCI EAFE Index, which is expected to approximate
the total return of the Vanguard Total International Stock Index. The notional value of the contract that is linked to the total return
on our capital stock was $9 million at July 30, 2017, and $15 million at July 31, 2016. The average forward interest rate applicable
to this contract, which expires in April 2018, was 1.82% at July 30, 2017. The notional value of the contract that is linked to the
return on the Standard & Poor's 500 Index was $26 million at July 30, 2017, and $22 million at July 31, 2016. The average forward
interest rate applicable to this contract, which expires in March 2018, was 1.66% at July 30, 2017. The notional value of the
contract that is linked to the total return of the iShares MSCI EAFE Index was $8 million at July 30, 2017, and $7 million at
July 31, 2016. The average forward interest rate applicable to this contract, which expires in March 2018, was 1.41% at July 30,
2017. The fair value of these contracts was not material at July 30, 2017, and July 31, 2016.
Our utilization of financial instruments in managing market risk exposures described above is consistent with the prior year.
Changes in the portfolio of financial instruments are a function of the results of operations, debt repayment and debt issuances,
market effects on debt and foreign currency, and our acquisition and divestiture activities.
SIGNIFICANT ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United
States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses
during the periods presented. Actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated
Financial Statements for a discussion of significant accounting policies. The following areas all require the use of subjective or
complex judgments, estimates and assumptions:
Trade and consumer promotion programs — We offer various sales incentive programs to customers and consumers, such as
feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees, and coupons.
The mix between promotion programs, which are classified as reductions in revenue, and advertising or other marketing activities,
which are classified as marketing and selling expenses, fluctuates between periods based on our overall marketing plans, and such
fluctuations have an impact on revenues. The measurement and recognition of the costs for trade and consumer promotion programs
involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience
and other factors. Typically, programs that are offered have a very short duration. Historically, the difference between actual
experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial
statements. However, actual expenses may differ if the level of redemption rates and performance were to vary from estimates.
Valuation of long-lived assets — Fixed assets and amortizable intangible assets are reviewed for impairment as events or
changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow
analyses are used to determine if impairment exists. If impairment is determined to exist, the loss is calculated based on estimated
fair value.
Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for
impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset
may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating
segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation
or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative
assessment for some or all reporting units and perform a quantitative impairment test. Fair value is determined based on discounted
cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue
growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. If the carrying
value of the reporting unit exceeds fair value, goodwill is considered impaired. In January 2017, the FASB issued revised guidance
that simplifies the test for goodwill impairment, effective for fiscal years beginning after December 15, 2019, with early adoption
28
permitted. Under the revised guidance, if a reporting unit’s carrying value exceeds its fair value, an impairment charge will be
recorded to reduce the reporting unit to fair value. Prior to the revised guidance, the amount of the impairment was the difference
between the carrying value of the goodwill and the "implied" fair value, which was calculated as if the reporting unit had just been
acquired and accounted for as a business combination.
Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair
value is determined based on discounted cash flow analyses that include significant management assumptions such as revenue
growth rates, weighted average cost of capital, and assumed royalty rates. If the carrying value exceeds fair value, an impairment
charge will be recorded to reduce the asset to fair value.
In the fourth quarter of 2015, as part of our annual review of intangible assets, we recognized an impairment charge of $6
million on minor trademarks used in the Global Biscuits and Snacks segment. The trademarks were determined to be impaired as
a result of a decrease in the fair value of the brands, resulting from reduced expectations for future sales and discounted cash flows.
In the fourth quarter of 2016, as part of our annual review of intangible assets, we recognized an impairment charge of $106
million on goodwill and $35 million on a trademark within the Bolthouse Farms carrot and carrot ingredients reporting unit, which
is included in the Campbell Fresh segment. In 2016, carrot performance primarily reflected the adverse impact of weather conditions
on crop yields, and execution issues in response to those conditions, which led to customer dissatisfaction, a loss of business, and
higher carrot costs in the second half of the year. The impairment was attributable to a decline in profitability in the second half
of 2016 and a revised outlook for the business, with reduced expectations for sales, operating margins, and discounted cash flows.
During the second quarter of 2017, sales and operating profit performance for Bolthouse Farms carrot and carrot ingredients
were well below our revised expectations due to difficulty with regaining market share lost during 2016 and higher carrot costs
from the adverse impact of heavy rains on crop yields. During the quarter, we also lowered our forecast for sales and earnings for
the reporting unit for the second half of 2017 based on revised market share recovery expectations and the continuing effect of
unusual weather conditions on carrot costs. In addition, as part of a strategic review initiated by a new leadership team of Campbell
Fresh during the second quarter, we decided to reduce emphasis on growing sales of carrot ingredients, which are a by-product
of the manufacturing process, and to manage carrots sold at retail for modest sales growth consistent with the category while
improving profitability. Accordingly, we reduced our expectations for recovery of retail carrot market share. As a consequence of
current-year performance and the strategic review, we lowered our sales outlook for future fiscal years.We also lowered our average
margin expectations due in part to cost volatility, which has been higher than expected. Based upon the business performance in
the second quarter of 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted
cash flows, we performed an interim impairment assessment as of December 31, 2016, which resulted in a $127 million impairment
charge on goodwill and $20 million on a trademark in the reporting unit. The updated cash flow projections include expectations
that operating margins will improve from reduced levels in 2016 and 2017. We performed our annual review of intangible assets
in the fourth quarter. Our long-term outlook for the business is consistent with the second quarter assessment. We will continue
to monitor the performance of the business.
We acquired Garden Fresh Gourmet on June 29, 2015. During 2017, sales and operating profit performance for Garden Fresh
Gourmet, which is a reporting unit within the Campbell Fresh segment, were well below expectations, and we lowered our outlook
for the second half of 2017 due to customer losses and failure to meet product distribution goals. We expected to expand distribution
of salsa beyond our concentration in the Midwest region, however this proved to be challenging as differentiated recipes are
required to meet taste profiles in other parts of the country. In addition, as part of a strategic review initiated by a new leadership
team of Campbell Fresh during the second quarter, we lowered our distribution and category growth expectations and, therefore,
future sales outlook. Based upon the business performance in 2017, our reduced near-term outlook, and reduced expectations for
sales, operating margins and discounted cash flows, we performed an interim impairment assessment as of December 31, 2016,
which resulted in a $64 million impairment charge on goodwill and $1 million on a trademark in the reporting unit. The updated
cash flow projections include expectations that we will build distribution in the U.S., operating margins will expand partly driven
by the benefits from further integration, and sales growth rates will exceed the company's overall sales growth rates. We performed
our annual review of intangible assets in the fourth quarter. Our long-term outlook for the business is consistent with the second
quarter assessment. We will continue to monitor the performance of the business.
During the third quarter of 2017, we reduced our expectations for 2017 Bolthouse Farms refrigerated beverages and salad
dressings sales performance, principally due to constrained production capacity related to the voluntary recall of Bolthouse Farms
Protein PLUS drinks in the fourth quarter of 2016. Consistent with the strategic review conducted during the second quarter, we
expect that the rate of future sales growth will be above the company's overall sales growth but from a lower base in 2017. We
continue to focus on improving profitability by pursuing various supply chain initiatives. While we did not believe that an interim
impairment assessment was required, we performed a sensitivity analysis for the Bolthouse Farms refrigerated beverages and
salad dressings trademark and goodwill as of the third quarter. We concluded that the trademark and reporting unit had risk of
decreasing coverage. We performed our annual review of intangible assets in the fourth quarter, which indicated the fair value of
the reporting unit and the trademark exceeded the respective carrying values by less than 10%. The carrying value of the goodwill
in the reporting unit was $384 million at July 30, 2017. The carrying value of the trademark related to the Bolthouse Farms
29
refrigerated beverages and salad dressings reporting unit was $280 million at July 30, 2017. We will continue to monitor the
performance of the business.
The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected
future operating performance, economic conditions, market conditions, and cost of capital. Inherent in estimating the future cash
flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from
management’s estimates due to changes in business conditions, operating performance, and economic conditions.
As of July 30, 2017, the carrying value of goodwill was $2.115 billion, of which $75 million related to the Bolthouse Farms
carrot and carrot ingredients reporting unit and $52 million related to the Garden Fresh Gourmet reporting unit, each of which
approximates fair value as a result of the impairment charges in 2017. Goodwill related to the Bolthouse Farms refrigerated
beverages and salad dressings reporting unit was $384 million as of July 30, 2017. For the reporting units which comprised
substantially all of the remaining goodwill, the estimated fair value of each reporting unit exceeded the carrying value by at least
30% as of the 2017 measurement. Excluding the Bolthouse Farms carrot and carrot ingredients reporting unit, the Bolthouse Farms
refrigerated beverages and salad dressings reporting unit, and the Garden Fresh Gourmet reporting unit, holding all other
assumptions used in the 2017 fair value measurement constant, a 1% increase in the weighted-average cost of capital assumption
for our other reporting units would not result in any material impairment.
Holding all other assumptions used in the 2017 fair value measurement constant, changes in the assumptions below would
reduce fair value of the three reporting units and result in impairment charges of approximately:
(Millions)
Bolthouse
Farms Carrot
and Carrot
Ingredients
Bolthouse
Farms
Refrigerated
Beverages
and Salad
Dressings
Garden Fresh
Gourmet
1% increase in the weighted-average cost of capital . . . . . . . . . . . . . . . . . . . . . . . . .
1% reduction in revenue growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1% reduction in EBITDA* margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
_________________________________________
$
$
$
*
Earnings before interest, taxes, depreciation and amortization.
(50) $
(25) $
(40) $
(110) $
(30) $
(20) $
(25)
(10)
(5)
If assumptions are not achieved or market conditions decline, potential additional impairment charges could result.
As of July 30, 2017, the carrying value of indefinite-lived trademarks was $912 million, of which $48 million related to the
Bolthouse Farms carrot and carrot ingredients reporting unit, $280 million related to the Bolthouse Farms refrigerated beverages
and salad dressings reporting unit, and $37 million related to the Garden Fresh Gourmet reporting unit. Holding all other assumptions
used in the 2017 fair value measurement constant, changes in the weighted-average cost of capital assumption would reduce fair
value of the trademarks and result in impairment charges of approximately:
(Millions)
Bolthouse
Farms Carrot
and Carrot
Ingredients
Bolthouse
Farms
Refrigerated
Beverages
and Salad
Dressings
Garden Fresh
Gourmet
1% increase in the weighted-average cost of capital . . . . . . . . . . . . . . . . . . . . . . . . .
$
(5) $
(30) $
(5)
Holding all other assumptions used in the 2017 fair value measurement constant, a 1% reduction in the revenue growth
assumption would not result in any material impairment on these trademarks.
The carrying value of the Pace trademark was $292 million as of July 30, 2017, and the estimated fair value exceeded the
carrying value by less than 10%. Holding all other assumptions used in the 2017 fair value measurement of the Pace trademark
constant, a 1% increase in the weighted-average cost of capital assumption would result in an impairment charge of approximately
$30 million, and a 1% reduction in the revenue growth assumption would result in an impairment charge of approximately $10
million.
For all of our other trademarks, holding all other assumptions used in the 2017 fair value measurement constant, neither a 1%
increase in the weighted-average cost of capital assumption nor a 1% reduction in the revenue growth assumption would result
in any material impairment.
If assumptions are not achieved or market conditions decline, potential additional impairment charges could result.
See also Note 5 to the Consolidated Financial Statements for additional information on goodwill and intangible assets.
30
Pension and postretirement benefits — We provide certain pension and postretirement benefits to employees and retirees.
Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected
return on plan assets, compensation increases, turnover rates and health care trend rates. Independent actuaries, in accordance with
accounting principles generally accepted in the United States, perform the required calculations to determine expense.
The discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review
published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent actuaries
apply high-quality bond yield curves to the expected benefit payments of the plans. Beginning in 2018, we will change the method
we use to estimate the service and interest cost components of the net periodic benefit expense. We will use a full yield curve
approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the
benefit obligation of the relevant projected cash flows. Previously, we estimated service cost and interest cost using a single
weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period.
We are making this change to provide a more precise measurement of service cost and interest cost by improving the correlation
between projected benefit cash flows and the corresponding spot yield curve rates. This change will not affect the measurement
of our benefit obligations. We will account for this change prospectively in 2018 as a change in accounting estimate.
The expected return on plan assets is a long-term assumption based upon historical experience and expected future performance,
considering our current and projected investment mix. This estimate is based on an estimate of future inflation, long-term projected
real returns for each asset class, and a premium for active management. Within any given fiscal period, significant differences
may arise between the actual return and the expected return on plan assets. Gains and losses resulting from differences between
actual experience and the assumptions are determined at each measurement date.
Net periodic pension and postretirement expense (income) was $(258) million in 2017, $317 million in 2016 and $125 million
in 2015.
Significant weighted-average assumptions as of the end of the year were as follows:
Pension
Discount rate for benefit obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.74% 3.39% 4.19%
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.84% 7.09% 7.35%
Postretirement
Discount rate for obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.45% 3.20% 4.00%
Initial health care trend rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.25% 7.25% 7.75%
Ultimate health care trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50% 4.50% 4.50%
2017
2016
2015
Estimated sensitivities to annual net periodic pension cost are as follows: a 50-basis-point decline in the discount rate would
decrease expense by approximately $7 million and would result in an immediate loss recognition of approximately $135 million.
A 50-basis-point reduction in the estimated return on assets assumption would increase expense by approximately $11 million. A
one-percentage-point increase in assumed health care costs would have no impact on postretirement service and interest cost and
would result in an immediate loss recognition of $3 million.
No contributions were made to U.S. pension plans in 2017, 2016 and 2015. Contributions to non-U.S. plans were $5 million
in 2017, $2 million in 2016 and $5 million in 2015. We do not expect to contribute to the U.S. pension plans in 2018. Contributions
to non-U.S. plans are expected to be approximately $5 million in 2018.
See also Note 10 to the Consolidated Financial Statements for additional information on pension and postretirement benefits.
Income taxes — The effective tax rate reflects statutory tax rates, tax planning opportunities available in the various jurisdictions
in which we operate and management’s estimate of the ultimate outcome of various tax audits and issues. Significant judgment
is required in determining the effective tax rate and in evaluating tax positions. Income taxes are recorded based on amounts
refundable or payable in the current year and include the effect of deferred taxes. Deferred tax assets and liabilities are recognized
for the future impact of differences between the financial statement carrying amounts of assets and liabilities and their respective
tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled.
Valuation allowances are established for deferred tax assets when it is more likely than not that a tax benefit will not be realized.
See also Notes 1 and 11 to the Consolidated Financial Statements for further discussion on income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for information on recent accounting pronouncements.
31
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect our current expectations regarding our future results of operations, economic
performance, financial condition and achievements. These forward-looking statements can be identified by words such as
"anticipate," "believe," "estimate," "expect," "will," "goal," and similar expressions. One can also identify forward-looking
statements by the fact that they do not relate strictly to historical or current facts. These statements reflect our current plans and
expectations and are based on information currently available to us. They rely on several assumptions regarding future events and
estimates which could be inaccurate and which are inherently subject to risks and uncertainties.
We wish to caution the reader that the following important factors and those important factors described in Part 1, Item 1A
and elsewhere in this Report, or in our other Securities and Exchange Commission filings, could affect our actual results and could
cause such results to vary materially from those expressed in any forward-looking statements made by, or on behalf of, us:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
changes in consumer demand for our products and favorable perception of our brands;
the risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products and
pricing and promotional strategies;
the impact of strong competitive response to our efforts to leverage our brand power with product innovation, promotional
programs and new advertising;
changing inventory management practices by certain of our key customers;
a changing customer landscape, with value and e-commerce retailers expanding their market presence, while certain of
our key customers continue to increase their significance to our business;
our ability to realize projected cost savings and benefits from our efficiency and/or restructuring initiatives;
our ability to manage changes to our organizational structure and/or business processes, including our selling, distribution,
manufacturing and information management systems or processes;
product quality and safety issues, including recalls and product liabilities;
the ability to complete and to realize the projected benefits of acquisitions, divestitures and other business portfolio
changes;
disruptions to our supply chain, including fluctuations in the supply of and inflation in energy and raw and packaging
materials cost;
the uncertainties of litigation and regulatory actions against us;
the possible disruption to the independent contractor distribution models used by certain of our businesses, including as
a result of litigation or regulatory actions affecting their independent contractor classification;
the impact of non-U.S. operations, including export and import restrictions, public corruption and compliance with foreign
laws and regulations;
impairment to goodwill or other intangible assets;
our ability to protect our intellectual property rights;
increased liabilities and costs related to our defined benefit pension plans;
a material failure in or breach of our information technology systems;
our ability to attract and retain key talent;
changes in currency exchange rates, tax rates, interest rates, debt and equity markets, inflation rates, economic conditions,
law, regulation and other external factors; and
unforeseen business disruptions in one or more of our markets due to political instability, civil disobedience, terrorism,
armed hostilities, extreme weather conditions, natural disasters or other calamities.
This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact our
outlook. We disclaim any obligation or intent to update forward-looking statements made by us in order to reflect new information,
events or circumstances after the date they are made.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The information presented in the section entitled "Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Market Risk Sensitivity" is incorporated herein by reference.
32
Item 8. Financial Statements and Supplementary Data
CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(millions, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Costs and expenses
2017
2016
2015
7,890
$
7,961
$
8,082
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,831
5,181
5,300
Marketing and selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses / (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before interest and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
817
488
98
238
18
6,490
1,400
112
5
Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,293
Taxes on earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net earnings (loss) attributable to noncontrolling interests . . . . . . . . . . . . . . . . . .
Net earnings attributable to Campbell Soup Company . . . . . . . . . . . . . . . . . . . . . . . . $
Per Share — Basic
Net earnings attributable to Campbell Soup Company . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average shares outstanding — basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
406
887
—
887
2.91
305
893
641
124
131
31
7,001
960
115
4
849
286
563
—
$
$
563
$
1.82
$
309
Per Share — Assuming Dilution
Net earnings attributable to Campbell Soup Company . . . . . . . . . . . . . . . . . . . . . . . . $
2.89
$
1.81
$
Weighted average shares outstanding — assuming dilution . . . . . . . . . . . . . . . . . . . . . . .
307
311
884
601
117
24
102
7,028
1,054
108
3
949
283
666
—
666
2.13
312
2.13
313
See accompanying Notes to Consolidated Financial Statements.
