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
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| For the Fiscal Year Ended | | | | Commission File Number |
July 31, 201628, 2019 | | | | 1-3822 |
CAMPBELL SOUP COMPANY
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| New Jersey | 21-0419870 |
| State of Incorporation | I.R.S. Employer Identification No. |
1 Campbell Place
Camden, New Jersey 08103-1799
Principal Executive Offices
Telephone Number: (856) 342-4800
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
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| Capital Stock, par value $.0375 | | CPB | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.☑þ 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 ☑þ 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. ☑þ 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). ☑þ 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, or a smaller reporting company or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer," "smaller reporting company," and “smaller reporting company”"emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☑þ | Accelerated filer ☐ |
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
| Smaller reporting company ☐ |
| Emerging growth company ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑þ No
As ofBased on the closing price on the New York Stock Exchange on January 29, 201625, 2019 (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 $10,943,238,771.$6,542,735,608. There were 307,875,045301,186,638 shares of capital stock outstanding as of September 14, 2016.18, 2019.
Portions of the Registrant’s Proxy Statement for the 2019 Annual Meeting of Shareholders to be held on November 16, 2016, are incorporated by reference into Part III.
TABLE OF CONTENTS
PART I
This Form 10-KReport contains "forward-looking" statements thatwithin 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. Statements that are not current or historical facts, includingThese forward-looking statements about beliefs and expectations, and containingcan be identified by words such as "anticipate," "believe," "estimate," "expect," "will,"intend," "plan," "pursue," "strategy," "will" and similar expressions. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or similar words are forward-looking statements.current facts, and may reflect anticipated cost savings or implementation of our strategic plan. These statements reflect our current plans and expectations and are based on information currently available.available to us. They rely on a number ofseveral 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" ofin this Form 10-K.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.
BackgroundIn 2015, we acquired the assets of Garden Fresh Gourmet. In 2018, we acquired Pacific Foods of Oregon, LLC and Snyder's-Lance, Inc. (Snyder's-Lance). See Note 4 to the Consolidated Financial Statements for additional information on our recent acquisitions.
In 2019, we announced our plan to divest our Campbell Fresh operating segment and our international biscuits and snacks operating segment. Within our Campbell Fresh operating segment, we:
Our long-term goal is•sold our U.S. refrigerated soup business on February 25, 2019;
•sold our Garden Fresh Gourmet business on April 25, 2019; and
•sold our Bolthouse Farms business on June 16, 2019.
Within our international biscuits and snacks operating segment, we:
signed a definitive agreement for the sale of our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019;
signed a definitive agreement on August 1, 2019, for the sale of our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific (the Arnott’s and international operations); and
signed a definitive agreement on September 18, 2019, for the sale of our European chips business.
We expect to build shareholder value by driving sustainable, profitablecomplete the sales of our pending divestitures in the first half of 2020 and use the net proceeds from the sales growth. Guided byto reduce debt. See Note 3 to the Consolidated Financial Statements for additional information on our purpose - Real food that matters for life’s moments,recently completed and pending divestitures. To support our more focused portfolio, we are pursuing a dual strategy of strengthening our core businesses while expanding into faster-growing spaces. We have made a number of enterprise design and portfolio changes over the past several years in support of this strategy, including the following:
In 2016, we implemented a new enterprise design focused mainly on product categories. Under the new structure, our divisions are organized in the following segments: 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 (IGS) organization to deliver shared services andmulti-year cost savings acrossinitiatives with targeted annualized cost savings of $850 million from continuing operations by the company. IGS became effective at the beginningend of 2016. We are also pursuing other initiatives to reduce costs2022, which includes $295 million in synergies and increase effectiveness, such as adopting zero-based budgeting over time.run-rate cost savings from our acquisition of Snyder's-Lance. See "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information on these initiatives;regarding our cost savings initiatives.
Our U.S. refrigerated soup business, our Garden Fresh Gourmet business and
In 2013, we acquired our Bolthouse Farms business were historically included in the Campbell Fresh segment. Beginning in the third quarter of 2019, we have reflected the results of operations of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and Plum. In 2014, we acquired Kelsenliabilities of these businesses have been reflected in assets and divested our European simple meals business. In 2015, we completedliabilities of discontinued operations in the acquisitionConsolidated Balance Sheet as of July 29, 2018. A portion of the U.S refrigerated soup business historically included in Campbell Fresh was retained, and is now reported in Meals & Beverages.
Beginning in the fourth quarter of 2019, we have reflected the results of operations of our Kelsen business and Arnott’s and international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of Garden Fresh Gourmet. See Note 3these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of July 28, 2019, and July 29, 2018.
Segment results in prior periods have been adjusted to conform to the Consolidated Financial Statements for additional information on our recent acquisitions, and Note 4 to the Consolidated Financial Statements for additional information on our divestiture of the European simple meals business.current presentation.
For additional information on our dual strategy of strengthening our core businesses while expanding into faster-growing spaces, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Reportable Segments
We manage our businesses in threeThe segments focused mainlyare aggregated based on product categories. Thesimilar economic characteristics, products, production processes, types or classes of customers, distribution methods, and regulatory environment. Our reportable segments are:
The Americas Simple Meals and& Beverages, segmentwhich includes the retail and food servicefoodservice businesses in the U.S., Canada and Latin America.Canada. The segment includes the following products: Campbell’scondensed and ready-to-serve soups; Swansonbroth and stocks;Pacific Foods broth, soups, non-dairy beverages and other simple meals; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; Plum baby food and snacks; V8 juices and beverages; and Campbell’Campbell’ss tomato juice;
The 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.juice. The segment also includes the simple meals and shelf-stable beverages business in AustraliaLatin America; and Asia Pacific;
Snacks, which consists of Pepperidge Farm cookies, crackers,fresh bakery and
The Campbell Fresh segment includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages frozen products in U.S. retail, including Milano cookies and refrigerated salad dressings, Garden Fresh Gourmet salsa, hummus, dipsGoldfish crackers; and tortillaSnyder’s of Hanover pretzels, Lance sandwich crackers, Cape Cod and Kettle Brand potato chips, Late July snacks, Snack Factory Pretzel Crisps,Pop Secret popcorn, Emerald nuts, and other snacking products in the U.S. refrigerated soupand Canada. The segment also includes our European chips business.
In 2020, our business in Latin America is managed as part of the Snacks segment. See also Note 7 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 in price attributable tofrom a number of factors, including changes in crop size, cattle cycles, crop disease, and/orcrop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, government-sponsored agricultural programs and other government policy, import and export requirements (including tariffs), drought and excessive rain, temperature extremes and other adverse weather events, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be beyond our control (including natural disasters) 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 generally 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. In addition, certain of the materials required for the manufacture of our products, including steel, have been or may be impacted by tariffs. 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"Management’s Discussion and Analysis of Financial Condition and Results of Operations.”"
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, e-commerce and other retail, commercial and non-commercial establishments. Each of Pepperidge Farm and Snyder's-Lance 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 40%43% of our consolidated net sales from continuing operations in 2016, 38%2019, 46% in 20152018 and 35%47% in 2014.2017. Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 20% of our consolidated net sales from continuing operations in 20162019, 22% in 2018 and 2015,24% 2017. The Kroger Co. and 19%its affiliates accounted for approximately 9% of our consolidated net sales from continuing operations in 2014. All2019 and 10% in 2018 and 2017. Both of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates and The Kroger Co. or its affiliates. No other customer accounted for 10% or more of our consolidated net sales.
Trademarks and Technology
As of September 14, 2016,18, 2019, we owned over 3,6503,600 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, , Cape Cod, Chunky, Emerald, Goldfish Kjeldsens, , Kettle Brand, Lance, Late July, Milano, Pace, Pacific Foods, Pepperidge Farm, Plum, Pop Secret, Prego, Snack Factory Pretzel Crisps, Snyder's of Hanover, 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 worldwide competition in all of our principal products.categories. This competition arises from numerous competitors of varying sizes across multiple food and beverage categories, and includes producers of generic and private label products, as well as other branded food and beverage manufacturers. Private label products are generally sold at lower prices than branded products. Competitors market and sell their products through traditional retailers and e-commerce. All of these competitors vie for trade merchandising support and consumer dollars. The number of competitors cannot be reliably estimated. TheOur principal areas of competition are brand recognition, taste, quality,nutritional value, price, advertising, promotion, convenienceinnovation, shelf space and customer service.
Working Capital
For information relating to our cash flows from operations and working capital items, see “Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations.”"
Capital Expenditures
During 2016,2019, our aggregate capital expenditures were $341$384 million. We expect to spend approximately $350 million for capital projects in 2017.2020, which includes capital projects for Campbell International for the anticipated period of ownership. Major capital projects based on planned spend in 20172020 include implementation of an ongoing Australian multi-pack biscuit capacity expansion projectSAP enterprise-resource planning system for Snyder's-Lance and Pepperidge Farm refrigeration system replacement projects.
Research and Development
During the last three fiscal years,a new manufacturing line for our expenditures on research and development activities relating to new products and the improvement and maintenance of existing products were $124 million in 2016, $117 million in 2015, and $122 million in 2014.
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. The decrease from 2014 to 2015 was primarily due to benefits from cost savings initiatives, partially offset by increased losses on pension and postretirement benefit mark-to-market adjustments.snacks business.
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. In addition, the current U.S. administration has implemented and is considering tariffs on certain imported commodities, including steel. In response, other countries have adopted and/or are considering countervailing tariffs on imported food and agriculture products.
Environmental Matters
We have requirements for the operation and design of our facilities that meet or exceed applicable environmental rules and regulations. Of our $341$384 million in capital expenditures made during 2016,2019, approximately $7$29 million waswere for compliance with environmental laws and regulations in the U.S. We further estimate that approximately $18$13 million of the capital expenditures anticipated during 20172020 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 31, 2016,28, 2019, we had approximately 16,500 employees.
Financial Information
Financial information for our reportable segments and geographic areas is found in Note 7 to the Consolidated Financial Statements. For risks attendant to our foreign operations, see “Risk Factors.”19,000 employees, which included approximately 4,200 employees of Campbell International.
Websites
Our primary corporate website can be found at www.campbellsoupcompany.com. We make available free of charge at this website (under the “Investor"Investor Center — Financial Information — SEC Filings”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 operateface significant competition in a highly competitive industryall our product categories, which may result in lower sales and margins
We operate in the highly competitive food and beverage industry mainly in the North American market and experience global competition in all of our principal products.categories. The principal areas of competition are brand recognition, taste, quality,nutritional value, price, advertising, promotion, convenienceinnovation, shelf space and customer service. A number of our primary competitors are larger than us and have substantial financial, marketing and other resources.resources, and some of our competitors may spend more aggressively on advertising and promotional activities than we do. In addition, reduced barriers to entry and easier access to funding may createare creating new competition. A strong competitive response from one or more of these competitors to our marketplace efforts, or a consumercontinued shift towards private label offerings, could result in us reducing pricing,prices, increasing marketing or other expenditures, and/or losing market share.share, each of which may result in lower sales and margins.
Our ability to compete also depends upon our ability to predict, identify, and interpret the tastes and dietary habits of consumers and to offer products that appeal to those preferences. There are inherent marketplace risks associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance. If we do not succeed in offering products that consumers want to buy, our sales and market share will decrease, resulting in reduced profitability. If we are unable to accurately predict which shifts in consumer preferences will be long-lasting, or are unable to introduce new and improved products to satisfy those preferences, our sales will decline. In addition, given the variety of backgrounds and identities of consumers in our consumer base, we must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. As such, we must be successful in developing innovative products across a multitude of product categories. Finally, if we fail to rapidly develop products in faster-growing and more profitable categories, we could experience reduced demand for our products, or fail to expand margins.
Our results are dependentmay be adversely affected by our inability to complete or realize the projected benefits of divestitures
During the first half of 2020, we expect to complete the sale of our Arnott’s and international operations and use the net proceeds from this divestiture to reduce debt. Our ability to successfully divest this business depends upon, among other things, receiving all necessary regulatory approvals on strengthening our corethe terms expected. In addition, any other businesses while diversifying into faster-growing spaces
Our strategy is focusedwe decide to divest may depend in part 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 identify suitable buyers, negotiate favorable financial and capture market share in faster-growing spaces;
other contractual terms and obtain all necessary regulatory approvals on the terms expected. Potential risks of divestitures may also include diversion of management's attention from other business concerns, loss of key suppliers and/or customers of divested businesses, the inability to separate divested businesses or business units effectively and efficiently from our abilityexisting business operations and the inability to identify and capitalize on customerreduce or consumer trends, including those related to fresh or organic products;
•our ability to design and implement effective retail execution plans;
•our ability to design and implement effective advertising and marketing programs, including digital programs;
•our ability to secure or maintain sufficient shelf space at retailers; and
•changes in underlying growth rates of the categories in which we compete.
eliminate associated overhead costs. If we are not successful in addressing these factors, our strategyunable to complete or realize the projected benefits of planned and/or future divestitures, we may not be successful and/orable to reduce our debt as planned and our business or financial results may be adversely impacted.
We may be adversely impacted by our substantial indebtedness
We used the net proceeds from the businesses we sold in 2019 to reduce our debt and expect to use the net proceeds from the sale of Campbell International to further reduce debt. However, as of July 28, 2019, we maintained approximately $8.7 billion of indebtedness, and this level of indebtedness may have important consequences to our business, including but not limited to:
increasing the possibility of a downgrade in our credit rating;
increasing our exposure to fluctuations in interest rates;
subjecting us to new financial and other covenants;
increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, including undertaking significant capital projects;
placing us at a competitive disadvantage as compared to our competitors, to the extent that they are not as highly leveraged; and
restricting us from pursuing certain business opportunities, including other acquisitions.
In addition, we regularly access the commercial paper markets for working capital needs and other general corporate purposes. If our credit ratings are downgraded, we may have difficulty selling additional debt securities or borrowing money in the amounts and on the terms that might be available if our credit ratings were maintained. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources" for additional information regarding our indebtedness.
Disruptions in the commercial paper market or other effects of volatile economic conditions on the credit markets may also reduce the amount of commercial paper that we can issue and raise our borrowing costs for both short- and long-term debt offerings. There can be no assurance that we will have access to the capital markets on terms we find acceptable. Limitations on our ability to access the capital markets, a reduction in our liquidity or an increase in our borrowing costs may adversely affect our business and financial results.
We may not achieve our targeted cost savings, which may adversely affect our ability to grow margins
We are pursuing multi-year cost savings initiatives with targeted annualized cost savings of $850 million for continuing operations by the end of 2022, which includes $295 million in synergies and run-rate cost savings from our acquisition of Snyder's-Lance. These initiatives 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 these initiatives, including the integration of Snyder's-Lance in an efficient and effective manner. In some respects, our plans to achieve these cost savings continue to be refined. See "Management's Discussion and Analysis of Financial Condition and Results of Operation - Restructuring Charges and Cost Savings Initiatives" for additional information on these 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. 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 ability to grow margins.
We may not be able to increase prices to fully offset increases in the cost of transportation and logistics and prices of raw andpackaging materials
The cost of distribution has increased recently due to a rise in transportation and logistics costs, driven by excess demand, reduced availability and higher fuel costs. In addition, certain of the materials required for the manufacture of our products, including steel, have been or may be impacted by tariffs.
As a manufacturer of food and beverage products, the raw and packaging materials used in our business include tomato paste, grains, beef, poultry, dairy, potatoes and other vegetables, steel, glass, paper and resin. Many of these materials are subject to price fluctuations from a number of factors, including but not limited to changes in crop size, cattle cycles, crop disease, crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, government-sponsored agricultural programs and other government policy, import and export requirements (including tariffs), drought and excessive rain, temperature extremes and other adverse weather events, water scarcity, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be beyond our control. We may not be able to offset any price increases through productivity or price increases or through our commodity hedging activity.
We try to pass along to customers some or all cost increases 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 that price increases or packaging size decreases are not sufficient to offset these increased costs, and/or if they result in significant decreases in sales volume, our business results and financial condition may be adversely affected.
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. Alternativetrade, which has experienced slower growth than other retail channels, such as dollar stores, drug stores, club stores and Internet-based retailers, have increased their market share. Thise-commerce retailers. We expect this trend towards alternativeaway from traditional retail grocery to alternate channels is expected to continue in the future. If we are not successful in expanding sales inThese alternative retail channels may also create consumer price deflation, affecting our businessretail customer relationships and presenting additional challenges to increasing prices in response to commodity or financial results may be adversely impacted.other cost increases. In addition, consolidations in the traditional retail grocery trade have produced large, sophisticated customersretailers with increased buying power and negotiating strength who may seek lower prices,are seeking more favorable terms, including increased promotional programs funded by their suppliers or more favorable terms.suppliers. These customers may also use more of their shelf space for their private label products, which are generally sold at lower prices than branded 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 2016,2019, our five largest customers accounted for approximately 40%43% of our consolidated net sales from continuing operations, with the largest customer, Wal-Mart Stores, Inc. and its affiliates, accounting for approximately 20% of our consolidated net sales.sales from continuing operations. In addition, The Kroger Co. and its affiliates accounted for approximately 9% of our consolidated net sales from continuing operations in 2019. 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
In the beginning of 2016, we implemented a new enterprise design focused mainly on product categories. We are also pursuing related initiatives to reduce costs and increase effectiveness, such as adopting zero-based budgeting over time. 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 supply chain, information technology or related initiatives. Our success is partly dependent upon properly executing, and realizing cost savings or other benefits from, these initiatives, which are often complex. Any failure to implement our initiatives could adversely affect our business or financial results.
Our results may be adversely affected by the failure to execute acquisitions and divestitures successfullyimpacted if consumers do not maintain their favorable perception of our brands
We expect to seek acquisitionshave a number of iconic brands with significant value. Maintaining and investment opportunities. Our ability to meet our objectives with respectcontinually enhancing the value of these brands is critical to the acquisitionsuccess of new businesses or the divestiture of existing businesses may dependour business. Brand value is primarily based on consumer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to identify suitable buyers and sellers, negotiate favorable financial terms and other contractual terms and obtain all necessary regulatory approvals. Potential risksprovide high-quality products. Brand value could diminish significantly due to a number of acquisitions also include:
•the inability to integrate acquired businesses efficiently into our existing operations;
•diversion of management's attention from other business concerns;
•potential loss of key employees and/or customers of acquired businesses;
•potential assumption of unknown liabilities;
•the inability to implement promptly an effective control environment; and
•the risks inherent in entering markets or lines of business with whichfactors, including consumer perception that we have limitedacted in an irresponsible manner, adverse publicity about our products, packaging or no prior experience.
Acquisitions outsideingredients (whether or not valid), our failure to maintain the U.S. may present unique challengesquality 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 increasedigital media by consumers increases the speed and extent that information and opinions can be shared. Negative posts or comments about us, our exposure to risks associated with foreign operations, including foreign currency risksbrands, products or packaging on social or digital media could seriously damage our brands and risks associated with local regulatory regimes. For divestitures, potential risks may also
includereputation. If we do not maintain the inability to separate divested businesses or business units from us effectively and efficiently and to reduce or eliminate associated overhead costs.favorable perception of our brands, our results could be adversely impacted.
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, warehousing or distribution capabilities, or to the capabilities of our suppliers, or contract manufacturers, due tologistics service providers or independent distributors. This damage or disruption could result from execution issues, as well as 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, cybersecurity breaches, government shutdowns, disruptions in logistics, supplier capacity constraints or other events. Production of the agricultural commodities used in our business may also be adversely affected by drought and excessive rain, temperature extremes and other adverse weather events, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients, crop size, cattle cycles, crop disease and/orand 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, logistics service providers or independent distributors, 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 2016, approximately 19% of our consolidated net sales were generated outside of the U.S. Our strategy depends in part on expanding our operations in developing markets. Sales outside the U.S. are expected to continue to represent a significant portion of consolidated net sales. Our business or financial performance 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:
•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 potentially 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 andpackaging materials
The raw and packaging materials used in our business include tomato paste, grains, beef, poultry, vegetables, steel, glass, paper and resin. Many of these materials are subject to price fluctuations from a number of factors, including crop size, cattle cycles, disease and/or 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 (including natural disasters). 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 intend 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 sickness or 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 thisthat category.
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, ourinformation 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. 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 have not detected 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 31, 2016,28, 2019, we had goodwill of $2.263$4.678 billion and other indefinite-lived intangible assets of $927 million.$2.753 billion, of which a total of $785 million relates to Campbell International and has been included in Noncurrent assets of discontinued operations. 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 goodwillthe 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.
In We have, in the fourth quarter of 2016, as part of our annual review of goodwillmost recently completed and indefinite-lived intangible assets, we recognized a non-cashprior years, experienced impairment charge of $141 million ($127 million after tax or $.41 per share) on the intangible assets of the Bolthouse Farms carrotcharges. See "Significant Accounting Estimates" and carrot ingredients reporting unit, which is part of the Campbell Fresh segment. See NoteNotes 3 and 6 to the Consolidated Financial Statements for additional information.
information on recent 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, trademark, 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 variouscertain 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.
We may be adversely impacted by a failure or security breach 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 our data, communications and business processes, including our marketing, sales, manufacturing, procurement, logistics, customer service, accounting and administrative functions. If we do not allocate and effectively manage the resources necessary to build, sustain and protect appropriate information technology systems, our business or financial results could be adversely impacted. Furthermore, our information technology systems may be vulnerable to attack or other security breaches (including the access to or acquisition of customer, consumer or other confidential information), service disruptions or other system failures. If we are unable to prevent or adequately respond to and resolve these breaches, disruptions or failures, 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 protection laws and regulations.
To address the risks to our information technology systems and the associated costs, we maintain an information security program that includes updating technology and security policies, cyber insurance, employee training, and monitoring and routine testing of our information technology systems. We believe that these preventative actions provide adequate measures of protection against security breaches and generally reduce our cybersecurity risks. Although we have not experienced a material incident to date, there can be no assurance that these measures will prevent or limit the impact of a future incident. The cost to remediate damages to our information technology systems suffered as a result of a cyber attack could be significant.
In addition, in the event our suppliers or customers experience a breach or system failure, their businesses could be disrupted or otherwise negatively affected, which may result in a disruption in our supply chain or reduced customer orders, which would adversely affect our business and financial results. We have also outsourced several information technology support services and administrative functions to third-party service providers, and may outsource other functions in the future to achieve cost savings and efficiencies. If these service providers do not perform effectively due to breach or system failure, we may not be able to achieve the expected benefits and our business may be disrupted.
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 also 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. We also recently streamlined our business into a two-division operating model, which could lead to operational challenges and higher employee turnover.
Our results may be adversely affected by our inability to complete or realize the projected benefits of acquisitions and other strategic transactions
We may undertake additional acquisitions or 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:
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.
Market Conditions and Other General Risk Factors
Actions of activist shareholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business
We were the target of activist shareholder activities in 2019. If these activities continue, our business could be adversely affected because responding to proxy contests and reacting to other actions by activist shareholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees. In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist shareholder initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, employees, suppliers and other strategic partners, and cause our share price to experience periods of volatility or stagnation.
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 marketeconomic disruptions or other reasons, couldmay adversely impact us.
AdverseThe administering regulatory authority announced it intends to phase out London Interbank Offered Rate (LIBOR) by the end of 2021. Our variable rate debt and revolving credit facility use LIBOR as a benchmark for establishing interest rates. While we expect to have paid off our variable-rate debt and replaced or renegotiated our revolving credit facility by the end of 2021, we plan to incur additional indebtedness and/or negotiate new terms that will rely on an alternative method to LIBOR. Any legal or regulatory changes made in response to LIBOR’s future discontinuance may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, or changes in the global climaterules 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 changesmethodologies 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.
LIBOR. In addition, there is growing concernalternative methods to LIBOR may be impossible or impracticable to determine. While we do not expect that the release of carbon dioxidetransition from LIBOR 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 compliancerisks related thereto will have a material adverse effect on our financing costs, capital expenditures and other financial obligations that could adversely affect our business or financial results.it is still uncertain at this time.
Legal and Regulatory Risk Factors
We may be adversely impacted by legal and regulatory proceedings or claims
We are a party to a variety of legal and regulatory proceedings and claims arising out of the normal course of business. See Note 19 to the Consolidated Financial Statements for information regarding reportable legal proceedings. 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. TheIn particular, 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,Additionally, the independent contractor distribution model, which is used by Pepperidge Farm and Snyder’s-Lance, has also come under increased legalregulatory scrutiny. Our independent contractor distribution model has also been the subject of various class and regulatory scrutinyindividual lawsuits in recent years. We have a few putative state law class action lawsuits challenging the independent
contractor classification of a small percentage of the total Pepperidge Farm distribution network. We are contesting class certification and the merits in each lawsuit 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 federal government agencies, including but not limited to the Food and Drug Administration, the U.S. 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. Trade reforms include tariffs on certain materials used in the manufacture of our products and tariffs on certain finished products. Changes in legal or regulatory requirements (such as new food safety requirements and revised regulatory requirements for the labeling of nutrition facts, labelingserving sizes and serving size regulations)genetically modified ingredients), 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 orand 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 FacilitiesInside the U.S.
|
| | | | |
Inside the U.S.Arizona | | Indiana | | Pennsylvania |
| Goodyear (S) | | Jeffersonville (S) | | Denver (S) |
| California | | MichiganMassachusetts | | Texas |
Bakersfield (CF) | | Ferndale (CF) | | Paris (ASMB)Downingtown (S) |
Dixon (ASMB)(MB) | | Grand Rapids (CF)Hyannis (S) | | UtahHanover (S) |
Stockton (ASMB) | | New Jersey | | Richmond (GBS) |
Connecticut | | East Brunswick (GBS) | | Washington |
Bloomfield (GBS)(MB) | | North Carolina | | Everett (CF)Texas |
FloridaConnecticut | | Charlotte (S) | | Paris (MB) |
| Bloomfield (S) | | Maxton (ASMB)(MB) | | Prosser (CF)Utah |
Lakeland (GBS)Florida | | Ohio | | Richmond (S) |
| Lakeland (S) | | Ashland (S) | | Wisconsin |
| Georgia | | Napoleon (MB) | | Beloit (S) |
| Columbus (S) | | Willard (S) | | Franklin (S) |
| Illinois | | Napoleon (ASMB)Oregon | | Milwaukee (ASMB)(MB) |
Downers Grove (GBS)(S) | | Willard (GBS)Salem (S) | | |
| | | Pennsylvania | | |
| | Denver (GBS) | | |
| | Downingtown (GBS)Tualatin (MB) | | |
Outside the U.S.
|
| | | | |
Outside the U.S.Australia | | England | | Indonesia |
| Huntingwood* | | Norwich (S)* | | Bekasi* |
| Marleston* | | Wednesbury (S)* | | Malaysia |
| Shepparton* | | | | Selangor Darul Ehsan* |
AustraliaVirginia* | | Canada | | Indonesia |
Huntingwood (GBS) | | Toronto (ASMB) | | Jawa Barat (GBS) |
Marleston (GBS) | | Denmark | | Malaysia |
Shepparton (GBS) | | Nørre Snede (GBS) | | Selangor Darul Ehsan (GBS) |
Virginia (GBS) | | Ribe (GBS) | | |
ASMBMB - Americas Simple Meals and& Beverages
GBSS - Global Biscuits and Snacks
CF* - Campbell FreshProperty part of pending divestitures
Each of the foregoing manufacturing facilities is company-owned, except the Tualatin, Oregon and Selangor Darul Ehsan, Malaysia and the East Brunswick, New Jersey, facilities, which are leased. We also maintain principal business unit offices in Charlotte, North Carolina; Doral, Florida; Hanover, Pennsylvania; Norwalk, Connecticut; Santa Monica, California; Emeryville, California; Toronto, Canada; Nørre Snede, Denmark; andTualatin, Oregon; North Strathfield, Australia.Australia; and Toronto, Canada. The principal business unit office in North Strathfield, Australia is included in the pending sale of the Arnott’s and international operations.
We also own and lease distribution centers across the U.S. We believe that our manufacturing and processing plants and distribution centers 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.Information regarding reportable legal proceedings is contained in Note 19 to the Consolidated Financial Statements and incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Company
The following is a list of our executive officers as of September 14, 2016:18, 2019:
|
| | | |
| Name | Present Title & Business Experience | Age | Year First Appointed Executive Officer |
| Mark R. Alexander | Senior Vice President. We have employed Mr. Alexander in an executive or managerial capacity for at least five years. | 52 | 2009 |
| Carlos J. Barroso | Senior Vice President. President and Founder of CJB and Associates, LLC, an R&D consulting firm (2009 - 2013). | 57 | 2013 |
| Edward L. Carolan | Senior Vice President. We have employed Mr. Carolan in an executive or managerial capacity for at least five years. | 47 | 2015 |
| Adam G. Ciongoli | 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). | 48 | 2015 |
| Anthony P. DiSilvestro | Senior Vice President and Chief Financial Officer. We have employed Mr. DiSilvestro in an executive or managerial capacity for at least five years. | 57 | 2004 |
| Jeffrey T. Dunn | Senior Vice President. President of Bolthouse Farms (2008 - 2015). | 59 | 2015 |
| Luca Mignini | Senior Vice President. Chief Executive Officer of the Findus Italy division of IGLO Group (2010 - 2012). | 54 | 2013 |
| Denise M. Morrison | President and Chief Executive Officer. We have employed Ms. Morrison in an executive or managerial capacity for at least five years. | 62 | 2003 |
| Robert W. Morrissey | Senior Vice President and Chief Human Resources Officer. We have employed Mr. Morrissey in an executive or managerial capacity for at least five years. | 58 | 2012 |
Prior to Mr. Dunn's tenure with Bolthouse Farms, he was Chief Executive Officer of Ubiquity Brands, LLC. Ubiquity Brands was the parent company of Jay Foods, Inc., a maker of salty snack foods, that voluntarily filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in October 2007.