33
CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(millions)
2017
Tax
(expense)
benefit
Pre-tax
amount
After-tax
amount
$
887
Pre-tax
amount
2016
Tax
(expense)
benefit
After-tax
amount
$
563
Pre-tax
amount
2015
Tax
(expense)
benefit
After-tax
amount
$
666
40
$
—
40
$
45
$
—
45
$ (312) $
19
11
12
(25)
(7)
(4)
(4)
9
57
$
(6)
$
12
(45)
16
2
(34)
—
(29)
(7)
59
(1)
(5)
(1)
—
(2)
(9)
93
(1)
$
83
$
(16)
67
$ (320) $
$
630
3
7
8
(16)
51
938
—
1
3
1
—
1
6
(311)
(2)
—
—
(1)
(314)
$
352
(1)
$
938
$
627
$
353
Net earnings. . . . . . . . . . . . . . . . . . . .
Other comprehensive income
(loss):
Foreign currency translation:
Foreign currency translation
adjustments. . . . . . . . . . . . . . . . . . $
Cash-flow hedges:
Unrealized gains (losses) arising
during period . . . . . . . . . . . . . . . .
Reclassification adjustment for
(gains) losses included in net
earnings . . . . . . . . . . . . . . . . . . . .
Pension and other postretirement
benefits:
Prior service credit arising during
the period . . . . . . . . . . . . . . . . . . .
Reclassification of prior service
credit included in net earnings . . .
Other comprehensive income (loss). $
Total comprehensive income (loss) .
Total comprehensive income (loss)
attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income (loss)
attributable to Campbell Soup
Company . . . . . . . . . . . . . . . . . . . . . .
See accompanying Notes to Consolidated Financial Statements.
34
CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(millions, except per share amounts)
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plant assets, net of depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net of amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets ($51 as of 2017 and $34 as of 2016 attributable to variable interest entity) . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current liabilities
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Payable to suppliers and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . .
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings retained in the business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital stock in treasury, at cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Campbell Soup Company shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See accompanying Notes to Consolidated Financial Statements.
July 30,
2017
July 31,
2016
319
605
902
74
1,900
2,454
2,115
1,118
139
7,726
1,037
666
561
111
20
2,395
2,499
490
697
6,081
—
12
359
2,385
(1,066)
(53)
1,637
8
1,645
7,726
$
$
$
$
296
626
940
46
1,908
2,407
2,263
1,152
107
7,837
1,219
610
604
100
22
2,555
2,314
396
1,039
6,304
—
12
354
1,927
(664)
(104)
1,525
8
1,533
7,837
35
CAMPBELL SOUP COMPANY
Consolidated Statements of Cash Flows
(millions)
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
887
$
563
$
666
2017
2016
2015
Adjustments to reconcile net earnings to operating cash flow
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement benefit expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in working capital, net of acquisitions
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension fund contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net receipts from hedging activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
212
18
60
(258)
318
93
18
28
46
(27)
(48)
(5)
2
(53)
141
31
64
317
308
(30)
6
24
59
9
15
(2)
44
(58)
1,291
1,491
Purchases of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(338)
Sales of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business acquired, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Net short-term borrowings (repayments). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contributions from noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments related to tax withholding for stock-based compensation . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents — beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents — end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
—
(30)
(368)
245
211
(90)
(400)
(420)
(437)
2
—
(22)
—
(911)
11
23
296
319
See accompanying Notes to Consolidated Financial Statements.
(341)
5
—
(18)
(354)
(762)
215
—
—
(390)
(143)
2
—
(21)
—
(1,099)
5
43
253
296
$
$
6
102
57
118
303
(49)
15
12
(18)
10
30
(5)
11
(52)
1,206
(380)
15
(232)
(6)
(603)
100
300
—
(309)
(394)
(244)
9
9
(18)
(3)
(550)
(32)
21
232
253
36
CAMPBELL SOUP COMPANY
Consolidated Statements of Equity
(millions, except per share amounts)
Campbell Soup Company Shareholders’ Equity
Capital Stock
Issued
In Treasury
Shares
Amount
Shares
Amount
Additional
Paid-in
Capital
Earnings
Retained
in the
Business
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
Total
Equity
Balance at August 3, 2014 . . . .
323
$
12
(10) $
(356) $
330
$
1,483
$
145
$
(12) $
1,602
Contribution from
noncontrolling interest . . . . . . .
Net earnings (loss) . . . . . . . . . .
Other comprehensive income
(loss). . . . . . . . . . . . . . . . . . . . .
Dividends ($1.248 per share). .
Treasury stock purchased. . . . .
Treasury stock issued under
management incentive and
stock option plans . . . . . . . . . .
(5)
(244)
2
44
Balance at August 2, 2015 . . . .
323
12
(13)
(556)
Contribution from
noncontrolling interest . . . . . . .
Net earnings (loss) . . . . . . . . . .
Other comprehensive income
(loss). . . . . . . . . . . . . . . . . . . . .
Dividends ($1.248 per share). .
Treasury stock purchased. . . . .
Treasury stock issued under
management incentive and
stock option plans . . . . . . . . . .
Balance at July 31, 2016 . . . . .
Net earnings (loss) . . . . . . . . .
Other comprehensive income
(loss). . . . . . . . . . . . . . . . . . . . .
Dividends ($1.40 per share). .
Treasury stock purchased . . .
Treasury stock issued under
management incentive and
stock option plans. . . . . . . . . .
(3)
(143)
1
35
323
12
(15)
(664)
(8)
(437)
1
35
5
666
(395)
(313)
1,754
(168)
563
(390)
1,927
887
(429)
64
(104)
51
9
339
15
354
9
—
(1)
(4)
9
—
3
8
—
—
9
666
(314)
(395)
(244)
53
1,377
9
563
67
(390)
(143)
50
1,533
887
51
(429)
(437)
40
Balance at July 30, 2017 . . . .
323
$
12
(22) $ (1,066) $
359
$
2,385
$
(53) $
8
$
1,645
See accompanying Notes to Consolidated Financial Statements.
37
Notes to Consolidated Financial Statements
(currency in millions, except per share amounts)
1. Summary of Significant Accounting Policies
In this Report, unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and
its consolidated subsidiaries.
We are a manufacturer and marketer of high-quality, branded food and beverage products.
Basis of Presentation — The consolidated financial statements include our accounts and entities in which we maintain a
controlling financial interest and a variable interest entity (VIE) for which we are the primary beneficiary. Intercompany transactions
are eliminated in consolidation. Certain amounts in prior-year financial statements were reclassified to conform to the current-
year presentation. See Note 2. Our fiscal year ends on the Sunday nearest July 31. There were 52 weeks in 2017, 2016, and 2015.
Use of Estimates — Generally accepted accounting principles require management to make estimates and assumptions that
affect assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
Revenue Recognition — Revenues are recognized when the earnings process is complete. This occurs when products are
shipped in accordance with terms of agreements, title and risk of loss transfer to customers, collection is probable and pricing is
fixed or determinable. Revenues are recognized net of provisions for returns, discounts and allowances. Certain sales promotion
expenses, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction
fees and coupon redemption costs, are classified as a reduction of sales. The recognition of costs for promotion programs involves
the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other
factors. Costs are recognized either upon sale or when the incentive is offered, based on the program. Revenues are presented on
a net basis for arrangements under which suppliers perform certain additional services.
Cash and Cash Equivalents — All highly liquid debt instruments purchased with a maturity of three months or less are
classified as cash equivalents.
Inventories — All inventories are valued at the lower of average cost or net realizable value.
Property, Plant and Equipment — Property, plant and equipment are recorded at historical cost and are depreciated over
estimated useful lives using the straight-line method. Buildings and machinery and equipment are depreciated over periods not
exceeding 45 years and 20 years, respectively. Assets are evaluated for impairment when conditions indicate that the carrying
value may not be recoverable. Such conditions include significant adverse changes in business climate or a plan of disposal.
Repairs and maintenance are charged to expense as incurred.
Goodwill and Intangible Assets — Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather
are tested at least annually for impairment, or when circumstances indicate that the carrying amount of the asset may not be
recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or a component
of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test.
The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all
reporting units and perform a quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The
discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating
margins, weighted average cost of capital, and future economic and market conditions. If the carrying value of the reporting unit
exceeds fair value, goodwill is considered impaired. In January 2017, the Financial Accounting Standards Board (FASB) issued
revised guidance that simplifies the test for goodwill impairment, effective for fiscal years beginning after December 15, 2019,
with early adoption permitted. Under the revised guidance, if a reporting unit’s carrying value exceeds its fair value, an impairment
charge will be recorded to reduce the reporting unit to fair value. Prior to the revised guidance, the amount of the impairment was
the difference between the carrying value of the goodwill and the "implied" fair value, which was calculated as if the reporting
unit had just been acquired and accounted for as a business combination.
Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair
value is determined based on discounted cash flow analyses that include significant management assumptions such as revenue
growth rates, weighted average cost of capital, and assumed royalty rates. If the carrying value exceeds fair value, an impairment
charge will be recorded to reduce the asset to fair value.
See Note 5 for information on intangible assets and impairment charges.
Derivative Financial Instruments — We use derivative financial instruments primarily for purposes of hedging exposures to
fluctuations in foreign currency exchange rates, interest rates, commodities and equity-linked employee benefit obligations. We
enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute
positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use
leveraged instruments. Our derivative programs include strategies that qualify and strategies that do not qualify for hedge accounting
38
treatment. To qualify for hedge accounting, the hedging relationship, both at inception of the hedge and on an ongoing basis, is
expected to be highly effective in achieving offsetting changes in the fair value of the hedged risk during the period that the hedge
is designated.
All derivatives are recognized on the balance sheet at fair value. For derivatives that qualify for hedge accounting, on the date
the derivative contract is entered into, we designate the derivative as a hedge of the fair value of a recognized asset or liability or
a firm commitment (fair-value hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid
related to a recognized asset or liability (cash-flow hedge), or a hedge of a net investment in a foreign operation. Some derivatives
may also be considered natural hedging instruments (changes in fair value act as economic offsets to changes in fair value of the
underlying hedged item) and are not designated for hedge accounting.
Changes in the fair value of a fair-value hedge, along with the gain or loss on the underlying hedged asset or liability (including
losses or gains on firm commitments), are recorded in current-period earnings. The effective portion of gains and losses on cash-
flow hedges are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows. If the
hedge is no longer effective, all changes in the fair value of the derivative are included in earnings each period until the instrument
matures. If a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective
as a hedge, are recorded in other comprehensive income (loss). Any ineffective portion of designated hedges is recognized in
current-period earnings. Changes in the fair value of derivatives that are not designated for hedge accounting are recognized in
current-period earnings.
Cash flows from derivative contracts are included in Net cash provided by operating activities.
Advertising Production Costs — Advertising production costs are expensed in the period that the advertisement first takes
place or when a decision is made not to use an advertisement.
Research and Development Costs — The costs of research and development are expensed as incurred. Costs include
expenditures for new product and manufacturing process innovation, and improvements to existing products and processes. Costs
primarily consist of salaries, wages, consulting, and depreciation and maintenance of research facilities and equipment.
Income Taxes — Deferred tax assets and liabilities are recognized for the future impact of differences between the financial
statement carrying amounts of assets and liabilities and their respective tax bases, as well as for operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded
to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
Changes in Accounting Policy — In the first quarter of 2016, we elected to change our method of accounting for the recognition
of actuarial gains and losses for defined benefit pension and postretirement plans and the calculation of expected return on pension
plan assets. Historically, actuarial gains and losses associated with benefit obligations were recognized in Accumulated other
comprehensive loss in the Consolidated Balance Sheets and were amortized into earnings over the remaining service life of
participants to the extent that the amounts were in excess of a corridor. Under the new policy, actuarial gains and losses will be
recognized immediately in our Consolidated Statements of Earnings as of the measurement date, which is our fiscal year end, or
more frequently if an interim remeasurement is required. In addition, we no longer use a market-related value of plan assets, which
is an average value, to determine the expected return on assets but rather will use the fair value of plan assets. We believe the new
policies will provide greater transparency to ongoing operating results and better reflect the impact of current market conditions
on the obligations and assets. Results have been adjusted retrospectively to reflect these revisions.
2. Recent Accounting Pronouncements
In May 2014, the FASB issued revised guidance on the recognition of revenue from contracts with customers. The guidance
is designed to create greater comparability for financial statement users across industries and jurisdictions. The guidance also
requires enhanced disclosures. The guidance was originally effective for fiscal years, and interim periods within those years,
beginning after December 15, 2016. In July 2015, the FASB decided to delay the effective date of the new revenue guidance by
one year to fiscal years, and interim periods within those years, beginning after December 15, 2017. Entities will be permitted to
adopt the new revenue standard early, but not before the original effective date. The guidance permits the use of either a full
retrospective or modified retrospective transition method. We are currently performing a diagnostic review of our arrangements
with customers across our significant businesses, including our practices of offering rebates, refunds, discounts and other price
allowances, and trade and consumer promotion programs. We are evaluating our methods of estimating the amount and timing of
these various forms of variable consideration. We are continuing to evaluate the impact that the new guidance will have on our
consolidated financial statements, as well as which transition method we will use. We will adopt the new guidance in 2019.
In April 2015, the FASB issued guidance to clarify the accounting for fees paid by a customer in a cloud computing arrangement.
The guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those years. Early adoption
is permitted. The new guidance should be applied either prospectively to all arrangements entered into or materially modified after
39
the effective date or retrospectively. In 2017, we prospectively adopted the guidance. The adoption did not have a material impact
on our consolidated financial statements.
In January 2016, the FASB issued guidance that amends the recognition and measurement of financial instruments. The
changes primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation
and disclosure requirements for financial instruments. Under the new guidance, equity investments in unconsolidated entities that
are not accounted for under the equity method will generally be measured at fair value through earnings. When the fair value
option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized
separately in other comprehensive income. The guidance is effective for fiscal years beginning after December 15, 2017, and
interim periods within those years. We are currently evaluating the impact that the new guidance will have on our consolidated
financial statements.
In February 2016, the FASB issued guidance that amends accounting for leases. Under the new guidance, a lessee will recognize
assets and liabilities for most leases but will recognize expenses similar to current lease accounting. The guidance is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The new
guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. We are currently
evaluating the impact that the new guidance will have on our consolidated financial statements.
In March 2016, the FASB issued guidance that amends accounting for share-based payments, including the accounting for
income taxes, forfeitures, and statutory withholding requirements, as well as classification in the statement of cash flows. The
guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption
is permitted. We adopted the guidance in 2017. In accordance with the prospective adoption of the recognition of excess tax benefits
and deficiencies in the Consolidated Statements of Earnings, we recognized a $6 tax benefit in Taxes on earnings in 2017. We
elected to continue to estimate forfeitures expected to occur. In addition, we elected to adopt retrospectively the amendment to
present excess tax benefits on share-based compensation as an operating activity, which resulted in a reclassification of $7 and $6
from Net cash used in financing activities to Net cash provided by operating activities in the Consolidated Statements of Cash
Flows for 2016, and 2015, respectively. We also adopted retrospectively the amendment to present cash payments to tax authorities
in connection with shares withheld to meet statutory tax withholding requirements as a financing activity. As a result, there was
a reclassification of $21 and $18 from Net cash provided by operating activities to Net cash used in financing activities in the
Consolidated Statements of Cash Flows for 2016, and 2015, respectively.
In August 2016, the FASB issued guidance on the classification of certain cash receipts and payments in the statement of cash
flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early
adoption is permitted. The guidance must be applied retrospectively to all periods presented but may be applied prospectively if
retrospective application would be impracticable. We are currently evaluating the impact that the new guidance will have on our
consolidated financial statements.
In October 2016, the FASB issued guidance on tax accounting for intra-entity asset transfers. Under current guidance, the tax
effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise
recognized. The new guidance requires companies to account for the income tax effects on intercompany transfers of assets other
than inventory when the transfer occurs. The new guidance is effective for fiscal years beginning after December 15, 2017, and
interim periods within those years. Early adoption is permitted in the first interim period of a fiscal year. The modified retrospective
approach is required upon adoption, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the
period of adoption. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In January 2017, the FASB issued guidance that revises the definition of a business to assist entities with evaluating when a
set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value
of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold
is met, the set of transferred assets and activities is not a business. If it is not met, the entity then evaluates whether the set meets
the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to
the ability to create outputs. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods
within those years. Early adoption is permitted. We will prospectively apply the guidance to applicable transactions.
In January 2017, the FASB issued guidance that simplifies the test for goodwill impairment. Under the revised guidance, if
a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge to reduce the reporting unit
to fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The revised guidance
eliminates the current requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure the
goodwill impairment. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within
those years. Early adoption is permitted. We elected to early adopt the guidance in the fourth quarter 2017. The adoption did not
have an impact on our consolidated financial statements.
In March 2017, the FASB issued guidance that improves the presentation of net periodic pension cost and net periodic
postretirement benefit cost. Under the revised guidance, the service cost component of benefit cost is classified in the same line
40
item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other
components of net benefit cost (such as interest expense, return on assets, amortization of prior service credit, actuarial gains and
losses, settlements and curtailments) are required to be presented in the income statement separately from the service cost
component. The guidance also allows only the service cost component to be eligible for capitalization when applicable (for example,
as a cost of internally manufactured inventory). The guidance should be applied retrospectively for the presentation of the service
cost component and the other components of benefit cost in the income statement, and applied prospectively on and after the
effective date for the capitalization of the service cost component. The guidance is effective for fiscal years beginning after
December 15, 2017, and interim periods within those years. Early adoption is permitted. We plan to adopt the new guidance in
the first quarter of 2018. If net periodic benefit cost was presented in accordance with the new guidance, the estimated impact on
classification of expense is as follows:
Increase / (decrease) in expense
2017
2016
2015
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses / (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
134
38
62
$
$
$
13
$
(247) $
(148) $
(41) $
(66) $
(19) $
$
274
(42)
(12)
(21)
(8)
83
In May 2017, the FASB issued guidance that clarifies when changes to the terms or conditions of a share-based payment
award must be accounted for as modifications. Under the new guidance, modification accounting is required only if the value, the
vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.
The guidance is effective prospectively for fiscal years beginning after December 15, 2017. Early adoption is permitted. We will
apply the guidance in evaluating future changes to terms or conditions of share-based payment awards.