All of the executive officers were appointed at the November 2015 meeting of the Board of Directors. |
| | |
| Name, Present Title & Business Experience | Age | Year First Appointed Executive Officer |
| Carlos A. Abrams-Rivera, Senior Vice President and President, Campbell Snacks. President, Campbell Snacks (2018-2019). President of Pepperidge Farm (2015-2018). President, Gum & Candy - Latin America of Mondelez International (2015). President, Mondelez Mexico of Mondelez International (2013-2015). | 52 | 2019 |
| Xavier F. Boza, Senior Vice President and Chief Human Resources Officer. Vice President, Human Resources of Campbell Soup Company (2015 - 2018). Regional Vice President, Human Resources of Kellogg Company (2013 - 2015). | 55 | 2018 |
| Mark A. Clouse, President and Chief Executive Officer. Chief Executive Officer of Pinnacle Foods, Inc. (2016 - 2018). Chief Commercial Officer (2016) and Executive Vice President and Chief Growth Officer (2014-2016) of Mondelez International, Inc. | 51 | 2019 |
| Adam G. Ciongoli, Senior Vice President and General Counsel. Executive Vice President and General Counsel of Lincoln Financial Group (2012 - 2015). | 51 | 2015 |
| Anthony P. DiSilvestro, Senior Vice President and Chief Financial Officer. We have employed Mr. DiSilvestro in an executive or managerial capacity for at least five years. | 60 | 2004 |
| Christopher D. Foley, Senior Vice President and President, Campbell Meals & Beverages. We have employed Mr. Foley in an executive or managerial capacity for at least five years. | 47 | 2019 |
| Robert J. Furbee, Senior Vice President, Global Supply Chain. We have employed Mr. Furbee in an executive or managerial capacity for at least five years. | 57 | 2017 |
| Craig S. Slavtcheff, Senior Vice President, Global R&D. We have employed Mr. Slavtcheff in an executive or managerial capacity for at least five years. | 52 | 2019 |
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.Exchange under the symbol "CPB." On September 14, 2016,18, 2019, there were 20,12317,529 holders of record of our capital stock. Market price and dividend information with respect to our capital stock are set forth in Note 21 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 $100 was invested on July 29, 2011,August 1, 2014, in each of our stock, the S&P 500 and the S&P Packaged Foods Group, and that all dividends were reinvested. The total cumulative dollar returns shown on the graph represent the value that such investments would have had on July 29, 2016.28, 2019.
* Stock appreciation plus dividend reinvestment.
| | | | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
| Campbell | | 100 | | 104 | | 152 | | 140 | | 169 | | 218 | | 100 | | 121 | | 156 | | 136 | | 108 | | 113 |
| S&P 500 | | 100 | | 110 | | 137 | | 159 | | 177 | | 187 | | 100 | | 112 | | 118 | | 137 | | 159 | | 174 |
| S&P Packaged Foods Group | | 100 | | 109 | | 148 | | 157 | | 196 | | 230 | | 100 | | 125 | | 147 | | 138 | | 129 | | 141 |
Issuer Purchases of Equity Securities
|
| | | | | | | | | | |
| Period | Total Number of Shares Purchased | | Average Price Paid Per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs ($ in Millions) (2) |
| 5/2/16 - 5/31/16 | — |
| | — |
| | — |
| | $475 |
| 6/1/16 - 6/30/16 | 275,081 |
| (3) | $62.13 | (3) | 273,511 |
| | $458 |
| 7/1/16 - 7/29/16 | 119,122 |
| | $67.14 | | 119,122 |
| | $450 |
| Total | 394,203 |
| (3) | $63.64 | (3) | 392,633 |
| | $450 |
| |
(1)
| Average price paid per share is calculated on a settlement basis and excludes commission. |
| |
(2)
| During the fourth quarter of 2016, we had a publicly announced strategic share repurchase program. Under this program, which was announced on June 23, 2011, our Board of Directors authorized the purchase of up to $1 billion of our stock. The program has no expiration date. Pursuant to our longstanding practice, under a separate 2016 authorization, we expect to continue purchasing shares sufficient to offset shares issued under our incentive compensation plans. |
| |
(3)
| Includes 1,570 shares repurchased in open-market transactions at an average price of $61.56 to offset the dilutive impact to existing shareholders of issuances under stock compensation plans. |
Item 6. Selected Financial Data
| | | Fiscal Year | 2016(1) | | 2015(2) | | 2014(3) | | 2013(4) | | 2012(5) | 2019(1) | | 2018(2) | | 2017(3) | | 2016(4) | | 2015(5) |
| (Millions, except per share amounts) | | |
| Summary of Operations | | | | | | | | | | | | | | | | | | |
| Net sales | $ | 7,961 |
| | $ | 8,082 |
| | $ | 8,268 |
| | $ | 8,052 |
| | $ | 7,175 |
| $ | 8,107 |
| | $ | 6,615 |
| | $ | 5,837 |
| | $ | 5,868 |
| | $ | 5,945 |
|
| Earnings before interest and taxes | 960 |
| | 1,054 |
| | 1,267 |
| | 1,474 |
| | 826 |
| 979 |
| | 1,010 |
| | 1,431 |
| | 865 |
| | 812 |
|
| Earnings before taxes | 849 |
| | 949 |
| | 1,148 |
| | 1,349 |
| | 720 |
| 625 |
| | 830 |
| | 1,316 |
| | 751 |
| | 705 |
|
| Earnings from continuing operations | 563 |
| | 666 |
| | 774 |
| | 934 |
| | 512 |
| 474 |
| | 724 |
| | 924 |
| | 509 |
| | 491 |
|
| Earnings (loss) from discontinued operations | — |
| | — |
| | 81 |
| | (231 | ) | | 40 |
| (263 | ) | | (463 | ) | | (37 | ) | | 54 |
| | 175 |
|
| Net earnings | 563 |
| | 666 |
| | 855 |
| | 703 |
| | 552 |
| 211 |
| | 261 |
| | 887 |
| | 563 |
| | 666 |
|
| Net earnings attributable to Campbell Soup Company | 563 |
| | 666 |
| | 866 |
| | 712 |
| | 562 |
| 211 |
| | 261 |
| | 887 |
| | 563 |
| | 666 |
|
| Financial Position | | | | | | | | | | | | | | | | | | |
| Plant assets - net | $ | 2,407 |
| | $ | 2,347 |
| | $ | 2,318 |
| | $ | 2,260 |
| | $ | 2,127 |
| |
| Total assets | 7,837 |
| | 8,077 |
| | 8,100 |
| | 8,290 |
| | 6,532 |
| $ | 13,148 |
| | $ | 14,529 |
| | $ | 7,726 |
| | $ | 7,837 |
| | $ | 8,077 |
|
| Total debt | 3,533 |
| | 4,082 |
| | 4,003 |
| | 4,438 |
| | 2,781 |
| |
Total debt(6) | | 8,712 |
| | 9,894 |
| | 3,536 |
| | 3,533 |
| | 4,082 |
|
| Total equity | 1,533 |
| | 1,377 |
| | 1,602 |
| | 1,192 |
| | 909 |
| 1,112 |
| | 1,373 |
| | 1,645 |
| | 1,533 |
| | 1,377 |
|
| Per Share Data | | | | | | | | | | | | | | | | | | |
| Earnings from continuing operations attributable to Campbell Soup Company - basic | $ | 1.82 |
| | $ | 2.13 |
| | $ | 2.50 |
| | $ | 3.00 |
| | $ | 1.63 |
| $ | 1.57 |
| | $ | 2.41 |
| | $ | 3.03 |
| | $ | 1.65 |
| | $ | 1.57 |
|
| Earnings from continuing operations attributable to Campbell Soup Company - assuming dilution | 1.81 |
| | 2.13 |
| | 2.48 |
| | 2.97 |
| | 1.62 |
| 1.57 |
| | 2.40 |
| | 3.01 |
| | 1.64 |
| | 1.57 |
|
| Net earnings attributable to Campbell Soup Company - basic | 1.82 |
| | 2.13 |
| | 2.76 |
| | 2.27 |
| | 1.76 |
| .70 |
| | .87 |
| | 2.91 |
| | 1.82 |
| | 2.13 |
|
| Net earnings attributable to Campbell Soup Company - assuming dilution | 1.81 |
| | 2.13 |
| | 2.74 |
| | 2.25 |
| | 1.75 |
| .70 |
| | .86 |
| | 2.89 |
| | 1.81 |
| | 2.13 |
|
| Dividends declared | 1.248 |
| | 1.248 |
| | 1.248 |
| | 1.16 |
| | 1.16 |
| 1.40 |
| | 1.40 |
| | 1.40 |
| | 1.248 |
| | 1.248 |
|
| Other Statistics | | | | | | | | | | | | | | | | | | |
| Capital expenditures | $ | 341 |
| | $ | 380 |
| | $ | 347 |
| | $ | 336 |
| | $ | 323 |
| $ | 384 |
| | $ | 407 |
| | $ | 338 |
| | $ | 341 |
| | $ | 380 |
|
| Weighted average shares outstanding - basic | 309 |
| | 312 |
| | 314 |
| | 314 |
| | 317 |
| 301 |
| | 301 |
| | 305 |
| | 309 |
| | 312 |
|
| Weighted average shares outstanding - assuming dilution | 311 |
| | 313 |
| | 316 |
| | 317 |
| | 319 |
| 302 |
| | 302 |
| | 307 |
| | 311 |
| | 313 |
|
(All per share amounts below are on a diluted basis)
On February 25, 2019, we sold our U.S. refrigerated soup business, and on April 25, 2019, we sold our Garden Fresh Gourmet business. On June 16, 2019, we sold our Bolthouse Farms business. We have reflected the results of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations as of July 29, 2018. Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of our Kelsen business on July 12, 2019. We also signed a definitive agreement on August 1, 2019, for the sale of our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific. We have reflected the results of operations of the Kelsen business and the Arnott’s and international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of July 28, 2019, and July 29, 2018.
In April 2015,May 2014, the Financial Accounting Standards Board (FASB) issued revised guidance on the recognition of revenue from contracts with customers. We adopted the guidance in the first quarter of 2019 using the modified retrospective method.
In March 2017, the FASB issued guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. 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). We adopted the guidance in the first quarter of 2018 and retrospectively adjusted prior periods.
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. We adopted the guidance in 2017 and retrospectively adjusted prior periods.
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 2014All fiscal yearyears consisted of 53 weeks. All other periods had 52 weeks.
| |
(1) | The 2019 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and costs of $92 million ($.30 per share) associated with restructuring and cost savings initiatives; impairment charges of $13 million ($.04 per share) related to the European chips business; a pension settlement charge of $22 million ($.07 per share); losses of $93 million ($.31 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; and a tax charge of $2 million ($.01 per share) due to the enactment of the Tax Cuts and Jobs Act that was signed into law in December 2017 (the Act). Loss from discontinued operations was impacted by the following: impairment charges of $275 million ($.91 per share) related to Campbell Fresh; expenses of $51 million ($.17 per share) associated with the sale process of the businesses in Campbell Fresh, including losses on the sale of the businesses, and on deferred tax assets that were not realizable; impairment charges of $12 million ($.04 per share) related to Kelsen; costs of $10 million ($.03 per share) associated with the planned divestiture of Campbell International; and losses of $9 million ($.03 per share) associated with mark-to-market adjustments for defined benefit pension plans. |
| |
(2) | The 2018 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and costs of $132 million ($.44 per share) associated with restructuring and cost savings initiatives; gains of $100 million ($.33 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; impairment charges of $41 million ($.14 per share) related to the Plum trademark; transaction and integration costs of $73 million ($.24 per share) associated with the acquisition of Snyder's-Lance; a net tax benefit of $126 million ($.42 per share) due to the enactment of the Act; and a loss of $15 million ($.05 per share) related to the settlement of a legal claim. Loss from discontinued operations was impacted by the following: a restructuring charge and costs of $4 million ($.01 per share) associated with restructuring and cost savings initiatives; impairment charges of $571 million ($1.89 per share) related to the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, the deli reporting unit, and the Bolthouse Farms carrot and carrot ingredients reporting unit; and gains of $3 million ($.01 per share) associated with mark-to-market and curtailment adjustments for defined benefit pension plans. |
| |
(3) | The 2017 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and costs of $30 million ($.10 per share) associated with restructuring and cost savings initiatives; gains of $100 million ($.33 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; and a tax benefit of $52 million ($.17 per share) primarily associated with the sale of intercompany notes receivable to a financial institution. Loss from discontinued operations were impacted by the following: a restructuring charge and costs of $7 million ($.02 per share) associated with restructuring and cost savings initiatives; 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; a reduction to interest expense of $4 million ($.01 per share) primarily associated with the sale of intercompany notes receivable to a financial institution; and gains of $16 million ($.05 per share) associated with mark-to-market adjustments for defined benefit pension plans. |
| |
(4) | The 2016 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and administrative expensescosts of $49 million ($.16 per share) associated with restructuring and cost savings initiatives; and losses of $200$187 million ($.64.60 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 toplans. Earnings from discontinued operations were impacted by the Kelsen acquisition; and anfollowing: impairment chargecharges of $127 million ($.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit.unit; losses of $13 million ($.04 per share) associated with mark-to-market adjustments for defined benefit pension plans; and a gain of $25 million ($.08 per share) associated with a settlement of a claim related to the Kelsen acquisition. |
| |
(2)(5)
| The 2015 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and administrative expensescosts of $78$76 million ($.25.24 per share) associated with restructuring and cost savings initiatives and losses of $87$86 million ($.28.27 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans. |
| |
(3)
| 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. |
| |
(4)
| 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.
|
| |
(5)
| The 2012 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge of $4$2 million ($.01 per share); associated with restructuring and cost savings initiatives and losses of $252$1 million ($.78 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; and $3 million ($.01 per share) of transaction costsplans. |
| |
(6) | Total debt includes debt related to the acquisition of Bolthouse Farms. Earnings fromdiscontinued operations. In 2019 and 2018, debt related to discontinued operations included a restructuring charge of $2was $238 million ($.01 per share).and $378 million, respectively. |
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."
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
AsExecutive Summary
We are a manufacturer and marketer of high-quality, branded food and beverage products. We operate in a highly competitive industry and experience competition in all of our categories.
In 2019, we announced our plan to divest our Campbell Fresh operating segment and international biscuits and snacks operating segment. Within our Campbell Fresh operating segment, on February 25, 2019, we sold our U.S. refrigerated soup business, and on April 25, 2019, we sold our Garden Fresh Gourmet business. Proceeds were approximately $55 million, subject to customary purchase price adjustments. On June 16, 2019, we also sold our Bolthouse Farms business for approximately $500 million, subject to customary purchase price adjustments. Beginning in the third quarter of 2019, we have reflected the results of operations of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of July 29, 2018. A portion of the beginningU.S. refrigerated soup business historically included in Campbell Fresh was retained, and is now reported in Meals & Beverages.
Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of 2016, we manage our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019, for approximately $300 million, subject to customary purchase price adjustments. We also signed a definitive agreement on August 1, 2019, for the sale of our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in three divisions focused mainly on product categories.Australia and Asia Pacific (the Arnott's and international operations), for $2.2 billion, subject to customary purchase price adjustments. We expect to complete the sale in the first half of 2020. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The new divisions, which represent our operatingassets and reportable segments, areliabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheets as follows: Americas Simple Mealsof July 28, 2019, and Beverages;July 29, 2018. These businesses were historically included in the Global Biscuits and Snacks;Snacks reportable segment. See Notes 3 and Campbell Fresh.7 to the Consolidated Financial Statements for additional information on these recently completed and pending divestitures and reportable segments.
In addition, on September 18, 2019, we signed a definitive agreement for the sale of our European chips business for £66 million, or approximately $80 million. The sale is subject to customary closing conditions including receiving the relevant regulatory approvals, and we expect to complete the sale in the first quarter of 2020.
We used the net proceeds from the businesses we sold in 2019 to reduce our debt and expect to use the net proceeds from the businesses sold in 2020 to further reduce debt.
Our simple meals and shelf-stable beverages business in Latin America was managed as part of the Snacks segment in 2018 and the Meals & Beverages segment in 2019. Segment results have been adjusted to conform to the current presentation. In 2020, our Latin America business is managed as part of the Snacks segment. See "Business - Reportable Segments" for a description of the products included in each segment. In 2016,
Strategy
Our strategy is to deliver long-term sustainable growth by focusing on our core brands in two divisions within North America while delivering on the promise of our purpose - Real food that matters for life’s moments.
We plan to revise our consumer and customer engagement models through the development of more defined consumer-oriented portfolio roles for our products and increase prioritizing of retailers, which we modified our method of allocating pension and postretirement benefit costs to segments. Through 2015, we included all components of benefit expense in measuring segment performance. In 2016, only service cost is allocated to segments. All other components of expense, including interest cost, expected return on assets, and recognized actuarial gains and losses, are reflected in Corporate and not included in segment operating results.
In 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 ofbelieve will create 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.profitable growth model. In addition, we no longer use a market-related value of plan assets, which is an average value,expect 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 conditionsincrease focus on the obligationsgrowth of our snacks business. We also intend to dedicate additional investment in U.S. soup and assets.
Relevant financial information has been retrospectively adjustedsupport our core brands through a revised marketing and innovation model tailored to reflect the changes in segment reportingspecific categories and accounting policy.
Executive Summarytargeted customers and consumers.
We are a manufacturerwill continue pursuing our multi-year cost savings initiatives with targeted annualized cost savings of $850 million for continuing operations by the end of 2022 , which includes $295 million in synergies and marketerrun-rate cost savings from our acquisition of high-quality, branded food and beverage products.
Snyder's-Lance, Inc. (Snyder's-Lance). We operate in a highly competitive industry and experience global competition for all of our principal products. The principal areas of competition are brand recognition, taste, quality, price, advertising, promotion, convenience and service. To grow and maintain our market positions, we focus on bringing new products and innovationsexpect to market that meet evolving consumer needs and preferences, while maintaining the quality and appeal of our existing products. We continue to optimize our manufacturingachieve these additional savings with continued network optimization,
organization consolidation and other operationsintegration, procurement savings and invest in our brands through ongoing researchincremental savings opportunities across several cost categories. See "Restructuring Charges and development, advertising, marketing and consumer promotions.
Over the last several years, we have diversified our product offerings through several acquisitions and enhanced our focus through a divestiture. In 2013, we acquired Bolthouse Farms and Plum. In 2014, we acquired Kelsen and divested our European simple meals business. In 2015, we completed the acquisition of the assets of Garden Fresh Gourmet. See Note 3 to the Consolidated Financial StatementsCost Savings Initiatives" for additional information on these initiatives.
In addition, we will pursue a more focused and diverse organization that supports our recent acquisitions,core brands in North America. In the fourth quarter of 2019, we made an organizational change that streamlined our business into a two-division operating model, with differentiated resources and Note 4 tocapabilities that we believe will best support the Consolidated Financial Statements for additional information on our divestiture of the European simple meals business.brands within each division.
IndustryBusiness Trends
Our businesses are being influenced by a variety of trends that we anticipate will continue in the future, includingincluding: changing demographics, consumer tastes, opinionspreferences; a competitive and behaviors. Millennialsdynamic retail environment; and Generation Zcost inflation.
Our strategy is designed, in part, to capture growing consumer preferences for snacking and convenience. For example, consumers are replacing Baby Boomers aschanging their eating habits by increasing the key influencerstype and frequency of societal and cultural norms in the U.S. In addition, there is a leveling or shrinking middle class in developed markets, while there is a growing middle class in developing markets.
Consumers increasinglysnacks they consume. We also expect consumers to continue to seek products that they deem healthy,associate with health and well-being, including fresh,naturally functional and organic foods.
Retailers continue to use their buying power and functional foods. While demanding products with these qualities, consumers have becomenegotiating strength to seek increased promotional programs funded by their suppliers and more distrustful offavorable terms. We expect consolidations among retailers will continue to create large corporations and other large institutions. Traditional retailers are responding by developing small format and "neighborhood" stores and expanding shelf space for purpose-driven brands. Consumerssophisticated customers that may further this trend. Retailers also continue to gravitate toward value offerings,grow and promote store brands that compete with branded products, while other challenger brands drive innovation and engagement that threatens our market share. In addition, our businesses are largely concentrated in the traditional retail grocery trade, which is demonstrated by the increase in lower-priced retailers,has experienced slower growth than other retail channels, such as dollar stores, and the growth of private-label offerings.
Digital technology is changing the way consumers purchase food. Although e-commerce represents only a small percent of total food sales today, 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 mainstreaming of meal delivery services. Consumers are also increasingly using digital technology to customize their diets for their individual lifestyle, physiology and health goals.
Key Strategies
Our long-term goal is to build shareholder value by driving sustainable, profitable net sales growth. Guided by our purpose - Real food that matters for life’s moments, we are pursuing a dual strategy of strengthening our core businesses while expanding into faster-growing spaces.
New Structure
In 2016, we implemented a new enterprise design that better aligns with our dual strategy. Under the new structure, our divisions are now organized in three segments focused mainly on product categories: Americas Simple Meals and Beverages; Global Biscuits and Snacks; and Campbell Fresh. In support of our new structure, we designed and implemented a new Integrated Global Services (IGS) organization to deliver shared services and cost savings across the company. We are also pursuing other initiatives to reduce costs, such as adopting zero-based budgeting over time. In total, we expect our cost savings initiatives to generate approximately $300 million in annual cost savings by the end of fiscal 2018. These savings are above and beyond our existing supply-chain productivity initiatives. We expect to reinvest a portion of these savings into the businesses during 2017. See "Restructuring Charges and Cost Savings Initiatives" for additional information on these initiatives.
Strategic Imperatives
With this new enterprise design in place, we are responding to the above-described industry trends by continuing to focus on four key strategic imperatives:
Elevating trust through real food, transparency and sustainability;
Building our digital marketingdrug stores, club stores and e-commerce capabilities;
Diversifying our portfolio in health and well-being; and
Expanding our presence in developing markets over time.
Elevating Trust through Real Food, Transparency and Sustainability
Our focus is to strengthen the trust of our consumers and customersretailers. We anticipate that our products are real food made with desirable ingredients and crafted using ethical sourcing and sustainable practices. We continue to do this by changing recipes or removing ingredients from our food, such as artificial flavors and colors. Our www.whatsinmyfood.com website promotes transparency by providing consumers with a wide range of details about how many of our foods and beverages are made and the choices behind the ingredients we use in those products. This site includes all of our major products in the U.S. and Canada, with designs to expand globally over the next two fiscal years. In addition, we support and remain committed to mandatory national genetically modified organism labeling.
Building Digital Marketing and E-Commerce
We are responding to the growing consumer shift to digital and mobile technologies by focusing a larger percentage of our marketing efforts on digital marketing and e-commerce. We believe these efforts will position us well to grow with the expandingalternative retail channels, particularly e-commerce, market. Although we are shifting our marketing efforts to digital and mobile platforms, we continue to pursue a multi-channel approach to ensure our products are available to consumers at traditional storefront retailers, as well as online retailers.
Diversifying our Portfolio in Health and Well-being
Capitalizing on recent consumer and retailer trends in health and well-being, we are increasing our focus on fresh and healthy foods. We plan to expand our product offerings in key growth areas, such as in the packaged fresh category and with organic and clean label products. In addition, we will focus on naturally functional foods by leveraging our vegetable and whole grain capabilities.
Expanding Presence in Developing Markets Over Time
We plan to focus on expanding our presence in developing markets, especially our Global Biscuits and Snacks business in Asia. We will aim to increase the household penetration and frequency of purchase of our iconic brands, Goldfish, Kjeldsens and Tim Tam, in their home markets while expanding into new geographies.
To support these four imperatives, we will continue to pursue different modelsgrow rapidly.
The cost of innovation,distribution has increased due to a rise in transportation and logistics costs, driven by excess demand, reduced availability and higher fuel costs. In addition, certain ingredients and packaging required for the manufacture of our products, including smart external development, disciplined mergerssteel, have been or may be impacted by tariffs and acquisitions, strategic partnerships and venture investing.weather-related events. We expect these cost pressures to continue in 2020.
Summary of Results
As noted above, in 2019, we have reflected the results of operations of Campbell Fresh and Campbell International as discontinued operations in the Consolidated Statements of Earnings for all periods presented.
In 2018, we adopted new accounting guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. Certain amounts in 2017 were reclassified. See Note 2 to the Consolidated Financial Statements for additional information.
This Summary of Results provides significant highlights from the discussion and analysis that follows.
There were 52 weeks in 2016 and 2015. There were 53 weeks in 2014.
Net sales decreased 1%increased 23% in 20162019 to $7.961$8.107 billion, primarily due to a 23-point benefit from the impactacquisitions of currency translationSnyder's-Lance and lower volume, partially offset by the acquisitionPacific Foods of Garden Fresh Gourmet and higher selling prices.Oregon, LLC (Pacific Foods).
Gross profit, as a percent of sales, increaseddecreased to 34.9%33.2% from 34.4%35.9% a year ago. The increasedecrease was primarily due to productivity improvementscost inflation and higher selling prices, partially offset by increased losses on pension and postretirement benefit mark-to-market adjustments, and cost inflation, supply chain costs, and other factors.the dilutive impact of acquisitions, partially offset by productivity improvements.
Administrative expensesInterest expense increased 7% to $641$356 million in 2019 from $601$183 million, primarily due to higher levels of debt associated with funding the acquisitions discussed above, higher average interest rates on the debt portfolio and an $18 million gain on treasury rate lock contracts in the prior year used to hedge the planned financing of the Snyder's-Lance acquisition.
The effective tax rate was 24.2% in 2019, compared to 12.8% in 2018. The prior year included a year ago. The increase$126 million net tax benefit related to the remeasurement of deferred tax assets and liabilities and a transition tax on unremitted foreign earnings as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (the Act). See Note 12 to the Consolidated Financial Statements for additional information. After adjusting for this item, the remaining decrease in the effective tax rate was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments, and higher costs related to the implementationongoing lower U.S. federal tax rate as a result of the new organizational structure and cost savings initiatives, partially offset by benefitsAct.
Earnings from cost savings initiatives. Excluding losses on pension and postretirement benefit mark-to-market adjustments and costs related to the implementation of new organizational structure and cost savings initiatives, administrative expenses decreased due to the benefits from cost savings initiatives, partially offset by inflation.
Other expenses / (income) increased to $131 million in 2016 from $24 million in 2015, primarily due to a 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.
Earningscontinuing operations per share were $1.81$1.57 in 2016,2019, compared to $2.13$2.40 a year ago. The current and prior year included expenses of $1.13$.74 and $.53$.12 per share, respectively, from items impacting comparability as discussed below.
Loss from discontinued operations per share was $.87 in the 2019, compared to $1.53 a year ago. The current and prior year included expenses of $1.18 and $1.89 per share, respectively, from items impacting comparability as discussed below.
Cash flowflows from operations was $1.463were $1.398 billion in 2016,2019, compared to $1.182$1.305 billion in 2015.2018. The increase in 2016 was primarily due to improvements in working capital management efforts and higher cash earnings and lower working capital requirements.earnings.
Net Earnings attributable to Campbell Soup Company - 20162019 Compared with 20152018
The following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations
In 2015,2019, we implemented a new enterprise design and initiatives to reduce costs and to streamline our organizational structure. In 2016, we recorded a pre-tax restructuring chargerecognized losses of $35 million and implementation costs and other related costs of $47$122 million in AdministrativeOther 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. 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/ (income) ($93 million after tax, or $.25 per share). See Note 8 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
In 2016, we recognized losses of $313 million in Costs and expenses ($200 million after tax, or $.64$.31 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans. In 2015,2018, we recognized lossesgains of $138$131 million in Costs andOther expenses / (income) ($87100 million after tax, or $.28$.33 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans;
In 2016,2019, we recordedrecognized a gain of $25 million ($.08 per share)pre-tax pension settlement charge 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; and
In the fourth quarter of 2016, as part of our annual review of goodwill and indefinite-lived intangible assets, we recognized a non-cash impairment charge of $141$28 million in Other expenses / (income) ($12722 million after tax, or $.41$.07 per share) onassociated with a U.S. pension plan. The settlement resulted from the intangiblelevel of lump sum distributions from the plan's assets of the Bolthouse Farms carrotin 2019;
In 2015, we implemented initiatives to reduce costs and carrot ingredients reporting unit, which isto 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 January 2018, as part of the Campbell Fresh segment. See Note 6expanded initiatives, we authorized additional costs to improve the operational efficiency of our thermal supply chain network in North America by closing our manufacturing facility in Toronto, Ontario, and to optimize our information technology infrastructure by migrating certain applications to the Consolidated Financial Statements for additional information.
The items impacting comparability are summarized below:
|
| | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| (Millions, except per share amounts) | Earnings Impact | | EPS Impact | | Earnings Impact | | EPS Impact |
| Net earnings attributable to Campbell Soup Company | $ | 563 |
| | $ | 1.81 |
| | $ | 666 |
| | $ | 2.13 |
|
| | | | | | | | |
| Restructuring charges, implementation costs and other related costs | $ | (49 | ) | | $ | (.16 | ) | | $ | (78 | ) | | $ | (.25 | ) |
| Pension and postretirement benefit mark-to-market adjustments | (200 | ) | | (.64 | ) | | (87 | ) | | (.28 | ) |
| Claim settlement | 25 |
| | .08 |
| | — |
| | — |
|
| Impairment charge | (127 | ) | | (.41 | ) | | — |
| | — |
|
| Impact of items on Net earnings | $ | (351 | ) | | $ | (1.13 | ) | | $ | (165 | ) | | $ | (.53 | ) |
Net earnings attributablelatest cloud technology platform. In August 2018, we announced that we will continue to Campbell Soup Company were $563 million ($1.81 per share) in 2016, comparedstreamline our organization, expand our zero-based budgeting efforts and optimize our manufacturing network. In 2019, we began 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 expensesinclude costs associated with the Snyder's-Lance cost transformation program and lower marketing and selling expenses, partially offset by the negative impact of currency translation and a higher effective tax rate.
Earnings from continuing operations attributable to Campbell Soup Company - 2015 Comparedintegration with 2014
these initiatives. In addition to the 2015 items that impacted comparability of Earnings from continuing operations discussed above, the following items impacted the comparability of earnings and earnings per share:
In 2014,2019, we recorded a pre-tax restructuring charge of $54$31 million ($33and implementation costs and other related costs of $62 million in Administrative expenses, $18 million in Cost of products sold, $7 million in Marketing and selling expenses, and $3 million in Research and development expenses (aggregate impact of $92 million after tax, or $.10$.30 per share) associated with initiativesrelated to streamline our salaried workforce in North America and our workforce in the Asia Pacific region; restructure manufacturing and streamline operations for our soup and broth business in China; improve supply chain efficiency in Australia; and reduce overhead across the organization. See Note 8 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
these initiatives. In 2013, we implemented several initiatives to improve our U.S. supply chain cost structure and increase asset utilization across our U.S. thermal plant network; expand access to manufacturing and distribution capabilities in Mexico; improve our Pepperidge Farm bakery supply chain cost structure; and reduce overhead in North America. In 2014,2018, we recorded a pre-tax restructuring charge of $1$42 million and restructuring-relatedimplementation costs and other related costs of $3$87 million in Administrative expenses, $45 million in Cost of products sold, and $3 million in Marketing and selling expenses (aggregate impact of $3$132 million after tax, or $.01$.44 per share) related to the 2013these initiatives. See Note 8 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
In 2014,2019 and 2018, we reflected the impact on taxes of the enactment of the Act that was signed into law in December 2017. In 2019, we recorded a tax charge of $2 million ($.01 per share) related to a transition tax on unremitted foreign earnings. In 2018, we recorded a tax benefit of $179 million due to the remeasurement of deferred tax assets and liabilities, and a tax charge of $53 million related to a transition tax on unremitted foreign earnings. The net impact was a tax benefit of $126 million ($.42 per share). See Note 12 to the Consolidated Financial Statements and "Taxes on Earnings" for additional information;
In the fourth quarter of 2019, we performed an assessment on the assets within the European chips business and recorded a non-cash impairment charge of $16 million ($13 million after tax, or $.04 per share) on intangible assets in Other expenses / (income). In the fourth quarter of 2018, we performed an impairment assessment on the Plum trademark. In 2018, sales and operating performance were well below expectations due in part to competitive pressure and reduced margins. In the fourth quarter of 2018, as part of a strategic review initiated by a new leadership team and based on recent performance, we lowered our long-term outlook for future sales. We recorded a non-cash impairment charge of $54 million ($41 million after tax, or $.14 per share) in Other expenses / (income). See Note 6 to the Consolidated Financial Statements for additional information;
In the second quarter of 2018, we announced our intent to acquire Snyder's-Lance and on March 26, 2018, the acquisition closed. In 2018, we incurred $120 million of transaction and integration costs, of which $13 million was recorded in Restructuring charges, $12 million in Administrative expenses, $53 million in Other expenses / (income), and $42 million in Cost of products sold associated with an acquisition date fair value adjustment for inventory. We also recorded a gain in Interest expense of $18 million on treasury rate lock contracts used to hedge the planned financing of the acquisition. The aggregate impact was $102 million, $73 million after tax, or $.24 per share; and
In 2018, we recorded expense of $22 million in Other expenses / (income) ($15 million after tax, or $.05 per share) from a settlement of a legal claim.
Discontinued Operations
In 2019, we recognized losses of $31$12 million in Costs and expenses ($199 million after tax, or $.06$.03 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; and
On October 28, 2013,plans. In 2018, we completed the salerecognized gains of our simple meals business in Europe. In 2014, we recorded a loss of $9$5 million ($63 million after tax, or $.02$.01 per share) associated with mark-to-market and curtailment adjustments for defined benefit pension plans;
In 2018, we recorded a pre-tax restructuring charge of $7 million and implementation costs and other related costs of $1 million in Administrative expenses (aggregate impact of $4 million after tax, or $.01 per share) related to the cost savings initiatives discussed above. See Note 8 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
In the fourth quarter of 2019, as part of the company's annual review of intangible assets, we recognized a non-cash impairment charge of $7 million on a trademark and $10 million on goodwill in Kelsen due to a lower long-term outlook for sales and the pending sale of the business. The aggregate impact was $17 million ($12 million after tax, or $.04 per share).
In the second quarter of 2019, interim impairment assessments were performed on the intangible and tangible assets within Campbell Fresh, which included Garden Fresh Gourmet, Bolthouse Farms carrot and carrot ingredients and Bolthouse Farms refrigerated beverages and salad dressings, as we continued to pursue the divestiture of these businesses. We revised our future outlook for earnings and cash flows for each of these businesses as the divestiture process progressed. We recorded non-cash impairment charges of $104 million on the tangible assets and $73 million on the intangible assets of Bolthouse Farms carrot and carrot ingredients; $96 million on the intangible assets and $9 million on the tangible assets of Bolthouse Farms refrigerated beverages and salad dressings; and $62 million on the intangible assets and $2 million on the tangible assets of Garden Fresh Gourmet. The aggregate impact of the impairment charges was $346 million ($264 million after tax, or $.88 per share).
In the first quarter of 2019, we recorded a non-cash impairment charge of $14 million ($11 million after tax, or $.04 per share) on foreign exchange forward contracts usedour U.S. refrigerated soup plant assets.
In 2019, total non-cash impairment charges recorded were $377 million ($287 million after tax, or $.95 per share).
In the third quarter of 2018, we performed interim impairment assessments within Campbell Fresh on the deli reporting unit, which includes Garden Fresh Gourmet and the U.S. refrigerated soup business, and the Bolthouse Farms refrigerated beverages and salad dressings reporting unit. Within the deli unit, we revised our long-term outlook due to hedge the proceeds fromanticipated loss of refrigerated soup business with certain private label customers, as well as the performance of the business. In addition, the operating performance of the Bolthouse Farms refrigerated beverages and salad dressings reporting unit was below expectations. We revised our long-term outlook for future earnings and cash flows for each of these reporting units. We recorded a non-cash impairment charge of $11 million on the tangible assets and $94 million on the intangible assets ($80 million after tax, or $.27 per share) of the deli reporting unit, and a non-cash impairment charge of $514 million ($417 million after tax, or $1.39 per share) related to the intangible assets of the Bolthouse Farms refrigerated beverages and salad dressings reporting unit. The aggregate impact of the impairment charges was $619 million ($497 million after tax, or $1.65 per share).
In the second quarter of 2018, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit as operating performance was below expectations. We revised our outlook for future earnings and cash flows and recorded a non-cash impairment charge of $75 million ($74 million after tax, or $.25 per share).
In 2018, the total non-cash impairment charges recorded were $694 million ($571 million after tax, or $1.89 per share); and
In 2019, we incurred pre-tax expenses of $32 million associated with the sale process of our European simple meals business. The loss was includedthe businesses in Other expenses / (income).Campbell Fresh, including transaction costs. In addition, we recorded tax expense of $7$29 million as deferred tax assets on Bolthouse Farms were not realizable. The aggregate impact was $51 million after tax, or $.17 per share. In 2019, we also incurred costs of $12 million ($.0210 million after tax, or $.03 per share) associated with the saleplanned divestiture of the business.Campbell International. The total aggregate impact was $61 million after tax, or $.20 per share.
The items impacting comparability are summarized below:
|
| | | | | | | | | | | | | | | |
| | 2015 | | 2014 |
| (Millions, except per share amounts) | Earnings Impact | | EPS Impact | | Earnings Impact | | EPS Impact |
| Earnings from continuing operations attributable to Campbell Soup Company | $ | 666 |
| | $ | 2.13 |
| | $ | 785 |
| | $ | 2.48 |
|
| | | | | | | | |
| Restructuring charges and related costs | $ | (78 | ) | | $ | (.25 | ) | | $ | (36 | ) | | $ | (.11 | ) |
| Pension and postretirement benefit mark-to-market adjustments | (87 | ) | | (.28 | ) | | (19 | ) | | (.06 | ) |
| Loss on foreign exchange forward contracts | — |
| | — |
| | (6 | ) | | (.02 | ) |
| Tax expense associated with sale of business | — |
| | — |
| | (7 | ) | | (.02 | ) |
Impact of items on earnings from continuing operations(1) | $ | (165 | ) | | $ | (.53 | ) | | $ | (68 | ) | | $ | (.22 | ) |
|
| | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
| (Millions, except per share amounts) | Earnings Impact | | EPS Impact | | Earnings Impact | | EPS Impact |
| Earnings from continuing operations attributable to Campbell Soup Company | $ | 474 |
| | $ | 1.57 |
| | $ | 724 |
| | $ | 2.40 |
|
| Loss from discontinued operations | $ | (263 | ) | | $ | (.87 | ) | | $ | (463 | ) | | $ | (1.53 | ) |
Net earnings attributable to Campbell Soup Company(1) | $ | 211 |
| | $ | .70 |
| | $ | 261 |
| | $ | .86 |
|
| | | | | | | | |
| Continuing operations: | | | | | | | |
| Pension and postretirement benefit mark-to-market adjustments | $ | (93 | ) | | $ | (.31 | ) | | $ | 100 |
| | $ | .33 |
|
| Pension settlement | (22 | ) | | (.07 | ) | | — |
| | — |
|
| Restructuring charges, implementation costs and other related costs | (92 | ) | | (.30 | ) | | (132 | ) | | (.44 | ) |
| Tax reform | (2 | ) | | (.01 | ) | | 126 |
| | .42 |
|
| Impairment charges | (13 | ) | | (.04 | ) | | (41 | ) | | (.14 | ) |
| Transaction and integration costs | — |
| | — |
| | (73 | ) | | (.24 | ) |
| Claim settlement | — |
| | — |
| | (15 | ) | | (.05 | ) |
Impact of items on Earnings from continuing operations(1) | $ | (222 | ) | | $ | (.74 | ) | | $ | (35 | ) | | $ | (.12 | ) |
| | | | | | | | |
| Discontinued operations: | | | | | | | |
| Pension benefit mark-to-market and curtailment adjustments | $ | (9 | ) | | $ | (.03 | ) | | $ | 3 |
| | $ | .01 |
|
| Restructuring charges, implementation costs and other related costs | — |
| | — |
| | (4 | ) | | (.01 | ) |
| Impairment charges | (287 | ) | | (.95 | ) | | (571 | ) | | (1.89 | ) |
| Costs associated with divestitures | (61 | ) | | (.20 | ) | | — |
| | — |
|
| Impact of items on Loss from discontinued operations | $ | (357 | ) | | $ | (1.18 | ) | | $ | (572 | ) | | $ | (1.89 | ) |
| |
(1) | The sumSum of the individual per share amounts may not add due to rounding. |
Earnings from continuing operations were $666$474 million ($2.131.57 per share) in 2015,2019, compared to $785$724 million ($2.482.40 per share) in 2014. The2018. After adjusting for items impacting comparability, earnings decreased reflecting higher interest expense, partly offset by a lower adjusted tax rate as incremental earnings before interest and taxes (EBIT) from the Snyder’s-Lance acquisition were mostly offset by declines in EBIT in the base business.
See "Discontinued Operations" for additional week contributed approximately $25information.
Net Earnings attributable to Campbell Soup Company - 2018 Compared with 2017
In addition to the 2018 items that impacted comparability of Net earnings discussed above, the following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations
In 2017, we recognized gains of $156 million in Other expenses / (income) ($100 million after tax, or $.33 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans;
In 2017, we recorded a pre-tax restructuring charge of $11 million and implementation costs and other related costs of $33 million in Administrative expenses and $4 million in Cost of products sold (aggregate impact of $30 million after tax, or $.10 per share) related to the cost savings initiatives discussed above. See Note 8 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information; and
In 2017, we recorded a tax benefit of $52 million ($.08.17 per share) 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. See Note 12 to the Consolidated Financial Statements for additional information.
Discontinued Operations
In 2017, we recognized gains of $22 million ($16 million after tax, or $.05 per share) associated with mark-to-market adjustments for defined benefit pension plans;
In 2017, we recorded a pre-tax restructuring charge of $7 million and implementation costs and other related costs of $3 million in Administrative expenses (aggregate impact of $7 million after tax, or $.02 per share) related to the cost savings initiatives discussed above. See Note 8 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); and
In 2017, we recorded a $6 million reduction to interest expense ($4 million after tax, or $.01 per share) related to premiums and fees received on the sale of the intercompany notes receivable discussed above.
The items impacting comparability are summarized below:
|
| | | | | | | | | | | | | | | |
| | 2018 | | 2017 |
| (Millions, except per share amounts) | Earnings Impact | | EPS Impact | | Earnings Impact | | EPS Impact |
| Earnings from continuing operations attributable to Campbell Soup Company | $ | 724 |
| | $ | 2.40 |
| | $ | 924 |
| | $ | 3.01 |
|
| Loss from discontinued operations | $ | (463 | ) | | $ | (1.53 | ) | | $ | (37 | ) | | $ | (.12 | ) |
Net earnings attributable to Campbell Soup Company(1) | $ | 261 |
| | $ | .86 |
| | $ | 887 |
| | $ | 2.89 |
|
| | | | | | | | |
| Continuing operations: | | | | | | | |
| Pension and postretirement benefit mark-to-market adjustments | $ | 100 |
| | $ | .33 |
| | $ | 100 |
| | $ | .33 |
|
| Restructuring charges, implementation costs and other related costs | (132 | ) | | (.44 | ) | | (30 | ) | | (.10 | ) |
| Tax reform | 126 |
| | .42 |
| | — |
| | — |
|
| Impairment charges | (41 | ) | | (.14 | ) | | — |
| | — |
|
| Transaction and integration costs | (73 | ) | | (.24 | ) | | — |
| | — |
|
| Claim settlement | (15 | ) | | (.05 | ) | | — |
| | — |
|
| Sale of notes | — |
| | — |
| | 52 |
| | .17 |
|
| Impact of items on Earnings from continuing operations | $ | (35 | ) | | $ | (.12 | ) | | $ | 122 |
| | $ | .40 |
|
| | | | | | | | |
| Discontinued operations: | | | | | | | |
| Pension benefit mark-to-market and curtailment adjustments | $ | 3 |
| | $ | .01 |
| | $ | 16 |
| | $ | .05 |
|
| Restructuring charges, implementation costs and other related costs | (4 | ) | | (.01 | ) | | (7 | ) | | (.02 | ) |
| Impairment charges | (571 | ) | | (1.89 | ) | | (180 | ) | | (.59 | ) |
| Sale of notes | — |
| | — |
| | 4 |
| | .01 |
|
Impact of items on Loss from discontinued operations(1) | $ | (572 | ) | | $ | (1.89 | ) | | $ | (167 | ) | | $ | (.54 | ) |
| |
(1) | Sum of the individual amounts may not add due to rounding. |
Earnings from continuing operations were $724 million ($2.40 per share) in 2014.2018, compared to $924 million ($3.01 per share) in 2017. After adjusting for the 53rd week and other items impacting comparability, earnings decreased primarily due to declines on the base business reflecting a lower gross margin percentageprofit performance, and the dilutive impact of currency translation,acquisitions, partially offset by an increase in sales on a constant currency basis, lower marketing and selling expenses, lower interest expense and a lower effective tax rate. Currency translation had a negative impact of $.06 on earnings per share in 2015. Earnings per share benefited from a reduction in the weighted average diluted shares outstanding, primarily due toreflecting share repurchases. We suspended our share repurchases under our strategic share repurchase program.as of the second quarter of 2018.
We sold our European simple meals business on October 28, 2013. See "Discontinued Operations" for additional information.
Net earnings (loss) attributable to noncontrolling interests
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support the development of our soup and broth business in China. The joint venture began operations on January 31, 2011. In 2014, together with our joint venture partner, we agreed to restructure manufacturing and streamline operations for our soup and broth business in China. The after-tax restructuring charge attributable to the noncontrolling interest was $5 million.
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 15 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:
|
| | | | | | | | | | | | | | | |
| | | | | | | | % Change |
| (Millions) | 2016 | | 2015 | | 2014 | | 2016/2015 | | 2015/2014 |
| Americas Simple Meals and Beverages | $ | 4,380 |
| | $ | 4,483 |
| | $ | 4,588 |
| | (2)% | | (2)% |
| Global Biscuits and Snacks | 2,564 |
| | 2,631 |
| | 2,725 |
| | (3) | | (3) |
| Campbell Fresh | 1,017 |
| | 968 |
| | 955 |
| | 5 | | 1 |
| | $ | 7,961 |
| | $ | 8,082 |
| | $ | 8,268 |
| | (1)% | | (2)% |
|
| | | | | | | | | | | | | | | |
| | | | | | | | % Change |
| (Millions) | 2019 | | 2018 | | 2017 | | 2019/2018 | | 2018/2017 |
| Meals & Beverages | $ | 4,322 |
| | $ | 4,305 |
| | $ | 4,340 |
| | — | | (1) |
| Snacks | 3,784 |
| | 2,307 |
| | 1,497 |
| | 64 | | 54 |
| Corporate | 1 |
| | 3 |
| | — |
| | n/m | | n/m |
| | $ | 8,107 |
| | $ | 6,615 |
| | $ | 5,837 |
| | 23 | | 13 |
n/m - Not meaningful.
An analysis of percent change of net sales by reportable segment follows:
|
| | | | | | | |
| 2016 versus 2015 | Americas Simple Meals and Beverages | | Global Biscuits and Snacks(2) | | Campbell Fresh(2) | | Total |
| Volume and Mix | (2)% | | 1% | | (3)% | | (1)% |
| Price and Sales Allowances | 1 | | 1 | | — | | 1 |
Increased Promotional Spending(1) | — | | — | | (1) | | — |
| Currency | (1) | | (4) | | — | | (2) |
| Acquisitions | — | | — | | 10 | | 1 |
| | (2)% | | (3)% | | 5% | | (1)% |
|
| | | | | |
| 2019 versus 2018 | Meals & Beverages | | Snacks(2) | | Total |
| Volume and Mix | (1)% | | 3% | | —% |
(Increased)/Decreased Promotional Spending(1) | (1) | | 1 | | — |
| Acquisitions | 2 | | 61 | | 23 |
| | —% | | 64% | | 23% |
| | | 2015 versus 2014 | Americas Simple Meals and Beverages | | Global Biscuits and Snacks(2) | | Campbell Fresh | | Total(2) | |
| 2018 versus 2017 | | Meals & Beverages | | Snacks | | Total |
| Volume and Mix | —% | | 2% | | 2% | | —% | (3)% | | 3% | | (2)% |
| Price and Sales Allowances | — | | 1 | | — | | 1 | (1) | | — | | — |
| Currency | (1) | | (5) | | — | | (2) | |
Increased Promotional Spending(1) | | — | | (1) | | — |
| Acquisitions | — | | — | | 1 | | — | 3 | | 52 | | 15 |
Estimated Impact of 53rd week | (1) | | (2) | | (2) | | (2) | |
| | (2)% | | (3)% | | 1% | | (2)% | (1)% | | 54% | | 13% |
| |
(1) | Represents revenue reductions from trade promotion and consumer coupon redemption programs. |
| |
(2) | Sum of the individual amounts does not add due to rounding. |
In 2016, Americas Simple2019, 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 towith prior year reflecting a 2-point benefit from the prior year.
Salesacquisition of ready-to-serve soups declined 13%. The sales decrease in ready-to-serve soups was also due to marketing execution issues on Campbell'sChunky soups.
Broth sales increased 1%.
V8 beverages continued to be under pressure from competition from specialty and packaged fresh beverages.
In 2015, Americas Simple Meals and Beverages sales decreased 2%. U.S. soup sales declined 3%, with 1% due to the impact of the 53rd week. Further details of U.S. soup include:
Sales of condensed soups decreased 3%, with declines in both eating and cooking varieties. Lower volumes were partially offset by higher selling prices and reduced promotional spending.
Sales of ready-to-serve soups decreased 5%.
Broth sales increased 3% due to gains in aseptically-packaged broth,Pacific Foods, partially offset by declines in canned broth.
Sales of U.S. beverages decreased 5%,primarily due to declinessoup, the retail business in V8 V-Fusion beverages and V8 vegetable juice, partially offsetCanada driven by gains in V8 Splash beverages. Our U.S. beverages continued to be under pressure from category weakness in shelf-stable juices, as well as from competition from specialty beverages and packaged fresh juices. Sales of other U.S. simple meals increased 5%, primarily due to growth in Prego pasta sauces, Plum products and Campbell's dinner sauces, partially offset by lower sales in other simple meal products. In Canada, sales decreased due to the negative impact of currency translation.
In 2016, Global Biscuits and Snacks sales decreased 3% reflecting a 4% negative impact from currency translation. Excluding the negative impact of currency translation segmentand Prego pasta sauces. Excluding Pacific Foods, sales of U.S. soup decreased 2% due to declines in condensed and ready-to-serve soups, partly offset by gains in broth. The decline in U.S. soup was driven primarily by continued competitive pressure across the market as well as increased promotional spending.
In 2018, Meals & Beverages sales decreased 1% primarily due to declines in U.S. soup and V8 beverages, partially offset by the benefit of the acquisition of Pacific Foods, and an increase in the retail business in Canada driven by the favorable impact of currency translation. Excluding Pacific Foods, sales of U.S. soup declined 8%, driven by declines in condensed soups, ready-to-serve soups and broth. The decline in U.S. soup was primarily due to a key customer’s different promotional approach for soup in 2018.
In 2019, Snacks sales increased 64% with a 61-point benefit from the acquisition of Snyder’s-Lance. Excluding the impact of the acquisition of Snyder’s-Lance, sales increased reflecting growth in Pepperidge Farm, with gains in Goldfish crackers, fresh bakery products and in cookies, as well as KettleBrand potato chips, Late July snacks and Snack FactoryPretzel Crisps.
In 2018, Snacks sales increased 54% primarily due to the 52-point benefit of the acquisition of Snyder’s-Lance. Excluding Snyder’s-Lance, sales increased primarily due to gains in Pepperidge Farm, reflecting growth in Goldfish crackers and Arnott's biscuits in Australia, partially offset by declines in Kelsen.cookies.
In 2015, Global Biscuits and Snacks sales decreased 3%. In Arnott's, sales decreased primarily due to the impact of currency translation. Excluding the negative impact of currency translation, sales of Arnott's products increased due to volume gains and higher selling prices in Australia and Indonesia. Pepperidge Farm sales declined primarily due to the impact of the 53rdweek. Excluding the impact of the 53rdweek, Pepperidge Farm sales increased due to gains in fresh bakery, and crackers and cookies,
partially offset by declines in frozen products. Sales of simple meals and beverages in the Asia Pacific region declined due to the negative impact of currency translation and the 53rd week.
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 FarmsProtein PLUS drinks in June. In 2016, promotional spending was increased to remain competitive and to support new product launches.
In 2015, Campbell Fresh sales increased 1%. Excluding the impact of the 53rd week, sales increased primarily due to gains in Bolthouse premium refrigerated beverages and salad dressings; and the acquisition of Garden Fresh Gourmet, which was acquired on June 29, 2015; partially offset by declines in Bolthouse carrots and carrot ingredients.
Gross Profit
Gross profit, defined as Net sales less Cost of products sold, decreasedincreased by $2$319 million in 20162019 from 20152018 and decreased by $189$68 million in 20152018 from 2014.2017. As a percent of sales, gross profit was 34.9%33.2% in 2016, 34.4% in 2015 and2019, 35.9% in 2014.2018 and 41.8% in 2017.
The 0.5 percentage point increase in gross margin in 20162.7 and 1.55.9 percentage-point decrease in gross marginprofit percentage in 20152019 and 2018, respectively, were due to the following factors:
| | | | 2016 | | 2015 | Margin Impact |
| | | 2019 | | 2018 |
Cost inflation, supply chain costs and other factors(1) | | (3.0) | | (2.8) |
Impact of acquisitions(2) | | (1.5) | | (2.8) |
| Higher level of promotional spending | | (0.2) | | (0.3) |
| Mix | | — | | (0.5) |
| Price and sales allowances | | 0.3 | | (0.3) |
| Restructuring-related costs | | 0.4 | | (0.7) |
| Productivity improvements | 2.0% | | 1.6% | 1.3 | | 1.5 |
| Higher selling prices | 0.6 | | 0.5 | |
| Mix | 0.4 | | (0.3) | |
| Higher level of promotional spending | (0.2) | | (0.1) | |
| Impact of acquisitions | (0.3) | | 0.3 | |
Cost inflation, supply chain costs and other factors(1) | (0.8) | | (2.5) | |
Pension and postretirement benefit mark-to-market adjustments(2) | (1.2) | | (1.0) | |
| | 0.5% | | (1.5)% | (2.7)% | | (5.9)% |
| |
(1) | 20162019 includes a positive margin impact of 0.6 points0.8 from cost savings initiatives.initiatives, which was more than offset by cost inflation and other factors, including higher than expected distribution costs associated with the startup of a new distribution facility in Findlay, Ohio, operated by a third-party logistics provider. 2018 includes a positive margin impact of 0.5 from cost savings initiatives, which was more than offset by cost inflation and other factors, including higher transportation and logistics costs. |
| |
(2) | Mark-to-market losses were $176 million in 2016 and $80 million in 2015.2019 includes a positive margin impact of 0.6 from lapping the 2018 negative margin impact of 0.7 from a Snyder's-Lance acquisition date fair value adjustment for inventory. |
Marketing and Selling Expenses
Marketing and selling expenses as a percent of sales were 11.2%10.4% in 2016, 10.9%2019, 11.0% in 20152018 and 11.2%11.6% in 2014.2017. Marketing and selling expenses increased 1%16% in 20162019 from 2015.2018. 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.
Marketing and selling expenses decreased 5% in 2015 from 2014. The decrease was primarily due to the impact of currency translationacquisitions (approximately 19 percentage points); higher incentive compensation (approximately 2 percentage points); lower advertising and consumer promotion expenses (approximately 2 percentage points); lower marketing overhead expenses (approximately 1 percentage point) and lower selling expenseshigher costs related to costs savings initiatives (approximately 1 percentage point), partially offset by increased losses on pensionbenefits from cost savings initiatives (approximately 3 percentage points) and postretirement benefit mark-to-market adjustmentslower advertising and consumer promotion expenses (approximately 13 percentage point)points). The declinereduction in advertising and consumer promotion expenses in 2015 was primarily in Americas Simple Meals & Beverages, reflecting a reallocation from advertising to promotional spending classified as revenue reductions, reduced support levels in light of distribution challenges faced in the first quarter and Beverages,a later start to our U.S. soup campaign relative to the prior year.
Marketing and selling expenses increased 8% in 2018 from 2017. The increase was primarily due to the impact of acquisitions (approximately 12 percentage points), partially offset by an increase in Global Biscuitsincreased benefits from cost savings initiatives (approximately 3 percentage points) and Snacks.lower advertising and consumer promotion expenses (approximately 1 percentage point).
Administrative Expenses
Administrative expenses as a percent of sales were 8.1%7.5% in 2016, 7.4%2019, 8.5% in 20152018 and 7.0%7.7% in 2014.2017. Administrative expenses increased 7%8% in 20162019 from 2015.2018. The increase was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustmentsthe impact of acquisitions (approximately 10 percentage points); higher incentive compensation (approximately 7 percentage points); higherand costs related toassociated with the implementation of the new organizational structure and cost savings initiatives (approximately 4 percentage points); inflation (approximately 2 percentage points) and higher incentive compensation costsproxy contest (approximately 1 percentage point), partially offset by benefits fromlower costs associated with cost savings initiatives inclusive of acquisition integration costs (approximately 67 percentage points) and the impact of currency translation (approximately 1 percentage point).
Administrative expenses increased 4% in 2015 from 2014. The increase was primarily due to costs of $22 million in 2015 related to the implementation of the new organizational structure and cost savings initiatives (approximately 4 percentage points); higher incentive compensation costs (approximately 4 percentage points), and increased losses on pension and postretirement benefit mark-to-market adjustments (approximately 1 percentage point), partially offset by benefits from cost savings initiatives (approximately 3 percentage points) and.
Administrative expenses increased 26% in 2018 from 2017. The increase was primarily due to higher costs related to cost savings initiatives (approximately 12 percentage points); the impact of currency translationacquisitions (approximately 9 percentage points); acquisition integration costs (approximately 3 percentage points); consulting costs incurred in connection with the strategic review (approximately 2 percentage points); investments in long-term innovation (approximately 1 percentage point); and inflation and other factors (approximately 4 percentage points), partially offset by lower incentive compensation (approximately 5 percentage points).
Research and Development Expenses
Research and development expenses increased $7were $91 million or 6%, in 2016 from 2015. The increase was primarily due to increased losses on pension2019 and postretirement benefit mark-to-market adjustments2018 as higher incentive compensation costs (approximately 98 percentage points) and increased costs to support long-term innovation (approximately 3 percentage points), partiallywere mostly offset by increased benefits from cost savings initiatives (approximately 67 percentage points).
Research and development expenses decreased $5$2 million, or 4%2%, in 20152018 from 2014.2017. The decrease was primarily due to benefits from cost savings initiativeslower investments in long-term innovation (approximately 73 percentage points); and lower incentive compensation costs (approximately 2 percentage points), partially offset by increased losses on pension and postretirement benefit mark-to-market adjustmentsthe impact of acquisitions (approximately 43 percentage points).
Other Expenses / (Income)
Other expenses in 20162019 included the following:
$71 million of net periodic benefit expense, including losses of $122 million on pension and postretirement benefit mark-to-market adjustments and a non-cash impairmentpension settlement charge of $141$28 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit, which is part of the Campbell Fresh segment. The impairment charge was recorded asassociated with a result of our annual review of intangible assets. See Note 6 to the Consolidated Financial Statements for additional information. In addition, 2016 included $20U.S. pension plan;
$48 million of amortization of intangible assetsassets; and a $25
non-cash impairment charge of $16 million gain from a settlement of a claim related to the Kelsen acquisition. European chips business.
Other expensesincome in 20152018 included $17the following:
$225 million of net periodic benefit income, including gains of $131 million on pension and postretirement benefit mark-to-market adjustments;
$20 million of amortization of intangible assetsassets;
$22 million of expense related to the settlement of a legal claim;
$53 million of transaction costs associated with the acquisition of Snyder's-Lance; and an
non-cash impairment charge of $6$54 million related to minor trademarks usedthe Plum trademark.
Other income in 2017 included the Global Biscuits and Snacks segment. Other expenses in 2014 included a lossfollowing:
$224 million of $9net periodic benefit income, including gains of $156 million on foreign exchange forward contracts used to hedge the proceeds from the sale of the European simple meals businesspension and $18postretirement benefit mark-to-market adjustments; and
$1 million of amortization of intangible assets.
For additional information on the impairment charges, see "Significant Accounting Estimates."
Operating Earnings
Segment operating earnings increased 11%3% in 20162019 from 20152018 and decreased 5%4% in 20152018 from 2014.2017.
An analysis of operating earnings by segment follows:
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | % Change |
| (Millions) | | 2016 | | 2015 | | 2014 | | 2016/2015 | | 2015/2014 |
| Americas Simple Meals and Beverages | | $ | 1,069 |
| | $ | 948 |
| | $ | 1,030 |
| | 13% | | (8 | )% |
| Global Biscuits and Snacks | | 422 |
| | 383 |
| | 366 |
| | 10 | | 5 |
|
| Campbell Fresh | | 60 |
| | 61 |
| | 68 |
| | (2) | | (10 | ) |
| | | 1,551 |
| | 1,392 |
| | 1,464 |
| | 11% | | (5 | )% |
| Corporate | | (560 | ) | | (236 | ) | | (142 | ) | | | | |
Restructuring charges(1) | | (31 | ) | | (102 | ) | | (55 | ) | | | | |
| Earnings before interest and taxes | | $ | 960 |
| | $ | 1,054 |
| | $ | 1,267 |
| | | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | % Change |
| (Millions) | | 2019 | | 2018 | | 2017 | | 2019/2018 | | 2018/2017 |
| Meals & Beverages | | $ | 903 |
| | $ | 988 |
| | $ | 1,118 |
| | (9) | | (12 | ) |
| Snacks | | 514 |
| | 383 |
| | 310 |
| | 34 | | 24 |
|
| | | 1,417 |
| | 1,371 |
| | 1,428 |
| | 3 | | (4 | ) |
| Corporate (expense) income | | (407 | ) | | (306 | ) | | 14 |
| | | | |
Restructuring charges(1) | | (31 | ) | | (55 | ) | | (11 | ) | | | | |
| Earnings before interest and taxes | | $ | 979 |
| | $ | 1,010 |
| | $ | 1,431 |
| | | | |
| |
(1) | See Note 8 to the Consolidated Financial Statements for additional information on restructuring charges. |
EarningsOperating earnings from Americas Simple Meals and Beverages increased 13% in 2016 versus 2015. The increase was primarily due to a higher gross margin percentage, benefiting from productivity improvements and increased net price realization, as well as lower marketing and selling expenses, partially offset by volume declines.