In August 2017, the FASB issued guidance that amends hedge accounting. Under the new guidance, more hedging strategies
will be eligible for hedge accounting and the application of hedge accounting is simplified. The new guidance amends presentation
and disclosure requirements, and how effectiveness is assessed. The guidance is effective for fiscal years beginning after
December 15, 2018, and interim periods within those years. Early adoption is permitted. We are currently evaluating the impact
that the new guidance will have on our consolidated financial statements.
3. Acquisitions
On July 6, 2017, we entered into an agreement to acquire Pacific Foods of Oregon, Inc. (Pacific Foods) for $700, subject to
customary purchase price adjustments related to the amount of Pacific Foods' cash, debt, working capital and transaction expenses.
The closing of the transaction is subject to customary closing conditions and termination rights. The agreement provides that if
we fail to close the transaction when all conditions to closing have been satisfied or if we are in breach of the agreement, we will
be required to pay Pacific Foods a $50 termination fee. On August 21, 2017, the estate of a former Pacific Foods shareholder,
Edward C. Lynch, filed a lawsuit against Pacific Foods and certain of its directors, among others, seeking in excess of $250 in
damages. Because of the impediment that the lawsuit creates to closing, on September 27, 2017, we noticed Pacific Foods that it
has 60 days under the terms of the agreement to resolve the issues arising from the suit if the transaction is to close. After the 60-
day period, we may in our sole discretion extend the cure period or terminate the agreement. We do not believe a termination of
the agreement under these circumstances will result in any termination fee payable by us.
On June 29, 2015, we completed the acquisition of the assets of Garden Fresh Gourmet for $232. Garden Fresh Gourmet is
a provider of refrigerated salsa, hummus, dips and tortilla chips.
The contribution of the Garden Fresh Gourmet acquisition to Net sales and Net earnings from June 29, 2015, through
August 2, 2015 was not material.
The following unaudited summary information is presented on a consolidated pro forma basis as if the Garden Fresh Gourmet
acquisition had occurred on July 29, 2013:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings attributable to Campbell Soup Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings per share attributable to Campbell Soup Company - assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . .
2015
$ 8,174
$
$
668
2.13
The pro forma amounts include additional interest expense on the debt issued to finance the purchase, amortization and
depreciation expense based on the estimated fair value and useful lives of intangible assets and plant assets, and related tax effects.
The pro forma results are not necessarily indicative of the combined results had the Garden Fresh Gourmet acquisition been
completed on July 29, 2013, nor are they indicative of future combined results.
41
4.
Accumulated Other Comprehensive Income (Loss)
The components of Accumulated other comprehensive income (loss) consisted of the following:
Foreign
Currency
Translation
Adjustments(1)
Gains (Losses)
on Cash Flow
Hedges(2)
Pension and
Postretirement
Benefit Plan
Adjustments(3)
Total
Accumulated
Comprehensive
Income (Loss)
Balance at August 3, 2014 . . . . . . . . . . . . . . . . . . . . . . . .
$
144
$
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other
comprehensive income (loss). . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income (loss) . .
Balance at August 2, 2015 . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other
comprehensive income (loss). . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income (loss) . .
Balance at July 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from accumulated other
comprehensive income (loss). . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at July 30, 2017. . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
(310)
—
(310)
(166) $
42
—
42
(124) $
40
—
(3) $
(2)
—
(2)
(5) $
(29)
(7)
(36)
(41) $
12
7
40
(84) $
19
(22) $
4
$
—
(1)
(1)
3
59
(1)
58
61
8
$
$
(16)
(8)
53
$
145
(312)
(1)
(313)
(168)
72
(8)
64
(104)
60
(9)
51
(53)
_____________________________________
(1)
(2)
(3)
Included a tax expense of $6 as of July 30, 2017, July 31, 2016, and August 2, 2015, and $7 as of August 3, 2014.
Included a tax benefit of $12 as of July 30, 2017, $23 as of July 31, 2016, $5 as of August 2, 2015, and $1 as of August 3,
2014.
Included a tax expense of $30 as of July 30, 2017, $35 as of July 31, 2016, $1 as of August 2, 2015, and $2 as of August 3,
2014.
Amounts related to noncontrolling interests were not material.
The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:
Details about Accumulated Other Comprehensive Income
(Loss) Components
2017
2016
2015
Location of (Gain) Loss
Recognized in Earnings
(Gains) losses on cash flow hedges:
Foreign exchange forward contracts . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . . .
Forward starting interest rate swaps . . . . . . . . . . . . . .
Total before tax
Tax expense (benefit)
(Gain) loss, net of tax
Pension and postretirement benefit adjustments:
Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax expense (benefit)
(Gain) loss, net of tax
$
$
$
$
6
1
4
11
(4)
7
$
$
(25) $
9
(16) $
(11) $
(2)
4
(9)
2
(7) $
(1) $
—
(1) $
(4) Cost of products sold
(1) Other expenses / (income)
4
(1)
1
Interest expense
—
(2)
1
(1)
(1)
_____________________________________
(1) This is included in the components of net periodic benefit costs (see Note 10 for additional details).
42
5. Goodwill and Intangible Assets
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
Balance at August 2, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . .
Net balance at July 31, 2016(1). . . . . . . . . . . . . . . . . . . . . . . . . . . $
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . .
Net balance at July 30, 2017(1) . . . . . . . . . . . . . . . . . . . . . . . . . $
Americas
Simple
Meals and
Beverages
Global
Biscuits
and
Snacks
775
$
732
$
—
—
775
—
5
780
$
$
—
25
757
—
38
795
$
$
Campbell
Fresh
Total
$
$
837
(106)
—
731
(191)
—
540
$
2,344
(106)
25
2,263
(191)
43
2,115
_____________________________________
(1) The balance of goodwill is reflected net of accumulated impairment charges of $297 as of July 30, 2017 and $106 as of
July 31, 2016, respectively.
In the fourth quarter of 2016, as part of our annual review of intangible assets, an impairment charge of $106 was recorded
on goodwill for the Bolthouse Farms carrot and carrot ingredients reporting unit within the Campbell Fresh segment. In 2016,
carrot performance primarily reflected the adverse impact of weather conditions on crop yields, and execution issues in response
to those conditions, which led to customer dissatisfaction, a loss of business, and higher carrot costs in the second half of the year.
The impairment was attributable to a decline in profitability in the second half of 2016 and a revised outlook for the business, with
reduced expectations for sales, operating margins, and discounted cash flows.
During the second quarter of 2017, sales and operating profit performance for the Bolthouse Farms carrot and carrot ingredients
reporting unit were well below our revised expectations due to difficulty with regaining market share lost during 2016 and higher
carrot costs from the adverse impact of heavy rains on crop yields. During the quarter, we also lowered our forecast for sales and
earnings for the reporting unit for the second half of 2017 based on revised market share recovery expectations and the continuing
effect of unusual weather conditions on carrot costs. In addition, as part of a strategic review initiated by a new leadership team
of Campbell Fresh during the second quarter, we decided to reduce emphasis on growing sales of carrot ingredients, which are a
by-product of the manufacturing process, and to manage carrots sold at retail for modest sales growth consistent with the category
while improving profitability. Accordingly, we reduced our expectations for recovery of retail carrot market share. As a consequence
of current-year performance and the strategic review, we lowered our sales outlook for future fiscal years. We also lowered our
average margin expectations due in part to cost volatility, which has been higher than expected. Based upon the business performance
in the second quarter of 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted
cash flows, we performed an interim goodwill impairment assessment as of December 31, 2016, which resulted in a $127 impairment
charge to reduce the carrying amount to $75. The updated cash flow projections include expectations that operating margins will
improve from reduced levels in 2016 and 2017.
Garden Fresh Gourmet was acquired in June 2015 and is a reporting unit within the Campbell Fresh segment. During 2017,
sales and operating profit performance for Garden Fresh Gourmet were well below expectations, and we lowered our outlook for
the second half of 2017 due to customer losses and failure to meet product distribution goals. We expected to expand distribution
of salsa beyond our concentration in the Midwest region, however this proved to be challenging as differentiated recipes are
required to meet taste profiles in other parts of the country. In addition, as part of a strategic review initiated by a new leadership
team of Campbell Fresh during the second quarter, we lowered our distribution and category growth expectations and, therefore,
future sales outlook. Based upon the business performance in 2017, our reduced near-term outlook, and reduced expectations for
sales, operating margins and discounted cash flows, we performed an interim goodwill impairment assessment on this reporting
unit as of December 31, 2016, which resulted in a $64 impairment charge to reduce the carrying amount to $52. The updated cash
flow projections include expectations that we will build distribution in the U.S., operating margins will expand partly driven by
the benefits from further integration, and sales growth rates will exceed the company's overall sales growth rates.
The impairment charges were recorded in Other expenses / (income) in the Consolidated Statements of Earnings.
43
Intangible Assets
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and
intangible assets not subject to amortization:
Intangible Assets
2017
2016
Amortizable intangible assets
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
223
$
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross amortizable intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net amortizable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Non-amortizable intangible assets
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
35
298
(92)
206
912
$
$
Total net intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,118
$
222
40
35
297
(72)
225
927
1,152
Non-amortizable intangible assets consist of trademarks, which include Bolthouse Farms, Pace, Plum, Kjeldsens, Garden
Fresh Gourmet and Royal Dansk. Other amortizable intangible assets consist of recipes, patents, trademarks and distributor
relationships.
Amortization of intangible assets was $19 for 2017, $20 for 2016 and $17 for 2015. Amortization expense for the next 5 years
is estimated to be $16 in 2018 and 2019, and $15 in 2020 through 2022. Asset useful lives range from 5 to 20 years.
In the fourth quarter of 2016, as part of our annual review of intangible assets, an impairment charge of $35 was recognized
on the Bolthouse Farms carrot and carrot ingredients reporting unit trademark as a result of the factors previously described. Due
to the factors previously described, we performed an interim impairment assessment as of December 31, 2016, which resulted in
a $20 impairment charge on the trademark to reduce the carrying amount to $48.
Due to the factors previously described, we also performed an interim impairment assessment as of December 31, 2016, on
the trademark in the Garden Fresh Gourmet reporting unit, which resulted in a $1 impairment charge to reduce the carrying amount
to $37.
As part of our annual review of intangible assets, an impairment charge of $6 was recognized in the fourth quarter of 2015
related to minor trademarks used in the Global Biscuits and Snacks segment. The trademarks were determined to be impaired as
a result of a decrease in the fair value of the brands, resulting from reduced expectations for future sales and discontinued cash
flows.
The impairment charges were recorded in Other expenses / (income) in the Consolidated Statements of Earnings.
The estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve significant
management judgment and are based upon assumptions about expected future operating performance, economic conditions, market
conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes
in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions,
operating performance and economic conditions.
6. Business and Geographic Segment Information
We manage our businesses in three segments focused mainly on product categories. The segments are:
• Americas Simple Meals and Beverages segment includes the retail and food service businesses in the U.S., Canada and
Latin America. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson
broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson
canned poultry; Plum food and snacks; V8 juices and beverages; and Campbell’s tomato juice;
• Global Biscuits and Snacks segment includes Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail;
Arnott’s biscuits in Australia and Asia Pacific; and Kelsen cookies globally. The segment also includes the simple meals
and shelf-stable beverages business in Australia and Asia Pacific; and
• Campbell Fresh segment includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and
refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips; and the U.S. refrigerated soup
business.
Beginning in 2018, the business in Latin America will be managed as part of the Global Biscuits and Snacks segment.
44
We evaluate segment performance before interest, taxes and costs associated with restructuring activities. Unrealized gains
and losses on commodity hedging activities are excluded from segment operating earnings and are recorded in Corporate 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. Therefore, only geographic
segment asset information is provided.
Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 20% of consolidated net sales in
2017, 2016 and 2015. All of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates.
Net sales
Americas Simple Meals and Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Global Biscuits and Snacks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Campbell Fresh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,325
2,598
967
$
4,380
$
2,564
1,017
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
7,890
$
7,961
$
4,483
2,631
968
8,082
2017
2016
2015
2017
2016
2015
Earnings before interest and taxes
Americas Simple Meals and Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,120
$
1,069
$
Global Biscuits and Snacks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Campbell Fresh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
454
(9)
(147)
(18)
1,400
$
422
60
(560)
(31)
960
$
948
383
61
(236)
(102)
1,054
Depreciation and amortization
Americas Simple Meals and Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
118
$
117
$
2017
2016
2015
Global Biscuits and Snacks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Campbell Fresh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures
Americas Simple Meals and Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Biscuits and Snacks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Campbell Fresh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
83
19
96
77
18
318
$
308
$
2017
2016
2015
117
127
47
47
338
$
$
105
122
74
40
341
$
$
$
$
$
123
94
70
16
303
137
137
82
24
380
_______________________________________
(1) Represents unallocated items. Pension and postretirement benefit mark-to-market adjustments are included in Corporate.
There were gains of $178 in 2017, and losses of $313 and $138 in 2016 and 2015, respectively. Costs related to the
implementation of our new organizational structure and cost savings initiatives were $40, $47 and $22 in 2017, 2016 and
2015, respectively. Impairment charges of $212 on the intangible assets of the Bolthouse Farms carrot and carrot ingredients
reporting unit and the Garden Fresh Gourmet reporting unit were included in 2017 and an impairment charge of $141 on the
intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit was included in 2016. See Note 5 for
information on the impairment charges. A gain of $25 from a settlement of a claim related to the Kelsen acquisition was also
included in 2016.
45
(2) See Note 7 for additional information.
(3) Represents primarily corporate offices.
Our global net sales based on product categories are as follows:
2017
2016
2015
Net sales
Soup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Baked snacks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other simple meals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,673
2,511
1,698
1,008
7,890
$
$
$
2,690
2,479
1,702
1,090
7,961
$
2,798
2,502
1,648
1,134
8,082
Soup includes various soup, broths and stock products. Baked Snacks include cookies, crackers, biscuits and other baked
products. Other simple meals include sauces, carrot products, refrigerated salad dressings, refrigerated salsa, hummus, dips and
Plum foods and snacks.
Geographic Area Information
Information about operations in different geographic areas is as follows:
Net sales
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6,357
$
6,437
$
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
610
923
7,890
$
590
934
7,961
$
6,400
646
1,036
8,082
2017
2016
2015
Long-lived assets
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,987
$
1,967
$
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
265
202
2,454
$
242
198
2,407
$
1,942
232
173
2,347
2017
2016
2015
7. Restructuring Charges and Cost Savings Initiatives
2015 Initiatives
On January 29, 2015, we announced plans to implement a new enterprise design focused mainly on product categories. Under
the new structure, which we fully implemented at the beginning of 2016, our businesses are organized in the following divisions:
Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.
In support of the new structure, we designed and implemented a new Integrated Global Services organization to deliver shared
services across the company. We also streamlined our organizational structure, implemented an initiative to reduce overhead across
the organization and are pursuing other initiatives to reduce costs and increase effectiveness, such as adopting zero-based budgeting
over time. As part of these initiatives, we commenced a voluntary employee separation program available to certain U.S.-based
salaried employees nearing retirement who met age, length-of-service and business unit/function criteria. A total of 471 employees
elected the program. The electing employees remained with us through at least July 31, 2015, with some remaining beyond that
date.
In February 2017, we announced that we are expanding these cost savings initiatives by further optimizing our supply chain
network, primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating
our recent acquisitions. We have extended the time horizon for the initiatives from 2018 to 2020. Cost estimates for these expanded
initiatives, as well as timing for certain activities, are being developed.
46
A summary of the restructuring charges we recorded and charges incurred in Administrative expenses and Cost of products
sold related to the implementation of the new organizational structure and costs savings initiatives is as follows:
Restructuring charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total pre-tax charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
A summary of the pre-tax costs associated with the initiatives is as follows:
2017
2016
2015
18
36
4
58
$
$
35
47
—
82
$
$
102
22
—
124
Recognized as of
July 30, 2017
Severance pay and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Asset impairment/accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Implementation costs and other related costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
135
12
117
264
The total estimated pre-tax costs for actions that have been identified are approximately $380 to $420. We expect to incur
substantially all of the costs through 2019. This estimate will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions that have been identified to date to consist of the following: approximately $135 in severance
pay and benefits; approximately $20 in asset impairment and accelerated depreciation; and approximately $225 to $265 in
implementation costs and other related costs.We expect these pre-tax costs to be associated with our segments as follows: Americas
Simple Meals and Beverages - approximately 30%; Global Biscuits and Snacks - approximately 38%; Campbell Fresh -
approximately 4%; and Corporate - approximately 28%.
Of the aggregate $380 to $420 of pre-tax costs identified to date, we expect approximately $350 to $390 will be cash
expenditures. In addition, we expect to invest approximately $180 in capital expenditures through 2019 primarily related to the
construction of a network of distribution centers for our U.S. thermal plants and insourcing of manufacturing for certain simple
meal products, of which we invested approximately $10 as of July 30, 2017.
A summary of the restructuring activity and related reserves associated with the initiatives at July 30, 2017, is as follows:
Severance Pay
and Benefits
Other
Restructuring
Costs
Non-Cash
Benefits(4)
Implementation
Costs and Other
Related Costs(5)
Asset
Impairment/
Accelerated
Depreciation
Total
Charges
7
8
$
8
$
$
85
87
—
—
—
22
(1)
(1)
— $
Accrued balance at August 3, 2014 . .
2015 charges . . . . . . . . . . . . . . . . .
2015 cash payments . . . . . . . . . . . .
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . . . .
Accrued balance at August 2, 2015(1) .
2016 charges . . . . . . . . . . . . . . . . .
2016 cash payments . . . . . . . . . . . .
Accrued balance at July 31, 2016(2) . .
2017 charges . . . . . . . . . . . . . . . . .
2017 cash payments . . . . . . . . . . .
Accrued balance at July 30, 2017(3) .
_______________________________________
(1) Includes $45 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
(2)
Includes $17 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
Includes $2 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
(3)
(4) Represents postretirement and pension curtailment costs. See Note 10.
(5)
1
(9)
—
—
(54)
26
—
—
73
7
(46)
—
39
—
47
34
$
$
$
$
— $
— $
124
82
12
$
58
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 and Cost of products sold in the Consolidated Statements of
Earnings.
47
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:
Americas Simple Meals and Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Global Biscuits and Snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Campbell Fresh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2014 Initiatives
2017
Costs Incurred to
Date
21
12
4
21
58
$
$
92
78
6
88
264
In 2014, we implemented initiatives to reduce overhead across the organization, restructure manufacturing and streamline
operations for our soup and broth business in China and improve supply chain efficiency in Australia.