Earnings from Americas Simple Meals and& Beverages decreased 8%9% in 20152019 versus 2014. The decrease was due to cost inflation and higher supply chain costs, unfavorable product mix, and the impact of the 53rd week, partially offset by productivity improvements, lower marketing expenses, higher selling prices and the benefit of lapping the Plum recall in 2014.
Earnings from Global Biscuits and Snacks increased 10% in 2016 versus 2015. The increase was primarily due to a higher gross margin 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.
Earnings from Global Biscuits and Snacks increased 5% in 2015 versus 2014. The increase was primarily due to productivity improvements and higher selling prices, partially offset by cost inflation and higher supply chain costs, increased marketing expenses and the negative impact of currency translation.
Earnings from Campbell Fresh decreased 2% in 2016 versus 2015.2018. The decrease was primarily due to higher carrotlevels of cost inflation and higher warehousing and transportation costs, as well as higher promotional spending and higher incentive compensation expenses, partly offset by supply chain productivity improvements, lower marketing and selling expenses and the impactbenefits of the voluntary recall of Bolthouse FarmsProtein PLUS drinks and the related production outages, partially offset by productivity improvements and lower administrative expenses.cost savings initiatives.
EarningsOperating earnings from Campbell FreshMeals & Beverages decreased 10%12% in 20152018 versus 2014.2017. The decrease was primarily due to a lower gross profit percentage and lower sales volume, partly offset by lower marketing and selling expenses. Gross profit performance was impacted by cost inflation, including higher transportation and logistics costs, and the dilutive impact from the acquisition of Pacific Foods.
Operating earnings from Snacks increased 34% in 2019 versus 2018. The increase reflects a 32-point benefit from the acquisition of Snyder’s-Lance. The remaining increase was primarily due to higher sales, supply chain productivity improvements and lower promotional spending, partly offset by higher marketing and selling expenses, higher levels of cost inflation and higher supply chainincentive compensation expenses. Operating earnings benefited from lapping the costs partiallyassociated with the voluntary product recall of Flavor BlastedGoldfish crackers in July 2018.
Operating earnings from Snacks increased 24% in 2018 versus 2017. The increase was primarily due to the benefit of the acquisition of Snyder’s-Lance, higher organic sales volume and lower marketing and selling expenses, partly offset by favorable product mix and productivity improvements. The increase ina lower
gross profit percentage. Gross profit performance was impacted by higher levels of cost inflation, higher transportation and higher supply chainlogistics costs reflected higher carrotand costs dueassociated with the voluntary product recall of Flavor BlastedGoldfish crackers in part to adverse weather.July 2018.
Corporate in 20162019 included the following:
$122 million of losses on pension and postretirement benefit mark-to-market adjustments;
costs of $90 million related to the cost savings initiatives;
a $313pension settlement charge of $28 million lossassociated with a U.S. pension plan; and
non-cash impairment charge of $16 million related to the European chips business.
Corporate in 2018 included the following:
costs of $135 million related to the cost savings initiatives;
transaction and integration costs of $107 million associated with the acquisition of Snyder's-Lance;
non-cash impairment charge of $54 million related to the Plum trademark;
$22 million of expense related to the settlement of a legal claim; and
$131 million of gains on pension and postretirement benefit mark-to-market adjustments.
Excluding these amounts, the remaining increase was primarily due to higher incentive compensation expenses.
Corporate in 2017 included costs of $37 million related to cost savings initiatives and $156 million of gains associated with pension and postretirement benefit mark-to-market adjustments, a non-cash impairment charge of $141 millionadjustments. Excluding these amounts, the remaining increase in costs in 2018 was primarily due to higher administrative expenses and losses 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. Corporateopen commodity contracts in 2015 included a $138 million loss associated with2018, partially offset by higher 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 was primarily due to an increaseincome in pension benefit cost, resulting from a reduction in expected return on assets partially offset by lower interest cost.
Corporate in 2014 included a $31 million loss associated with pension and postretirement benefit mark-to-market adjustments, a $9 million loss on foreign exchange forward contracts related to the sale of the European simple meals business, and $3 million of restructuring-related costs. The remaining decrease was primarily due to a reduction in pension and postretirement benefit interest cost, net of expected return on assets, and lower losses on open commodity hedges in 2015.2018.
Interest Expense/IncomeExpense
Interest expense increased to $356 million in 2019 from $183 million in 2018. The increase in interest expense was due to higher levels of debt associated with funding the acquisitions, higher average interest rates on the debt portfolio and a gain of $18 million on treasury rate lock contracts in the prior year used to hedge the planned financing of the Snyder's-Lance acquisition.
Interest expense increased to $183 million in 2018 from $115 million in 2016 from $108 million2017. The increase in 2015, reflectinginterest expense was due to higher levels of debt associated with funding the acquisitions and higher average interest rates on the debt portfolio, partially offset by lower average levelsa gain of debt.
Interest expense decreased$18 million on treasury rate lock contracts used to $108 million in 2015 from $122 million in 2014, reflecting lower average levelshedge the planned financing of debt.the Snyder's-Lance acquisition.
Taxes on Earnings
The effective tax rate was 33.7%24.2% in 2016,2019, 12.8% in 2018 and 29.8% in 20152017.
On December 22, 2017, the Act was enacted into law and 32.6%made significant changes to corporate taxation. As a result, the following items are reflected in 2014.2018:
The corporate rate reduction as of January 1, 2018, resulted in a blended U.S. statutory tax rate of approximately 27%;
Remeasurement of deferred tax assets and liabilities resulted in a tax benefit of $179 million; and
Imposition of a transition tax on unremitted foreign earnings resulted in a tax charge of $53 million.
See Note 12 to the Consolidated Financial Statements for additional information.
Tax expense increased from $106 million in 2018 to $151 million in 2019.
The following items impacted 2019 and 2018:
In 2016,2019, we recognized a tax benefit of $113$29 million on $313$122 million of pension and postretirement benefit mark-to-market losses;losses. In 2018, we recognized tax expense of $31 million on $131 million of pension and postretirement benefit mark-to-market gains;
In 2019, we recognized a $6 million tax benefit on $28 million of a pension settlement charge;
In 2019, we recognized a $29 million tax benefit on $78$121 million of restructuring charges, implementation costs and other related costs;costs. In 2018, we recognized a $45 million tax benefit on $177 million of restructuring charges, implementation costs and other related costs;
In 2019, we recognized a $14transition tax on unremitted foreign earnings of $2 million related to the enactment of the Act. In 2018, we recognized a net tax benefit of $126 million related to the enactment of the Act on the remeasurement of deferred tax assets and liabilities and transition tax on unremitted foreign earnings described above;
In 2019, we recognized a $3 million tax benefit on a $16 million impairment charge on the European chips business. In 2018, we recognized a $13 million tax benefit on a $54 million impairment charge on the Plum trademark;
In 2018, we recognized a $29 million tax benefit on $102 million of transaction and integration costs associated with the acquisition of Snyder's-Lance; and
In 2018, we recognized a $7 million tax benefit on the $141$22 million impairment charge onof expense related to the trademark and goodwill associated with the Bolthouse Farms carrot and carrot ingredients reporting unit. In 2016, the $25 million gain from a settlement of a claim related to the Kelsen acquisition was not subject to tax. 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 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.legal claim.
In 2014, we recognized a tax benefit of $17 million on $58 million of restructuring charges and related costs. In addition, 2014 included a tax benefit of $12 million on $31 million of pension and postretirement benefit mark-to-market losses; a tax expense of $7 million associated with the sale of the European simple meals business; and a tax benefit of $3 million on a loss of $9 million on foreign exchange forward contracts used to hedge the proceeds from the sale of the business. After adjusting for the items above, the remaining decrease in the effective rate in 2015 was primarily due to the favorable resolutionongoing benefit of the lower U.S. federal tax rate resulting from the enactment of the Act in December 2017.
Tax expense decreased from $392 million in 2017 to $106 million in 2018.
The following items impacted the tax rate in 2017:
In 2017, we recognized a tax expense of $56 million on $156 million of pension and postretirement benefit mark-to-market gains;
In 2017, we recognized an $18 million tax benefit on $48 million of restructuring charges, implementation costs and other related costs; and
In 2017, we recognized a tax benefit of $52 million primarily related to the sale of intercompany pricing agreement betweennotes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes.
After adjusting for the items above, the remaining decrease in the effective tax rate was primarily due to the ongoing benefit of the lower U.S. and Canada.federal tax rate as a result of the Act.
Restructuring Charges and Cost Savings Initiatives
2015 Initiatives and Snyder's-Lance Cost Transformation Program and Integration
On January 29,In fiscal 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 IGS organization to deliver shared services across the company. We also streamlined our organizational structure. We are pursuing other initiatives to reduce costs and increase effectiveness, such as adopting zero-based budgeting over time.
to streamline our organizational structure. 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.
In February 2017, we announced that we were expanding these 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 January 2018, as part of the expanded initiatives, we authorized additional pre-tax costs to improve the operational efficiency of our thermal supply chain network in North America by closing our manufacturing facility in Toronto, Ontario, and to optimize our information technology infrastructure by migrating certain applications to the latest cloud technology platform. In August 2018, we announced that we will continue to streamline our organization, expand our zero-based budgeting efforts and optimize our manufacturing network.
On March 26, 2018, we completed the acquisition of Snyder's-Lance. Prior to the acquisition, in April 2017, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We expect to continue to implement this program and to achieve a majority of the program's targeted savings. In addition, we have identified opportunities for additional cost synergies as we integrate Snyder's-Lance.
Cost estimates, as well as timing for certain activities, are continuing to be developed.
A totalsummary of 471 employees elected the program. The electing employees remained with us through at least July 31, 2015, with some remaining beyond July 31. We also implemented an initiative to reduce overhead across the organization by eliminating approximately 250 positions. In 2016, wepre-tax charges recorded a restructuring charge of $35 millionin Earnings from continuing operations related to these initiatives. In 2015, we recorded a restructuring charge of $102 million related to these initiatives.both programs is as follows:
|
| | | | | | | | | | | | | | | |
(Millions, except per share amounts) | 2019 | | 2018(1) | | 2017 | | Recognized as of July 28, 2019(1) |
| Restructuring charges | $ | 31 |
| | $ | 55 |
| | $ | 11 |
| | $ | 229 |
|
| Administrative expenses | 62 |
| | 99 |
| | 33 |
| | 263 |
|
| Cost of products sold | 18 |
| | 45 |
| | 4 |
| | 67 |
|
| Marketing and selling expenses | 7 |
| | 3 |
| | — |
| | 10 |
|
| Research and development expenses | 3 |
| | — |
| | — |
| | 3 |
|
| Total pre-tax charges | $ | 121 |
| | $ | 202 |
| | $ | 48 |
| | $ | 572 |
|
| | | | | | | | |
| Aggregate after-tax impact | $ | 92 |
| | $ | 150 |
| | $ | 30 |
| | |
| Per share impact | $ | .30 |
| | $ | .50 |
| | $ | .10 |
| | |
| |
(1) | Includes $13 million of Restructuring charges and $12 million of Administrative expenses associated with the Snyder's-Lance cost transformation program and integration recognized in 2018. |
In 2016, we also incurred chargesA summary of $47 millionthe pre-tax charges recorded in Administrative expenses related to the implementationEarnings (loss) from discontinued operations is as follows: |
| | | | | | | | | | | | | | | |
| (Millions) | 2019 | | 2018 | | 2017 | | Recognized as of July 28, 2019(1) |
| Total pre-tax charges | $ | — |
| | $ | 8 |
| | $ | 10 |
| | $ | 23 |
|
(1) Includes $19 million of the new organizational structureseverance pay and cost savings initiatives. In 2015, we incurred chargesbenefits and $4 million of $22 million recorded in Administrative expenses related to these initiatives.
The aggregate after-tax impact of restructuring charges, implementation costs and other related costs.
As of April 28, 2019, we incurred substantially all of the costs recorded in 2016 was $52 million, or $0.17 per share. The aggregate after-tax impactfor actions associated with discontinued operations. All of restructuring charges and implementation and otherthe costs recorded in 2015 was $78 million, or $.25 per share. were cash expenditures.
A summary of the pre-tax costs in Earnings from continuing operations associated with the 2015 initiativesboth programs is as follows:
| | | (Millions) | Recognized
as of
July 31, 2016 | Recognized as of July 28, 2019 |
Severance pay and benefits | $ | 128 |
| $ | 205 |
|
| Implementation costs and other related costs | 78 |
| |
| Asset impairment/accelerated depreciation | | 63 |
|
Implementation costs and other related costs(2) | | 304 |
|
| Total | $ | 206 |
| $ | 572 |
|
| |
(1) | Includes $13 million of charges associated with the Snyder's-Lance cost transformation program and integration recognized in 2018. |
| |
(2) | Includes $12 million of charges associated with the Snyder's-Lance cost transformation program and integration recognized in 2018. |
The total estimated pre-tax costs for actions associated with continuing operations that have been identified under both programs are approximately $615 million to $665 million. This estimate will be updated as costs for the 2015expanded initiatives are approximately $250 million to $300 million. developed.
We expect the costs for actions associated with continuing operations that have been identified to date under both programs to consist of the following: approximately $135$205 million to $145$210 million in severance pay and benefits,benefits; approximately $65 million in asset impairment and accelerated depreciation; and approximately $115$345 million to $155$390 million in implementation costs and other related costs.Wecosts. We expect the totalthese pre-tax costs related to the 2015 initiatives will be associated with our segments as follows: Americas Simple Meals and& Beverages - approximately 30%35%; Global Biscuits and Snacks - approximately 32%; Campbell Fresh - approximately 3%40%; and Corporate - approximately 35%25%.
WeOf the aggregate $615 million to $665 million of pre-tax costs associated with continuing operations identified to date under both programs, we expect substantially all costsapproximately $540 million to $590 million will be cash expenditures. In addition, we expect to invest approximately $395 million in capital expenditures exceptthrough 2021, of which we invested approximately $250 million as of July 28, 2019. The capital expenditures primarily relate to the U.S. warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, implementation of an SAP enterprise-resource planning system for $7 millionSnyder's-Lance, transition of non-cash postretirementproduction of the Toronto manufacturing facility to our U.S. thermal plants, optimization of information technology infrastructure and pension curtailment costs incurred in 2015. applications, insourcing of manufacturing for certain simple meal products, and optimization of the Snyder’s-Lance warehouse and distribution network.
We expect to incur substantially all of the costs for the actions associated with continuing operations that have been identified to date through 2018,2020 and to fund the costs through cash flows from operations and short-term borrowings.
We expect the 2015 initiatives for actions associated with continuing operations that have been identified to date under both programs to generate pre-tax savings of approximately $265$710 million in 2017,2020, and once fullyall phases are implemented, to generate annual ongoing savings of approximately $300$850 million beginning in 2018. In 2016 and 2015,by the end of 2022. The annual pre-tax savings associated with continuing operations generated by both programs were $215as follows:
|
| | | | | | | | | | | | | | | | | | | |
| (Millions) | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
| Total pre-tax savings | $ | 560 |
| | $ | 395 |
| | $ | 325 |
| | $ | 215 |
| | $ | 85 |
|
The initiatives for actions associated with discontinued operations generated pre-tax savings of over $90 million in 2019 and $85$60 million respectively.in 2018.
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 datein Earnings from continuing operations associated with segments is as follows:
|
| | | | | | | |
| (Millions) | 2016 | | Costs Incurred to Date |
| Americas Simple Meals and Beverages | $ | 17 |
| | $ | 71 |
|
| Global Biscuits and Snacks | 22 |
| | 66 |
|
| Campbell Fresh | 1 |
| | 2 |
|
| Corporate | 42 |
| | 67 |
|
| Total | $ | 82 |
| | $ | 206 |
|
2014 Initiatives
In 2014, we implemented initiatives to reduce overhead across the organization, restructure manufacturing and streamline operations for our soup and broth business in China and improve supply chain efficiency in Australia. Details of the 2014 initiatives include:
We streamlined our salaried workforce in North America and our workforce in the Asia Pacific region. Approximately 250 positions were eliminated.
Together with our joint venture partner Swire Pacific Limited, we restructured manufacturing and streamlined operations for our soup and broth business in China. As a result, certain assets were impaired, and approximately 100 positions were eliminated.
In Australia, we commenced an initiative to improve supply chain efficiency by relocating production from our biscuit plant in Marleston to Huntingwood. The relocation will continue through 2017 and will result in the elimination of approximately 45 positions.
We implemented an initiative to reduce overhead across the organization by eliminating approximately 85 positions. The actions were completed in 2015.
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. In 2014, we recorded a restructuring charge of $54 million ($33 million after tax, or $.10 per share, in earnings
from continuing operations attributable to Campbell Soup Company) 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 | $ | 41 |
| | $ | (4 | ) | | $ | 37 |
|
| Asset impairment | 12 |
| | — |
| | 12 |
|
| Other exit costs | 1 |
| | — |
| | 1 |
|
| Total | $ | 54 |
| | $ | (4 | ) | | $ | 50 |
|
|
| | | | | | | |
| (Millions) | 2019 | | Costs Incurred to Date(1) |
| Meals & Beverages | $ | 34 |
| | $ | 212 |
|
| Snacks | 40 |
| | 200 |
|
| Corporate | 47 |
| | 160 |
|
| Total | $ | 121 |
| | $ | 572 |
|
| |
(1) | Recognized asIncludes $25 million of August 2, 2015.pre-tax costs associated with the Snacks segment recognized in 2018 related to the Snyder's-Lance cost transformation program and integration. |
Of the aggregate $50 million of pre-tax costs, approximately $37 million represented cash expenditures. In addition, we invested approximately $4 million in capital expenditures as of July 31, 2016, primarily to relocate biscuit production and packaging capabilities.
The 2014 initiatives generated pre-tax savings of approximately $26 million in 2014 and $57 million in 2015. We generated annual ongoing savings of approximately $65 million beginning in 2016.
Segment operating results do not include restructuring charges because we evaluate segment performance excluding such charges. A summary of restructuring charges associated with segments is as follows:
|
| | | | | | | |
| (Millions) | 2016 | | Total Program |
| Americas Simple Meals and Beverages | $ | (1 | ) | | $ | 13 |
|
| Global Biscuits and Snacks | (3 | ) | | 35 |
|
| Campbell Fresh | — |
| | 1 |
|
| Corporate | — |
| | 1 |
|
| Total | $ | (4 | ) | | $ | 50 |
|
2013 Initiatives
In 2013, we implemented initiatives to improve supply chain efficiency, expand access to manufacturing and distribution capabilities and reduce costs.
In 2014, we recorded a restructuring charge of $1 million related to the 2013 initiatives. In addition, we recorded approximately $3 million of costs related to the 2013 initiatives in Cost of products sold, representing other exit costs. The aggregate after-tax impact of restructuring charges and related costs recorded in 2014 was $3 million, or $.01 per share.
A summary of the pre-tax costs associated with the 2013 initiatives is as follows:
|
| | | |
| (Millions) | Total Program |
| Severance pay and benefits | $ | 31 |
|
| Accelerated depreciation/asset impairment | 99 |
|
| Other exit costs | 12 |
|
| Total | $ | 142 |
|
In 2015, we substantially completed the 2013 initiatives.
See Note 8 to the Consolidated Financial Statements for additional information.
Discontinued Operations
On October 28, 2013,August 30, 2018, we completedannounced plans to pursue the saledivestiture of businesses within two operating segments: our European simple mealsinternational biscuits and snacks operating segment, which includes Arnott’s, Kelsen and our operations in Indonesia, Malaysia, Hong Kong and Japan; and the Campbell Fresh operating segment, which includes Bolthouse Farms, Garden Fresh Gourmet and the U.S. refrigerated soup business.
On February 25, 2019, we sold our U.S. refrigerated soup business, to Soppa Investments S.à r.l., an affiliate of CVC Capital Partners. The all-cash preliminary sale price was €400and on April 25, 2019, we sold our Garden Fresh Gourmet business. Proceeds were approximately $55 million, or $548 million, and was subject to certain post-closing adjustments, which resultedcustomary purchase price adjustments. On June 16, 2019, we sold our Bolthouse Farms business. Proceeds were approximately $500 million, subject to customary purchase price adjustments. Beginning in a $14 million reductionthe third quarter of proceeds. We recognized a pre-tax gain of $141 million ($72 million after tax, or $.23 per share) in 2014.
We2019, we have reflected the results of the European simple meals businessthese businesses as discontinued operations in the Consolidated Statements of Earnings.Earnings for all periods presented.
Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019, for approximately $300 million, subject to customary purchase price adjustments. We also signed a definitive agreement on August 1, 2019, for the sale of the Arnott’s and international operations, for $2.2 billion, subject to customary purchase price adjustments. We expect to complete the sale in the first half of 2020. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and international operations, or Campbell International, as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Global Biscuits and Snacks reportable segment.
Results of discontinued operations were as follows:
|
| | | | |
| (Millions) | | 2014 |
| Net sales | | $ | 137 |
|
| | | |
| Gain on sale of the European simple meals business | | $ | 141 |
|
| Earnings from operations, before taxes | | 14 |
|
| Earnings before taxes | | $ | 155 |
|
| Taxes on earnings | | (74 | ) |
| Earnings from discontinued operations | | $ | 81 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Campbell Fresh | | Campbell International |
| (Millions) | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Net sales | $ | 756 |
| | $ | 950 |
| | $ | 947 |
| | $ | 1,046 |
| | $ | 1,120 |
| | $ | 1,106 |
|
| | | | | | | | | | | | |
| Impairment charges | $ | 360 |
| | $ | 694 |
| | $ | 212 |
| | $ | 17 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | |
| Earnings (loss) before taxes from operations | $ | (359 | ) | | $ | (721 | ) | | $ | (221 | ) | | $ | 120 |
| | $ | 163 |
| | $ | 198 |
|
| Taxes on earnings (loss) from operations | (78 | ) | | (142 | ) | | (34 | ) | | 41 |
| | 47 |
| | 48 |
|
| Loss on sales of businesses / costs associated with selling the businesses | (32 | ) | | — |
| | — |
| | (12 | ) | | — |
| | — |
|
| Tax expense (benefit) of loss on sales / costs associated with selling the businesses | 19 |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
|
| Earnings (loss) from discontinued operations | $ | (332 | ) | | $ | (579 | ) | | $ | (187 | ) | | $ | 69 |
| | $ | 116 |
| | $ | 150 |
|
In 2019, Campbell Fresh sales decreased primarily due to the sale of the businesses, as well as declines in refrigerated soup, Bolthouse Farms refrigerated beverages and Garden Fresh Gourmet.
In 2018, Campbell Fresh sales were comparable to the prior year as gains in carrot ingredients and Garden Fresh Gourmet were offset by declines in Bolthouse Farms refrigerated beverages.
In 2019, 2018, and 2017, we recorded impairment charges on the reporting units in Campbell Fresh. See "Significant Accounting Estimates" for additional information. In 2019, we recorded non-cash impairment charges of $360 million ($275 million after tax, or $.91 per share). In 2018 and 2017, the total non-cash impairment charges were $694 million ($571 million after tax, or $1.89 per share) and $212 million ($180 million after tax, or $.59 per share), respectively. In 2019, we incurred pre-tax expenses of $32 million associated with the sale process of the businesses, including transaction costs. In addition, we recorded tax expense of $29 million in the third quarter as deferred tax assets associated with Bolthouse Farms were not realizable. In 2018, loss from operations included a benefit from the favorable resolution of a tax matter.
In 2019, Campbell International sales decreased reflecting the negative impact of currency translation and declines in Kelsen cookies in the U.S.
In 2018, Campbell International sales increased due to the favorable impact from currency translation. Excluding the impact from currency translation, sales decreased with declines in Arnott’s biscuits in Indonesia, partly offset by gains in Kelsen cookies in China.
In 2019, excluding items impacting comparability, earnings from Campbell International declined primarily due to a lower gross profit percentage, reflecting higher supply chain costs and higher promotional spending, as well as the negative impact of currency translation.
In 2018, earnings from Campbell International declined primarily due to higher interest expense.
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.
In August 2018, we announced the results of our comprehensive Board of Directors-led strategy and portfolio review, which included plans to pursue the divestiture of our international biscuits and snacks operating segment and our Campbell Fresh operating segment. We sold Campbell Fresh in 2019 as further described below. Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019, for approximately $300 million, subject to customary purchase price adjustments. We also signed a definitive agreement on August 1, 2019, for the sale of the Arnott’s and international operations for $2.2 billion, subject to customary purchase price adjustments, and expect to complete the sale in the first half of 2020. In addition, on September 18, 2019, we signed a definitive agreement for the sale of our European chips business for £66 million, or approximately $80 million. The sale is subject to customary closing conditions including receiving the relevant regulatory approvals, and we expect to complete the sale in the first quarter of 2020.
We used the net proceeds from the businesses we sold in 2019 to reduce our debt and expect to use the net proceeds from the businesses sold in 2020 to further reduce debt.
In addition, we plan to continue driving improved asset efficiency in working capital and capital expenditures to generate cash. We expect to maintain disciplined cash flow and capital allocation priorities in 2020, including for capital investments, our dividend and debt reduction.
We generated cash flows from operations of $1.4631.398 billion in 2016,2019, compared to $1.1821.305 billion in 2015.2018. The increase in 20162019 was primarily due to improvements in working capital management efforts and higher cash earnings and lower working capital requirements, primarily inventories.earnings.
We generated cash flows from operations of $1.182$1.305 billion in 2015,2018, compared to $899 million$1.288 billion in 2014.2017. The increase in 20152018 was primarily due to lower working capital requirements, taxes paid in 2014 on the divestiture of the European simple meals business and lower pension contributions in 2015, partially offset by lower cash earnings.
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 $647 million$1.418 billion as of July 31, 2016,28, 2019, and $713 million$1.298 billion as of August 2, 2015. DebtJuly 29, 2018. Total debt maturing within one year was $1.219$1.603 billion as of July 31, 2016,28, 2019, and $1.543$1.896 billion as of August 2, 2015.July 29, 2018.
Capital expenditures were $341$384 million in 2016, $3802019, $407 million in 20152018 and $347$338 million in 2014.2017. Capital expenditures are expected to total approximately $350 million in 2017.2020. Capital expenditures in 20162019 included a U.S. warehouse optimization project, replacement of a Pepperidge Farm refrigeration system, transition of production of the Toronto manufacturing facility to our U.S. thermal plants, a Snyder's-Lance regional distribution center, a Milano cookie capacity expansion project, and a Goldfish cracker capacity expansion project. Capital expenditures in 2018 included a U.S. warehouse optimization project; transition of production of the Toronto manufacturing facility to our U.S. thermal plants; insourcing manufacturing for certain simple meal products; replacement of a Pepperidge Farm refrigeration system; and an Australian multi-pack biscuit capacity expansion project. Capital expenditures in 2017 included projects to expand: Australian multi-pack biscuit capacity; 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); crackerFarms; and capacity at Pepperidge Farm (approximately $9 million); and capacity in Malaysia (approximately $6 million);Garden Fresh; 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 atheadquarters; replacement of a Pepperidge Farm (approximately $36 million); beveragerefrigeration system; and salad dressing capacity at Bolthouse Farms (approximately $33 million);a U.S. 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). Capital expenditures in 2014 included projects to expand: capacity at optimization project.
Pepperidge Farm (approximately $48 million) and broth capacity (approximately $15 million); as well asSnyder’s-Lance have a direct-store-delivery distribution model that uses independent contractor distributors. In order to maintain and expand this model, we routinely purchase and sell routes. The purchase and sale proceeds of the ongoing soup common platform initiativeroutes are reflected in North America (approximately $22 million); continued enhancement of our corporate headquarters (approximately $12 million); a flexible beverage production line for Bolthouse Farms (approximately $11 million); the refurbishment of a beverage filling and packaging line for the Americas Simple Meals and Beverages business (approximately $10 million); the packing automation and capacity expansion projects at one of our Australian biscuit plants (approximately $10 million) and an advanced planning system in North America (approximately $4 million).investing activities.
On June 29, 2015,December 12, 2017, we completed the acquisition of the assets of Garden Fresh Gourmet.Pacific Foods. The purchase price was $232$688 million and was funded through the issuance of commercial paper.
On August 8, 2013,March 26, 2018, we completed the acquisition of Kelsen.Snyder’s-Lance. Total consideration was $6.112 billion, which included the payoff of approximately $1.1 billion of Snyder's-Lance indebtedness. We borrowed $900 million under a single draw 3-year senior unsecured term loan facility on March 26, 2018, and issued $5.3 billion senior notes on March 16, 2018, to finance the acquisition. The final all-cash purchase price was $331interest rate on the senior unsecured term loan facility resets in one, two, three, or six-month periods dependent upon our election. Interest on the senior unsecured term loan facility is due upon the earlier of an interest reset or quarterly. The senior unsecured term loan facility contains customary covenants and events of default for credit facilities of this type and a maximum leverage ratio covenant. During the fourth quarter of 2019, we prepaid $401 million of the facility. As a result of such prepayment, the maximum leverage ratio covenant in the senior unsecured term loan facility no longer applies and is no longer incorporated into our U.S. credit facility. The remaining debt outstanding under the senior unsecured term loan facility may be prepaid at par at any time.
The $5.3 billion senior notes were issued in various tenors in both fixed and floating rate formats. We issued 2 and 3-year floating rate senior notes in the amount of $500 million and was funded through$400 million, respectively. We issued 3, 5, 7, 10, and 30-year fixed rate senior notes in the issuanceamount of commercial paper.
In March 2015, we issued $300$650 million, of 3.30%$1.2 billion, $850 million, $1 billion, and $700 million, respectively. Interest on the 2-year floating rate senior notes that matureis due quarterly on March 19, 2025.16, June 16, September 16, and December 16, commencing on June 16, 2018. Interest on the 3-year floating rate senior notes is due quarterly on March 15, June 15, September 15, and December 15, commencing on June 15, 2018. Interest on the fixed rate senior notes is due semi-annually on March 1915 and September 19,15, commencing on September 19, 2015.15, 2018. The fixed rate senior notes may be redeemed, in whole or in part, at our option at any time at the applicable redemption price. In certain circumstances,If change of control triggering events occur, we maywill be required to repurchase some or alloffer to purchase the senior notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the purchase date. The senior notes were issued under a shelf registration statement that we filed with the Securities and Exchange Commission in July 2017. We registered an indeterminate amount of debt securities. Under the registration statement, we may issue debt securities from time to time, depending on market conditions.
On October 30, 2018, we purchased the remaining ownership interest in Yellow Chips Holdings B.V., and began consolidating the business. The purchase price was $18 million.
On February 25, 2019, we sold our U.S refrigerated soup business, and on April 25, 2019, we sold our Garden Fresh Gourmet business. Proceeds were approximately $55 million, subject to customary purchase price adjustments. On June 16, 2019, we sold Bolthouse Farms. Proceeds were approximately $500 million, subject to customary purchase price adjustments.
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% due on September 18, 2018, and an AUD $190 million, or $152 million, note with an interest rate of 6.98% due on March 29, 2021, but payable upon a change in control of our companydemand. Interest on both notes was due semi-annually on January 23 and a downgrade of the notes below investment grade.July 23. The net proceeds were used for general corporate purposes. On September 18, 2018, we repaid a portion of both Australian notes and refinanced the remainder with a new AUD $400 million, or $296 million, single-draw syndicated facility that matured on September 11, 2019. As of July 28, 2019, the balance outstanding under this facility was AUD $335 million, or $232 million. The syndicated facility was repaid in August 2019 and was terminated.
Dividend payments were $390423 million in 2016,2019, $394426 million in 20152018 and $391$420 million in 2014.2017. Annual dividends declared were $1.248$1.40 per share in 2016, 2015,2019, 2018, and 2014.2017. The 20162019 fourth quarter dividend was $.312 per share. On September 1, 2016,
we announced that our Board of Directors approved an increase in our quarterly dividend from $.312 per share to $.35 per share. The quarterly dividend is payable on October 31, 2016.
We repurchased approximately 3 million shares at a cost of $143 million in 2016, approximately 52 million shares at a cost of $24486 million in 2015,2018, and approximately 28 million shares at a cost of $76$437 million in 2014.2017. As a result of the acquisition of Snyder's-Lance, we suspended our share repurchases as of the second quarter of 2018. See Note 17 to the Consolidated Financial Statements and “Market for Registrant's Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities” for moreadditional information.
AtAs of July 31, 2016,28, 2019, we had $1.219$1.603 billion of short-term borrowings due within one year, of which $770$853 million was comprised of commercial paper borrowings.borrowings and $232 million was outstanding under the Australian syndicated facility. As of July 31, 2016,28, 2019, we issued $47$46 million of standby letters of credit. We have a committed revolving credit facility totaling $2.2$1.85 billion that matures in December 2018.2021. This U.S. facility remained unused at July 31, 2016,28, 2019, except for $3$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. We may increaseexpect to continue to access the commitment under the U.S. facility upcommercial paper markets, bank credit lines and utilize cash flows from operations to an additional $500 million, upon the agreement of either existing lenders or of additional banks not currently parties to the facility. In July 2016, we entered into a committed revolving credit facility totaling CAD $280 million, or $215 million, that matures in July 2019. The Canadian facility's commitment mandatorily reduces to CAD $225 million in July 2017 and to CAD $185 million in July 2018. The Canadian facility supports general corporate purposes. As of July 31, 2016, we borrowed CAD $280 million, or $215 million, at a rate of 1.78% pursuant to this facility, of which CAD $55 million, or $42 million, is classified assupport our short-term borrowings. In August 2016, we reduced the borrowings and commitment under the Canadian facility by CAD $35 million, or $27 million.
On October 28, 2013, we completed the sale of our European simple meals business to Soppa Investments S.à r.l., an affiliate of CVC Capital Partners, for €400 million, or $548 million. The sale price was subject to certain post-closing adjustments, which resulted in a $14 million reduction of proceeds. We used the proceeds from the sale to pay taxes on the sale, to reduce debt and for other general corporate purposes.
In September 2014, we filed a 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.liquidity requirements.
We are in compliance with the covenants contained in our revolving credit facilities and debt securities.
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 31, 2016.28, 2019. For additional information on debt, see Note 13 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 20 to the Consolidated Financial Statements.
| | | | Contractual Payments Due by Fiscal Year | Contractual Payments Due by Fiscal Year |
| (Millions) | Total | | 2017 | | 2018-2019 | | 2020-2021 | | Thereafter | Total | | 2020 | | 2021-2022 | | 2023-2024 | | Thereafter |
Debt obligations(1) | $ | 3,551 |
| | $ | 1,220 |
| | $ | 474 |
| | $ | 701 |
| | $ | 1,156 |
| $ | 8,744 |
| | $ | 1,586 |
| | $ | 2,252 |
| | $ | 1,652 |
| | $ | 3,254 |
|
Interest payments(2) | 791 |
| | 105 |
| | 178 |
| | 140 |
| | 368 |
| 2,271 |
| | 290 |
| | 439 |
| | 296 |
| | 1,246 |
|
Derivative payments(3) | 60 |
| | 16 |
| | 44 |
| | — |
| | — |
| 10 |
| | 10 |
| | — |
| | — |
| | — |
|
Purchase commitments | 1,001 |
| | 758 |
| | 135 |
| | 61 |
| | 47 |
| 1,249 |
| | 1,041 |
| | 146 |
| | 57 |
| | 5 |
|
Operating leases | 158 |
| | 38 |
| | 56 |
| | 38 |
| | 26 |
| 300 |
| | 68 |
| | 94 |
| | 50 |
| | 88 |
|
Other long-term payments(4)(5) | 170 |
| | — |
| | 73 |
| | 34 |
| | 63 |
| 145 |
| | — |
| | 62 |
| | 34 |
| | 49 |
|
| Total long-term cash obligations | $ | 5,731 |
| | $ | 2,137 |
| | $ | 960 |
| | $ | 974 |
| | $ | 1,660 |
| $ | 12,719 |
| | $ | 2,995 |
| | $ | 2,993 |
| | $ | 2,089 |
| | $ | 4,642 |
|
| |
(1) | Excludes build-to-suit lease commitment, unamortized net discount/premium on debt issuances and debt issuance costs. Includes debt obligations of $238 million related to discontinued operations. For additional information on debt obligations, see Note 13 to the Consolidated Financial Statements. |
| |
(2) | Interest payments for short- and long-term borrowings are based on principal amounts and coupons or contractual rates at fiscal year end. Includes interest payments of $3 million related to discontinued operations. |
| |
(3) | Represents payments of foreign exchange forward contracts and commodity contracts, forward starting interest rate swaps, and deferred compensation hedges.contracts. |
| |
(4) | Includes purchase commitments of $243 million, operating leases of $21 million, and Other long-term payments of $6 million related to discontinued operations. |
| |
(5) | 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 11 to the Consolidated Financial Statements. For additional information on unrecognized tax benefits, see Note 12 to the Consolidated Financial Statements. |
Off-Balance Sheet Arrangements and Other Commitments
We guarantee approximately 2,000 bank loans made to Pepperidge Farm independent contractor distributors by third-party financial institutions used tofor the purchase of distribution routes. The maximum potential amount of the future payments under existing guarantees we could be required to make is $198$220 million. We guarantee approximately 2,400 bank loans made to Snyder's-Lance independent contract distributors by third-party financial institutions for the purchase of distribution routes. The outstanding aggregate balance on these loans was $194 million as of July 28, 2019. Our guarantees are indirectly secured by the distribution routes. We do not believe that it is probableexpect that we will be required to make material guarantee payments as a result of defaults on the bank loans guaranteed.
See also Note 19 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.initiatives.
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. InternationalNet sales of continuing operations which accounted for 19%outside of 2016the U.S. are concentrated principally in Canada and represent approximately 8% of 2019 net sales. Within discontinued operations, international sales are concentrated principally in Australia and Canada.Australia. 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.
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 soybean oil, wheat, diesel fuel, aluminum, soybean oil, cocoa, natural gas, soybean meal, corn, cocoa, butter, corn 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 31, 2016.28, 2019. 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 13, 14 and 16 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 31, 2016. 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.28, 2019.
| | | | Expected Fiscal Year of Maturity | | | | Fair Value of Liabilities | Expected Fiscal Year of Maturity | | | | Fair Value of Liabilities |
| (Millions) | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total | |
Debt(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | $ | 402 |
| | $ | 1 |
| | $ | 300 |
| | $ | 1 |
| | $ | 700 |
| | $ | 1,156 |
| | $ | 2,560 |
| | $ | 2,736 |
| $ | 1 |
| | $ | 1,351 |
| | $ | 2 |
| | $ | 1,651 |
| | $ | 1 |
| | $ | 3,254 |
| | $ | 6,260 |
| | $ | 6,429 |
|
| Weighted-average interest rate | 3.05 | % | | 5.44 | % | | 4.50 | % | | 5.00 | % | | 5.57 | % | | 3.17 | % | | 3.97 | % | | | 4.75 | % | | 4.48 | % | | 3.22 | % | | 3.34 | % | | 4.75 | % | | 4.12 | % | | 3.99 | % | | |
Variable rate(2)(3) | $ | 818 |
| | $ | 31 |
| | $ | 142 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 991 |
| | $ | 991 |
| $ | 1,585 |
| | $ | 899 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,484 |
| | $ | 2,484 |
|
| Weighted-average interest rate | 0.86 | % | | 1.78 | % | | 1.78 | % | | — | % | | — | % | | — | % | | 1.02 | % | | | 2.81 | % | | 3.31 | % | | — | % | | — | % | | — | % | | — | % | | 2.99 | % | | |
| Interest Rate Swaps | | | | | | | | | | | | | | | | |
| Cash-flow swaps | | | | | | | | | | | | | | | | |
| Variable to fixed | $ | — |
| | $ | 300 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 300 |
| | $ | 44 |
| |
| Average pay rate | — | % | | 3.09 | % | | — | % | | — | % | | — | % | | — | % | | 3.09 | % | | | |
| Average receive rate | — | % | | 1.47 | % | | — | % | | — | % | | — | % | | — | % | | 1.47 | % | | | |
| |
(1) | Expected maturities exclude build-to-suit lease commitment, unamortized net discount/premium on debt issuances and debt issuance costs. |
| |
(2) | Represents $770 million$6.253 billion of USD borrowings $215 million equivalent of CAD borrowings and $6$7 million equivalent of borrowings in other currencies. |
| |
(3) | Represents $2.252 billion of USD borrowings and borrowings of discontinued operations of $232 million equivalent AUD. |
As of August 2, 2015,July 29, 2018, fixed-rate debt of approximately $2.57$6.906 billion with an average interest rate of 3.95%4.10% and variable-rate debt of approximately $1.53$3.052 billion with an average interest rate of 0.58%2.86% were outstanding. As of August 2, 2015, $300 million forward starting interest rate swaps were outstanding. The average rate to be received on these swaps was 2.75%, 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.
Cross-Currency Swaps
We did not have any cross-currency swap contracts outstanding as of July 31, 2016. The cross-currency swap contracts outstanding as of August 2, 2015, represented one pay variable AUD/receive variable USD swap with a notional value totaling $31 million and four pay variable CAD/receive variable USD swaps with notional values totaling $219 million. The aggregate notional value of these swap contracts was $250 million as of August 2, 2015, and the aggregate fair value of these swap contracts was a gain of $40 million as of August 2, 2015.
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 31, 2016.28, 2019.
Foreign Exchange Forward Contracts | | | (Millions) | Notional Value | | Average Contractual Exchange Rate (currency paid/ currency received) | Notional Value | | Average Contractual Exchange Rate (currency paid/ currency received) |
| Foreign Exchange Forward Contracts | | |
| Receive USD/Pay CAD | $ | 168 |
| | 1.3572 | $ | 206 |
| | 1.3197 |
|
| Receive AUD/Pay NZD | | $ | 36 |
| | 1.0585 |
|
| Receive DKK/Pay USD | $ | 42 |
| | 0.1509 | $ | 33 |
| | 0.1572 |
|
| Receive AUD/Pay NZD | $ | 28 |
| | 1.0773 | |
| Receive USD/Pay AUD | $ | 18 |
| | 1.3948 | |
| Receive CAD/Pay USD | | $ | 21 |
| | 0.7622 |
|
| Receive CHF/Pay USD | | $ | 14 |
| | 1.0409 |
|
| Receive GBP/Pay AUD | | $ | 12 |
| | 1.8011 |
|
We had an additional number of smaller contracts to purchase or sell various other currencies with a notional value of $10$1.3 million as of July 31, 2016.28, 2019. The notional values of these smaller contracts, as well as Receive AUD/Pay NZD, Receive DKK/Pay USD and Receive GBP/Pay AUD, referenced in the table above, are associated with discontinued operations. The aggregate fair value of all contracts was a loss of $10$3 million as of July 31, 2016.28, 2019. The total notional value of foreign exchange forward contracts outstanding was $283$244 million, and the aggregate fair value was a gain of $10$2 million as of August 2, 2015.July 29, 2018.
We enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations for commodities. TheAs of July 28, 2019, the notional value of these contracts was $88183 million, and the aggregate fair value of these contracts was a loss of $1 million as$3 million. As of July 31, 2016. The29, 2018, the notional value of these contracts was $95$118 million, and the aggregate fair value of these contracts was a lossgain of $9 million as of August 2, 2015.$1 million.
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 Institutional Plus Shares, and the total return of the Vanguard Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty eithereither: 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;Index Institutional Plus Shares; 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 $15$7 million at July 31, 2016,28, 2019, and $17$8 million at August 2, 2015.July 29, 2018. The average forward interest rate applicable to this contract, which expires in April 2017,2020, was 1.13%1.84% at July 31, 2016.28, 2019. The notional value of the contract that is linked to the return on the Standard & Poor's 500 Index was $2217 million at July 31, 2016,28, 2019, and $24$23 million at August 2, 2015.July 29, 2018. The average forward interest rate applicable to this contract, which expires in March 2017,2020, was 0.90%1.47% at July 31, 2016.28, 2019. The notional value of the contract that is linked to the total return of the iShares MSCI EAFE Index was $7 million at July 31, 2016,28, 2019, and $8$10 million at August 2, 2015.July 29, 2018. The average forward interest rate applicable to this contract, which expires in March 2017,2020, was 0.90%1.44% at July 31, 2016. The28, 2019. As of July 28, 2019 and July 29, 2018 the fair value of these contracts was not material at July 31, 2016, and August 2, 2015.a gain of $1 million.
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,these forms of variable consideration, which are classified as reductions in revenue and recognized upon sale, and advertising or other marketing activities, which are classified as marketing and selling expenses, fluctuates between periods based on our overall marketing plans, 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.factors, including expected volume. Typically, programs that are offered have a very short duration. Historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial statements. Differences between estimates and actual costs are recognized as a change in estimate in a subsequent period. However, actual expenses may differ if the level of redemption rates and performance were to vary from estimates. We adopted revised guidance on the recognition of revenue in the first quarter of 2019. See Notes 1 and 2 to the Consolidated Financial Statements for additional information.
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 two-step 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 two-step 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 costcosts of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. TheIn 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 permitted. We elected to early adopt the guidance in the fourth quarter of 2017. 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 iswas the difference between the carrying value of the goodwill and the “implied”"implied" fair value, which iswas 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 costcosts of capital, and assumed royalty rates. If the carrying value exceeds fair value, is less thanan impairment charge will be recorded to reduce the carrying value, the asset is reduced to fair value.
In2017 Assessments
Discontinued Operations
During the fourthsecond quarter of 2017, sales and operating profit performance for Bolthouse Farms carrot and carrot ingredients were well below our 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 annualexpectations for recovery of retail carrot market share. As a consequence of the business 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 goodwill2017, our reduced near-term outlook, and intangible assets,reduced expectations for sales, operating margins and discounted cash flows, we recognizedperformed an interim impairment assessment in the second quarter, which resulted in a $127 million impairment charge of $106 million on goodwill and $35$20 million on a trademark in the reporting unit.
We acquired Garden Fresh Gourmet on June 29, 2015. During 2017, sales and operating profit performance for Garden Fresh Gourmet, 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 in the second quarter, which resulted in a $64 million impairment charge on goodwill and $1 million on a trademark in the reporting unit.
2018 Assessments
Discontinued Operations
During the second quarter of 2018, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit which is part of the Campbell Fresh segment. In 2016, carrotas operating performance primarily reflected thewas below expectations. The business was impacted by adverse impact of weather conditions onand the implementation of enhanced quality protocols, which impacted 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. These factors resulted in a decline in profitability during the second half of the year which was belowhigher costs. This cost volatility continued to be higher than expected and caused us to reassess our expectations. Although we expect salesshort- and margins to improve over time, afterlong-term margin expectations for this weakbusiness. Based on this performance, we revisedreduced our 2017 outlook and long-term expectations in the fourth quarter. The impairment was attributable to this revised future outlook for the business, with reduced expectations for sales,future operating margins and discounted cash flows.flows, which resulted in a $75 million impairment charge, representing a write-down of the remaining goodwill in the reporting unit. The fair value of the trademark exceeded the carrying value, which was $48 million.
During the third quarter of 2018, we performed an interim impairment assessment on the intangible assets of the deli reporting unit, which includes Garden Fresh Gourmet and the U.S. refrigerated soup business within Campbell Fresh. During the third quarter of 2018, certain of our private label refrigerated soup customers, which represent a majority of the business, informed us of their intention to in-source production beginning in 2019, and the sales and operating profit outlook of the Garden Fresh Gourmet business was reduced. Due to the anticipated loss of refrigerated soup business with these customers, as well as the recent performance of the Garden Fresh Gourmet business, we revised the long-term outlook for future sales, operating margins and discounted cash flows for this reporting unit, which resulted in an $81 million impairment charge on goodwill, representing a write-down of the remaining goodwill in the reporting unit, $13 million on a trademark, and $11 million on plant assets in the reporting unit.
In addition, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms refrigerated beverages and salad dressings reporting unit within the Campbell Fresh segment as the operating performance in the third quarter was below expectations. We assessed sales performance of refrigerated beverages and key drivers impacting gross profit for the unit. We revised our long-term outlook for future earnings and discounted cash flows to reflect reduced sales expectations to modest growth and decreased our gross profit outlook to reflect the inflation and manufacturing efficiency pressures that remain with the unit. This revised outlook resulted in a $384 million impairment charge on goodwill, representing a write-down of the remaining goodwill in the reporting unit, and $130 million on a trademark in the reporting unit.
Continuing Operations
In the fourth quarter of 2015,2018, as part of our annual review of intangible assets, we recognized an impairment charge of $6$54 million on minorthe Plum trademark. In 2018, sales and operating performance were well below expectations due in part to competitive pressure and reduced margins. In the fourth quarter of 2018, as part of a strategic review initiated by a new leadership team and based on recent performance, we lowered our long-term outlook for future sales.
2019 Assessments
Discontinued Operations
On August 30, 2018, we announced plans to pursue the divestiture of our international biscuits and snacks operating segment and the Campbell Fresh operating segment. As we continued to pursue the divestiture of these businesses and as we received initial indications of value, in the second quarter of 2019, we performed interim impairment assessments on the intangible and tangible assets within Campbell Fresh, which includes Garden Fresh Gourmet, Bolthouse Farms carrot and carrot ingredients, and Bolthouse Farms refrigerated beverages and salad dressings. As a result, we revised our future outlook for earnings and cash flows for each of these businesses.
Within Bolthouse Farms carrot and carrot ingredients, we recorded impairment charges of $18 million on the trademark, and $159 million on the plant assets and amortizable intangible assets.Within Bolthouse Farms refrigerated beverages and salad dressings, we recorded impairment charges of $74 million on the trademark, and $31 million on the plant assets and amortizable intangible assets. On Garden Fresh Gourmet, we recorded impairment charges of $23 million on the trademark and $39 million on customer relationships, which eliminated the carrying value of these assets, and $2 million on plant assets. There is no goodwill in Campbell Fresh.
On February 25, 2019, we sold our U.S refrigerated soup business, and on April 25, 2019, we sold our Garden Fresh Gourmet business. On June 16, 2019, we sold Bolthouse Farms.
In the fourth quarter of 2019, as part of our annual review of intangible assets, we recognized an impairment charge of $7 million on a trademark and $10 million on goodwill in Kelsen due to a lower long-term outlook for sales and the pending sale of the business. On July 12, 2019, we signed a definitive agreement for the sale of our Kelsen business. We sold the business on September 23, 2019.
As of July 28, 2019, Noncurrent assets of discontinued operations included $124 million of trademarks and $661 million of goodwill.
See Note 3 to the Consolidated Financial Statements for additional information on discontinued operations.
Continuing Operations
In the fourth quarter of 2019, we performed an assessment on the assets within our European chips business and recorded an impairment charge of $16 million on intangible assets. This business is included in the Snacks segment and reporting unit. As a result of signing a definitive agreement to sell the European chips business on September 18, 2019, we expect to incur additional charges of approximately $65 million in the first quarter of 2020 as the carrying value of the disposal group will include allocated goodwill, as well as foreign currency translation adjustments.
As of July 28, 2019, the carrying value of goodwill related to continuing operations was $4.017 billion. Excluding potential charges related to the pending sale of the European chips business, holding all other assumptions used in the Global Biscuits2019 fair value measurement constant, a 1% increase in the weighted-average cost of capital assumption would not reduce fair value of any of the reporting units below carrying value and Snacks segment.would not result any impairment charges. The fair value of each reporting unit exceeds net book value by at least 60%.
As of July 28, 2019, the carrying value of indefinite-lived trademarks were determinedrelated to be impaired as a resultcontinuing operations was $2.629 billion, of a decreasewhich $61 million related to the Plum trademark and $292 million related to the Pace trademark. Holding all other assumptions used in the 2019 Plum trademark fair value measurement constant, neither a 1% increase in the weighted-average cost of capital nor a 1% reduction in revenue growth would result in a fair value below carrying value. The estimated fair value of the brands, resulting from reduced expectations for future salesPace trademark exceeded the carrying value by less than 10%. Holding all other assumptions used in the 2019 Pace trademark fair value measurement constant, a 1% increase in the weighted-average cost of capital would result in an impairment charge of approximately $20 million and discounted cash flows.a 1% reduction in revenue growth would result in a fair value equal to carrying value.
For our recent acquisitions, the carrying value of trademarks of $280 million associated with the Pacific Foods acquisition and $1.996 billion associated with the Snyder's-Lance acquisition approximates fair value as of July 28, 2019. Holding all other assumptions constant, changes in the assumptions below would reduce fair value of the these trademarks and result in impairment charges of approximately:
|
| | | | | | | | |
| (Millions) | | Pacific Foods | | Various Snyder's-Lance |
| 1% increase in the weighted-average cost of capital | | $ | (40 | ) | | $ | (50 | ) |
| 1% reduction in revenue growth | | $ | (20 | ) | | $ | — |
|
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 31, 2016, the carrying value of goodwill was $2.263 billion, of which $202 million relates to the Bolthouse Farms carrot and carrot ingredients reporting unit. The carrying value of the Bolthouse Farms carrot and carrot ingredients reporting unit represents fair value as a result of the impairment charge in 2016. In addition, we acquired Garden Fresh Gourmet on June 29, 2015, and therefore the fair value is not significantly in excess of the carrying value. As of July 31, 2016, goodwill related to
Garden Fresh Gourmet was $116 million. As of the 2016 measurement, excluding the Bolthouse Farms carrot and carrot ingredients reporting unit and Garden Fresh Gourmet, the estimated fair value of each reporting unit exceeded the carrying value by at least 25%. Holding all other assumptions used in the 2016 fair value measurement constant, a 100-basis-point increase in the weighted average cost of capital would not result in the carrying value of any reporting unit, other than the Bolthouse Farms carrot and carrot ingredients reporting unit and Garden Fresh Gourmet, to be in excess of the fair value. The fair value was based on significant management assumptions. If assumptions are not achieved or market conditions decline, potential additional impairment charges could result.
As We will continue to monitor the valuation of July 31, 2016, the carrying value of indefinite-lived trademarks was $927 million, of which $68 million relates to the Bolthouse Farms carrot and carrot ingredients reporting unit. Holding all other assumptions used in the 2016 measurement constant, a 100-basis-point increase in the weighted average cost of capital would reduce the fair value of trademarks, and result in an impairment charge of approximately $30 million.our long-lived assets.
See also Note 6 to the Consolidated Financial Statements for additional information on goodwill and intangible assets.
Pension and postretirement benefits — We provide certain pension and postretirement benefits to employees and retirees. Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, turnover rates and health care trend rates. Independent actuaries, in accordance with accounting principles generally accepted 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 changed the method we used to estimate the service and interest cost components of the net periodic benefit expense (income). We elected to 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 made 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 did not affect the measurement of our benefit obligations. We accounted for this change prospectively in 2018 as a change in accounting estimate. As a result of this change, net periodic benefit income increased by approximately $17 million in 2018, compared to what the net periodic benefit income would have been under the previous method.
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 $317$103 million in 2016, $1252019, ($185) million in 20152018 and $58($258) million in 2014.2017.
Significant weighted-average assumptions as of the end of the year were as follows:
| | | | 2016 | | 2015 | | 2014 | 2019 | | 2018 | | 2017 |
| Pension | | |
| Discount rate for benefit obligations | 3.39% | | 4.19% | | 4.33% | 3.46% | | 4.15% | | 3.74% |
| Expected return on plan assets | 7.09% | | 7.35% | | 7.62% | 6.85% | | 6.86% | | 6.84% |
| Postretirement | | |
| Discount rate for obligations | 3.20% | | 4.00% | | 4.00% | 3.28% | | 4.06% | | 3.45% |
| Initial health care trend rate | 7.25% | | 7.75% | | 8.25% | 6.25% | | 6.75% | | 7.25% |
| Ultimate health care trend rate | 4.50% | | 4.50% | | 4.50% | 4.50% | | 4.50% | | 4.50% |
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 $6$7 million and would result in an immediate loss recognition of approximately $180$107 million. A 50-basis-point reduction in the estimated return on assets assumption would increase expense by approximately $10 million. A one-percentage-point increase in assumed health care costs would have no impact on postretirement service and interest cost and would not result in an immediate loss recognition of $12 million.loss.
No contributions were made to U.S. pension plans in 20162019, 2018 and 2015. We contributed $35 million to U.S. pension plans in 2014.2017. Contributions to non-U.S. plans were $2 million in 2016, $5 million in 20152019, 2018 and $12 million in 2014.2017. We do not expect to contribute to the U.S. pension plans in 2017.2020. Contributions to non-U.S. plans are not expected to be approximately $5 millionmaterial in 2017.2020.
See also Note 11 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.
On December 22, 2017, the Act was enacted into law and made significant changes to corporate taxation, including reducing the corporate tax rate from 35% to 21% effective January 1, 2018, and transitioning to a territorial system for taxation on foreign earnings along with the imposition of a transition tax in 2018 on the deemed repatriation of unremitted foreign earnings.
See also Notes 1 and 12 to the Consolidated Financial Statements for further discussion on income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for information on recent accounting pronouncements.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report contains “forward-looking”"forward-looking" statements thatwithin 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. We try, wherever possible, to identify theseThese forward-looking statements can be identified by using words such as “anticipate,” “believe,” “estimate,” “expect,” “will”"anticipate," "believe," "estimate," "expect," "intend," "plan," "pursue," "strategy," "will" and similar expressions. One can also identify themforward-looking statements by the fact that they do not relate strictly to historical or current facts.facts, and may reflect anticipated cost savings or implementation of our strategic plan. These statements reflect our current plans and expectations and are based on information currently available to us. They rely on a number ofseveral 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:
our ability to successfully manage changes to our organizational structure and/or business processes, including our selling, distribution, manufacturingexecute on and information management systems or processes;
our ability to realize projected cost savings andthe expected benefits from our efficiency and/or restructuring initiatives;strategy, including growing sales in snacks and maintaining our market share position in soup;
the impact of strong competitive responseresponses to our efforts to leverage our brand power with product innovation, promotional programs and new advertising;
changes in consumer demand for our products and favorable perception of our brands;
product quality and safety issues, including recalls and product liabilities;
the risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products and pricing and promotional strategies;
a changing customer landscape, including inventory management practices,our ability to complete and increased significanceto realize the projected benefits of certainplanned divestitures and other business portfolio changes;
our indebtedness and ability to pay such indebtedness;
our ability to realize projected cost savings and benefits from cost savings initiatives and the integration of our key customers;recent acquisitions;
disruptions to our supply chain, including fluctuations in the supply of and inflation in energy and raw and packaging materials cost;
the impactour ability to manage changes to our organizational structure and/or business processes, including selling, distribution, manufacturing and information management systems or processes;
changes in consumer demand for our products and favorable perception of non-U.S. operations,our brands;
changing inventory management practices by certain of our key customers;
a changing customer landscape, with value and e-commerce retailers expanding their market presence, while certain of our key customers maintain significance to our business;
product quality and safety issues, including exportrecalls and import restrictions, public corruption and compliance with foreign laws and regulations;product liabilities;
the ability to completecosts, disruption and integrate acquisitions, divestitures and other business portfolio changes;diversion of management’s attention associated with activist investors;
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;
a material failure in or breach of our information technology systems;
impairment to goodwill or other intangible assets;
our ability to protect our intellectual property rights;
impairment to goodwill or other intangible assets;
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 personnel;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"Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Sensitivity”Sensitivity" is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(millions, except per share amounts)
| | | | 2016 | | 2015 | | 2014 | | | | | | | |
| | 52 weeks | | 52 weeks | | 53 weeks | 2019 | | 2018 | | 2017 |
| Net sales | $ | 7,961 |
| | $ | 8,082 |
| | $ | 8,268 |
| $ | 8,107 |
| | $ | 6,615 |
| | $ | 5,837 |
|
| Costs and expenses | | | | | | | | | | |
| Cost of products sold | 5,181 |
| | 5,300 |
| | 5,297 |
| 5,414 |
| | 4,241 |
| | 3,395 |
|
| Marketing and selling expenses | 893 |
| | 884 |
| | 929 |
| 842 |
| | 728 |
| | 675 |
|
| Administrative expenses | 641 |
| | 601 |
| | 576 |
| 610 |
| | 563 |
| | 448 |
|
| Research and development expenses | 124 |
| | 117 |
| | 122 |
| 91 |
| | 91 |
| | 93 |
|
| Other expenses / (income) | 131 |
| | 24 |
| | 22 |
| 140 |
| | (73 | ) | | (216 | ) |
| Restructuring charges | 31 |
| | 102 |
| | 55 |
| 31 |
| | 55 |
| | 11 |
|
| Total costs and expenses | 7,001 |
| | 7,028 |
| | 7,001 |
| 7,128 |
| | 5,605 |
| | 4,406 |
|
| Earnings before interest and taxes | 960 |
| | 1,054 |
| | 1,267 |
| 979 |
| | 1,010 |
| | 1,431 |
|
| Interest expense | 115 |
| | 108 |
| | 122 |
| 356 |
| | 183 |
| | 115 |
|
| Interest income | 4 |
| | 3 |
| | 3 |
| 2 |
| | 3 |
| | — |
|
| Earnings before taxes | 849 |
| | 949 |
| | 1,148 |
| 625 |
| | 830 |
| | 1,316 |
|
| Taxes on earnings | 286 |
| | 283 |
| | 374 |
| 151 |
| | 106 |
| | 392 |
|
| Earnings from continuing operations | 563 |
| | 666 |
| | 774 |
| 474 |
| | 724 |
| | 924 |
|
| Earnings from discontinued operations | — |
| | — |
| | 81 |
| |
| Loss from discontinued operations | | (263 | ) | | (463 | ) | | (37 | ) |
| Net earnings | 563 |
| | 666 |
| | 855 |
| 211 |
| | 261 |
| | 887 |
|
| Less: Net earnings (loss) attributable to noncontrolling interests | — |
| | — |
| | (11 | ) | — |
| | — |
| | — |
|
| Net earnings attributable to Campbell Soup Company | $ | 563 |
| | $ | 666 |
| | $ | 866 |
| $ | 211 |
| | $ | 261 |
| | $ | 887 |
|
| Per Share — Basic | | | | | | | | | | |
| Earnings from continuing operations attributable to Campbell Soup Company | $ | 1.82 |
| | $ | 2.13 |
| | $ | 2.50 |
| $ | 1.57 |
| | $ | 2.41 |
| | $ | 3.03 |
|
| Earnings from discontinued operations | — |
| | — |
| | .26 |
| |
| Loss from discontinued operations | | (.87 | ) | | (1.54 | ) | | (.12 | ) |
| Net earnings attributable to Campbell Soup Company | $ | 1.82 |
| | $ | 2.13 |
| | $ | 2.76 |
| $ | .70 |
| | $ | .87 |
| | $ | 2.91 |
|
| Weighted average shares outstanding — basic | 309 |
| | 312 |
| | 314 |
| 301 |
| | 301 |
| | 305 |
|
| Per Share — Assuming Dilution | | | | | | | | | | |
| Earnings from continuing operations attributable to Campbell Soup Company | $ | 1.81 |
| | $ | 2.13 |
| | $ | 2.48 |
| $ | 1.57 |
| | $ | 2.40 |
| | $ | 3.01 |
|
| Earnings from discontinued operations | — |
| | — |
| | .26 |
| |
| Net earnings attributable to Campbell Soup Company | $ | 1.81 |
| | $ | 2.13 |
| | $ | 2.74 |
| |
| Loss from discontinued operations | | (.87 | ) | | (1.53 | ) | | (.12 | ) |
Net earnings attributable to Campbell Soup Company(1) | | $ | .70 |
| | $ | .86 |
| | $ | 2.89 |
|
| Weighted average shares outstanding — assuming dilution | 311 |
| | 313 |
| | 316 |
| 302 |
| | 302 |
| | 307 |
|
(1)Sum of the individual amounts may not add due to rounding.