In 2016, we recorded a reduction to restructuring charges of $4 related to the 2014 initiatives. As of July 31, 2016, we incurred
substantially all of the costs related to the 2014 initiatives. A summary of the pre-tax costs associated with the 2014 initiatives is
as follows:
Severance pay and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
41
12
1
54
$
$
(4) $
—
—
(4) $
37
12
1
50
Total Program(1)
Change in
Estimate
Recognized as of
July 31, 2016
_______________________________________
(1) Recognized as of August 2, 2015.
8. Earnings per Share (EPS)
For the periods presented in the Consolidated Statements of Earnings, the calculations of basic EPS and EPS assuming dilution
vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and other
share-based payment awards, except when such effect would be antidilutive. The earnings per share calculation for 2017 and 2016
excludes less than 1 million stock options that would have been antidilutive. There were no antidilutive stock options in 2015.
9. Noncontrolling Interests
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support our soup and broth business
in China. We contributed cash of $14 and the joint venture partner contributed cash of $9 in 2015.
We own a 70% controlling interest in a Malaysian food products manufacturing company.
We also own a 99.8% interest in Acre Venture Partners, L.P. (Acre), a limited partnership formed to make venture capital
investments in innovative new companies in food and food-related industries. See also Note 14.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling
interests in the Consolidated Statements of Earnings. The noncontrolling interests in these entities were included in Total equity
in the Consolidated Balance Sheets and Consolidated Statements of Equity.
10. Pension and Postretirement Benefits
Pension Benefits — We sponsor a number of noncontributory defined benefit pension plans to provide retirement benefits to
all eligible U.S. and non-U.S. employees. The benefits provided under these plans are based primarily on years of service and
compensation levels. Benefits are paid from funds previously provided to trustees and insurance companies or are paid directly
by us from general funds. In 1999, we implemented significant amendments to certain U.S. pension plans. Under a new formula,
retirement benefits are determined based on percentages of annual pay and age. To minimize the impact of converting to the new
formula, service and earnings credit continued to accrue through the year 2014 for certain active employees participating in the
plans under the old formula prior to the amendments. Employees will receive the benefit from either the new or old formula,
whichever is higher. Benefits become vested upon the completion of three years of service. Effective as of January 1, 2011, our
48
U.S. pension plans were amended so that employees hired or rehired on or after that date and who are not covered by collective
bargaining agreements will not be eligible to participate in the plans.
Postretirement Benefits — We provide postretirement benefits, including health care and life insurance, to substantially all
retired U.S. employees and their dependents. We established retiree medical account benefits for eligible U.S. retirees. The accounts
were intended to provide reimbursement for eligible health care expenses on a tax-favored basis. Effective as of January 1, 2011,
the retirement medical program was amended to eliminate the retiree medical account benefit for employees not covered by
collective bargaining agreements. To preserve the benefit for employees close to retirement age, the retiree medical account will
be available to employees who were at least age 50 with at least 10 years of service as of December 31, 2010, and who satisfy the
other eligibility requirements for the retiree medical program. In July 2016, the retirement medical program was amended and
effective as of January 1, 2017, we no longer sponsor our own medical coverage for certain Medicare-eligible retirees. Instead,
we offer these Medicare-eligible retirees access to health care coverage through a private exchange and offer a health reimbursement
account to subsidize benefits for a select group of such retirees. In July 2017, the retirement medical program was once again
amended and beginning on January 1, 2018, we will no longer sponsor our own medical coverage for certain Medicare-eligible
retirees covered by one of our collective bargaining agreements. Instead, we will offer these Medicare-eligible retirees access to
health care coverage through a private exchange and offer a health reimbursement account to subsidize benefits for a select group
of such retirees.
We use the fiscal year end as the measurement date for the benefit plans.
Components of net benefit expense (income) were as follows:
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized net actuarial (gain) loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic benefit expense (income). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2017
Pension
2016
2015
26
$
86
(144)
—
(198)
—
(230) $
26
$
98
(147)
—
302
—
279
$
28
105
(173)
(1)
136
1
96
The curtailment loss of $1 in 2015 was related to a voluntary employee separation program and was included in Restructuring
charges. See also Note 7.
Postretirement
2017
2016
2015
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized net actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic benefit expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1
$
10
(25)
(14)
—
(28) $
1
$
15
(1)
23
—
38
$
2
15
(1)
7
6
29
The curtailment loss of $6 in 2015 was related to a voluntary employee separation program and was included in Restructuring
charges. See also Note 7.
The estimated prior service credit that will be amortized from Accumulated other comprehensive loss into net periodic
postretirement expense during 2018 is $27. The prior service credit is primarily related to the amendments in July 2016 and July
2017.
49
Change in benefit obligation:
Obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medicare subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in the fair value of pension plan assets:
Pension
Postretirement
2017
2016
2017
2016
$
2,626
$
2,569
$
313
$
26
86
(134)
—
—
(164)
—
—
(3)
13
26
98
210
—
—
(116)
(160)
—
(6)
5
1
10
(14)
1
(12)
(26)
—
3
—
—
$
2,450
$
2,626
$
276
$
392
1
15
23
1
(93)
(30)
—
4
—
—
313
Fair value at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,111
$
2,316
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
208
5
(154)
—
13
54
2
(106)
(160)
5
Fair value at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,183
$
2,111
2017
2016
Net amounts recognized in the Consolidated Balance Sheets:
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amounts recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8
14
261
267
$
$
— $
14
501
515
$
— $
29
247
276
$
—
28
285
313
Pension
Postretirement
2017
2016
2017
2016
Amounts recognized in accumulated other comprehensive income (loss) consist of:
Postretirement
2017
2016
Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
83
$
96
The change in amounts recognized in accumulated other comprehensive income (loss) associated with postretirement benefits
was due to the plan amendments in July 2016 and July 2017, net of amortization.
The following table provides information for pension plans with accumulated benefit obligations in excess of plan assets:
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2,270
2,232
1,995
$
$
$
2,434
2,385
1,933
2017
2016
The accumulated benefit obligation for all pension plans was $2,399 at July 30, 2017, and $2,557 at July 31, 2016.
50
Weighted-average assumptions used to determine benefit obligations at the end of the year:
Pension
Postretirement
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . .
2017
3.74%
3.24%
2016
3.39%
3.25%
Weighted-average assumptions used to determine net periodic benefit cost for the years ended:
Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
3.39%
7.09%
3.25%
2017
3.45%
3.25%
Pension
2016
4.19%
7.35%
3.29%
2016
3.20%
3.25%
2015
4.33%
7.62%
3.30%
The discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review
published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent actuaries
apply high-quality bond yield curves to the expected benefit payments of the plans. The expected return on plan assets is a long-
term assumption based upon historical experience and expected future performance, considering our current and projected
investment mix. This estimate is based on an estimate of future inflation, long-term projected real returns for each asset class, and
a premium for active management.
The discount rate used to determine net periodic postretirement expense was 3.20% in 2017, and 4.00% in 2016 and 2015.
Assumed health care cost trend rates at the end of the year:
Health care cost trend rate assumed for next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate to which the cost trend rate is assumed to decline (ultimate trend rate) . . . . . . . . . . . . . . .
Year that the rate reaches the ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
7.25%
4.50%
2023
2016
7.25%
4.50%
2022
A one-percentage-point change in assumed health care costs would have the following effects on 2017 reported amounts:
Effect on service and interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on the 2017 accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase
Decrease
$
$
— $
3
$
—
(3)
Pension Plan Assets
The fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent
manner to meet the obligations of the plans as these obligations come due. The primary investment objectives include providing
a total return which will promote the goal of benefit security by attaining an appropriate ratio of plan assets to plan obligations,
to provide for real asset growth while also tracking plan obligations, to diversify investments across and within asset classes, to
reduce the impact of losses in single investments, and to follow investment practices that comply with applicable laws and
regulations.
The primary policy objectives will be met by investing assets to achieve a reasonable tradeoff between return and risk relative
to plan obligations. This includes investing a portion of the assets in funds selected in part to hedge the interest rate sensitivity to
plan obligations.
The portfolio includes investments in the following asset classes: fixed income, equity, real estate and alternatives. Fixed
income will provide a moderate expected return and partially hedge the exposure to interest rate risk of the plans’ obligations.
Equities are used for their high expected return. Additional asset classes are used to provide diversification.
Asset allocation is monitored on an ongoing basis relative to the established asset class targets. The interaction between plan
assets and benefit obligations is periodically studied to assist in the establishment of strategic asset allocation targets. The investment
policy permits variances from the targets within certain parameters. Asset rebalancing occurs when the underlying asset class
allocations move outside these parameters, at which time the asset allocation is rebalanced back to the policy target weight.
51
Our year-end pension plan weighted-average asset allocations by category were:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic
Target
47%
40%
13%
100%
2017
48%
40%
12%
100%
2016
51%
35%
14%
100%
Pension plan assets are categorized based on the following fair value hierarchy:
• Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through
corroboration with observable market data.
• Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would
use in pricing the asset or liability.
52
The following table presents our pension plan assets by asset category at July 30, 2017, and July 31, 2016:
Fair Value
as of
July 30,
2017
Fair Value Measurements at
July 30, 2017 Using
Fair Value Hierarchy
Level 1
Level 2
Level 3
Fair Value
as of
July 31,
2016
Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy
Level 1
Level 2
Level 3
—
—
—
—
—
—
—
—
—
6
45
—
—
51
Short-term investments. . . . $
Equities:
U.S. . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . .
Corporate bonds:
U.S. . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . .
Government and agency
bonds:
U.S. . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . .
Municipal bonds . . . . . . . . .
Mortgage and asset backed
securities . . . . . . . . . . . . .
Real estate. . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . .
Derivative assets . . . . . . . . .
Derivative liabilities . . . . . .
Total assets at fair value . . . $
Investments measured at
net asset value:
Short-term investments
Commingled funds:
Equities . . . . . . . . . . . . .
Fixed income . . . . . . . .
Blended . . . . . . . . . . . . .
Real estate . . . . . . . . . . . .
Hedge funds . . . . . . . . . .
Total investments measured
at net asset value:
Other items to reconcile to
fair value of plan assets . .
46
$
35
$
11
$
— $
43
$
41
$
2
$
338
290
537
123
60
31
58
8
17
38
9
(10)
338
290
—
—
—
—
—
—
10
—
—
—
1,545
$
673
$
—
—
537
123
60
31
58
8
—
—
9
(10)
827
$
—
—
—
—
—
—
—
—
7
38
—
—
45
31
332
30
86
84
103
666
(28)
349
273
—
—
—
—
—
—
13
—
—
—
$
676
$
—
—
469
98
49
29
67
7
—
—
6
(7)
720
$
349
273
469
98
49
29
67
7
19
45
6
(7)
1,447
$
20
309
31
79
108
144
691
(27)
Total pension plan assets at
fair value . . . . . . . . . . . . . $
2,183
$
2,111
Short-term investments — Investments include cash and cash equivalents, and various short-term debt instruments and short-
term investment funds. Institutional short-term investment vehicles valued daily are classified as Level 1 at cost which approximates
market value. Short-term debt instruments are classified at Level 2 and are valued based on bid quotations and recent trade data
for identical or similar obligations. Other investments valued based upon net asset value are included as a reconciling item to the
fair value table.
Equities — Common stocks and preferred stocks are classified as Level 1 and are valued using quoted market prices in active
markets.
Corporate bonds — These investments are valued based on quoted market prices, yield curves and pricing models using
current market rates.
Government and agency bonds — These investments are generally valued based on bid quotations and recent trade data for
identical or similar obligations.
53
Municipal bonds — These investments are valued based on quoted market prices, yield curves and pricing models using
current market rates.
Mortgage and asset backed securities — These investments are valued based on prices obtained from third party pricing
sources. The prices from third party pricing sources may be based on bid quotes from dealers and recent trade data. Mortgage
backed securities are traded in the over-the-counter market.
Real estate — Real estate investments consist of real estate investment trusts, property funds and limited partnerships. Real
estate investment trusts are classified as Level 1 and are valued based on quoted market prices. Property funds are classified as
either Level 2 or Level 3 depending upon whether liquidity is limited or there are few observable market participant transactions.
Property funds are valued based on third party appraisals. Limited partnerships are valued based upon valuations provided by the
general partners of the funds. The values of limited partnerships are based upon an assessment of each underlying investment,
incorporating valuations that consider the evaluation of financing and sales transactions with third parties, expected cash flows,
and market-based information, including comparable transactions and performance multiples among other factors. The investments
are classified as Level 3 since the valuation is determined using unobservable inputs. Real estate investments valued at net asset
value are included as a reconciling item to the fair value table.
Hedge funds — Hedge fund investments include hedge funds valued based upon a net asset value derived from the fair value
of underlying securities. Hedge fund investments that are subject to liquidity restrictions or that are based on unobservable inputs
are classified as Level 3. Hedge fund investments may include long and short positions in equity and fixed income securities,
derivative instruments such as futures and options, commodities and other types of securities. Hedge fund investments valued at
net asset value are included as a reconciling item to the fair value table.
Derivatives — Derivative financial instruments include forward currency contracts, futures contracts, options contracts, interest
rate swaps and credit default swaps. Derivative financial instruments are classified as Level 2 and are valued based on observable
market transactions or prices.
Commingled funds — Investments in commingled funds are not traded in active markets. Blended commingled funds are
invested in both equities and fixed income securities. Commingled funds are valued based on the net asset values of such funds
and are included as a reconciling item to the fair value table.
Other items to reconcile to fair value of plan assets included amounts due for securities sold, amounts payable for securities
purchased, and other payables.
The following table summarizes the changes in fair value of Level 3 investments for the years ended July 30, 2017, and
July 31, 2016:
Fair value at July 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers out of Level 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value at July 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value at August 2, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers out of Level 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Real Estate
Hedge Funds
Total
6
1
1
(1)
—
—
7
$
$
45
2
1
(10)
—
—
38
$
$
Real Estate
Hedge Funds
Total
$
39
$
6
1
—
(1)
—
—
1
5
—
—
—
45
$
51
3
2
(11)
—
—
45
45
2
5
(1)
—
—
51
Fair value at July 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
6
$
54
The following tables present additional information about the pension plan assets valued using net asset value as a practical
expedient within the fair value hierarchy table:
2017
2016
Fair
Value
31
$
Redemption
Frequency
Daily
Redemption Notice
Period Range
Fair
Value
Redemption Frequency
1 Day
$
20
Daily
Redemption
Notice Period
Range
1 Day
332 Daily, Monthly
30
Daily
2 to 60 Days
1 Day
Primarily Daily
1 to 20 Days
309
31
79
Daily, Monthly
1 to 60 Days
Daily
Primarily Daily
1 Day
1 Day
Quarterly
Monthly
45 to 90 Days
108
Primarily Quarterly
1 to 90 Days
5 to 30 Days
144 Monthly, Quarterly
5 to 65 Days
$
691
Short-term investments
Commingled funds:
Equities . . . . . . . . . .
Fixed income . . . . . .
Blended . . . . . . . . . .
Real estate funds(1). . . .
Hedge funds(2) . . . . . . .
Total. . . . . . . . . . . . . . .
86
84
103
666
$
___________________________________
(1)
(2)
Included real estate investments valued at $34 in 2016 for which a redemption queue was imposed by the investment manager
increasing the redemption receipt period to up to 9 months after notice.
Includes a fund valued at $2 in 2017 and $45 in 2016 which is being liquidated. Distributions from the fund will be received
as the underlying investments are liquidated which is estimated to occur by December 31, 2017.
There were no unfunded commitments in 2017 or 2016.
No contributions are expected to be made to U.S. pension plans in 2018. We expect contributions to non-U.S. pension plans
to be approximately $5 in 2018.
Estimated future benefit payments are as follows:
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023-2027. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
175
171
162
160
161
801
$
$
$
$
$
$
29
28
27
25
24
97
Pension
Postretirement
The estimated future benefit payments include payments from funded and unfunded plans.
401(k) Retirement Plan — We sponsor employee savings plans that cover substantially all U.S. employees. Effective January 1,
2011, we provide a matching contribution of 100% of employee contributions up to 4% of compensation for employees who are
not covered by collective bargaining agreements. Employees hired or rehired on or after January 1, 2011, who will not be eligible
to participate in the defined benefit plans and who are not covered by collective bargaining agreements receive a contribution
equal to 3% of compensation regardless of their participation in the 401(k) Retirement Plan. Amounts charged to Costs and expenses
were $34 in 2017, $33 in 2016 and $31 in 2015.
55
11. Taxes on Earnings
The provision for income taxes on earnings consists of the following:
Income taxes:
Currently payable:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
238
$
235
$
39
36
313
77
2
14
93
34
47
316
(17)
—
(13)
(30)
286
705
144
849
$
$
$
246
31
55
332
(47)
1
(3)
(49)
283
803
146
949
2015
Earnings before income taxes:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
406
$
2017
2016
1,103
190
1,293
$
$
The following is a reconciliation of the effective income tax rate to the U.S. federal statutory income tax rate:
2017
2016
2015
Federal statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0%
State income taxes (net of federal tax benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of international items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement of tax contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal manufacturing deduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Claim settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange losses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.1
(2.1)
—
(2.1)
3.4
—
(3.9)
(1.0)
31.4%
35.0%
2.7
(3.0)
—
(3.2)
4.3
(0.8)
—
(1.3)
33.7%
35.0%
2.2
(2.5)
(0.8)
(2.9)
—
—
—
(1.2)
29.8%
_______________________________________
(1) The 2017 rate was favorably impacted by a $52 benefit primarily related to the sale of intercompany notes receivable to a
financial institution, which resulted in the recognition of foreign exchange losses.
56
Deferred tax liabilities and assets are comprised of the following:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits and compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax loss carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net of valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2017
2016
$
355
521
20
896
241
98
36
92
95
562
(120)
442
454
$
362
541
23
926
266
185
37
88
113
689
(118)
571
355
At July 30, 2017, our U.S. and non-U.S. subsidiaries had tax loss carryforwards of approximately $170. Of these carryforwards,
$149 expire between 2018 and 2037, and $21 may be carried forward indefinitely. At July 30, 2017, deferred tax asset valuation
allowances have been established to offset $137 of these tax loss carryforwards. Additionally, at July 30, 2017, our non-U.S.
subsidiaries had capital loss carryforwards of approximately $323, which were fully offset by valuation allowances.
The net change in the deferred tax asset valuation allowance in 2017 was an increase of $2. The increase was primarily due
to the impact of currency and the recognition of additional valuation allowances on tax loss carryforwards, partially offset by the
expiration of tax losses. The net change in the deferred tax asset valuation allowance in 2016 was a decrease of $4. The decrease
was primarily due to the expiration of tax losses, partially offset by the recognition of additional valuation allowance on tax loss
carryforwards.
As of July 30, 2017, other deferred tax assets included $1 of state tax credit carryforwards related to various states that expire
between 2021 and 2029. As of July 31, 2016, other deferred tax assets included $2 of state tax credit carryforwards related to
various states that expire between 2018 and 2025. No valuation allowances have been established related to these deferred tax
assets.
As of July 30, 2017, U.S. income taxes have not been provided on approximately $820 of undistributed earnings of non-U.S.
subsidiaries, which are deemed to be permanently reinvested. It is not practical to estimate the tax liability that might be incurred
if such earnings were remitted to the U.S.
A reconciliation of the activity related to unrecognized tax benefits follows:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Increases related to prior-year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to prior-year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to current-year tax positions. . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2017
2016
2015
63
4
—
4
(7)
—
64
$
$
58
2
—
3
—
—
63
$
$
71
9
—
5
(27)
—
58
The amount of unrecognized tax benefits that, if recognized, would impact the annual effective tax rate was $43 as of July 30,
2017, $42 as of July 31, 2016, and $39 as of August 2, 2015. The total amount of unrecognized tax benefits can change due to
audit settlements, tax examination activities, statute expirations and the recognition and measurement criteria under accounting
for uncertainty in income taxes. We are unable to estimate what this change may be within the next 12 months, but do not believe
that it will be material to the financial statements. Approximately $5 of unrecognized tax benefits, including interest and penalties,
were reported in Accounts receivable in the Consolidated Balance Sheets as of July 30, 2017, and July 31, 2016.
Our accounting policy with respect to interest and penalties attributable to income taxes is to reflect any expense or benefit
as a component of our income tax provision. The total amount of interest and penalties recognized in the Consolidated Statements
57
of Earnings was $4 in 2017, $3 in 2016 and $1 in 2015. The total amount of interest and penalties recognized in the Consolidated
Balance Sheets in Other liabilities was $5 as of July 30, 2017, and $6 as of July 31, 2016.
We do business internationally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and
non-U.S. jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world,
including such major jurisdictions as the U.S., Australia, Canada and Denmark. The 2017 tax year is currently under audit by the
Internal Revenue Service. In addition, several state income tax examinations are in progress for the years 1999 to 2016.
With limited exceptions, we have been audited for income tax purposes in Australia through 2010, Denmark through 2013,
and in Canada through 2014.
12. Short-term Borrowings and Long-term Debt
Short-term borrowings consist of the following:
2017
2016
Commercial paper. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Australian note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
874
152
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of Canadian credit facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable-rate bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
10
1
—
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,037
$
770
—
400
42
6
2
(1)
1,219
_______________________________________
(1)
Includes unamortized net discount/premium on debt issuances and debt issuance costs.
As of July 30, 2017, the weighted-average interest rate of commercial paper, which consisted of U.S. borrowings, was 1.31%.
As of July 31, 2016, the weighted-average interest rate of commercial paper, which consisted of U.S. borrowings, was 0.74%.
As of July 30, 2017, we had $1,037 of short-term borrowings due within one year, of which $874 was comprised of commercial
paper borrowings. As of July 30, 2017, we issued $48 of standby letters of credit. We have a committed revolving credit facility
totaling $1,850 that matures in December 2021. This U.S. facility remained unused at July 30, 2017, except for $1 of standby
letters of credit that we issued under it. The U.S. facility supports our commercial paper programs and other general corporate
purposes.
In June 2017, we sold an intercompany note to a financial institution of AUD $190, or $152, with an interest rate of 6.98%
that matures on March 29, 2021, but is payable upon demand. Interest on the note is due semi-annually on January 23 and July
23. The net proceeds were used for general corporate purposes.
58
Long-term debt consists of the following:
Type
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canadian credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australian note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year of
Maturity
2017
2019
2019
2019
2021
2021
2023
2025
2043
Rate
3.05%
Variable
4.88%
4.50%
4.25%
8.88%
2.50%
3.30%
3.80%
2017
2016
— $
130
224
300
500
200
450
300
400
400
215
—
300
500
200
450
300
400
7
(12)
2,499
—
2,499
$
$
8
(18)
2,755
441
2,314
$
$
$
_______________________________________
(1)
Includes unamortized net discount/premium on debt issuances and debt issuance costs.
In July 2016, we entered into a Canadian committed revolving credit facility that matures in July 2019. As of July 30, 2017,
the total commitment under the Canadian facility was CAD $170, or $137, and we had borrowings of CAD $162, or $130, at a
rate of 2.09% under this facility. The Canadian facility supports general corporate purposes.
In June 2017, we sold an intercompany note to a financial institution of AUD $280, or $224, with an interest rate of 4.88%
that matures on September 18, 2018. Interest on the note is due semi-annually on January 23 and July 23. The net proceeds were
used for general corporate purposes.
Principal amounts of long-term debt mature as follows: $654 in 2019; $1 in 2020; $700 in 2021; $1 in 2022; and a total of
$1,155 in periods beyond 2022.
13. 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 equity price changes related to certain deferred compensation obligations. In
order to manage these exposures, we follow established risk management policies and procedures, including the use of derivative
contracts such as swaps, options, forwards and commodity futures. We enter into these derivative contracts for periods consistent
with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not
enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our derivative programs include
instruments that qualify and others that do not qualify for hedge accounting treatment.
Concentration of Credit Risk
We are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate
counterparty credit risk, we enter into contracts only with carefully selected, leading, credit-worthy financial institutions, and
distribute contracts among several financial institutions to reduce the concentration of credit risk. We did not have credit-risk-
related contingent features in our derivative instruments as of July 30, 2017, or July 31, 2016.
We are also exposed to credit risk from our customers. During 2017, our largest customer accounted for approximately 20%
of consolidated net sales. Our five largest customers accounted for approximately 39% of our consolidated net sales in 2017.
We closely monitor credit risk associated with counterparties and customers.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk related to our international operations, including non-functional currency
intercompany debt and net investments in subsidiaries. We are also exposed to foreign exchange risk as a result of transactions in
currencies other than the functional currency of certain subsidiaries. Principal currencies hedged include the Canadian dollar,
Australian dollar and U.S. dollar. We utilize foreign exchange forward purchase and sale contracts, as well as cross-currency
swaps, to hedge these exposures. The contracts are either designated as cash-flow hedging instruments or are undesignated. We
59
hedge portions of our forecasted foreign currency transaction exposure with foreign exchange forward contracts for periods
typically up to 18 months. To hedge currency exposures related to intercompany debt, we enter into foreign exchange forward
purchase and sale contracts, as well as cross-currency swap contracts, for periods consistent with the underlying debt. The notional
amount of foreign exchange forward contracts accounted for as cash-flow hedges was $84 at July 30, 2017, and $91 at July 31,
2016. 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 contracts that are not designated as
accounting hedges was $336 and $175 at July 30, 2017, and July 31, 2016, respectively. There were no cross-currency swap
contracts outstanding as of July 30, 2017 or July 31, 2016.
Interest Rate Risk
We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing
interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. Receive fixed rate/pay variable
rate interest rate swaps are accounted for as fair-value hedges. We manage our exposure to interest rate volatility on future debt
issuances by entering into forward starting interest rate swaps to lock in the rate on the interest payments related to the anticipated
debt issuances. These pay fixed rate/receive variable rate forward starting interest rate swaps are accounted for as cash-flow hedges.
The effective portion of the changes in fair value on these instruments is recorded in other comprehensive income (loss) and is
reclassified into the Consolidated Statements of Earnings over the life of the debt. The notional amount of outstanding forward
starting interest rate swaps totaled $300 at July 30, 2017, and July 31, 2016, which relates to an anticipated debt issuance in 2018.
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, soybean oil, natural gas, cocoa,
aluminum, butter, corn, soybean meal and cheese, which impact the cost of raw materials. Commodity futures, options, and swap
contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge a portion of commodity
requirements for periods typically up to 18 months. There were no commodity contracts accounted for as cash-flow hedges as of
July 30, 2017, or July 31, 2016. The notional amount of commodity contracts not designated as accounting hedges was $90 at
July 30, 2017, and $88 at July 31, 2016.
In 2017, we entered into 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 value is approximately
$35 as of July 30, 2017. The fair value was not material as of July 30, 2017. Unrealized gains (losses) and settlements are included
in Cost of products sold in our Consolidated Statements of Earnings.
Equity Price Risk
We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked
to the total return of our capital stock, the total return of the Vanguard Institutional Index, and the total return of the Vanguard
Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty either the
total return on our capital stock; the total return of the Standard & Poor's 500 Index, which is expected to approximate the total
return of the Vanguard Institutional Index; or the total return of the iShares MSCI EAFE Index, which is expected to approximate
the total return of the Vanguard Total International Stock Index. These contracts were not designated as hedges for accounting
purposes. We enter into these contracts for periods typically not exceeding 12 months. The notional amounts of the contracts as
of July 30, 2017, and July 31, 2016, were $43 and $44, respectively.
60
The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated
Balance Sheets as of July 30, 2017, and July 31, 2016:
Balance Sheet Classification
2017
2016
Asset Derivatives
Derivatives designated as hedges:
Foreign exchange forward contracts. . . . . . . . . . . . . . . . . . . Other current assets
Total derivatives designated as hedges . . . . . . . . . . . . . . . . . .
Derivatives not designated as hedges:
Commodity derivative contracts. . . . . . . . . . . . . . . . . . . . . . Other current assets
Deferred compensation derivative contracts . . . . . . . . . . . . Other current assets
Commodity derivative contracts. . . . . . . . . . . . . . . . . . . . . . Other assets
Total derivatives not designated as hedges . . . . . . . . . . . . . . .
Total asset derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
3
3
5
1
1
7
10
$
$
$
$
$
Balance Sheet Classification
2017
2016
Liability Derivatives
Derivatives designated as hedges:
Foreign exchange forward contracts. . . . . . . . . . . . . . . . . . . Accrued liabilities
Forward starting interest rate swaps . . . . . . . . . . . . . . . . . . . Accrued liabilities
Forward starting interest rate swaps . . . . . . . . . . . . . . . . . . . Other liabilities
Total derivatives designated as hedges . . . . . . . . . . . . . . . . . .
Derivatives not designated as hedges:
Commodity derivative contracts. . . . . . . . . . . . . . . . . . . . . . Accrued liabilities
Deferred compensation derivative contracts . . . . . . . . . . . . Accrued liabilities
Foreign exchange forward contracts. . . . . . . . . . . . . . . . . . . Accrued liabilities
Foreign exchange forward contracts. . . . . . . . . . . . . . . . . . . Other liabilities
Total derivatives not designated as hedges . . . . . . . . . . . . . . .
Total liability derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
1
22
—
23
1
—
19
1
21
44
$
$
$
$
$
1
1
3
1
—
4
5
4
—
44
48
4
1
7
—
12
60
We do not offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally
subject to enforceable netting agreements. However, if we were to offset and record the asset and liability balances of derivatives
on a net basis, the amounts presented in the Consolidated Balance Sheets as of July 30, 2017, and July 31, 2016, would be adjusted
as detailed in the following table:
Derivative Instrument
Total asset derivatives. . . . . . .
Total liability derivatives . . . .
Gross Amounts
Presented in
the
Consolidated
Balance Sheet
10
$
44
$
2017
Gross Amounts
Not Offset in
the
Consolidated
Balance Sheet
Subject to
Netting
Agreements
Gross Amounts
Presented in
the
Consolidated
Balance Sheet
Net Amount
2016
Gross Amounts
Not Offset in
the
Consolidated
Balance Sheet
Subject to
Netting
Agreements
Net Amount
$
$
(3) $
(3) $
7
41
$
$
5
60
$
$
(4) $
(4) $
1
56
We do not offset fair value amounts recognized for exchange-traded commodity derivative instruments and cash margin
accounts executed with the same counterparty that are subject to enforceable netting agreements. We are required to maintain cash
margin accounts in connection with funding the settlement of open positions. At July 30, 2017, and July 31, 2016, a cash margin
account balance of $1 and $5, respectively, was included in Other current assets in the Consolidated Balance Sheets.
61
The following tables show the effect of our derivative instruments designated as cash-flow hedges for the years ended July 30,
2017, July 31, 2016, and August 2, 2015 in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:
Derivatives Designated as Cash-Flow Hedges
OCI derivative gain (loss) at beginning of year . . . . . . . . . . . .
Effective portion of changes in fair value recognized in OCI: .
Foreign exchange forward contracts. . . . . . . . . . . . . . . . . . . .
Forward starting interest rate swaps . . . . . . . . . . . . . . . . . . . .
Amount of (gain) loss reclassified from OCI to earnings:
Location in Earnings
Foreign exchange forward contracts. . . . . . . . . . . . . . . . . . . . Cost of products sold
Foreign exchange forward contracts. . . . . . . . . . . . . . . . . . . . Other expenses / (income)
Forward starting interest rate swaps . . . . . . . . . . . . . . . . . . . . Interest expense
OCI derivative gain (loss) at end of year . . . . . . . . . . . . . . . . .
Total Cash-Flow Hedge
OCI Activity
2017
2016
2015
$
(64) $
(10) $
(4)
(4)
23
6
1
4
(34) $
$
(9)
(36)
(11)
(2)
4
(64) $
18
(23)
(4)
(1)
4
(10)
Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next 12 months is a
loss of $11. The ineffective portion and amount excluded from effectiveness testing were not material.
The following table shows the effects of our derivative instruments not designated as hedges in the Consolidated Statements
of Earnings:
Location of (Gain) Loss
Recognized in Earnings
Derivatives not Designated as Hedges
Foreign exchange forward contracts . . . . . . . . . . Cost of products sold
Foreign exchange forward contracts . . . . . . . . . . Other expenses / (income)
Cross-currency swap contracts . . . . . . . . . . . . . . Other expenses / (income)
Commodity derivative contracts . . . . . . . . . . . . . Cost of products sold
Deferred compensation derivative contracts . . . . Administrative expenses
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14. Variable Interest Entity
Amount of (Gain) Loss Recognized in
Earnings on Derivatives
2017
2016
2015
$
$
— $
14
—
(11)
(3)
— $
— $
(1)
2
6
(6)
1
$
(2)
3
(58)
19
(7)
(45)
In February 2016, we agreed to make a $125 capital commitment to Acre, a limited partnership formed to make venture capital
investments in innovative new companies in food and food-related industries. Acre is managed by its general partner, Acre Ventures
GP, LLC, which is independent of us. We are the sole limited partner of Acre and own a 99.8% interest. Our share of earnings
(loss) is calculated according to the terms of the partnership agreement. Acre is a VIE. We have determined that we are the primary
beneficiary. Therefore, we consolidate Acre and account for the third party ownership as a noncontrolling interest. Through July 30,
2017, we funded $58 of the capital commitment. Except for the remaining unfunded capital commitment of $67, we do not have
obligations to provide additional financial or other support to Acre.
Acre elected the fair value option to account for qualifying investments to more appropriately reflect the value of the investments
in the financial statements. The investments were $51 and $34 as of July 30, 2017, and July 31, 2016, respectively, and are included
in Other assets on the Consolidated Balance Sheets. Changes in the fair values of investments for which the fair value option was
elected are included in Other expenses / (income) on the Consolidated Statements of Earnings. Changes in the fair value were not
material in 2017 or 2016. Current assets and liabilities of Acre were not material as of July 30, 2017, or July 31, 2016.
15. Fair Value Measurements
We categorize financial assets and liabilities based on the following fair value hierarchy:
• Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through
corroboration with observable market data.
• Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would
use in pricing the asset or liability.
62
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants as of the measurement date. When available, we use unadjusted quoted market
prices to measure the fair value and classify such items as Level 1. If quoted market prices are not available, we base fair value
upon internally developed models that use current market-based or independently sourced market parameters such as interest rates
and currency rates. Included in the fair value of derivative instruments is an adjustment for credit and nonperformance risk.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our financial assets and liabilities that are measured at fair value on a recurring basis as of July 30,
2017, and July 31, 2016, consistent with the fair value hierarchy:
Fair Value
as of
July 30,
2017
Fair Value Measurements at
July 30, 2017 Using
Fair Value Hierarchy
Level 1
Level 2
Level 3
Fair Value
as of
July 31,
2016
Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy
Level 1
Level 2
Level 3
Assets
Foreign exchange
forward
contracts(1). . . . . . $
Commodity
derivative
contracts(2). . . . . .
Deferred
compensation
derivative
contracts(3). . . . . .
Fair value option
investments (4) . . .
Total assets at fair
value . . . . . . . . . . . $
3
$
— $
3
$
— $
1
$
— $
1
$
6
1
50
6
—
—
60
$
6
$
—
1
1
5
—
—
49
3
1
33
2
—
—
1
1
8
$
49
$
38
$
2
$
11
$
—
—
—
25
25
Fair Value
as of
July 30,
2017
Fair Value Measurements at
July 30, 2017 Using
Fair Value Hierarchy
Level 1
Level 2
Level 3
Fair Value
as of
July 31,
2016
Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy
Level 1
Level 2
Level 3
Liabilities
Forward starting
interest rate
swaps(5) . . . . . . . . $
Foreign exchange
forward
contracts(1). . . . . .
Commodity
derivative
contracts(2). . . . . .
Deferred
compensation
derivative
contracts(3). . . . . .
Deferred
compensation
obligation(6) . . . . .
Total liabilities at
fair value . . . . . . . . $
22
$
— $
22
$
— $
44
$
— $
44
$
21
1
—
—
1
—
112
112
21
—
—
—
—
—
—
—
11
4
1
—
4
—
119
119
11
—
1
—
156
$
113
$
43
$
— $
179
$
123
$
56
$
—
—
—
—
—
—
___________________________________
(1) Based on observable market transactions of spot currency rates and forward rates.
(2) Based on quoted futures exchanges and on observable prices of futures and options transactions in the marketplace.
(3) Based on LIBOR and equity index swap rates.