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(millions)
| | | | 2016 | | 2015 | | 2014 | 2019 | | 2018 | | 2017 |
| | Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount | Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount | | Pre-tax amount | | Tax (expense) benefit | | After-tax amount |
| Net earnings | | | | | $ | 563 |
| | | | | | $ | 666 |
| | | | | | $ | 855 |
| | | | | $ | 211 |
| | | | | | $ | 261 |
| | | | | | $ | 887 |
|
| Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | $ | 45 |
| | $ | — |
| | 45 |
| | $ | (312 | ) | | $ | 1 |
| | (311 | ) | | $ | (5 | ) | | $ | (1 | ) | | (6 | ) | $ | (68 | ) | | $ | — |
| | (68 | ) | | $ | (69 | ) | | $ | — |
| | (69 | ) | | $ | 40 |
| | $ | — |
| | 40 |
|
| Reclassification of currency translation adjustments realized upon disposal of business | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (22 | ) | | 3 |
| | (19 | ) | 2 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Cash-flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gains (losses) arising during period | (45 | ) | | 16 |
| | (29 | ) | | (5 | ) | | 3 |
| | (2 | ) | | (12 | ) | | 4 |
| | (8 | ) | (3 | ) | | 1 |
| | (2 | ) | | 23 |
| | (7 | ) | | 16 |
| | 19 |
| | (7 | ) | | 12 |
|
| Reclassification adjustment for (gains) losses included in net earnings | (9 | ) | | 2 |
| | (7 | ) | | (1 | ) | | 1 |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | 3 |
| | (1 | ) | | 2 |
| | 11 |
| | (4 | ) | | 7 |
|
| Pension and other postretirement benefits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Prior service credit arising during the period | 93 |
| | (34 | ) | | 59 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | 9 |
| | (2 | ) | | 7 |
| | 12 |
| | (4 | ) | | 8 |
|
| Reclassification of prior service credit included in net earnings | (1 | ) | | — |
| | (1 | ) | | (2 | ) | | 1 |
| | (1 | ) | | (2 | ) | | 1 |
| | (1 | ) | (28 | ) | | 7 |
| | (21 | ) | | (27 | ) | | 7 |
| | (20 | ) | | (25 | ) | | 9 |
| | (16 | ) |
| Other comprehensive income (loss) | $ | 83 |
| | $ | (16 | ) | | 67 |
| | $ | (320 | ) | | $ | 6 |
| | (314 | ) | | $ | (41 | ) | | $ | 7 |
| | (34 | ) | $ | (97 | ) | | $ | 8 |
| | (89 | ) | | $ | (61 | ) | | $ | (3 | ) | | (64 | ) | | $ | 57 |
| | $ | (6 | ) | | 51 |
|
| Total comprehensive income (loss) | | | | | $ | 630 |
| | | | | | $ | 352 |
| | | | | | $ | 821 |
| | | | | $ | 122 |
| | | | | | $ | 197 |
| | | | | | $ | 938 |
|
| Total comprehensive income (loss) attributable to noncontrolling interests | | | | | 3 |
| | | | | | (1 | ) | | | | | | (10 | ) | | | | | — |
| | | | | | 1 |
| | | | | | — |
|
| Total comprehensive income (loss) attributable to Campbell Soup Company | | | | | $ | 627 |
| | | | | | $ | 353 |
| | | | | | $ | 831 |
| | | | | $ | 122 |
| | | | | | $ | 196 |
| | | | | | $ | 938 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(millions, except per share amounts)
| | | | July 31,
2016 | | August 2,
2015 | July 28,
2019 | | July 29,
2018 |
| Current assets | | | | | | |
| Cash and cash equivalents | $ | 296 |
| | $ | 253 |
| $ | 31 |
| | $ | 49 |
|
| Accounts receivable, net | 626 |
| | 647 |
| 574 |
| | 563 |
|
| Inventories | 940 |
| | 995 |
| 863 |
| | 887 |
|
| Other current assets | 46 |
| | 198 |
| 71 |
| | 71 |
|
| Current assets of discontinued operations | | 428 |
| | 726 |
|
| Total current assets | 1,908 |
| | 2,093 |
| 1,967 |
| | 2,296 |
|
| Plant assets, net of depreciation | 2,407 |
| | 2,347 |
| 2,455 |
| | 2,466 |
|
| Goodwill | 2,263 |
| | 2,344 |
| 4,017 |
| | 3,864 |
|
| Other intangible assets, net of amortization | 1,152 |
| | 1,205 |
| 3,415 |
| | 3,664 |
|
| Other assets ($34 and $0 attributable to variable interest entity) | 107 |
| | 88 |
| |
| Other assets ($76 as of 2019 and $77 as of 2018 attributable to variable interest entity) | | 127 |
| | 189 |
|
| Noncurrent assets of discontinued operations | | 1,167 |
| | 2,050 |
|
| Total assets | $ | 7,837 |
| | $ | 8,077 |
| $ | 13,148 |
| | $ | 14,529 |
|
| Current liabilities | | | | | | |
| Short-term borrowings | $ | 1,219 |
| | $ | 1,543 |
| $ | 1,371 |
| | $ | 1,525 |
|
| Payable to suppliers and others | 610 |
| | 544 |
| 814 |
| | 705 |
|
| Accrued liabilities | 604 |
| | 589 |
| 609 |
| | 516 |
|
| Dividend payable | 100 |
| | 101 |
| |
| Dividends payable | | 107 |
| | 107 |
|
| Accrued income taxes | 22 |
| | 29 |
| 15 |
| | 10 |
|
| Current liabilities of discontinued operations | | 469 |
| | 731 |
|
| Total current liabilities | 2,555 |
| | 2,806 |
| 3,385 |
| | 3,594 |
|
| Long-term debt | 2,314 |
| | 2,539 |
| 7,103 |
| | 7,991 |
|
| Deferred taxes | 396 |
| | 505 |
| 924 |
| | 960 |
|
| Other liabilities | 1,039 |
| | 850 |
| 559 |
| | 547 |
|
| Noncurrent liabilities of discontinued operations | | 65 |
| | 64 |
|
| Total liabilities | 6,304 |
| | 6,700 |
| 12,036 |
| | 13,156 |
|
| Commitments and contingencies |
| |
|
| |
|
| Campbell Soup Company shareholders' equity | | | | | | |
| Preferred stock; authorized 40 shares; none issued | — |
| | — |
| — |
| | — |
|
| Capital stock, $.0375 par value; authorized 560 shares; issued 323 shares | 12 |
| | 12 |
| 12 |
| | 12 |
|
| Additional paid-in capital | 354 |
| | 339 |
| 372 |
| | 349 |
|
| Earnings retained in the business | 1,927 |
| | 1,754 |
| 1,993 |
| | 2,224 |
|
| Capital stock in treasury, at cost | (664 | ) | | (556 | ) | (1,076 | ) | | (1,103 | ) |
| Accumulated other comprehensive loss | (104 | ) | | (168 | ) | (198 | ) | | (118 | ) |
| Total Campbell Soup Company shareholders' equity | 1,525 |
| | 1,381 |
| 1,103 |
| | 1,364 |
|
| Noncontrolling interests | 8 |
| | (4 | ) | 9 |
| | 9 |
|
| Total equity | 1,533 |
| | 1,377 |
| 1,112 |
| | 1,373 |
|
| Total liabilities and equity | $ | 7,837 |
| | $ | 8,077 |
| $ | 13,148 |
| | $ | 14,529 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Cash Flows
(millions)
| | | | | | | | |
|
| | 2016 | | 2015 | | 2014 | | | | | | | |
| | 52 weeks | | 52 weeks | | 53 weeks | 2019 | | 2018 | | 2017 |
| Cash flows from operating activities: | | | | | | | | | | |
| Net earnings | $ | 563 |
| | $ | 666 |
| | $ | 855 |
| $ | 211 |
| | $ | 261 |
| | $ | 887 |
|
| Adjustments to reconcile net earnings to operating cash flow | | | | | | | | | | |
| Impairment charges | 141 |
| | 6 |
| | — |
| 393 |
| | 748 |
| | 212 |
|
| Restructuring charges | 31 |
| | 102 |
| | 55 |
| 31 |
| | 62 |
| | 18 |
|
| Stock-based compensation | 64 |
| | 57 |
| | 57 |
| 58 |
| | 61 |
| | 60 |
|
| Pension and postretirement benefit expense | 317 |
| | 118 |
| | 58 |
| |
| Amortization of inventory fair value adjustment from acquisition | | — |
| | 42 |
| | — |
|
| Pension and postretirement benefit expense (income) | | 103 |
| | (187 | ) | | (258 | ) |
| Depreciation and amortization | 308 |
| | 303 |
| | 305 |
| 446 |
| | 394 |
| | 318 |
|
| Deferred income taxes | (30 | ) | | (49 | ) | | 38 |
| 14 |
| | (133 | ) | | 93 |
|
| Gain on sale of business | — |
| | — |
| | (141 | ) | |
| Losses on sales of discontinued operations businesses | | 32 |
| | — |
| | — |
|
| Other, net | 6 |
| | 15 |
| | 9 |
| 25 |
| | 34 |
| | 14 |
|
| Changes in working capital, net of acquisitions | | | | | | |
| Changes in working capital, net of acquisitions and divestitures | | | | | | |
| Accounts receivable | 24 |
| | 12 |
| | (38 | ) | (11 | ) | | 56 |
| | 28 |
|
| Inventories | 59 |
| | (18 | ) | | (80 | ) | 36 |
| | (84 | ) | | 46 |
|
| Prepaid assets | 9 |
| | 10 |
| | (22 | ) | (1 | ) | | 27 |
| | (27 | ) |
| Accounts payable and accrued liabilities | (13 | ) | | 6 |
| | (93 | ) | 125 |
| | 78 |
| | (48 | ) |
| Pension fund contributions | (2 | ) | | (5 | ) | | (47 | ) | |
| Receipts from (payments of) hedging activities | 44 |
| | 11 |
| | (4 | ) | |
| Other | (58 | ) | | (52 | ) | | (53 | ) | (64 | ) | | (54 | ) | | (55 | ) |
| Net cash provided by operating activities | 1,463 |
| | 1,182 |
| | 899 |
| 1,398 |
| | 1,305 |
| | 1,288 |
|
| Cash flows from investing activities: | | | | | | | | | | |
| Purchases of plant assets | (341 | ) | | (380 | ) | | (347 | ) | (384 | ) | | (407 | ) | | (338 | ) |
| Sales of plant assets | 5 |
| | 15 |
| | 22 |
| |
| Purchases of route businesses | | (29 | ) | | (9 | ) | | — |
|
| Sales of route businesses | | 31 |
| | 10 |
| | — |
|
| Businesses acquired, net of cash acquired | — |
| | (232 | ) | | (329 | ) | (18 | ) | | (6,772 | ) | | — |
|
| Sale of business, net of cash divested | — |
| | — |
| | 520 |
| |
| Sales of discontinued operations businesses, net of cash divested | | 539 |
| | — |
| | — |
|
| Other, net | (18 | ) | | (6 | ) | | — |
| 14 |
| | (19 | ) | | (30 | ) |
| Net cash used in investing activities | (354 | ) | | (603 | ) | | (134 | ) | |
| Net cash provided by (used in) investing activities | | 153 |
| | (7,197 | ) | | (368 | ) |
| Cash flows from financing activities: | | | | | | | | | | |
| Net short-term borrowings (repayments) | (762 | ) | | 100 |
| | 208 |
| |
| Long-term borrowings (repayments) | 215 |
| | 300 |
| | (2 | ) | |
| Repayments of notes payable | — |
| | (309 | ) | | (700 | ) | |
| Short-term borrowings | | 5,839 |
| | 10,222 |
| | 8,247 |
|
| Short-term repayments | | (6,296 | ) | | (9,944 | ) | | (8,002 | ) |
| Long-term borrowings | | — |
| | 6,224 |
| | 211 |
|
| Long-term repayments | | (702 | ) | | (63 | ) | | (490 | ) |
| Dividends paid | (390 | ) | | (394 | ) | | (391 | ) | (423 | ) | | (426 | ) | | (420 | ) |
| Treasury stock purchases | (143 | ) | | (244 | ) | | (76 | ) | — |
| | (86 | ) | | (437 | ) |
| Treasury stock issuances | 2 |
| | 9 |
| | 18 |
| — |
| | — |
| | 2 |
|
| Excess tax benefits on stock-based compensation | 7 |
| | 6 |
| | 13 |
| |
| Contributions from noncontrolling interest | — |
| | 9 |
| | 5 |
| |
| Payments related to tax withholding for stock-based compensation | | (8 | ) | | (23 | ) | | (22 | ) |
| Repurchase of noncontrolling interest | | — |
| | (47 | ) | | — |
|
| Payments of debt issuance costs | | (1 | ) | | (50 | ) | | — |
|
| Other, net | — |
| | (3 | ) | | — |
| — |
| | — |
| | 3 |
|
| Net cash used in financing activities | (1,071 | ) | | (526 | ) | | (925 | ) | |
| Net cash provided by (used in) financing activities | | (1,591 | ) | | 5,807 |
| | (908 | ) |
| Effect of exchange rate changes on cash | 5 |
| | (32 | ) | | (9 | ) | (7 | ) | | (8 | ) | | 11 |
|
| Net change in cash and cash equivalents | 43 |
| | 21 |
| | (169 | ) | (47 | ) | | (93 | ) | | 23 |
|
| Cash and cash equivalents continuing operations — beginning of period | 253 |
| | 232 |
| | 333 |
| |
| Cash and cash equivalents — beginning of period | | 49 |
| | 37 |
| | 66 |
|
| Cash and cash equivalents discontinued operations — beginning of period | — |
| | — |
| | 68 |
| 177 |
| | 282 |
| | 230 |
|
| Cash and cash equivalents discontinued operations — end of period | — |
| | — |
| | — |
| (148 | ) | | (177 | ) | | (282 | ) |
| Cash and cash equivalents continuing operations — end of period | $ | 296 |
| | $ | 253 |
| | $ | 232 |
| |
| Cash and cash equivalents — end of period | | $ | 31 |
| | $ | 49 |
| | $ | 37 |
|
See accompanying Notes to Consolidated Financial Statements.
CAMPBELL SOUP COMPANY
Consolidated Statements of Equity
(millions, except per share amounts)
| | | | Campbell Soup Company Shareholders’ Equity | | | | | Campbell Soup Company Shareholders’ Equity | | | | |
| | Capital Stock | | Additional Paid-in
Capital | | Earnings Retained in the
Business | | Accumulated Other Comprehensive
Income (Loss) | | Noncontrolling Interests | | | Capital Stock | | Additional Paid-in
Capital | | Earnings Retained in the
Business | | Accumulated Other Comprehensive
Income (Loss) | | Noncontrolling Interests | | |
| | Issued | | In Treasury | | Total Equity | Issued | | In Treasury | | Total Equity |
| | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| Balance at July 28, 2013 | 323 |
| | $ | 12 |
| | (11 | ) | | $ | (364 | ) | | $ | 362 |
| | $ | 1,009 |
| | $ | 180 |
| | $ | (7 | ) | | $ | 1,192 |
| |
| Contribution from noncontrolling interest | | | | | | | | | | | | | | | 5 |
| | 5 |
| |
| Balance at July 31, 2016 | | 323 |
| | $ | 12 |
| | (15 | ) | | $ | (664 | ) | | $ | 354 |
| | $ | 1,927 |
| | $ | (104 | ) | | $ | 8 |
| | $ | 1,533 |
|
| Net earnings (loss) | | | | | | | | | | | 866 |
| | | | (11 | ) | | 855 |
| | | | | | | | | | | 887 |
| | | | — |
| | 887 |
|
| Other comprehensive income (loss) | | | | | | | | | | | | | (35 | ) | | 1 |
| | (34 | ) | | | | | | | | | | | | | 51 |
| | — |
| | 51 |
|
| Dividends ($1.248 per share) | | | | | | | | | | | (392 | ) | | | | | | (392 | ) | |
| Dividends ($1.40 per share) | | | | | | | | | | | | (429 | ) | | | | | | (429 | ) |
| Treasury stock purchased | | | | | (2 | ) | | (76 | ) | | | | | | | | | | (76 | ) | | | | | (8 | ) | | (437 | ) | | | | | | | | | | (437 | ) |
| Treasury stock issued under management incentive and stock option plans | |
| | |
| | 3 |
| | 84 |
| | (32 | ) | | | | | | | | 52 |
| |
| | |
| | 1 |
| | 35 |
| | 5 |
| | | | | | | | 40 |
|
| Balance at August 3, 2014 | 323 |
| | 12 |
| | (10 | ) | | (356 | ) | | 330 |
| | 1,483 |
| | 145 |
| | (12 | ) | | 1,602 |
| |
| Contribution from noncontrolling interest | | | | | | | | | | | | | | | 9 |
| | 9 |
| |
| Balance at July 30, 2017 | | 323 |
| | 12 |
| | (22 | ) | | (1,066 | ) | | 359 |
| | 2,385 |
| | (53 | ) | | 8 |
| | 1,645 |
|
| Noncontrolling interest acquired | | | | | | | | | | | | | | | | 47 |
| | 47 |
|
| Repurchase of noncontrolling interest | | | | | | | | | | | | | | | | (47 | ) | | (47 | ) |
| Net earnings (loss) |
| |
| |
| |
| |
| | 666 |
| |
| | — |
| | 666 |
|
| |
| |
| |
| |
| | 261 |
| |
| | — |
| | 261 |
|
| Other comprehensive income (loss) |
| |
| |
| |
| |
| |
| | (313 | ) | | (1 | ) | | (314 | ) |
| |
| |
| |
| |
| |
| | (65 | ) | | 1 |
| | (64 | ) |
| Dividends ($1.248 per share) |
| |
| |
| |
| |
| | (395 | ) | |
| |
| | (395 | ) | |
| Dividends ($1.40 per share) | |
| |
| |
| |
| |
| | (422 | ) | |
| | | | (422 | ) |
| Treasury stock purchased |
| |
| | (5 | ) | | (244 | ) | |
| |
| |
| |
| | (244 | ) |
| |
| | (2 | ) | | (86 | ) | |
| |
| |
| |
| | (86 | ) |
| Treasury stock issued under management incentive and stock option plans | | | | | 2 |
| | 44 |
| | 9 |
| | | | | | | | 53 |
| | | | | 2 |
| | 49 |
| | (10 | ) | | | | | | | | 39 |
|
| Balance at August 2, 2015 | 323 |
| | 12 |
| | (13 | ) | | (556 | ) | | 339 |
| | 1,754 |
| | (168 | ) | | (4 | ) | | 1,377 |
| |
| Contribution from noncontrolling interest | | | | | | | | | | | | | | | 9 |
| | 9 |
| |
| Balance at July 29, 2018 | | 323 |
| | 12 |
| | (22 | ) | | (1,103 | ) | | 349 |
| | 2,224 |
| | (118 | ) | | 9 |
| | 1,373 |
|
| Cumulative effect of changes in accounting principle: | | | | | | | | | | | | | | | | | | |
Revenue(1) | | | | | | | | | | | | (8 | ) | | | | | | (8 | ) |
Stranded tax effects(1) | | | | | | | | | | | | (9 | ) | | 9 |
| | | | — |
|
| Net earnings (loss) |
| |
| |
| |
| |
| | 563 |
| |
| | — |
| | 563 |
|
| |
| |
| |
| |
| | 211 |
| |
| | — |
| | 211 |
|
| Other comprehensive income (loss) |
| |
| |
| |
| |
| |
| | 64 |
| | 3 |
| | 67 |
|
| |
| |
| |
| |
| |
| | (89 | ) | | — |
| | (89 | ) |
| Dividends ($1.248 per share) |
| |
| |
| |
| |
| | (390 | ) | |
| |
| | (390 | ) | |
| Dividends ($1.40 per share) | |
| |
| |
| |
| |
| | (425 | ) | |
| |
| | (425 | ) |
| Treasury stock purchased |
| |
| | (3 | ) | | (143 | ) | |
| |
| |
| |
| | (143 | ) |
| |
| | — |
| | — |
| |
| |
| |
| |
| | — |
|
| Treasury stock issued under management incentive and stock option plans |
|
| |
|
| | 1 |
| | 35 |
| | 15 |
| |
|
| |
|
| |
| | 50 |
|
|
| |
|
| | — |
| | 27 |
| | 23 |
| |
|
| |
|
| |
| | 50 |
|
| Balance at July 31, 2016 | 323 |
| | $ | 12 |
| | (15 | ) | | $ | (664 | ) | | $ | 354 |
| | $ | 1,927 |
| | $ | (104 | ) | | $ | 8 |
| | $ | 1,533 |
| |
| Balance at July 28, 2019 | | 323 |
| | $ | 12 |
| | (22 | ) | | $ | (1,076 | ) | | $ | 372 |
| | $ | 1,993 |
| | $ | (198 | ) | | $ | 9 |
| | $ | 1,112 |
|
(1) See Note 2 for additional detail.
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(currency in millions, except per share amounts)
| |
| 1. | Summary of Significant Accounting Policies |
In this Form 10-K,Report, unless otherwise stated, the terms “we,” “us,” “our”"we," "us," "our" and the “company”"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. Our fiscal year ends on the Sunday nearest July 31. There were 52 weeks in 20162019, 2018, and 2015, and2017. There will be 53 weeks in 2014.2020.
Out-of-Period AdjustmentDiscontinued Operations — InWe present discontinued operations when there is a disposal of a component group or a group of components that in our judgment represents a strategic shift that will have a major effect on our operations and financial results. We aggregate the fourth quarterresults of 2016, an out-of-period adjustmentoperations for discontinued operations into a single line item in the Consolidated Statements of $13 ($.04 per share)Earnings for all periods presented. General corporate overhead is not allocated 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 statementsdiscontinued operations. See Note 3 for any period.additional information.
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 — Our revenues primarily consist of the sale of food and beverage products through our own sales force and/or third-party brokers and distribution partners. Revenues are recognized when our performance obligation has been satisfied and control of the earnings process is complete. Thisproduct passes to our customers, which typically occurs when products are shippeddelivered or accepted by customers in accordance with terms of agreements, titleagreements. We make shipments promptly after acceptance of orders. Shipping and riskhandling costs incurred to deliver the product are recorded within Cost of loss transfer toproducts sold. Amounts billed and due from our customers collection is probableare classified as Accounts receivable in the Consolidated Balance Sheets and pricing is fixed or determinable.require payment on a short-term basis. Revenues are recognized net of provisions for returns, discounts and allowances. Certaincertain sales promotion expenses, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees and coupon redemption costs,costs. These forms of variable consideration are classified as a reduction of sales.recognized upon sale. 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. Costsfactors, including expected volume. Historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial statements. Differences between estimates and actual costs are recognized either upon sale or when the incentive is offered, based on the program.as a change in estimate in a subsequent period. Revenues are presented on a net basis for arrangements under which suppliers perform certain additional services. See Note 7 for additional information on disaggregation of revenue. In 2019, we adopted revised guidance on the recognition of revenue from contracts with customers. See Note 2 for additional information.
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 market.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 two-step 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 two-step 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 costcosts of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill and the “implied” fair value, which is 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 costcosts of capital, and assumed royalty rates. If the carrying value exceeds fair value, is less thanan impairment charge will be recorded to reduce the carrying value, the asset is reduced to fair value.
See NoteNotes 3 and 6 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 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 AccountingPolicy — 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 |
Recently Adopted
In February 2013,March 2016, the Financial Accounting Standards Board (FASB) issued guidance that amends accounting for the recognition, measurement, and disclosure of certain obligations resulting from joint and several liability arrangements for which the total amount is fixed. Such obligations may include debt arrangements, legal settlements, and other contractual arrangements. The guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted the guidance in 2015. The adoption did not have an impact on our consolidated financial statements.
In March 2013, the FASB issued guidance onshare-based payments, including the accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classification in the cumulative translation adjustment upon derecognitionstatement of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The guidance was effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted the guidance in 2015. The adoption did not have an impact on our consolidated financial statements.
In July 2013, the FASB issued guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance requires the netting of unrecognized tax benefits
(UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of uncertain tax positions. Under the new standard, UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. The guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted the guidance in 2015. The adoption did not have a material impact on our consolidated financial statements.
In April 2014, the FASB issued revised guidance that modifies the criteria for determining which disposals can be presented as discontinued operations and requires additional disclosures.cash flows. The guidance is effective for fiscal years beginning on or after December 15, 2014,2016, and interim periods within those years. Early adoption is permitted. We will prospectively applyadopted the guidance 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. 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.
In March 2017, the FASB issued guidance that changes 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 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 transactions.(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 elected to early adopt the guidance in the first quarter of 2018. The retrospective impact of presenting net periodic benefit cost in accordance with the new guidance on total operations as reported in 2017 was as follows:
|
| | | | |
| Increase / (decrease) in expense | | 2017 |
| Cost of products sold | | $ | 134 |
|
| Marketing and selling expenses | | $ | 38 |
|
| Administrative expenses | | $ | 62 |
|
| Research and development expenses | | $ | 13 |
|
| Other expenses / (income) | | $ | (247 | ) |
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 bewere permitted to adopt the new revenue standard early, but not before the original effective date. The guidance permitspermitted the use of either a full retrospective or modified retrospective transition method. We are currently evaluatingAs we evaluated our methods of estimating the impact thatamount and timing of various forms of variable consideration, we determined we would accelerate the expense recognition of certain trade and consumer promotion programs under the new guidance will have on our consolidated financial statements, as well as which transition method we will use.
In April 2015, the FASB issued guidance that requires debt issuance costs to be presented in the balance sheet as a reduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The guidance must be applied on a retrospective basis and is effective for fiscal years beginning after December 15, 2015, and interim periods within those years. Early adoption is permitted.guidance. We adopted the guidance in 2016. Asthe first quarter of 2019 using the modified retrospective method and recorded a result, we have retrospectively adjustedcumulative effect adjustment of $8, net of tax, to decrease the opening balance of Earnings retained in the business, an increase of $10 to Accrued liabilities, an increase of $1 to Accounts payable, a decrease of $2 to Deferred taxes and an increase of $1 to Other assets and Long-term debt as of August 2, 2015. assets.
The adoption did not have a material impact on our consolidated financial statements.
In April 2015, the FASB issued guidance intended to provide a practical expedient for the measurement date of defined benefit plan assets and obligations. The practical expedient allows employers with fiscal year-end dates that do not fall on a calendar month-end to measure pension and postretirement benefit plan assets and obligations asimpacts of the calendar month-end date closestchanges to the fiscal year-end.The guidance is effective for fiscal years beginning on or after December 15, 2015, and interim periods within those years. Early adoption is permitted. We adopted the guidance in connection with our 2015 measurement. The adoption did not have a material impact on our consolidated financial statements.
In April 2015, the FASB issued guidance to clarify the accounting for fees paid by a customer in a cloud computing arrangement. The guidance is effective for fiscal years beginning on or after December 15, 2015, and interim periods within those years. Early adoption is permitted. The new guidance should be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We will adopt the guidance prospectively. We do not expect the adoption to have a material impact on our consolidated financial statements.
In May 2015, the FASB issued guidance that eliminates the requirement to categorize investments measured using the net asset value (NAV) practical expedient in the fair value hierarchy table. Entities will be required to disclose the fair value of investments measured using the NAV practical expedient so that financial statement users can reconcile amounts reported in the fair value hierarchy table to amounts reported on the balance sheet. The new guidance will be applied retrospectively and is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. We adopted the guidance in 2015 and modified our disclosures in Note 11.
In September 2015, the FASB issued guidance that eliminates the requirement to restate prior period financial statements for measurement period adjustments for business combinations. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The guidance is effective for fiscal years beginning on or after December 15, 2015, and interim periods within those years and should be applied prospectively to measurement period adjustments that occur after the effective date. We will prospectively apply the guidance to applicable transactions.