(4) Primarily represents investments in equity securities that are not readily marketable and are accounted for under the fair value
option. The investments were funded by Acre. See Note 14 for additional information. Fair value is based on analyzing recent
transactions and transactions of comparable companies, and the discounted cash flow method. In addition, allocation methods,
63
including the option pricing method, are used in distributing fair value among various equity holders according to rights and
preferences. Changes in the fair value of investments were not material in 2017 or 2016.
(5) Based on LIBOR swap rates.
(6) Based on the fair value of the participants’ investments.
Items Measured at Fair Value on a Nonrecurring Basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, we are also required to measure certain
items at fair value on a nonrecurring basis.
In the fourth quarter of 2017, we recognized $12 of charges, primarily asset impairment, on plant assets associated with the
2015 restructuring initiatives described in Note 7. The carrying value was reduced to estimated fair value based on expected
proceeds. The carrying value was not material.
In the fourth quarter of 2016, as part of our annual review of intangible assets, we recognized an impairment charge of $106
on goodwill and $35 on a trademark of the Bolthouse Farms carrot and carrot ingredients reporting unit. During the second quarter
of 2017, we performed an interim impairment assessment as of December 31, 2016, and recognized an impairment charge of $127
on goodwill and $20 on a trademark of the Bolthouse Farms carrot and carrot ingredients reporting unit.
During the second quarter of 2017, we performed an interim impairment assessment of the Garden Fresh Gourmet reporting
unit as of December 31, 2016, and recognized an impairment charge of $64 on goodwill and $1 on a trademark.
Fair value was determined based on unobservable Level 3 inputs. The fair value of goodwill was determined based on
discounted cash flow analyses that include significant management assumptions such as revenue growth rates, operating margins,
weighted average cost of capital, and future economic and market conditions. The fair value of trademarks was determined based
on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average
cost of capital and assumed royalty rates.
The following table presents fair value measurements of intangible assets that were recognized in the second quarter of 2017
and the fourth quarter of 2016, respectively, consistent with the fair value hierarchy:
Bolthouse Farms Carrot and Carrot Ingredients
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Garden Fresh Gourmet
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
January 29, 2017
July 31, 2016
Impairment
Charges
Fair Value
Impairment
Charges
Fair Value
127
20
$
$
75
48
$
$
106
35
$
$
202
68
64
1
$
$
52
37
See also Note 5 for additional information on the impairment charges.
Fair Value of Financial Instruments
The carrying values 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 $8 at July 30, 2017, and $74 at July 31, 2016, 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 $2,582 at
July 30, 2017, and $2,949 at July 31, 2016. The carrying value was $2,499 at July 30, 2017, and $2,755 at July 31, 2016. 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.
16. Shareholders' Equity
We have authorized 560 million shares of Capital stock with $.0375 par value and 40 million shares of Preferred stock, issuable
in one or more classes, with or without par as may be authorized by the Board of Directors. No Preferred stock has been issued.
Share Repurchase Programs
In March 2017, the Board authorized a new share repurchase program to purchase up to $1,500. The new program has no
expiration date, but it may be suspended or discontinued at any time. Effective May 1, 2017, the new share repurchase program
64
replaced the prior $1,000 program, which our Board approved in June 2011. In addition to these publicly announced programs,
we have a separate Board authorization to purchase shares to offset the impact of dilution from shares issued under our stock
compensation plans.
In 2017, we repurchased 8 million shares at a cost of $437. Of this amount, $129 was used to repurchase shares pursuant to
our March 2017 publicly announced share repurchase program and $271 pursuant to our June 2011 program. Approximately
$1,371 remained available under the March 2017 program as of July 30, 2017. In 2016, we repurchased 3 million shares at a cost
of $143 and in 2015, we repurchased 5 million shares at a cost of $244.
17. Stock-based Compensation
In 2003, shareholders approved the 2003 Long-Term Incentive Plan, which authorized the issuance of an aggregate of 31.2
million shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock/units (including
performance restricted stock) and performance units. In 2005, shareholders approved the 2005 Long-Term Incentive Plan, which
authorized the issuance of an additional 6 million shares to satisfy the same types of awards. In 2008, shareholders approved an
amendment to the 2005 Long-Term Incentive Plan to increase the number of authorized shares to 10.5 million and in 2010,
shareholders approved another amendment to the 2005 Long-Term Incentive Plan to increase the number of authorized shares to
17.5 million. In 2015, shareholders approved the 2015 Long-Term Incentive Plan, which authorized the issuance of 13 million
shares. Approximately 6 million of these shares were shares that were currently available under the 2005 plan and were incorporated
into the 2015 Plan upon approval by shareholders.
Awards under Long-Term Incentive Plans may be granted to employees and directors. Pursuant to the Long-Term Incentive
Plan, we adopted a long-term incentive compensation program which provides for grants of total shareholder return (TSR)
performance restricted stock/units, EPS performance restricted stock/units, strategic performance restricted stock/units, time-lapse
restricted stock/units, special performance restricted stock/units and unrestricted stock. Under the program, awards of TSR
performance restricted stock/units will be earned by comparing our total shareholder return during a three-year period to the
respective total shareholder returns of companies in a performance peer group. Based upon our ranking in the performance peer
group, a recipient of TSR performance restricted stock/units may earn a total award ranging from 0% to 200% of the initial grant.
Awards of EPS performance restricted stock/units will be earned based upon our achievement of annual earnings per share goals.
During the three-year vesting period, a recipient of EPS performance restricted stock/units may earn a total award of either 0%
or 100% of the initial grant. Awards of the strategic performance restricted stock units were earned based upon the achievement
of two key metrics, net sales and EPS growth, compared to strategic plan objectives during a three-year period. A recipient of
strategic performance restricted stock units earned a total award ranging from 0% to 200% of the initial grant. Awards of time-
lapse restricted stock/units will vest ratably over the three-year period. In addition, we may issue special grants of restricted stock/
units to attract and retain executives which vest over various periods. Awards are generally granted annually in October.
Annual stock option grants were granted in 2017 and 2016 and were not part of the long-term incentive compensation program
for 2015. Stock options are granted on a selective basis under the Long-Term Incentive Plans. The term of a stock option granted
under these plans may not exceed ten years from the date of grant. Options granted in 2017 and 2016 under these plans vest ratably
over a three-year period. The option price may not be less than the fair market value of a share of common stock on the date of
the grant.
In 2017, we issued stock options, time-lapse restricted stock units, unrestricted stock, EPS performance restricted stock units
and TSR performance restricted stock units. We did not issue strategic performance restricted stock units or special performance
restricted units in 2017.
Total pre-tax stock-based compensation expense and tax-related benefits recognized in the Consolidated Statements of
Earnings were as follows:
Total pre-tax stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Tax-related benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
60
22
$
$
64
24
$
$
57
21
2017
2016
2015
65
The following table summarizes stock option activity as of July 30, 2017:
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
(In years)
Aggregate
Intrinsic
Value
Options
(Options in
thousands)
Outstanding at July 31, 2016 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at July 30, 2017 . . . . . . . . . . . . . . . . . . . .
Exercisable at July 30, 2017 . . . . . . . . . . . . . . . . . . . .
681
$
489
$
(33) $
(95) $
$
1,042
194
$
50.21
54.65
50.21
52.49
52.08
50.21
8.6
8.2
$
$
2
1
The total intrinsic value of options exercised during 2017 was not material. During 2016 and 2015, the total intrinsic value
of options exercised was $2 and $5, respectively. We measure the fair value of stock options using the Black-Scholes option pricing
model. The expected term of options granted was based on the weighted average time of vesting and the end of the contractual
term. We utilized this simplified method as we do not have sufficient historical exercise data to provide a reasonable basis upon
which to estimate the expected term.
The assumptions and grant-date fair values for grants in 2017 and 2016 were as follows:
2017
2016
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.26% 2.46%
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.64% 18.35%
6 years
Expected term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 years
$7.51
Grant-date fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.28% 1.68%
$6.86
We expense stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible
participants, which we expense on an accelerated basis. As of July 30, 2017, total remaining unearned compensation related to
nonvested stock options was $1, which will be amortized over the weighted-average remaining service period of 1.4 years.
The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units, strategic performance
restricted stock units and special performance restricted stock units as of July 30, 2017:
Weighted-
Average
Grant-Date
Fair Value
Units
(Restricted stock
units in thousands)
Nonvested at July 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at July 30, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,004
$
586
$
(990) $
(379) $
$
1,221
45.08
54.79
44.16
43.87
50.86
We determine the fair value of time-lapse restricted stock units, EPS performance restricted stock units, strategic performance
restricted stock units and special performance restricted stock units based on the quoted price of our stock at the date of grant. We
expense time-lapse restricted stock units on a straight-line basis over the vesting period, except for awards issued to retirement-
eligible participants, which we expense on an accelerated basis. We expense EPS performance restricted stock units on a graded-
vesting basis, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. There were
155 thousand EPS performance target grants outstanding at July 30, 2017, with a weighted-average grant-date fair value of $49.89.
The actual number of EPS performance restricted stock units and strategic performance restricted stock units that vest will depend
on actual performance achieved. We estimate expense based on the number of awards expected to vest. In the first quarter of 2017,
recipients of strategic performance restricted stock units earned 35% of the initial grants based on actual performance achieved
66
during a three-year period ended July 31, 2016. There were no strategic performance restricted stock units outstanding at July 30,
2017.
In 2015, we issued special performance restricted stock units for which vesting was contingent upon meeting various financial
goals and performance milestones to support innovation and growth initiatives. These awards vested in the first quarter of 2017
and are included in the table above. Recipients of special performance restricted stock units earned 0% of the initial grants based
upon financial goals and 100% of the initial grants based upon performance milestones to support innovation and growth initiatives.
As of July 30, 2017, total remaining unearned compensation related to nonvested time-lapse restricted stock units and EPS
performance restricted stock units was $22, which will be amortized over the weighted-average remaining service period of 1.6
years. The fair value of restricted stock units vested during 2017, 2016 and 2015 was $55, $44 and $56, respectively. The weighted-
average grant-date fair value of the restricted stock units granted during 2016 and 2015 was $50.44 and $43.00, respectively.
The following table summarizes TSR performance restricted stock units as of July 30, 2017:
Weighted-
Average
Grant-Date
Fair Value
Units
(Restricted stock
units in thousands)
Nonvested at July 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at July 30, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,641
$
$
606
(251) $
(222) $
$
1,774
49.13
39.53
36.26
44.58
48.24
We estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation.
Assumptions used in the Monte Carlo simulation were as follows:
2016
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.85% 0.92%
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.26% 2.46%
2.91%
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.78% 17.25% 16.20%
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 years
3 years
3 years
0.97%
2015
2017
We recognize compensation expense on a straight-line basis over the service period. As of July 30, 2017, total remaining
unearned compensation related to TSR performance restricted stock units was $27, which will be amortized over the weighted-
average remaining service period of 1.6 years. In the first quarter of 2017, recipients of TSR performance restricted stock units
earned 75% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July
29, 2016. In the first quarter of 2016, recipients of TSR performance restricted stock units earned 100% of the initial grants based
upon our TSR ranking in a performance peer group during a three-year period ended July 31, 2015. There were no TSR performance
restricted stock units scheduled to vest in 2015. The fair value of TSR performance restricted stock units vested during 2017 and
2016 was $14 and $22, respectively. The grant-date fair value of the TSR performance restricted stock units granted during 2016
and 2015 was $62.44 and $43.39, respectively. In the first quarter of 2018, recipients of TSR performance restricted stock units
will receive a 125% payout based upon our TSR ranking in a performance peer group during a three-year period ended July 28,
2017.
The excess tax benefits on the exercise of stock options and vested restricted stock presented as cash flows from operating
activities were $6 in 2017, $7 in 2016 and $6 in 2015. Cash received from the exercise of stock options was $2 for 2017 and 2016,
and $9 for 2015, and are reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.
18. Commitments and Contingencies
Regulatory and Litigation Matters
We are involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising
from the conduct of business both in the ordinary course and otherwise. Modern pleading practice in the U.S. permits considerable
variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary
damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial
court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible
verdicts in the jurisdiction for similar matters. This variability in pleadings, together with our actual experiences in litigating or
67
resolving through settlement numerous claims over an extended period of time, demonstrates to us that the monetary relief which
may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at
particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary
evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the
context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are
also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable
law.
We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies
shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible
that some matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be
reasonably estimated as of July 30, 2017. While the potential future charges could be material in a particular quarter or annual
period, based on information currently known by us, we do not believe any such charges are likely to have a material adverse
effect on our consolidated results of operations or financial condition.
Operating Leases
We have certain operating lease commitments, primarily related to warehouse and office facilities, and certain equipment.
Rent expense under operating lease commitments was $53 in 2017, $45 in 2016 and $48 in 2015. Future minimum annual rental
payments under these operating leases as of July 30, 2017, are as follows:
2018
$38
2019
$34
2020
$30
2021
$25
2022
$15
Thereafter
$21
Other Contingencies
We guarantee approximately 2,000 bank loans made to Pepperidge Farm independent contractor distributors by third party
financial institutions for the purchase of distribution routes. The maximum potential amount of future payments under existing
guarantees we could be required to make is $204. Our guarantees are indirectly secured by the distribution routes. We do not
believe it is probable that we will be required to make material guarantee payments as a result of defaults on the bank loans
guaranteed. The amounts recognized as of July 30, 2017, and July 31, 2016, were not material.
We have provided certain standard indemnifications in connection with divestitures, contracts and other transactions. Certain
indemnifications have finite expiration dates. Liabilities recognized based on known exposures related to such matters were not
material at July 30, 2017, and July 31, 2016.
68
19. Supplemental Financial Statement Data
Balance Sheets
2017
2016
Accounts receivable
Customer accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Inventories
Raw materials, containers and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Other current assets
Fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Plant assets
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projects in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accumulated depreciation(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Other assets
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
561
(11)
550
55
605
377
525
902
9
65
74
$
$
$
$
$
$
$
64
$
1,553
4,231
195
6,043
(3,589)
2,454
69
36
34
$
$
$
$
139
$
566
(12)
554
72
626
391
549
940
5
41
46
58
1,488
4,042
176
5,764
(3,357)
2,407
47
41
19
107
69
2017
2016
Accrued liabilities
Accrued compensation and benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued trade and consumer promotion programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
241
43
131
34
24
88
$
561
$
Other liabilities
Pension benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred compensation(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
261
96
247
1
34
2
56
263
16
130
35
57
103
604
501
100
285
44
31
17
61
$
697
$
1,039
____________________________________
(1) Depreciation expense was $299 in 2017, $288 in 2016 and $286 in 2015. Buildings are depreciated over periods ranging from
7 to 45 years. Machinery and equipment are depreciated over periods generally ranging from 2 to 20 years.
(2) The deferred compensation obligation represents unfunded plans maintained for the purpose of providing our directors and
certain of our executives the opportunity to defer a portion of their compensation. All forms of compensation contributed to
the deferred compensation plans are accounted for in accordance with the underlying program. Deferrals and our contributions
are credited to an investment account in the participant's name, although no funds are actually contributed to the investment
account and no investments are actually purchased. Seven investment choices are available, including: (1) a book account
that tracks the total return on our stock; (2) a book account that tracks the performance of the Vanguard Institutional Index;
(3) a book account that tracks the performance of the Vanguard Extended Market Index; (4) a book account that tracks the
performance of the Vanguard Total International Stock Index; (5) a book account that tracks the performance of the Vanguard
Total Bond Market Index; (6) a book account that tracks the performance of the Vanguard Short-Term Bond Index; and (7)
a book account that tracks the BlackRock Short-Term Investment Fund. Participants can reallocate investments daily and are
entitled to the gains and losses on investment funds. We recognize an amount in the Consolidated Statements of Earnings for
the market appreciation/depreciation of each fund.
70
Statements of Earnings
Other expenses / (income)
Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Impairment of intangible assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Claim settlement(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Advertising and consumer promotion expense(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest expense
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Interest capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2017
2016
2015
19
212
—
7
238
389
114
2
112
$
$
$
$
$
20
$
141
(25)
(5)
131
397
118
3
115
$
$
$
$
17
6
—
1
24
385
111
3
108
____________________________________
(1)
In 2017, we recognized impairment charges of $212 related to the intangible assets of the Bolthouse Farms carrot and carrot
ingredients reporting unit and the Garden Fresh Gourmet reporting unit; in 2016, we recognized an impairment charge of
$141 related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit; and in 2015, we
recognized an impairment charge of $6 related to minor trademarks used in the Global Biscuits and Snacks segment. See also
Note 5.
(2)
(3)
In 2016, we recorded a gain of $25 from a settlement of a claim related to the Kelsen acquisition.
Included in Marketing and selling expenses.
Statements of Cash Flows
Cash Flows from Operating Activities
Other
2017
2016
2015
Benefit related payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Other Cash Flow Information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(53) $
—
(53) $
110
5
320
$
$
$
(55) $
(3)
(58) $
113
4
325
$
$
$
(53)
1
(52)
111
3
333
71
20. Quarterly Data (unaudited)
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings attributable to Campbell Soup Company . . . . . . . . . . . . . . . . . . . .
Per share - basic
Net earnings attributable to Campbell Soup Company. . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share - assuming dilution
Net earnings attributable to Campbell Soup Company. . . . . . . . . . . . . . . .
Market price
2017
First
2,202
Second
Third
Fourth
$
2,171
$
1,853
$
1,664
841
292
.95
.35
.94
825
101
.33
.35
.33
678
176
.58
.35
.58
715
318
1.05
.35
1.04
High. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
62.30
52.74
$
$
63.50
52.59
$
$
64.23
56.05
$
$
59.14
50.62
In 2017, the following charges (gains) were recorded in Net earnings
attributable to Campbell Soup Company:
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restructuring charges, implementation costs and other related costs . . . .
Pension and postretirement benefit mark-to-market adjustments . . . . . . .
Sale of notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share - assuming dilution
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges, implementation costs and other related costs . . . .
Pension and postretirement benefit mark-to-market adjustments . . . . . . .
Sale of notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings (loss) attributable to Campbell Soup Company
Per share - basic
Net earnings (loss) attributable to Campbell Soup Company. . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share - assuming dilution
2017
First
Second
Third
Fourth
— $
180
$
— $
6
13
—
—
.02
.04
—
4
—
—
—
.01
—
—
—
—
—
.58
—
—
—
2016
—
26
(129)
(56)
—
.09
(.42)
(.18)
First
Second
Third
Fourth
2,203
$
2,201
$
1,870
$
1,687
755
194
.63
.312
819
265
.85
.312
660
185
.60
.312
546
(81)
(.26)
.312
Net earnings (loss) attributable to Campbell Soup Company. . . . . . . . . . .
.62
.85
.59
(.26)
Market price
High. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
52.37
45.23
$
$
56.63
47.77
$
$
65.48
54.97
$
$
67.89
59.51
72
In 2016, the following charges (gains) were recorded in Net earnings
attributable to Campbell Soup Company:
Impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restructuring charges, implementation costs and other related costs . . . .
Pension and postretirement benefit mark-to-market adjustments . . . . . . .
Claim settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share - assuming dilution
Impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges, implementation costs and other related costs . . . .
Pension and postretirement benefit mark-to-market adjustments . . . . . . .
Claim settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
First
Second
Third
Fourth
— $
— $
— $
127
23
80
—
—
.07
.26
—
10
(4)
—
—
.03
(.01)
—
9
34
(25)
—
.03
.11
(.08)
7
90
—
.41
.02
.29
—
In the fourth quarter of 2016, an out-of-period adjustment of $13 ($.04 per share) to increase taxes on earnings was recorded.
The adjustment related to deferred tax expense that should have been provided on certain cross-currency swap contracts associated
with intercompany debt. Most of the adjustment related to the third quarter of 2016. Management does not believe the adjustment
is material to the consolidated financial statements for any period.
73
Management’s Report on Internal Control Over Financial Reporting
The company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles in the United States of America.
The company’s internal control over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and Directors of the company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, any system of internal control over financial reporting, no matter how well defined, may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
The company’s management assessed the effectiveness of the company’s internal control over financial reporting as of July 30,
2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on this assessment using those criteria,
management concluded that the company’s internal control over financial reporting was effective as of July 30, 2017.
The effectiveness of the company’s internal control over financial reporting as of July 30, 2017 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears herein.
/s/ Denise M. Morrison
Denise M. Morrison
President and Chief Executive Officer
/s/ Anthony P. DiSilvestro
Anthony P. DiSilvestro
Senior Vice President and Chief Financial Officer
/s/ Stanley Polomski
Stanley Polomski
Vice President and Controller
(Principal Accounting Officer)
September 27, 2017
74
Report of Independent Registered Public Accounting Firm
To the Shareholders and Directors of Campbell Soup Company:
In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 15(a)(1) present
fairly, in all material respects, the financial position of Campbell Soup Company and its subsidiaries as of July 30, 2017 and
July 31, 2016, and the results of their operations and their cash flows for each of the three years in the period ended July 30, 2017
in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of July 30, 2017, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s
internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 27, 2017
75
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We, under the supervision and with the participation of our management, including the President and Chief Executive Officer
and the Senior Vice President and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 30, 2017 (Evaluation Date). Based
on such evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer have
concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
The annual report of management on our internal control over financial reporting is provided under "Financial Statements
and Supplementary Data" on page 74. The attestation report of PricewaterhouseCoopers LLP, our independent registered public
accounting firm, regarding our internal control over financial reporting is provided under "Financial Statements and Supplementary
Data" on page 75.
During the fourth quarter of 2017, we replaced a financial planning and consolidation system with an upgraded version. In
connection with this implementation, we modified select controls relating to financial data consolidation and financial reporting.
Except as described above, there were no changes in our internal control over financial reporting that materially affected, or
were likely to materially affect, such control over financial reporting during the quarter ended July 30, 2017.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The sections entitled "Item 1 — Election of Directors," "Voting Securities and Principal Shareholders — Ownership of
Directors and Executive Officers" and "Voting Securities and Principal Shareholders — Compliance with Section 16(a) of the
Exchange Act" in our Proxy Statement for the Annual Meeting of Shareholders to be held on November 15, 2017 (the 2017 Proxy)
are incorporated herein by reference. The information presented in the section entitled "Corporate Governance Policies and Practices
— Board Meetings and Committees — Board Committee Structure" in the 2017 Proxy relating to the members of our Audit
Committee and the Audit Committee’s financial experts is incorporated herein by reference.
Certain of the information required by this Item relating to our executive officers is set forth under the heading "Executive
Officers of the Company" in this Report.
We have adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to our Chief
Executive Officer, Chief Financial Officer, Controller and members of the Chief Financial Officer’s financial leadership team.
The Code of Ethics for the Chief Executive Officer and Senior Financial Officers is posted on our website,
www.campbellsoupcompany.com (under the "About Us — Corporate Governance" caption). We intend to satisfy the disclosure
requirement regarding any amendment to, or a waiver of, a provision of the Code of Ethics for the Chief Executive Officer and
Senior Financial Officers by posting such information on our website.
We have also adopted a separate Code of Business Conduct and Ethics applicable to the Board of Directors, our officers and
all of our employees. The Code of Business Conduct and Ethics is posted on our website, www.campbellsoupcompany.com (under
the "About Us — Corporate Governance" caption). Our Corporate Governance Standards and the charters of our four standing
committees of the Board of Directors can also be found at this website. Printed copies of the foregoing are available to any
shareholder requesting a copy by:
• writing to Investor Relations, Campbell Soup Company, 1 Campbell Place, Camden, NJ 08103-1799;
•
•
calling 1-800-840-2865; or
e-mailing our Investor Relations Department at investorrelations@campbellsoup.com.
Item 11. Executive Compensation
The information presented in the sections entitled "Compensation Discussion and Analysis," "Executive Compensation
Tables," "Corporate Governance Policies and Practices — Compensation of Directors," "Corporate Governance Policies and
Practices — Board Meetings and Committees — Board Committee Structure — Compensation and Organization Committee
Interlocks and Insider Participation" and "Compensation Discussion and Analysis — Compensation and Organization Committee
Report" in the 2017 Proxy is incorporated herein by reference.
76
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information presented in the sections entitled "Voting Securities and Principal Shareholders — Ownership of Directors
and Executive Officers" and "Voting Securities and Principal Shareholders — Principal Shareholders" in the 2017 Proxy is
incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information about the stock that could have been issued under our equity compensation plans
as of July 30, 2017:
Plan Category
Equity Compensation Plans Approved by Security Holders (1) . . . . .
Equity Compensation Plans Not Approved by Security Holders. . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights (a)
Weighted-
Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights (b)
Number of Securities
Remaining Available
For
Future Issuance Under
Equity Compensation
Plans
(Excluding Securities
Reflected in the First
Column) (c)
5,810,861
N/A
5,810,861
$
$
52.08
N/A
52.08
9,650,970
N/A
9,650,970
____________________________________
(1) Column (a) represents stock options and restricted stock units outstanding under the 2015 Long-Term Incentive Plan, 2005
Long-Term Incentive Plan and the 2003 Long-Term Incentive Plan. Column (a) includes 3,547,900 TSR performance restricted
stock units based on the maximum number of shares potentially issuable under the awards, and the number of shares, if any,
to be issued pursuant to such awards will be determined based upon performance during the applicable three-year performance
period. No additional awards can be made under the 2003 Long-Term Incentive Plan or the 2005 Long-Term Incentive Plan.
Future equity awards under the 2015 Long-Term Incentive Plan may take the form of stock options, SARs, performance unit
awards, restricted stock, restricted performance stock, restricted stock units, or stock awards. Column (b) represents the
weighted-average exercise price of the outstanding stock options only; the outstanding restricted stock units are not included
in this calculation. Column (c) represents the maximum number of future equity awards that can be made under the 2015
Long-Term Incentive Plan as of July 30, 2017.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information presented in the section entitled "Corporate Governance Policies and Practices — Transactions with Related
Persons," "Item 1 — Election of Directors — Director Independence" and "Corporate Governance Policies and Practices — Board
Meetings and Committees — Board Committee Structure" in the 2017 Proxy is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information presented in the sections entitled "Item 2 — Ratification of Appointment of Independent Registered Public
Accounting Firm — Audit Firm Fees and Services" and "Item 2 — Ratification of Appointment of Independent Registered Public
Accounting Firm — Audit Committee Pre-Approval Policy" in the 2017 Proxy is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
1. Financial Statements
PART IV
Consolidated Statements of Earnings for 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for 2017, 2016 and 2015
Consolidated Balance Sheets as of July 30, 2017 and July 31, 2016
Consolidated Statements of Cash Flows for 2017, 2016 and 2015
Consolidated Statements of Equity for 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Management's Report on Internal Control Over Financial Reporting
77
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedule
II - Valuation and Qualifying Accounts for 2017, 2016 and 2015
3. Exhibits
Reference is made to Item 15(b) below.
(b) Exhibits. The Exhibit Index, which immediately precedes the signature page, is incorporated by reference into this Report.
(c) Financial Statement Schedules. Reference is made to Item 15(a)(2) above.
Item 16. Form 10-K Summary
None.
78
2*
3(a)
3(b)
4(a)
4(b)
4(c)
4(d)
4(e)
4(f)
4(g)
9
10(a)+
10(b)+
10(c)+
10(d)+
10(e)+
10(f)+
INDEX TO EXHIBITS
Securities Purchase Agreement, dated July 6, 2017, by and among Campbell Investment Company, Pacific Foods
of Oregon, Inc. and the other parties named therein is incorporated by reference to Exhibit 2.1 to Campbell's Form
8-K (SEC file number 1-3822) filed with the SEC on July 6, 2017.
Campbell’s Restated Certificate of Incorporation, as amended through February 24, 1997, is incorporated by reference
to Exhibit 3(i) to Campbell’s Form 10-K (SEC file number 1-3822) for the fiscal year ended July 28, 2002.
Campbell’s By-Laws, amended and restated effective March 22, 2017, are incorporated by reference to Exhibit 3
to Campbell's Form 8-K (SEC file number 1-3822) filed with the SEC on March 23, 2017.
Indenture, dated November 24, 2008, between Campbell and The Bank of New York Mellon, as Trustee, is
incorporated by reference to Exhibit 4(a) to Campbell’s Registration Statement on Form S-3 (SEC file
number 333-155626) filed with the SEC on November 24, 2008.
Form of First Supplemental Indenture, dated August 2, 2012, among Campbell, The Bank of New York Mellon and
Wells Fargo Bank, National Association, as Series Trustee, to Indenture dated November 24, 2008, is incorporated
by reference to Exhibit 4.1 to Campbell's Form 8-K (SEC file number 1-3822) filed with the SEC on August 2, 2012.
Form of Subordinated Indenture between Campbell and Wells Fargo Bank, National Association, as Trustee, is
incorporated by reference to Exhibit 4.2 to Campbell's Registration Statement on Form S-3 (SEC file number
333-219217) filed with the SEC on July 10, 2017.
Form of 4.500% Notes due 2019 is incorporated by reference to Exhibit 4.1 to Campbell's Form 8-K (SEC file
number 1-3822) filed with the SEC on January 20, 2009.
Form of 4.250% Notes due 2021 is incorporated by reference to Exhibit 4.1 to Campbell's Form 8-K (SEC file
number 1-3822) filed with the SEC on April 1, 2011.
Form of 2.500% Notes due 2022 is incorporated by reference to Exhibit 4.1 to Campbell's Form 8-K (SEC file
number 1-3822) filed with the SEC on August 2, 2012.
Form of 3.800% Notes due 2042 is incorporated by reference to Exhibit 4.1 to Campbell's Form 8-K (SEC file
number 1-3822) filed with the SEC on August 2, 2012.
Major Stockholders’ Voting Trust Agreement dated June 2, 1990, as amended, is incorporated by reference to (i)
Exhibit 99.C to Campbell’s Schedule 13E-4 (SEC file number 5-7735) filed on September 12, 1996, (ii) Exhibit
99.G to Amendment No. 7 to Schedule 13D (SEC file number 5-7735) dated March 3, 2000, (iii) Exhibit 99.M to
Amendment No. 8 to Schedule 13D (SEC file number 5-7735) dated January 26, 2001, (iv) Exhibit 99.P to
Amendment No. 9 to Schedule 13D (SEC file number 5-7735) dated September 30, 2002, and (v) Exhibits 9(b),
9(c), 9(d) and 9(e) to Campbell's Form 10-K (SEC file number 1-3822) for the fiscal year ended August 3, 2014,
each as filed with the SEC.
Campbell Soup Company 2003 Long-Term Incentive Plan, as amended and restated on September 25, 2008, is
incorporated by reference to Exhibit 10(b) to Campbell’s Form 10-K (SEC file number 1-3822) for the fiscal year
ended August 3, 2008.
Campbell Soup Company 2005 Long-Term Incentive Plan, as amended and restated on November 18, 2010, is
incorporated by reference to Campbell’s 2010 Proxy Statement (SEC file number 1-3822) filed with the SEC on
October 7, 2010.
Campbell Soup Company 2015 Long-Term Incentive Plan is incorporated by reference to Campbell’s 2015 Proxy
Statement (SEC file number 1-3822) filed with the SEC on October 9, 2015.
Campbell Soup Company Annual Incentive Plan, as amended on November 19, 2014, is incorporated by reference
to Campbell’s 2014 Proxy Statement (SEC file number 1-3822) filed with the SEC on October 1, 2014.
Campbell Soup Company Mid-Career Hire Pension Plan, as amended and restated effective as of January 1, 2009,
is incorporated by reference to Exhibit 10(a) to Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal
quarter ended February 1, 2009.
First Amendment to the Campbell Soup Company Mid-Career Hire Pension Plan, effective as of December 31,
2010, is incorporated by reference to Exhibit 10(a) to Campbell’s Form 10-Q (SEC file number 1-3822) for the
fiscal quarter ended January 30, 2011.
10(g)+
Deferred Compensation Plan, effective November 18, 1999, is incorporated herein by reference to Exhibit 10(e) to
Campbell’s Form 10-K (SEC file number 1-3822) for the fiscal year ended July 30, 2000.
79
10(h)+
Campbell Soup Company Supplemental Retirement Plan (formerly known as Deferred Compensation Plan II), as
amended and restated effective as of August 1, 2015, is incorporated herein by reference to Exhibit 4(c) to Campbell’s
Form S-8 (SEC file number 333-216582) filed with the SEC on March 9, 2017.
10(i)+
Form of Severance Protection Agreement filed herewith.
10(j)+
Form of Amendment to the Severance Protection Agreement filed herewith.
10(k)+
10(l)+
Form of U.S. Severance Protection Agreement is incorporated by reference to Exhibit 10(c) to Campbell’s Form 10-
Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008.
Form of Non-U.S. Severance Protection Agreement is incorporated by reference to Exhibit 10(d) to Campbell’s
Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 2, 2008.
10(m)+
Form of U.S. Severance Protection Agreement is incorporated by reference to Exhibit 10(m) to Campbell’s Form 10-
K (SEC file number 1-3822) for the fiscal year ended July 31, 2011.
10(n)+
10(o)+
10(p)+
10(q)+
10(r)+
10(s)+
10(t)+
10(u)+
10(v)+
10(w)+
10(x)+
10(y)+
10(z)+
Form of Non-U.S. Severance Protection Agreement is incorporated by reference to Exhibit 10(n) to Campbell’s
Form 10-K (SEC file number 1-3822) for the fiscal year ended July 31, 2011.
Form of Amendment to U.S. and Non-U.S. Severance Protection Agreements is incorporated by reference to Exhibit
10(o) to Campbell's Form 10-K (SEC file number 1-3822) for the fiscal year ended July 31, 2016.
Campbell Soup Company Severance Pay Plan for Salaried Employees, as amended and restated effective January
1, 2011, is incorporated by reference to Exhibit 10(a) to Campbell’s Form 10-Q (SEC file number 1-3822) for the
fiscal quarter ended May 1, 2011.
Amendment to the Campbell Soup Company Severance Pay Plan for Salaried Employees, effective as of May 1,
2015, is incorporated by reference to Exhibit 10(b) to Campbell’s Form 10-Q (SEC file number 1-3822) for the
fiscal quarter ended May 3, 2015.
Amendment to the Campbell Soup Company Severance Pay Plan for Salaried Employees, dated December 17,
2015, is incorporated by reference to Exhibit 10(a) to Campbell’s Form 10-Q (SEC file number 1-3822) for the
fiscal quarter ended January 31, 2016.
Amendment 2017-1 to the Campbell Soup Company Severance Pay Plan for Salaried Employees, effective
January 1, 2017, is incorporated by reference to Exhibit 10 to Campbell's Form 10-Q (SEC file number 1-3822)
for the fiscal quarter ended April 30, 2017.
Campbell Soup Company Supplemental Employees’ Retirement Plan, as amended and restated effective January 1,
2009, is incorporated by reference to Exhibit 10(c) to Campbell’s Form 10-Q (SEC file number 1-3822) for the
fiscal quarter ended February 1, 2009.
First Amendment to the Campbell Soup Company Supplemental Employees’ Retirement Plan, effective as of
December 31, 2010, is incorporated by reference to Exhibit 10(c) to Campbell’s Form 10-Q (SEC file number
1-3822) for the fiscal quarter ended January 30, 2011.
Wm. Bolthouse Farms, Inc. Deferred Compensation Plan, effective as of August 1, 2010, is incorporated by reference
to Exhibit 10(f) to Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2015.
Form of 2005 Long-Term Incentive Plan Time-Lapsed Restricted Stock Unit Agreement is incorporated by reference
to Exhibit 10.1 to Campbell's Form 8-K (SEC file number 1-3822) filed with the SEC on February 2, 2015.
Form of 2005 Long-Term Incentive Plan Nonqualified Stock Option Agreement is incorporated by reference to
Exhibit 10 to Campbell's Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended November 1, 2015.
Form of 2015 Long-Term Incentive Plan Nonqualified Stock Option Agreement is incorporated by reference to
Exhibit 10(dd) to Campbell's Form 10-K (SEC file number 1-3822) for the fiscal year ended July 31, 2016.
Form of 2015 Long-Term Incentive Plan Performance Stock Unit Agreement (Earnings Per Share) is incorporated
by reference to Exhibit 10(b) to Campbell's Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended October
30, 2016.
10(aa)+
Form of 2015 Long-Term Incentive Plan Performance Stock Unit Agreement (Total Shareholder Return) is
incorporated by reference to Exhibit 10(ff) to Campbell’s Form 10-K (SEC file number 1-3822) for the fiscal year
ended July 31, 2016.