In November 2015, the FASB issued guidance that amends the balance sheet classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be classified as noncurrent in the balance sheet. Previous guidance required deferred tax liabilities and assets to be separated into current and noncurrent amounts in the balance sheet. The guidance is effective for fiscal years beginning on or after December 15, 2016, and interim periods within those years. Early adoption is permitted as of the beginning of an interim or annual reporting period. 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. As28, 2019, as a result of August 2, 2015,adoption are as follows:
|
| | | | | | | | | | | | |
| | | As Reported | | Balances Without Adoption | | Increase/(Decrease) Due to Adoption |
| Accrued liabilities | | $ | 609 |
| | $ | 605 |
| | $ | 4 |
|
| Accrued income taxes | | 15 |
| | 16 |
| | (1 | ) |
| Total current liabilities | | 3,385 |
| | 3,382 |
| | 3 |
|
| Total liabilities | | 12,036 |
| | 12,033 |
| | 3 |
|
| | | | | | | |
| Campbell Soup Company shareholders' equity | | | | | | |
| Earnings retained in the business | | $ | 1,993 |
| | $ | 1,996 |
| | $ | (3 | ) |
| Total Campbell Soup Company shareholders' equity | | 1,103 |
| | 1,106 |
| | (3 | ) |
| Total equity | | 1,112 |
| | 1,115 |
| | (3 | ) |
The impacts of the balancechanges to our Consolidated Statement of current deferred taxesEarnings for 2019 as a result of adoption are as follows:
|
| | | | | | | | | | | | |
| | | As Reported | | Balances Without Adoption | | Increase/(Decrease) Due to Adoption |
| Net sales | | $ | 8,107 |
| | $ | 8,099 |
| | $ | 8 |
|
| | | | | | | |
| Cost of products sold | | $ | 5,414 |
| | $ | 5,413 |
| | $ | 1 |
|
| Total costs and expenses | | $ | 7,128 |
| | $ | 7,127 |
| | $ | 1 |
|
| Earnings before interest and taxes | | $ | 979 |
| | $ | 972 |
| | $ | 7 |
|
| Earnings before taxes | | $ | 625 |
| | $ | 618 |
| | $ | 7 |
|
| Taxes on earnings | | 151 |
| | 149 |
| | 2 |
|
| Earnings from continuing operations attributable to Campbell Soup Company | | $ | 474 |
| | $ | 469 |
| | $ | 5 |
|
| | | | | | | |
| Per Share — Basic | | | | | | |
Earnings from continuing operations attributable to Campbell Soup Company(1) | | $ | 1.57 |
| | $ | 1.56 |
| | $ | .02 |
|
| Per Share — Assuming Dilution | | | | | | |
| Earnings from continuing operations attributable to Campbell Soup Company | | $ | 1.57 |
| | $ | 1.55 |
| | $ | .02 |
|
| |
(1) | The sum of individual per share amounts may not add due to rounding. |
The impact on discontinued operations was $114.not material.
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 on or after December 15, 2017, and interim periods within those years. We are currently evaluatingIn 2019, we adopted the impact that the new guidance willguidance. The adoption did not 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 thean 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 are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
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. In 2019, we adopted the guidance. The adoption did not have a material impact on our consolidated financial statements.
In October 2016, the FASB issued guidance on tax accounting for intra-entity asset transfers. Under previous 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. In 2019, we adopted the guidance. The adoption did not have an impact 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. In 2019, we adopted the guidance. The adoption did not have an impact on our consolidated financial statements.
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 February 2018, the FASB issued guidance that provides entities an option to reclassify the stranded tax effects of the Tax Cuts and Jobs Act of 2017 on items within accumulated other comprehensive income to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Entities are able to early adopt the guidance in any interim or annual period for which financial statements have not yet been issued and apply it either in the period of adoption or retrospectively to each period in which the tax effects of the Tax Cuts and Jobs Act of 2017 related to items in accumulated other comprehensive income are recognized. We adopted the guidance in the first quarter of 2019, effective on July 30, 2018, and elected not to reclassify prior periods. The adoption resulted in a cumulative effect adjustment of $9 to decrease the opening balance of Earnings retained in the business and a corresponding net decrease to the components of Accumulated other comprehensive income (loss). See Note 5 for additional information.
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued guidance that amends accounting for leases. Under the new guidance, a lessee will recognize right-of-use (“ROU”) 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. In July 2018, the FASB issued an adoption approach that allows entities to apply the new guidance and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. We will adopt the new standard in 2020 using this transition method. We have compiled an inventory of our lease arrangements to determine the impact that the new guidance will have on our consolidated financial statements. We implemented a lease software solution in preparation of the accounting and reporting requirements. We elected to apply the package of practical expedients, which allows us to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs. We continue to finalize our implementation efforts and currently estimate that the adoption will result in recognition of approximately $245 to $260 for operating lease ROU assets and approximately $240 to $255 for operating lease liabilities, subject to the completion of our assessment. In addition, we expect to derecognize $20 of an asset and liability associated with a build-to-suit lease arrangement. We do not expect the adoption to have a material impact on consolidated net earnings or cash flows.
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. In October 2018, the FASB issued guidance which permits an entity to designate the overnight index swap rate based on the Secured Overnight Financing Rate Fed Funds as a benchmark interest rate in a hedge accounting relationship. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. We will adopt the new guidance in 2020, and do not expect a material impact on our consolidated financial statements.
In August 2018, the FASB issued guidance that changes the disclosure requirements related to defined benefit pension and postretirement plans. The guidance is effective for fiscal years beginning after December 15, 2020. The guidance is to be applied on a retrospective basis. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our disclosures.
In August 2018, the FASB issued guidance that eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted. Certain disclosures in the guidance must be applied on a retrospective basis, while others must be applied on a prospective basis. We are currently evaluating the impact that the new guidance will have on our disclosures.
In August 2018, the FASB issued guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2019. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
| |
| 3. | AcquisitionsDiscontinued Operations |
On August 30, 2018, we announced plans to pursue the divestiture of businesses within two operating segments: our international biscuits and snacks operating segment, which includes Arnott’s, Kelsen and our operations in Indonesia, Malaysia, Hong Kong and Japan; and the Campbell Fresh operating segment, which includes Bolthouse Farms, Garden Fresh Gourmet and the U.S. refrigerated soup business.
We completed the sale of the Campbell Fresh operating segment in 2019. Within Campbell Fresh, on February 25, 2019, we sold our U.S. refrigerated soup business, and on April 25, 2019, we sold our Garden Fresh Gourmet business. Proceeds were approximately $55, subject to customary purchase price adjustments. On June 16, 2019, we sold our Bolthouse Farms business.
Proceeds were approximately $500, subject to customary purchase price adjustments. Beginning in the third quarter of 2019, we have reflected the results of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented.
Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019, for approximately $300, subject to customary purchase price adjustments. We also signed a definitive agreement on August 1, 2019, for the sale of our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific (the Arnott's and international operations), for $2,200, subject to customary purchase price adjustments. We expect to complete the sale in the first half of 2020. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Global Biscuits and Snacks reportable segment.
Results of discontinued operations were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Campbell Fresh | | Campbell International |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Net sales | $ | 756 |
| | $ | 950 |
| | $ | 947 |
| | $ | 1,046 |
| | $ | 1,120 |
| | $ | 1,106 |
|
| | | | | | | | | | | | |
| Impairment charges | $ | 360 |
| | $ | 694 |
| | $ | 212 |
| | $ | 17 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | |
| Earnings (loss) before taxes from operations | $ | (359 | ) | | $ | (721 | ) | | $ | (221 | ) | | $ | 120 |
| | $ | 163 |
| | $ | 198 |
|
| Taxes on earnings (loss) from operations | (78 | ) | | (142 | ) | | (34 | ) | | 41 |
| | 47 |
| | 48 |
|
| Loss on sales of businesses / costs associated with selling the businesses | (32 | ) | | — |
| | — |
| | (12 | ) | | — |
| | — |
|
| Tax expense (benefit) of loss on sales / costs associated with selling the businesses | 19 |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
|
| Earnings (loss) from discontinued operations | $ | (332 | ) | | $ | (579 | ) | | $ | (187 | ) | | $ | 69 |
| | $ | 116 |
| | $ | 150 |
|
In the second quarter of 2019, we performed interim impairment assessments on the intangible and tangible assets of the Campbell Fresh businesses. We revised our future outlook for earnings and cash flows for each of these businesses as the divestiture process progressed and we received initial indications of value. In Bolthouse Farms carrot and carrot ingredients, we recorded impairment charges of $18 on the trademark, $40 on customer relationships, $15 on technology and $104 on plant assets. In Bolthouse Farms refrigerated beverages and salad dressings, we recorded impairment charges of $74 on the trademark, $22 on customer relationships, and $9 on plant assets. In Garden Fresh Gourmet, we recorded impairment charges of $23 on the trademark, $39 on customer relationships, and $2 on plant assets. In the first quarter of 2019, we recorded an impairment charge of $14 on the U.S refrigerated soup plant assets.
In 2019, we incurred pre-tax expenses of $32 associated with the sale process of the Campbell Fresh businesses, including transaction costs. In addition, we recorded tax expense of $29 in 2019, as deferred tax assets were not realizable.
In the fourth quarter of 2019, as part of our annual review of intangible assets, we recognized an impairment charge of $7 on a trademark and $10 on goodwill in Kelsen due to a lower long-term outlook for sales and the pending sale of the business.
In 2019, we incurred pre-tax expenses of $12 associated with the sale process of Campbell International.
We will provide certain transition services to support the divested businesses.
The assets and liabilities of these businesses have been reflected as assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of July 28, 2019, and July 29, 2015,2018.
|
| | | | | | | | | | | | | | | | |
| | | Campbell International | | Campbell Fresh | | Campbell International | | Total |
| | | July 28,
2019 | | July 29,
2018 | | July 29,
2018 | | July 29,
2018 |
| Cash and cash equivalents | | $ | 148 |
| | $ | 8 |
| | $ | 169 |
| | $ | 177 |
|
| Accounts receivable, net | | 135 |
| | 84 |
| | 138 |
| | 222 |
|
| Inventories | | 135 |
| | 161 |
| | 151 |
| | 312 |
|
| Other current assets | | 10 |
| | 3 |
| | 12 |
| | 15 |
|
| Current assets | | $ | 428 |
| | $ | 256 |
| | $ | 470 |
| | $ | 726 |
|
| | | | | | | | | |
| Plant assets, net of depreciation | | $ | 340 |
| | $ | 413 |
| | $ | 354 |
| | $ | 767 |
|
| Goodwill | | 661 |
| | — |
| | 716 |
| | 716 |
|
| Other intangible assets, net of amortization | | 135 |
| | 381 |
| | 151 |
| | 532 |
|
| Other assets | | 31 |
| | 4 |
| | 31 |
| | 35 |
|
| Total assets | | $ | 1,595 |
| | $ | 1,054 |
| | $ | 1,722 |
| | $ | 2,776 |
|
| | | | | | | | | |
| Short-term borrowings | | $ | 232 |
| | $ | — |
| | $ | 371 |
| | $ | 371 |
|
| Payable to suppliers and others | | 109 |
| | 79 |
| | 109 |
| | 188 |
|
| Accrued liabilities | | 114 |
| | 39 |
| | 121 |
| | 160 |
|
| Accrued income taxes | | 14 |
| | — |
| | 12 |
| | 12 |
|
| Current liabilities | | $ | 469 |
| | $ | 118 |
| | $ | 613 |
| | $ | 731 |
|
| | | | | | | | | |
| Long-term debt | | $ | 6 |
| | $ | — |
| | $ | 7 |
| | $ | 7 |
|
| Deferred taxes | | 32 |
| | (1 | ) | | 36 |
| | 35 |
|
| Other liabilities | | 27 |
| | 5 |
| | 17 |
| | 22 |
|
| Total liabilities | | $ | 534 |
| | $ | 122 |
| | $ | 673 |
| | $ | 795 |
|
The depreciation and amortization, capital expenditures, sale proceeds and significant operating noncash items of Campbell Fresh and Campbell International were as follows:
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Cash flows from discontinued operating activities: | | | | | |
| Impairment charges | $ | 377 |
| | $ | 694 |
| | $ | 212 |
|
| Depreciation and amortization | 83 |
| | 115 |
| | 125 |
|
| Losses on sales of discontinued operations businesses | 32 |
| | — |
| | — |
|
| | | | | | |
| Cash flows from discontinued investing activities: | | | | | |
| Capital expenditures | $ | 59 |
| | $ | 88 |
| | $ | 99 |
|
| Sales of discontinued operations businesses, net of cash divested | 539 |
| | — |
| | — |
|
On March 26, 2018, we completed the acquisition of Snyder's-Lance, Inc. (Snyder's-Lance) for $50.00 per share. Total consideration was $6,112, which included the assetspayoff of Garden Fresh Gourmetapproximately $1,100 of Snyder's-Lance indebtedness. The acquisition was financed through a single draw 3-year senior unsecured term loan facility and the issuance of senior notes. See Note 13 for $232. Garden Fresh Gourmetadditional information. Snyder's-Lance is a providersnack food company that manufactures, distributes, markets and sells snack food products in North America and Europe. Its primary brands include Snyder’s of refrigerated salsa, hummus, dipsHanover and tortilla chips.Lance, as well as Kettle Brand, KETTLE, Cape Cod, Snack FactoryPretzel Crisps, Pop Secret, Emerald and Late July.
The excess of the purchase price over the estimated fair values of identifiable net assets was recorded as $116$3,006 of goodwill. The goodwill is expected to benot deductible for tax purposes. The goodwill was primarily attributable to future growth opportunities, anticipated synergies, and intangible assets that did not qualify for separate recognition. The goodwill is included in the Campbell FreshSnacks segment.
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.
On August 8, 2013,December 12, 2017, we completed the acquisition of Kelsen.Pacific Foods of Oregon, LLC (Pacific Foods). The final all-cash purchase price was $331. Kelsen is a producer of quality baked snacks that are sold in approximately 85 countries around the world. Its primary brands include Kjeldsens$688. Pacific Foods produces broth, soups, non-dairy beverages and RoyalDansk.
other simple meals. The excess of the purchase price over the estimated fair values of identifiable net assets was recorded as $140$202 of goodwill. The goodwill is not expected to be deductible for tax purposes. The goodwill was primarily attributable to future growth opportunities, anticipated synergies, and intangible assets that did not qualify for separate recognition. The goodwill is included in the Global Biscuits and SnacksMeals & Beverages segment.
The acquisition of Kelsen contributed $193table below presents the fair value that was allocated to Net sales and $8 to Net earnings from August 8, 2013, through August 3, 2014.
The acquired assets and assumed liabilities includeliabilities. In the following:first quarter of 2019, we made measurement period adjustments to reflect facts and circumstances in existence as of the date of the Snyder's-Lance acquisition. These adjustments included a $134 decrease to indefinite-lived trademarks, a $52 decrease to customer relationships, a $43 decrease to Deferred taxes and a $140 increase to Goodwill.
| | | | | Garden Fresh Gourmet | | Kelsen | | Snyder's-Lance | | Pacific Foods |
| Cash | | $ | — |
| | $ | 2 |
| | $ | 21 |
| | $ | 7 |
|
| Accounts receivable | | 10 |
| | 20 |
| | 220 |
| | 16 |
|
| Inventories | | 5 |
| | 50 |
| | 219 |
| | 48 |
|
| Other current assets | | — |
| | 2 |
| | 32 |
| | 1 |
|
| Plant assets | | 22 |
| | 47 |
| | 696 |
| | 78 |
|
| Goodwill | | 116 |
| | 140 |
| | 3,006 |
| | 202 |
|
| Other intangible assets | | 86 |
| | 173 |
| | 2,761 |
| | 366 |
|
| Other assets | | | 65 |
| | — |
|
| Short-term debt | | — |
| | (32 | ) | | (1 | ) | | — |
|
| Accounts payable | | (6 | ) | | (13 | ) | | (124 | ) | | (24 | ) |
| Accrued liabilities | | (1 | ) | | (10 | ) | | (115 | ) | | (6 | ) |
| Long-term debt | | — |
| | (4 | ) | |
| Deferred income taxes | | — |
| | (44 | ) | | (597 | ) | | — |
|
| Other liabilities | | | (24 | ) | | — |
|
| Noncontrolling interest | | | (47 | ) | | — |
|
| Total assets acquired and liabilities assumed | | $ | 232 |
| | $ | 331 |
| | $ | 6,112 |
| | $ | 688 |
|
The identifiable intangible assets of Garden Fresh GourmetSnyder's-Lance consist of:
|
| | | | | | | | | | |
| | | Type | | Life in Years | | Value |
| Trademarks | | Non-amortizable | | Indefinite | | $ | 1,997 |
|
| Customer relationships | | Amortizable | | 15 | to | 22 | | 756 |
|
| Other | | Amortizable | | 1.5 | | 8 |
|
| Total identifiable intangible assets | | | | | | | | $ | 2,761 |
|
The identifiable intangible assets of Pacific Foods consist of $38$280 in non-amortizable trademarks, and $48$86 in customer relationships to be amortized over 20 years.
In 2019, the acquisition of Snyder's-Lance contributed $2,192 to Net sales. The identifiable intangible assetscontribution to Earnings from continuing operations was a loss of Kelsen consist$36 including expenses associated with restructuring charges and cost savings initiatives, as well as interest expense on the debt to finance the acquisition.
In 2018, we recognized transaction costs and integration costs of $147$102, associated with the Snyder's-Lance acquisition. Approximately $53 represented transactions costs, including bridge financing costs and outside advisory costs, and were recorded in non-amortizable trademarks, $4Other expenses / (income). Integration costs included the following:
amortization of the acquisition date fair value adjustment to inventories of $42 that was recorded in amortizable trademarksCost of products sold;
$13 of Restructuring charges;
$12 of Administrative expenses; and
$18 gain in Interest expense on treasury rate lock contracts used to be amortized over 10 yearshedge the planned financing of the acquisition.
The acquisition of Snyder's-Lance contributed $772 to Net sales from March 26, 2018, through July 29, 2018. The contribution to Earnings from continuing operations was a loss of $84 from March 26, 2018, through July 29, 2018, including the effect of the transaction and $22 in customer relationshipsintegration costs, and interest expense on the debt to be amortized over 10finance the acquisition.
In 2019, the acquisition of Pacific Foods contributed $222 to 15 years.Net sales. The contribution to Earnings from continuing operations was a loss of $12. The acquisition of Pacific Foods contributed $123 to Net sales from December 12, 2017, through July 29, 2018. The contribution to Earnings from continuing operations was a loss of $13 from December 12, 2017, through July 29, 2018.
The following unaudited summary information is presented on a consolidated pro forma basis as if the Garden Fresh Gourmet acquisitionSnyder's-Lance and Pacific Foods acquisitions had occurred on July 29, 2013, and the Kelsen acquisition had occurred on July 30, 2012:August 1, 2016:
| | | | | 2015 | | 2014 | | 2018 | | 2017 |
| Net sales | | $ | 8,174 |
| | $ | 8,372 |
| | $ | 8,152 |
| | $ | 8,271 |
|
| Earnings from continuing operations attributable to Campbell Soup Company | | $ | 668 |
| | $ | 789 |
| | $ | 834 |
| | $ | 810 |
|
| Earnings per share from continuing operations attributable to Campbell Soup Company - assuming dilution | | $ | 2.13 |
| | $ | 2.50 |
| |
| Earnings from continuing operations per share attributable to Campbell Soup Company - basic | | | $ | 2.77 |
| | $ | 2.66 |
|
| Earnings from continuing operations per share attributable to Campbell Soup Company - assuming dilution | | | $ | 2.76 |
| | $ | 2.64 |
|
The pro forma amounts include additional interest expense on the debt issued to finance the purchases, 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 acquisitionSnyder's-Lance and Pacific Foods acquisitions been completed on July 29, 2013, and the Kelsen acquisition been completed on July 30, 2012,August 1, 2016, nor are they indicative of future combined results.
| |
4. | Discontinued Operations |
On October 28, 2013, we completed The pro forma results for 2017 include pre-tax transaction costs of $53, pre-tax amortization of the saleacquisition date fair value adjustment to inventories of our European simple meals business to Soppa Investments S.à r.l., an affiliate of CVC Capital Partners. The all-cash preliminary sale price was €400, or $548,$42, and was subject to certain post-closing adjustments, which resulted in a $14 reduction of proceeds. We recognized a pre-tax gain of $141 ($72 after tax, or $.23 per share)$18 on treasury rate lock contracts. Therefore, the pro forma results for 2018 exclude these items, as they are reflected in 2014.2017.
With the acquisition of Snyder's-Lance, we acquired an investment in Yellow Chips Holdings B.V. (Yellow Chips), and accounted for the investment under the equity method of accounting. On October 30, 2018, we purchased the remaining ownership interest in Yellow Chips, and began consolidating the business. The European business included Erascopurchase price was $18. The pro forma results for 2019 and Heisse Tasse soups in Germany; Liebig and Royco soups in France; Devos Lemmens mayonnaise and cold sauces and Royco soups in Belgium; and Blå Band and Isomitta soups and sauces in Sweden. We used the proceeds from the sale to pay taxes on the sale, to reduce debt and for other general corporate purposes.2018 were not material.
We have reflected the results of the European simple meals business as discontinued operations in the Consolidated Statements of Earnings.
Results of discontinued operations were as follows:
|
| | | | |
| | | 2014 |
| Net sales | | $ | 137 |
|
| | | |
| Gain on sale of the European simple meals business | | $ | 141 |
|
| Earnings from operations, before taxes | | 14 |
|
| Earnings before taxes | | $ | 155 |
|
| Taxes on earnings | | (74 | ) |
| Earnings from discontinued operations | | $ | 81 |
|
| |
| 5. | Accumulated Other Comprehensive Income (Loss) |
The components of Accumulated other comprehensive income (loss) consisted of the following:
| | | | | Foreign Currency Translation Adjustments(1) | | Gains (Losses) on Cash Flow Hedges(2) | | Pension and Postretirement Benefit Plan Adjustments(3) | | Total Accumulated Comprehensive Income (Loss) | | 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 |
| | $ | (3 | ) | | $ | 4 |
| | $ | 145 |
| |
| Balance at July 31, 2016 | | | $ | (124 | ) | | $ | (41 | ) | | $ | 61 |
| | $ | (104 | ) |
| Other comprehensive income (loss) before reclassifications | | (310 | ) | | (2 | ) | | — |
| | (312 | ) | | 40 |
| | 12 |
| | 8 |
| | 60 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | | — |
| | — |
| | (1 | ) | | (1 | ) | | — |
| | 7 |
| | (16 | ) | | (9 | ) |
| Net current-period other comprehensive income (loss) | | (310 | ) | | (2 | ) | | (1 | ) | | (313 | ) | | 40 |
| | 19 |
| | (8 | ) | | 51 |
|
| Balance at August 2, 2015 | | $ | (166 | ) | | $ | (5 | ) | | $ | 3 |
| | $ | (168 | ) | |
| Balance at July 30, 2017 | | | $ | (84 | ) | | $ | (22 | ) | | $ | 53 |
| | $ | (53 | ) |
| Other comprehensive income (loss) before reclassifications | | 42 |
| | (29 | ) | | 59 |
| | 72 |
| | (70 | ) | | 16 |
| | 7 |
| | (47 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | | — |
| | (7 | ) | | (1 | ) | | (8 | ) | | — |
| | 2 |
| | (20 | ) | | (18 | ) |
| Net current-period other comprehensive income (loss) | | 42 |
| | (36 | ) | | 58 |
| | 64 |
| | (70 | ) | | 18 |
| | (13 | ) | | (65 | ) |
| Balance at July 31, 2016 | | $ | (124 | ) | | $ | (41 | ) | | $ | 61 |
| | $ | (104 | ) | |
| Balance at July 29, 2018 | | | $ | (154 | ) | | $ | (4 | ) | | $ | 40 |
| | $ | (118 | ) |
Cumulative effect of a change in accounting principle(4) | | | 2 |
| | (3 | ) | | 10 |
| | 9 |
|
| Other comprehensive income (loss) before reclassifications | | | (68 | ) | | (2 | ) | | — |
| | (70 | ) |
Amounts reclassified from accumulated other comprehensive income (loss)(5) | | | 2 |
| | — |
| | (21 | ) | | (19 | ) |
| Net current-period other comprehensive income (loss) | | | (66 | ) | | (2 | ) | | (21 | ) | | (89 | ) |
| Balance at July 28, 2019 | | | $ | (218 | ) | | $ | (9 | ) | | $ | 29 |
| | $ | (198 | ) |
| |
(1) | Included a tax expense of $64 as of July 28, 2019, and $6 as of July 29, 2018, July 30, 2017, and July 31, 2016 and as of August 2, 2015, and $7 as of August 3, 2014.2016. |
| |
(2) | Included a tax benefit of $232 as of July 28, 2019, $4 as of July 29, 2018, $12 as of July 30, 2017, and $23 as of July 31, 2016, $5 as of August 2, 2015, and $1 as of August 3, 2014.2016. |
| |
(3) | Included a tax expense of $358 as of July 28, 2019, $25 as of July 29, 2018, $30 as of July 30, 2017, and $35 as of July 31, 20162016. |
| |
,(4) $1 as
| Reflects the adoption of Augustthe FASB guidance on stranded tax effects. See Note 2 2015for additional information. |
| |
(5), and $2 as | Reflects the reclassification from sale of Augustbusinesses. See Note 3 2014.for additional information. |
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 | | 2016 | | 2015 | | 2014 | | Location of (Gain) Loss Recognized in Earnings | | 2019 | | 2018 | | 2017 | | Location of (Gain) Loss Recognized in Earnings |
| (Gains) losses on cash flow hedges: | | | | | | | | | | | | | | |
| Foreign exchange forward contracts | | | $ | (4 | ) | | $ | 5 |
| | $ | 3 |
| | Cost of products sold |
| Foreign exchange forward contracts | | $ | (11 | ) | | $ | (4 | ) | | $ | (4 | ) | | Cost of products sold | | — |
| | — |
| | 1 |
| | Other expenses / (income) |
| Foreign exchange forward contracts | | (2 | ) | | (1 | ) | | 1 |
| | Other expenses / (income) | | 2 |
| | (4 | ) | | 3 |
| | Loss from discontinued operations |
| Forward starting interest rate swaps | | 4 |
| | 4 |
| | 3 |
| | Interest expense | | 2 |
| | 2 |
| | 4 |
| | Interest expense |
| Total before tax | | (9 | ) | | (1 | ) | | — |
| | | — |
| | 3 |
| | 11 |
| |
| Tax expense (benefit) | | 2 |
| | 1 |
| | — |
| | | — |
| | (1 | ) | | (4 | ) | |
| (Gain) loss, net of tax | | $ | (7 | ) | | $ | — |
| | $ | — |
| | | $ | — |
| | $ | 2 |
| | $ | 7 |
| |
| | | | | | | | | | | | | | | |
| Pension and postretirement benefit adjustments: | | | | | | | | | | | | | | |
| Prior service credit | | $ | (1 | ) | | $ | (2 | ) | | $ | (2 | ) | | (1) | | $ | (28 | ) | | $ | (27 | ) | | $ | (25 | ) | | Other expenses / (income) |
| Tax expense (benefit) | | — |
| | 1 |
| | 1 |
| | | 7 |
| | 7 |
| | 9 |
| |
| (Gain) loss, net of tax | | $ | (1 | ) | | $ | (1 | ) | | $ | (1 | ) | | | $ | (21 | ) | | $ | (20 | ) | | $ | (16 | ) | |
| |
(1)
| This is included in the components of net periodic benefit costs (see Note 11 for additional details). |
In 2014, a pre-tax loss of $22 ($19 after tax) on foreign currency translation adjustments was also reclassified from Accumulated other comprehensive income. The loss was related to the divestiture of the European simple meals business and was included in Earnings from discontinued operations.
| |
| 6. | Goodwill and Intangible Assets |
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
|
| | | | | | | | | | | | | | | |
| | Americas
Simple
Meals and Beverages | | Global
Biscuits
and
Snacks | | Campbell Fresh | | Total |
| Balance at August 3, 2014 | $ | 794 |
| | $ | 918 |
| | $ | 721 |
| | $ | 2,433 |
|
| Acquisition | — |
| | — |
| | 116 |
| | 116 |
|
| Foreign currency translation adjustment | (19 | ) | | (186 | ) | | — |
| | (205 | ) |
| Balance at August 2, 2015 | $ | 775 |
| | $ | 732 |
| | $ | 837 |
| | $ | 2,344 |
|
| Impairment | — |
| | — |
| | (106 | ) | | (106 | ) |
| Foreign currency translation adjustment | — |
| | 25 |
| | — |
| | 25 |
|
Balance at July 31, 2016(1) | $ | 775 |
| | $ | 757 |
| | $ | 731 |
| | $ | 2,263 |
|
|
| | | | | | | | | | | |
| | Meals & Beverages | |
Snacks | | Total |
| Net balance at July 30, 2017 | $ | 780 |
| | $ | 31 |
| | $ | 811 |
|
| Acquisitions | 202 |
| | 2,866 |
| | 3,068 |
|
| Foreign currency translation adjustment | (4 | ) | | (11 | ) | | (15 | ) |
| Net balance at July 29, 2018 | $ | 978 |
| | $ | 2,886 |
| | $ | 3,864 |
|
| Changes in preliminary purchase price allocation | — |
| | 140 |
| | 140 |
|
| Acquisition | — |
| | 21 |
| | 21 |
|
| Foreign currency translation adjustment | (1 | ) | | (7 | ) | | (8 | ) |
| Net balance at July 28, 2019 | $ | 977 |
| | $ | 3,040 |
| | $ | 4,017 |
|
| |
(1)
| The total carrying value of goodwill as of July 31, 2016 is reflected net of $106 of accumulated impairment charges recorded in 2016. |
In 2015,March 2018, we acquired Snyder's-Lance for $6,112. During the first quarter of 2019, we made changes in the preliminary allocation of the purchase price of the Snyder's-Lance acquisition which resulted in a change in goodwill of $140 in the Snacks segment. Goodwill related to the Snyder's-Lance acquisition was $3,006. On October 30, 2018, we acquired the assetsremaining ownership interest in Yellow Chips and began consolidating the business, which resulted in goodwill of Garden Fresh Gourmet$21. In addition, we acquired Pacific Foods in December 2017 for $232. Goodwill$688 and goodwill related to the acquisition was $116.$202. See Note 3.
In the fourth quarter of 2016, as part of our annual review of intangible assets, an impairment charge of $106 was recorded on goodwill4 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. These factors resulted in a decline in profitability during the second half of the year which was below our expectations. Although we expect sales and margins to improve over time, after this weak performance we revised our 2017 outlook and long-term expectations in the fourth quarter. The impairment was attributable to this revised future outlook for the business, with reduced expectations for sales, margins, and discounted cash flows. 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. The impairment charge was recorded in Other expenses / (income) in the Consolidated Statements of Earnings.additional information.
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:
| | | | | | | | | 2019 | | 2018 |
| Intangible Assets | | 2016 | | 2015 | | Estimated Useful Lives | | Cost | Accumulated Amortization | Net | | Cost | Accumulated Amortization | Net |
| Amortizable intangible assets | | | | | | | | |
| Customer relationships | | $ | 222 |
| | $ | 222 |
| | 10 | to | 22 | | $ | 855 |
| $ | (70 | ) | $ | 785 |
| | $ | 917 |
| $ | (26 | ) | $ | 891 |
|
| Technology | | 40 |
| | 40 |
| |
| Other | | 35 |
| | 35 |
| | 1.5 | to | 20 | | 14 |
| (13 | ) | 1 |
| | 14 |
| (5 | ) | 9 |
|
| Total gross amortizable intangible assets | | $ | 297 |
| | $ | 297 |
| |
| Accumulated amortization | | (72 | ) | | (52 | ) | |
| Total net amortizable intangible assets | | $ | 225 |
| | $ | 245 |
| |
| Total amortizable intangible assets | | | $ | 869 |
| $ | (83 | ) | $ | 786 |
| | $ | 931 |
| $ | (31 | ) | $ | 900 |
|
| Non-amortizable intangible assets | | | | | | | | |
| Trademarks | | 927 |
| | 960 |
| | | 2,629 |
| | | 2,764 |
|
| Total net intangible assets | | $ | 1,152 |
| | $ | 1,205 |
| | | $ | 3,415 |
| | | $ | 3,664 |
|
Non-amortizable intangible assets consist of trademarks. As of July 28, 2019, trademarks which includeprimarily included $1,996 associated with the acquisition of Snyder's-Lance, $280 associated with the acquisition of Pacific Foods and $292 related to Bolthouse Farms, Pace, Plum, Kjeldsens, Garden Fresh Gourmet and Royal Dansk. Other amortizable intangible assets consist of recipes, patents,non-compete agreements, trademarks, and distributor relationships.patents.