10(bb)+
Form of 2015 Long-Term Incentive Plan Time-Lapse Restricted Stock Unit Agreement is incorporated by reference
to Exhibit 10(c) to Campbell's Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended October 30, 2016.
80
10(cc)+
10(dd)
12
21
23
31(a)
31(b)
32(a)
32(b)
2017 Non-Employee Director Fees are incorporated by reference to Exhibit 10(a) to Campbell's Form 10-Q (SEC
file number 1-3822) for the fiscal quarter ended October 30, 2016.
Five-Year Credit Agreement, dated December 9, 2016, by and among Campbell Soup Company, the eligible
subsidiaries referred to therein, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders named
therein, is incorporated by reference to Exhibit 10 to Campbell's Form 8-K (SEC file number 1-3822) filed with the
SEC on December 12, 2016.
Computation of Ratio of Earnings to Fixed Charges.
Subsidiary List.
Consent of Independent Registered Public Accounting Firm.
Certification of Denise M. Morrison pursuant to Rule 13a-14(a).
Certification of Anthony P. DiSilvestro pursuant to Rule 13a-14(a).
Certification of Denise M. Morrison pursuant to 18 U.S.C. Section 1350.
Certification of Anthony P. DiSilvestro pursuant to 18 U.S.C. Section 1350.
101.INS
XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.DEF XBRL Definition Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document
*Disclosure schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Campbell agrees to
furnish a copy of any omitted attachment to the SEC on a confidential basis upon request.
+This exhibit is a management contract or compensatory plan or arrangement.
81
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Campbell has
duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
September 27, 2017
SIGNATURES
CAMPBELL SOUP COMPANY
By:
/s/ Anthony P. DiSilvestro
Anthony P. DiSilvestro
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by
the following persons on behalf of Campbell and in the capacities indicated on September 27, 2017.
Signatures
/s/ Denise M. Morrison
Denise M. Morrison
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Anthony P. DiSilvestro
Anthony P. DiSilvestro
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Stanley Polomski
Stanley Polomski
Vice President and Controller
(Principal Accounting Officer)
/s/ Les C. Vinney
Les C. Vinney
Chairman and Director
/s/ Fabiola R. Arredondo
Fabiola R. Arredondo
Director
/s/ Bennett Dorrance
Bennett Dorrance
Director
/s/ Randall W. Larrimore
Randall W. Larrimore
Director
/s/ Marc B. Lautenbach
Marc B. Lautenbach
Director
82
/s/ Mary Alice D. Malone
Mary Alice D. Malone
Director
/s/ Sara Mathew
Sara Mathew
Director
/s/ Keith R. McLoughlin
Keith R. McLoughlin
Director
/s/ Charles R. Perrin
Charles R. Perrin
Director
/s/ Nick Shreiber
Nick Shreiber
Director
/s/ Tracey T. Travis
Tracey T. Travis
Director
/s/ Archbold D. van Beuren
Archbold D. van Beuren
Director
CAMPBELL SOUP COMPANY
Valuation and Qualifying Accounts
For the Fiscal Years ended July 30, 2017, July 31, 2016, and August 2, 2015
(Millions)
Schedule II
Charged to/
(Reduction
in) Costs
and
Expenses
Balance at
Beginning
of Period
Balance at
End of
Period
Deductions
Fiscal year ended July 30, 2017
Cash discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Bad debt reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Returns reserve(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Accounts receivable allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal year ended July 31, 2016
Cash discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Bad debt reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Returns reserve(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Accounts receivable allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal year ended August 2, 2015
Cash discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Bad debt reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Returns reserve(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Accounts receivable allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4
3
5
12
5
4
4
13
4
3
5
12
$
$
$
$
$
$
109
—
—
109
116
(1)
2
117
116
2
—
118
$
$
$
$
$
$
(109) $
(1)
—
(110) $
(117) $
—
(1)
(118) $
(115) $
(1)
(1)
(117) $
4
2
5
11
4
3
5
12
5
4
4
13
_______________________________________
(1) The returns reserve is evaluated quarterly and adjusted accordingly. During each period, returns are charged to net sales in
the Consolidated Statements of Earnings as incurred. Actual returns were approximately $103 in 2017, $95 in 2016 and $105
in 2015, or less than 2% of net sales.
83
EXHIBIT 31(a)
CERTIFICATION PURSUANT
TO RULE 13a-14(a)
I, Denise M. Morrison, certify that:
1. I have reviewed this Annual Report on Form 10-K of Campbell Soup Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: September 27, 2017
By:
/s/ Denise M. Morrison
Name: Denise M. Morrison
Title:
President and Chief Executive Officer
EXHIBIT 31(b)
CERTIFICATION PURSUANT
TO RULE 13a-14(a)
I, Anthony P. DiSilvestro, certify that:
1. I have reviewed this Annual Report on Form 10-K of Campbell Soup Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: September 27, 2017
By:
/s/ Anthony P. DiSilvestro
Name: Anthony P. DiSilvestro
Title:
Senior Vice President and Chief Financial
Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
EXHIBIT 32(a)
In connection with the Annual Report of Campbell Soup Company (the “Company”) on Form 10-K for the fiscal year ended
July 30, 2017 (the “Report”), I, Denise M. Morrison, President and Chief Executive Officer of the Company, hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: September 27, 2017
By:
/s/ Denise M. Morrison
Name: Denise M. Morrison
Title:
President and Chief Executive Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the
Report or as a separate disclosure document.
A signed original of this written statement required under Section 906 has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
EXHIBIT 32(b)
In connection with the Annual Report of Campbell Soup Company (the “Company”) on Form 10-K for the fiscal year ended
July 30, 2017 (the “Report”), I, Anthony P. DiSilvestro, Senior Vice President and Chief Financial Officer of the Company,
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,
to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: September 27, 2017
By:
/s/ Anthony P. DiSilvestro
Name: Anthony P. DiSilvestro
Title:
Senior Vice President and Chief Financial
Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the
Report or as a separate disclosure document.
A signed original of this written statement required under Section 906 has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
(This Page Intentionally Left Blank)
last page of 10k
Shareholder Information
World Headquarters
Campbell Soup Company
1 Campbell Place, Camden, NJ 08103
(856) 342-4800
(856) 342-3878 (Fax)
Stock Exchange Listing
New York Stock Exchange Ticker Symbol: CPB
Transfer Agent and Registrar
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, KY 40233-5000
1-800-780-3203
Independent Accountants
PricewaterhouseCoopers LLP
Two Commerce Square
Suite 1700
2001 Market Street
Philadelphia, PA 19103-7042
Dividends
We have paid dividends since the company became
public in 1954. Dividends are normally paid quarterly,
near the end of January, April, July and October.
A dividend reinvestment plan is available to shareholders.
For information about dividends or the dividend
reinvestment plan, write to Dividend Reinvestment Plan
Agent, Campbell Soup Company, P.O. Box 505000,
Louisville, KY 40233-5000. Or call: (781) 575-2723
or 1-800-780-3203.
Annual Meeting
The Annual Meeting of Shareholders will be held on
November 15, 2017 at 4:00 p.m. Eastern Time at Campbell
Soup Company World Headquarters, 1 Campbell Place,
Camden, NJ 08103.
Publications
For copies of the Annual Report or the SEC Form
10-K or other financial information, visit
investor.campbellsoupcompany.com.
For copies of Campbell’s Corporate Social Responsibility
Report, write to Dave Stangis, Vice President – Corporate
Responsibility and Sustainability at
csr_feedback@campbellsoup.com.
Information Sources
Inquiries regarding our products may be addressed
to Campbell’s Consumer Response Center at the
World Headquarters address or call 1-800-257-8443.
Investors and financial analysts may contact Ken Gosnell,
Vice President - Finance Strategy and Investor Relations,
at the World Headquarters address or call (856) 342-6081.
Media and public relations inquiries should be directed to
Thomas Hushen, Associate Director, Communications, at
the World Headquarters address or call (856) 342-5227.
Communications concerning share transfer, lost certificates,
dividends and change of address, should be directed to
Computershare Trust Company, N.A.,
1-800-780-3203.
Shareholder Information Service
For the latest quarterly business results, or other
information requests such as dividend dates,
shareholder programs or product news, visit
investor.campbellsoupcompany.com.
Campbell Brands
Product trademarks owned or licensed by Campbell Soup
Company and/or its subsidiaries appearing in the narrative
text of this report are italicized.
Forward-Looking Statements
Statements in this report that are not historical facts are
forward-looking statements. Actual results may differ
materially from those projected in the forward-looking
statements. See “Cautionary Factors That May Affect
Future Results” in Item 7 and “Risk Factors” in Item 1A
of the SEC Form 10-K.
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The papers utilized in the production of this Annual Report are all certified for
Forest Stewardship Council® (FSC®) standards, which promote environmental-
ly appropriate, socially beneficial and economically viable management of the
world’s forests. The report is printed on Explorer, manufactured with certified,
nonpolluting, wind-generated electricity. This report was printed by
Innovation Marketing Communications, Inc., which uses 100% renewable wind
energy. Additionally, Innovation Marketing Communications, Inc. has
implemented technologies and processes to substantially reduce the volatile
organic compound (VOC) content of inks, coatings and solutions, and
invested in equipment to capture and recycle virtually all VOC emissions from
its press operations.
Transparency. To learn more about
how we make our food and the choices
behind the ingredients we use, visit
www.whatsinmyfood.com.
Instagram. Follow us @CampbellSoupCo
for stories about our company
and brands.
Twitter. Follow us @CampbellSoupCo
for tweets about our company
and brands.
Careers. To explore career
opportunities, visit us at
careers.campbellsoupcompany.com.
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3. Continuing to Diversify Campbell’s Portfolio in Fresh Foods and Health and Well-BeingCampbell is a leading player in health and well-being based on the percentage of our sales from such products. We have nearly $1 billion in annual net sales from fresh products; our products provide 15 billion servings of vegetables and more than 2.4 million tons of whole grains to consumers annually; and our organic portfolio is in the top 10 in the industry and growing at double digits.2 Campbell’s goal to lead in health and well-being is attainable. But to truly lead the industry, we will need to redouble our efforts and move with urgency to evolve our portfolio. We will continue to invest in health and well-being across the business, focusing on food with attributes such as natural, organic, functional and fresh.2IRI Total US – MULO for the calendar year ending 12/31/16, CAGR based on 2013-201603FRESH ANDHEALTH & WELL-BEING0104REAL FOOD, TRANSPARENCY& SUSTAINABILITYDIGITAL & E-COMMERCESNACKING024. Increasing Campbell’s Presence in the Faster-Growing Snacking CategoryConsumers are continuously looking for new and better snacking solutions. Not only have the types of snacks expanded, but also the moments in which consumers look to snack across the day. Ninety percent of consumers snack multiple times a day and more than 50 percent of all U.S. eating occasions are snacks.3We see an opportunity to leverage brands across our entire portfolio to participate in snacking occasions outside our cookie and baked snacks business. Our goal is to make snacks with real food ingredients accessible to all consumers, and we are pursuing an enterprise-wide snack-ing strategy designed to accelerate our efforts.We plan to broaden our snacking business beyond cookies and baked snacks to include soup, mini meals and fresh snacks. This expanded snacking market is worth approximately $125 billion in the U.S. alone and growing around 3 percent.4 We are aiming to add approximately $200 million in sales over the next five years attributable to these efforts.3Hartman Group, 2016. Hartman Group, 20144BCG analysis, industry press releases, IRI 2016 State of Snacking, Mintel BFY Snacks 2016OUR GROWTH AGENDAAND FOUR STRATEGIC IMPERATIVESARE THE ROADMAPIt is not enough to simply say what we aspire to be. We need to tell you how we will achieve it. Our growth agenda, with our purpose, Real food that matters for life’s moments, asa North Star, informs everything we do — from resource allocations to external development. Our four strategic imperatives provide a blueprint to become the leading health and well-being food company and to deliver improved sales growth. 1. Building Greater Trustwith Consumers Through Real Food, Transparency and SustainabilityOur purpose continues to be the single most important change in our company’s culture in the last few years. It has fundamentally altered the way we think, talk and act about our food.Our purpose has led us to take principled positions about the most pressing issues facing the food industry, including transparency. At times, we have had philosophical differences with many of our peers and our trade association on important issues. As a result, we intend to withdraw from the Grocery Manufacturers Association at the end of 2017. This was not a financial decision. It was driven by our purpose and our principles.As we strive to be the most transparent food company in the world, Campbell is partnering with the Sage Project to raisethe bar on food transparency. Combining technology with design, the Sage Project is creating online food labels for the digital world, making information about calories, nutrition, ingredients and attributes open, accessible and easy for consumers to understand. Campbell is embracing the platform because we believe it delivers the information consumers are increasingly demanding.These efforts complement our planned ongoing investment of $50 million over the next several years to make the kind of food that consumers are seeking and that we are proud to serve at our own tables. We are making steady progress toward our commitment to remove artificial colors and flavors from our food, while increasing the use of vegetables and whole grains and using chicken with no antibiotics. We have also completed our work to remove BPA from the lining of our soup cans in the U.S. and Canada.2.Accelerating Digital Marketingand E-Commerce EffortsConsumer options for how and where they buy groceries are changing rapidly. Shoppers today have immediate access to pricing, product information and reviews, literally in the palm of their hand. E-commerce is a series of tools, technologies and behaviors that, over time, build consumer expectations of convenience. It happened in entertainment. It happened in apparel. And now it is happening in food.Today, the percentage of food sold online is in the low single digits. By 2021, we project online grocery sales to reach $66 billion annually in the U.S.1 Over the next five years, we expect to generate $300 million of sales in this space.To accelerate our digital and e-commerce efforts, we are building an e-commerce unit in North America to deliver the products and services our consumers demand and to drive growth, while working to scale our digital marketing capabilities. We also expect to partner with leading e-commerce companies. For example, Campbell invested $10 million and formed a strategic partnership with online meal kit company Chef’dto test new concepts for fresh, healthy recipes and to integrate our products into their popular meal kits. More importantly, we will gain insights from their data and analytics and participate firsthand in emerging e-commerce models.To compete and thrive in this environment, we need to enhance our distribution capabilities to meet customer and consumer needs today and in the future. That is why we are investing in a network of distribution centers to create a more flexible distribution system to serve our e-commerce channels.1Proprietary Campbell EstimateOUR GROWTH AGENDAOur Growth Agenda is rooted in our purpose, Real food that matters for life’s moments. Webelieve our four strategic imperatives will help us realize Campbell’s goal of being the leading health and well-being food company and drive the greatest value for our shareholders over time.Formed’17Announced exit of operationsin Russia.AcquiredPlum Organics.Acquired Bolthouse Farms.SoldEuropean simplemeals business.Articulated Purpose & Growth Agenda.Real Food Philosophy & Values.AcquiredKelsen Group.EstablishedAcquired Garden Fresh Gourmet.’11’13’14’16FundedPartnered withCo-packagreements with La Costeña& Jumex.’12’15Significant multi-year cost savings initiative.Majorenterprise redesign & portfolio roles.3 Campbell Soup CompanyCampbell Soup Company 4DEFINING HEALTHAND WELL-BEING Health and well-being means different things to different people. In fact, research shows that many consumers’ beliefs around this topic simply do not align with traditional definitions. No amount of advertising or government classification will convince them otherwise. Consumers associate healthy with fresh, naturally functional and organic foods. At Campbell, we believe in putting consumers first. Understanding consumer beliefs is central to decoding the meaning of health and well-being.Our definition begins with real food: food made with simple, recognizable and desirable ingredients from plants and animals; food crafted with care using ethical sourcing and sustainable practices; and food that is safe, delicious and available at a fair price — all three without compromise.Real food has become a non-negotiable demand. People have simply come to expect it. Campbell is listening and taking our cues on health and well-being from consumers.On the well-being side that means food that is engaging, comforting and provides a sense of purpose, a reward and a small moment of satisfaction or celebration. A cookie or a biscuit and a well-being product do not have to be mutually exclusive. We are focused on delivering the benefits our consumers believe are important, including fresh and organic foods; naturally functional foods that provide energy, endurance and digestive health; and food that is relatable and tailored to individual needs through personalized nutrition.Campbell holds an advantaged position among our peers. We exceed most other food companies in terms of the amount of vegetables and whole grains in our foods. Plus, we have a heritage of providing safe and simple foods that are affordable and accessible. We also have a powerful connection with consumers, especially families. Our brands have and will continue to play an important role in “the moments that matter” in peoples’ lives.The significant actions we have taken have helped to redefine the way people view Campbell. If consumers are looking for fresh foods, clean labels or organic offerings, they can now find it in Campbell’s portfolio.2 Campbell Soup CompanyRaised the bar on transparency withDefining the future of food requires different approaches and an ecosystem of innovative partners. A prime example is the partnership we announced with Chef’d, a leading meal kit marketplace. They possess deep competencies in consumer insights, the shopper’s path to purchase, digital marketing and analytics, and fulfillment capabilities. Campbell will gain valuable knowledge in emerging e-commerce trends and business models.+
1 Campbell Place, Camden, NJ 08103-1799investor.campbellsoupcompany.comCampbell Soup Company2017 ANNUAL REPORTFellow Shareholders,Growth…Ithas been elusive for years, as the entirefood industry grapples with the seismic shifts that have altered the consumer, food and retail landscapes.The drive to deliver sustainable, profitabletop-line growth has been a consistent theme during my tenure as Campbell’s CEO. Our growth strategy has been focusedon two critical areas: strengthening our core business and expanding into faster-growingspaces to diversify our portfolio.Both were necessities to address these seismic shifts: the massive changes in demographics; the evolving consumer preferences toward health and well-being, centered on fresh and real food; technological advancements reshaping the consumer shopping experience; and tumultuous socio-economic forces. These shifts have not only accelerated and converged, they have essentially reset consumer behavior. In this environment, companies and brands must differentiate themselves or risk extinction.Over the last six years, we have made significant progress on transforming Campbell’s portfolio toward faster-growing spaces, particularly health and well-being. Our commitment to health and well-being is unwavering. We chose this path becausewe recognized the dramatic changes taking place in our industry and that real and healthier food was better for our consumers and better for our business. Let me state it clearly and unambiguously:Our ultimate goal is to “Be the leading health and well-being food company.”When people look for something real to eat and something that tastes good, they are going to look for the food Campbell makes. We chose this path not because it is expedient, but because we believe it represents the future of the food industry and that it will lead to differentiated performance for our shareholders.Denise M. MorrisonPresident and Chief Executive Officer