Amortization of intangible assets ofin Earnings from continuing operations was $48 for 2019, $20 for 2016, $172018 and $1 for 2015 and $18 for 2014.2017. Amortization expense for the next 5 years is estimated to be $20$45 in 2017,2020, $44 in 2021 through 2024.
Amortization of intangible assets in Loss from discontinued operations was $9 for 2019, $14 for 2018 and $15 in 2018 through 2021. Asset useful lives range from 5$18 for 2017. See Note 3 to 20 years.the Consolidated Financial Statements for additional information on discontinued operations.
In the fourth quarter of 2016,2019, we performed an assessment on the assets within the European chips business and recorded an impairment charge of $16 on customer relationships intangible assets. This business is included in the Snacks segment.
In the fourth quarter of 2018, as part of our annual review of intangible assets, we recognized an impairment charge of $35 was recognized$54 on the Bolthouse Farms carrotPlum trademark, which reduced the carrying value to $61. In 2018, sales and carrot ingredients reporting unit trademark. The impairment was attributableoperating performance were well below expectations due in part to the revised future outlook for the business, withcompetitive pressure and reduced expectations for sales, margins, and discounted cash flows. As part of our annual review of intangible assets, an impairment charge of $6 was recognized inmargins. In the fourth quarter, as part of 2015 related to minor trademarks useda strategic review initiated by a new leadership team and based on recent performance, we lowered our long-term outlook for future sales. This business is included in the Global Biscuits and SnacksMeals & Beverages 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.
The impairment charges were recorded in Other expenses / (income) in the Consolidated Statements of Earnings.
We also recorded impairment charges on goodwill and intangible assets included in Noncurrent assets of discontinued operations. See Note 3 for additional information.
The discounted estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve considerablesignificant 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.
| |
| 7. | Business and Geographic Segment Information |
BeginningCommencing in 2016,the third quarter of 2018 with the acquisition of Snyder's-Lance, we manageformed a new U.S. snacking unit, which combines Snyder's-Lance and Pepperidge Farm, and is an operating segment. Through the second quarter of 2019, we had four operating segments based primarily on product type, and three reportable segments. The operating segments were Meals & Beverages; U.S. snacking; international biscuits and snacks; and Campbell Fresh. The U.S. snacking operating segment was aggregated with the international biscuits and snacks operating segment to form the Global Biscuits and Snacks reportable segment. The operating segments were aggregated based on similar economic characteristics, products, production processes, types or classes of customers, distribution methods, and regulatory environment.
On August 30, 2018, we announced plans to pursue the divestiture of our international biscuits and snacks operating segment, and the Campbell Fresh segment.
As discussed in Note 3, we sold our businesses in threeCampbell Fresh during 2019. Beginning in the third quarter of 2019, we have reflected the results of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented. Prior periods have been adjusted to conform to the current presentation. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of July 29, 2018. A portion of the U.S. refrigerated soup business historically included in Campbell Fresh was retained, and is now reported in Meals & Beverages.
Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019. We also signed a definitive agreement on August 1, 2019 for the sale of the Arnott’s and international operations. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and international operations, or Campbell International, as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of July 28, 2019, and July 29, 2018.
As of the fourth quarter of 2019, our reportable segments focused mainly on product categories. The segments are:are as follows:
Americas Simple Meals and& Beverages, segmentwhich includes the retail and food servicefoodservice businesses in the U.S., Canada and Latin America.Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks;Pacific Foods broth, soups, non-dairy beverages and other simple meals; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; Plum baby 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.juice. The segment also includes the simple meals and shelf-stable beverages business in AustraliaLatin America; and Asia Pacific;
Snacks, which consists of Pepperidge Farm cookies,crackers, fresh bakery and
Campbell Fresh includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages frozen products in U.S. retail, including Milano cookies and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dipsGoldfish crackers; and tortillaSnyder’s of Hanover pretzels, Lance sandwich crackers, Cape Cod and Kettle Brand potato chips, which was acquiredLate July snacks, Snack Factory Pretzel Crisps,Pop Secret popcorn, Emerald nuts, and other snacking products in June 2015; and the U.S. refrigerated soupand Canada. The segment also includes our European chips business.
In 2018, our simple meals and shelf-stable beverages business in Latin America was managed as part of the Global Biscuits and Snacks segment. In 2019, it was managed as part of the Meals & Beverages segment. Segment results have been adjusted retrospectively to reflect this change. In 2020, it is managed as part of the Snacks segment.
We evaluate segment performance before interest, taxes and costs associated with restructuring activities.activities and impairment charges. 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 will beare 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 included in the disclosure.provided.
Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 20% of consolidated net sales from continuing operations in 20162019, 22% in 2018, and 2015,24% in 2017. The Kroger Co. and 19%its affiliates accounted for approximately 9% of consolidated net sales from continuing operations in 2014. All2019, and 10% in 2018 and 2017. Both of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates and The Kroger Co. or its affiliates.
|
| | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Net sales | | | | | | |
| Americas Simple Meals and Beverages | | $ | 4,380 |
| | $ | 4,483 |
| | $ | 4,588 |
|
| Global Biscuits and Snacks | | 2,564 |
| | 2,631 |
| | 2,725 |
|
| Campbell Fresh | | 1,017 |
| | 968 |
| | 955 |
|
| Total | | $ | 7,961 |
| | $ | 8,082 |
| | $ | 8,268 |
|
|
| | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Net sales | | | | | | |
| Meals & Beverages | | $ | 4,322 |
| | $ | 4,305 |
| | $ | 4,340 |
|
| Snacks | | 3,784 |
| | 2,307 |
| | 1,497 |
|
| Corporate | | 1 |
| | 3 |
| | — |
|
| Total | | $ | 8,107 |
| | $ | 6,615 |
| | $ | 5,837 |
|
| | | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
| Earnings before interest and taxes | | | | | | | | | | | | |
| Americas Simple Meals and Beverages | | $ | 1,069 |
| | $ | 948 |
| | $ | 1,030 |
| |
| Global Biscuits and Snacks | | 422 |
| | 383 |
| | 366 |
| |
| Campbell Fresh | | 60 |
| | 61 |
| | 68 |
| |
| Meals & Beverages | | | $ | 903 |
| | $ | 988 |
| | $ | 1,118 |
|
| Snacks | | | 514 |
| | 383 |
| | 310 |
|
Corporate(1) | | (560 | ) | | (236 | ) | | (142 | ) | | (407 | ) | | (306 | ) | | 14 |
|
Restructuring charges(2) | | (31 | ) | | (102 | ) | | (55 | ) | | (31 | ) | | (55 | ) | | (11 | ) |
| Total | | $ | 960 |
| | $ | 1,054 |
| | $ | 1,267 |
| | $ | 979 |
| | $ | 1,010 |
| | $ | 1,431 |
|
| | | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
| Depreciation and amortization | | | | | | | | | | | | |
| Americas Simple Meals and Beverages | | $ | 117 |
| | $ | 123 |
| | $ | 120 |
| |
| Global Biscuits and Snacks | | 96 |
| | 94 |
| | 101 |
| |
| Campbell Fresh | | 77 |
| | 70 |
| | 69 |
| |
| Meals & Beverages | | | $ | 162 |
| | $ | 158 |
| | $ | 118 |
|
| Snacks | | | 184 |
| | 102 |
| | 56 |
|
Corporate(3) | | 18 |
| | 16 |
| | 15 |
| | 17 |
| | 19 |
| | 19 |
|
| Discontinued operations | | | 83 |
| | 115 |
| | 125 |
|
| Total | | $ | 308 |
| | $ | 303 |
| | $ | 305 |
| | $ | 446 |
| | $ | 394 |
| | $ | 318 |
|
|
| | | | | | | | | | | | |
| | | 2016 | | 2015 | | 2014 |
| Capital expenditures | | | | | | |
| Americas Simple Meals and Beverages | | $ | 105 |
| | $ | 137 |
| | $ | 136 |
|
| Global Biscuits and Snacks | | 122 |
| | 137 |
| | 127 |
|
| Campbell Fresh | | 74 |
| | 82 |
| | 55 |
|
Corporate(3) | | 40 |
| | 24 |
| | 28 |
|
| Discontinued Operations | | — |
| | — |
| | 1 |
|
| Total | | $ | 341 |
| | $ | 380 |
| | $ | 347 |
|
|
| | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Capital expenditures | | | | | | |
| Meals & Beverages | | $ | 156 |
| | $ | 187 |
| | $ | 117 |
|
| Snacks | | 134 |
| | 91 |
| | 75 |
|
Corporate(3) | | 35 |
| | 41 |
| | 47 |
|
| Discontinued operations | | 59 |
| | 88 |
| | 99 |
|
| Total | | $ | 384 |
| | $ | 407 |
| | $ | 338 |
|
| |
(1) | Represents unallocated items. Pension and postretirement benefit settlement and mark-to-market adjustments are included in Corporate. LossesThere were $313, $138settlement charges of $28 and $31losses of $122 in 2016, 20152019, gains of $131 and 2014,$156 in 2018 and 2017, respectively. Costs related to the cost savings initiatives were $90, $135 and $37 in 2019, 2018 and 2017, respectively. Transaction and integration costs associated with the acquisition of $47Snyder's-Lance were $107 in 2018. Intangible asset impairment charges were $16 in 2019 and $54 in 2018. A charge of $22 related to the implementation of our new organizational structure and cost savings initiatives were included in 2016 and 2015, respectively. A gain of $25 from a settlement of a legal claim related to the Kelsen acquisition and an impairment charge of $141 on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit were alsowas included in 2016. In addition, a loss of $9 on foreign exchange forward contracts related to the sale of the European simple meals business and restructuring-related costs of $3 were included in 2014. See Note 6 for information on the impairment charge.2018. |
| |
(2) | See Note 8 for additional information. |
| |
(3) | Represents primarily corporate offices. |
Our global net sales based on product categories are as follows:
| | | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
| Net sales | | | | | | | | | | | | |
| Soup | | $ | 2,690 |
| | $ | 2,798 |
| | $ | 2,891 |
| | $ | 2,368 |
| | $ | 2,355 |
| | $ | 2,407 |
|
| Baked snacks | | 2,479 |
| | 2,502 |
| | 2,571 |
| |
| Snacks | | | 3,918 |
| | 2,438 |
| | 1,619 |
|
| Other simple meals | | 1,702 |
| | 1,648 |
| | 1,620 |
| | 1,082 |
| | 1,108 |
| | 1,118 |
|
| Beverages | | 1,090 |
| | 1,134 |
| | 1,186 |
| | 738 |
| | 711 |
| | 693 |
|
| Other | | | 1 |
| | 3 |
| | — |
|
| Total | | $ | 7,961 |
| | $ | 8,082 |
| | $ | 8,268 |
| | $ | 8,107 |
| | $ | 6,615 |
| | $ | 5,837 |
|
Soup includes various soup, broths and stock products. Baked Snacks include cookies, pretzels, crackers, biscuitspopcorn, nuts, potato chips, tortilla chips and other salty snacks and baked products. Other simple meals include sauces carrot products, refrigerated salad dressings, refrigerated salsa, hummus, dips and Plum foods and snacks.
products.
Geographic Area Information
Information about continuing operations in different geographic areas is as follows:
| | | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
| Net sales | | | | | | | | | | | | |
| United States | | $ | 6,437 |
| | $ | 6,400 |
| | $ | 6,432 |
| | $ | 7,492 |
| | $ | 6,068 |
| | $ | 5,371 |
|
| Australia | | 590 |
| | 646 |
| | 709 |
| |
| Other countries | | 934 |
| | 1,036 |
| | 1,127 |
| | 615 |
| | 547 |
| | 466 |
|
| Total | | $ | 7,961 |
| | $ | 8,082 |
| | $ | 8,268 |
| | $ | 8,107 |
| | $ | 6,615 |
| | $ | 5,837 |
|
| | | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
| Long-lived assets | | | | | | | | | | | | |
| United States | | $ | 1,967 |
| | $ | 1,942 |
| | $ | 1,844 |
| | $ | 2,400 |
| | $ | 2,363 |
| | $ | 1,547 |
|
| Australia | | 242 |
| | 232 |
| | 306 |
| |
| Other countries | | 198 |
| | 173 |
| | 168 |
| | 55 |
| | 103 |
| | 97 |
|
| Total | | $ | 2,407 |
| | $ | 2,347 |
| | $ | 2,318 |
| | $ | 2,455 |
| | $ | 2,466 |
| | $ | 1,644 |
|
| |
| 8. | Restructuring Charges and Cost Savings Initiatives |
2015 Initiatives and Snyder's-Lance Cost Transformation Program and Integration
On January 29,In fiscal 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. We are pursuing other initiatives to reduce costs and increase effectiveness, such as adopting zero-based budgeting over time.
to streamline our organizational structure. 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.
In February 2017, we announced that we were expanding these 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 January 2018, as part of the expanded initiatives, we authorized additional pre-tax costs to improve the operational efficiency of our thermal supply chain network in North America by closing our manufacturing facility in Toronto, Ontario, and to optimize our information technology infrastructure by migrating certain applications to the latest cloud technology platform. In August 2018, we announced that we will continue to streamline our organization, expand our zero-based budgeting efforts and optimize our manufacturing network.
On March 26, 2018, we completed the acquisition of Snyder's-Lance. Prior to the acquisition, in April 2017, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We expect to continue to implement this program and to achieve a majority of the program's targeted savings. In addition, we have identified opportunities for additional cost synergies as we integrate Snyder's-Lance.
Cost estimates, as well as timing for certain activities, are continuing to be developed.
A totalsummary of 471 employees elected the program. The electing employees remained with us through at least July 31, 2015, with some remaining beyond July 31. We also implemented an initiative to reduce overhead across the organization by eliminating approximately 250 positions. In 2016, wepre-tax charges recorded a restructuring charge of $35in Earnings from continuing operations related to these initiatives. In 2015, we recorded a restructuring chargeboth programs is as follows:
|
| | | | | | | | | | | | | | | |
| | 2019 | | 2018(1) | | 2017 | | Recognized as of July 28, 2019(1) |
| Restructuring charges | $ | 31 |
| | $ | 55 |
| | $ | 11 |
| | $ | 229 |
|
| Administrative expenses | 62 |
| | 99 |
| | 33 |
| | 263 |
|
| Cost of products sold | 18 |
| | 45 |
| | 4 |
| | 67 |
|
| Marketing and selling expenses | 7 |
| | 3 |
| | — |
| | 10 |
|
| Research and development expenses | 3 |
| | — |
| | — |
| | 3 |
|
| Total pre-tax charges | $ | 121 |
| | $ | 202 |
| | $ | 48 |
| | $ | 572 |
|
| |
(1) | Includes $13 of Restructuring charges and $12 of Administrative expenses associated with the Snyder's-Lance cost transformation program and integration recognized in 2018. |
A summary of $102 related to these initiatives.
In 2016, we also incurredthe pre-tax charges of $47 recorded in Administrative expenses related to the implementationEarnings (loss) from discontinued operations is as follows:
|
| | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | Recognized as of July 28, 2019(1) |
| Total pre-tax charges | $ | — |
| | $ | 8 |
| | $ | 10 |
| | $ | 23 |
|
(1) Includes $19 of the new organizational structureseverance pay and cost savings initiatives. In 2015, we incurred chargesbenefits and $4 of $22 recorded in Administrative expenses related to these initiatives.
The aggregate after-tax impact of restructuring charges, implementation costs and other related costs.
As of April 28, 2019, we incurred substantially all of the costs recorded in 2016 was $52, or $.17 per share. The aggregate after-tax impactfor actions associated with discontinued operations. All of restructuring charges and implementation and otherthe costs recorded in 2015 was $78, or $.25 per share. were cash expenditures.
A summary of the pre-tax costs in Earnings from continuing operations associated with the 2015 initiativesboth programs is as follows:
| | | | Recognized
as of
July 31, 2016 | Recognized as of
July 28, 2019 |
Severance pay and benefits | $ | 128 |
| $ | 205 |
|
| Implementation costs and other related costs | 78 |
| |
| Asset impairment/accelerated depreciation | | 63 |
|
Implementation costs and other related costs(2) | | 304 |
|
| Total | $ | 206 |
| $ | 572 |
|
| |
(1) | Includes $13 of charges associated with the Snyder's-Lance cost transformation program and integration recognized in 2018. |
| |
(2) | Includes $12 of charges associated with the Snyder's-Lance cost transformation program and integration recognized in 2018. |
The total estimated pre-tax costs for the 2015 initiativesactions associated with continuing operations that have been identified under both programs are approximately $250$615 to $300. We$665 and we expect to incur thesesubstantially all of the costs through 2018.2020. This estimate will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions associated with continuing operations that have been identified to date under both programs to consist of the following: approximately $135$205 to $145$210 in severance pay and benefits,benefits; approximately $65 in asset impairment and accelerated depreciation; and approximately $115$345 to $155$390 in implementation costs and other related costs.Wecosts. We expect the totalthese pre-tax costs related to the 2015 initiatives will be associated with our segments as follows: Americas Simple Meals and& Beverages - approximately 30%35%; Global Biscuits and Snacks - approximately 32%; Campbell Fresh - approximately 3%40%; and Corporate - approximately 35%25%.
Of the aggregate $615 to $665 of pre-tax costs associated with continuing operations identified to date under both programs, we expect approximately $540 to $590 will be cash expenditures. In addition, we expect to invest approximately $395 in capital expenditures through 2021, of which we invested approximately $250 as of July 28, 2019. The capital expenditures primarily relate to the U.S. warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, implementation of an SAP enterprise-resource planning system for Snyder's-Lance, transition of production of the Toronto manufacturing facility to our U.S. thermal plants, optimization of information technology infrastructure and applications, insourcing of manufacturing for certain simple meal products, and optimization of the Snyder’s-Lance warehouse and distribution network.
A summary of the restructuring activity and related reserves associated with the 2015 initiativescontinuing operations at July 31, 2016,28, 2019, is as follows:
|
| | | | | | | | | | | | | | | | | | |
| | | Severance Pay and Benefits | | Other Restructuring Costs | | Non-Cash Benefits(3) | | Implementation Costs and Other Related Costs(4) | | Total Charges |
| Accrued balance at August 3, 2014 | | $ | — |
| | $ | — |
| | | | | | |
| 2015 charges | | 87 |
| | 8 |
| | 7 |
| | 22 |
| | $ | 124 |
|
| 2015 cash payments | | (1 | ) | | — |
| | | | | | |
| Foreign currency translation adjustment | | (1 | ) | | — |
| | | | | | |
Accrued balance at August 2, 2015(1) | | $ | 85 |
| | $ | 8 |
| | | | | | |
| 2016 charges | | 34 |
| | 1 |
| | — |
| | 47 |
| | $ | 82 |
|
| 2016 cash payments | | (46 | ) | | (9 | ) | | | | | | |
Accrued balance at July 31, 2016(2) | | $ | 73 |
| | $ | — |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Severance Pay and Benefits | | Non-Cash Benefits(4) | | Implementation Costs and Other Related Costs(5) | | Asset Impairment/Accelerated Depreciation | | Other Non-Cash Exit Costs(6) | | Total Charges |
Accrued balance at July 30, 2017(1) | | $ | 19 |
| | | | | | | | | | |
| 2018 charges | | 49 |
| | 2 |
| | 115 |
| | 33 |
| | 3 |
| | $ | 202 |
|
| 2018 cash payments | | (24 | ) | | | | | | | | | | |
| Foreign currency translation adjustment | | (1 | ) | | | | | | | | | | |
Accrued balance at July 29, 2018(2) | | $ | 43 |
| | | | | | | | | | |
| 2019 charges | | 31 |
| | — |
| | 72 |
| | 18 |
| | — |
| | $ | 121 |
|
| 2019 cash payments | | (36 | ) | | | | | | | | | | |
| Foreign currency translation adjustment | | (1 | ) | | | | | | | | | | |
Accrued balance at July 28, 2019(3) | | $ | 37 |
| | | | | | | | | | |
| |
(1) | Includes $45$2 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet. |
| |
(2) | Includes $17$24 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet, $1 of which is associated with the Snyder's-Lance cost transformation program and integration. Of total accrued balance, $9 is associated with the Snyder's-Lance cost transformation program and integration. |
| |
(3) | Includes $8 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet. |
| |
(3)(4)
| Represents postretirement and pension curtailment costs.special termination benefits. See Note 11.11 for additional information. |
| |
(4)(5)
| 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, Cost of products sold, Marketing and selling expenses, and Research and development expenses in the Consolidated Statements of Earnings. |
| |
(6) | Includes non-cash costs that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. |
Restructuring reserves included in Current liabilities of discontinued operations were $1 at July 28, 2019, $3 at July 29, 2018, and $7 at July 30, 2017, respectively.
Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs in Earnings from continuing operations associated with segments is as follows:
|
| | | | | | | |
| | 2016 | | Costs Incurred to Date |
| Americas Simple Meals and Beverages | $ | 17 |
| | $ | 71 |
|
| Global Biscuits and Snacks | 22 |
| | 66 |
|
| Campbell Fresh | 1 |
| | 2 |
|
| Corporate | 42 |
| | 67 |
|
| Total | $ | 82 |
| | $ | 206 |
|
2014 Initiatives
In 2014, we implemented initiatives to reduce overhead across the organization, restructure manufacturing and streamline operations for our soup and broth business in China and improve supply chain efficiency in Australia. Details of the 2014 initiatives include:
We streamlined our salaried workforce in North America and our workforce in the Asia Pacific region. Approximately 250 positions were eliminated.
Together with our joint venture partner Swire Pacific Limited, we restructured manufacturing and streamlined operations for our soup and broth business in China. As a result, certain assets were impaired, and approximately 100 positions were eliminated.
In Australia, we commenced an initiative to improve supply chain efficiency by relocating production from our biscuit plant in Marleston to Huntingwood. The relocation will continue through 2017 and will result in the elimination of approximately 45 positions.
We implemented an initiative to reduce overhead across the organization by eliminating approximately 85 positions. The actions were completed in 2015.
In 2016, we recorded a reduction to restructuring charges of $4 ($3 after tax, or $.01 per share) related to the 2014 initiatives. In 2014, we recorded a restructuring charge of $54 ($33 after tax, or $.10 per share, in earnings from continuing operations attributable to Campbell Soup Company) related to the 2014 initiatives. 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:
|
| | | | | | | | | | | |
| | Total Program(1) | | Change in Estimate | | Recognized as of July 31, 2016 |
| Severance pay and benefits | $ | 41 |
| | $ | (4 | ) | | $ | 37 |
|
| Asset impairment | 12 |
| | — |
| | 12 |
|
| Other exit costs | 1 |
| | — |
| | 1 |
|
| Total | $ | 54 |
| | $ | (4 | ) | | $ | 50 |
|
| |
(1)
| Recognized as of August 2, 2015. |
A summary of the restructuring activity and related reserves associated with the 2014 initiatives at July 31, 2016, is as follows:
|
| | | | | | | | | | | | | | |
| | | Severance Pay and Benefits | | Asset Impairment | | Other Exit Costs(1) | | Total Charges |
| Accrued balance at July 28, 2013 | | $ | — |
| | | | | | |
| 2014 charges | | 41 |
| | 12 |
| | 1 |
| | $ | 54 |
|
| 2014 cash payments | | (13 | ) | | | | | | |
| Accrued balance at August 3, 2014 | | $ | 28 |
| | | | | | |
| 2015 cash payments | | (16 | ) | | | | | | |
| Foreign currency translation adjustment | | (2 | ) | | | | | | |
Accrued balance at August 2, 2015(2) | | $ | 10 |
| | | | | | |
| 2016 reduction to charges | | (4 | ) | | — |
| | — |
| | $ | (4 | ) |
| 2016 cash payments | | (4 | ) | | | | | | |
| Foreign currency translation adjustment | | (1 | ) | | | | | | |
| Accrued balance at July 31, 2016 | | $ | 1 |
| | | | | | |
|
| | | | | | | |
| | 2019 | | Costs Incurred to Date(1) |
| Meals & Beverages | $ | 34 |
| | $ | 212 |
|
| Snacks | 40 |
| | 200 |
|
| Corporate | 47 |
| | 160 |
|
| Total | $ | 121 |
| | $ | 572 |
|
| |
(1) | Includes non-cash costs that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. |
| |
(2)
| Includes $4$25 of severance paypre-tax costs associated with the Snacks segment recognized in 2018 related to the Snyder's-Lance cost transformation program and benefits recorded in Other liabilities in the Consolidated Balance Sheet.integration. |
Segment operating results do not include restructuring charges because we evaluate segment performance excluding such charges. A summary of restructuring charges associated with segments is as follows:
|
| | | | | | | |
| | 2016 | | Total Program |
| Americas Simple Meals and Beverages | $ | (1 | ) | | $ | 13 |
|
| Global Biscuits and Snacks | (3 | ) | | 35 |
|
| Campbell Fresh | — |
| | 1 |
|
| Corporate | — |
| | 1 |
|
| Total | $ | (4 | ) | | $ | 50 |
|
2013 Initiatives
In 2013, we implemented initiatives to improve supply chain efficiency, expand access to manufacturing and distribution capabilities and reduce costs.
In 2014, we recorded a restructuring charge of $1 related to the 2013 initiatives. In addition, we recorded approximately $3 of costs related to the 2013 initiatives in Cost of products sold, representing other exit costs. The aggregate after-tax impact of restructuring charges and related costs recorded in 2014 was $3, or $.01 per share.
A summary of the pre-tax costs associated with the 2013 initiatives recognized is as follows:
|
| | | |
| | Total Program |
| Severance pay and benefits | $ | 31 |
|
| Accelerated depreciation/asset impairment | 99 |
|
| Other exit costs | 12 |
|
| Total | $ | 142 |
|
In 2015, we substantially completed the 2013 initiatives.
| |
| 9. | 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 20162019 and 2018 excludes 355 thousandapproximately 2 million and 1 million stock options, respectively, that would have been antidilutive. The earnings per share calculation for 2017 excludes less than 1 million stock options that would have been antidilutive. There were no antidilutive stock options in 2015 or 2014.
| |
| 10. | Noncontrolling Interests |
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support the development of our soup and broth business in China. We contributed cash of $14China and $7 in 2015 and 2014, respectively, and the joint venture partner contributed cash of $9 and $5 in 2015 and 2014, respectively. In 2014, together with our joint venture partner, we restructured manufacturing and streamlined operations for our soup and broth business in China. The after-tax restructuring charge attributable to the noncontrolling interest was $5. See also Note 8.
We 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 15.15 for additional information.
On March 26, 2018, we acquired Snyder's-Lance, including an 80% interest in one of its subsidiaries. In April 2018, we purchased the remaining 20% interest for $47.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings. The noncontrolling interests in these entities were included in Total equity in the Consolidated Balance Sheets and Consolidated Statements of Equity.
| |
| 11. | Pension and Postretirement Benefits |
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 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 beginning oneffective as of January 1, 2017, we will no longer sponsor our own medical coverage for certain Medicare-eligible retirees. In July 2017, the retirement medical program was once again amended and beginning on January 1, 2018, we no longer sponsor our own medical coverage for certain Medicare-eligible retirees covered by one of our collective bargaining agreements. In July 2018, the retirement medical program was once again amended and beginning on January 1, 2019, we no longer sponsor our own medical coverage for certain Medicare-eligible retirees covered by our remaining collective bargaining agreement. Instead, in connection with these amendments, 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:
|
| | | | | | | | | | | |
| | Pension |
| | 2016 | | 2015 | | 2014 |
| Service cost | $ | 26 |
| | $ | 28 |
| | $ | 42 |
|
| Interest cost | 98 |
| | 105 |
| | 115 |
|
| Expected return on plan assets | (147 | ) | | (173 | ) | | (169 | ) |
| Amortization of prior service credit | — |
| | (1 | ) | | (1 | ) |
| Recognized net actuarial loss | 302 |
| | 136 |
| | 48 |
|
| Curtailment loss | — |
| | 1 |
| | — |
|
| Net periodic benefit expense | $ | 279 |
| | $ | 96 |
| | $ | 35 |
|
|
| | | | | | | | | | | |
| | Pension |
| | 2019 | | 2018 | | 2017 |
| Service cost | $ | 21 |
| | $ | 24 |
| | $ | 26 |
|
| Interest cost | 82 |
| | 74 |
| | 86 |
|
| Expected return on plan assets | (143 | ) | | (144 | ) | | (144 | ) |
| Amortization of prior service cost | 1 |
| | — |
| | — |
|
| Recognized net actuarial (gain) loss | 120 |
| | (104 | ) | | (198 | ) |
| Special termination benefits | — |
| | 2 |
| | — |
|
| Curtailment gains | — |
| | (2 | ) | | — |
|
| Settlement charge | 28 |
| | — |
| | — |
|
| Net periodic benefit expense (income) | $ | 109 |
| | $ | (150 | ) | | $ | (230 | ) |
The curtailment losssettlement charge of $1 in 2015 was$28 resulted from the level of lump sum distributions associated with a U.S. pension plan.
The special termination benefits of $2 related to a voluntary employee separation programthe planned closure of the manufacturing facility in Toronto, Ontario, and waswere included in Restructuring charges. See also Note 8.8 for additional information.
Net periodic benefit expense (income) associated with discontinued operations was $13 in 2019, ($4) in 2018, and ($20) in 2017.
The components of net periodic benefit expense (income) other than the service cost component are included in Other expenses / (income) in the Consolidated Statements of Earnings. Beginning in 2018, under the revised FASB guidance adopted in the first quarter, only the service cost component of net periodic benefit expense (income) is eligible for capitalization.
Beginning in 2018, we changed the method we use to estimate the service and interest cost components of net periodic benefit expense (income). We elected to 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 made 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 accounted for this change prospectively in 2018 as a change in accounting estimate. As a result of this change, net periodic benefit income increased by approximately $17 in 2018, compared to what the net periodic benefit income would have been under the previous method.
|
| | | | | | | | | | | |
| | Postretirement |
| | 2016 | | 2015 | | 2014 |
| Service cost | $ | 1 |
| | $ | 2 |
| | $ | 2 |
|
| Interest cost | 15 |
| | 15 |
| | 17 |
|
| Amortization of prior service credit | (1 | ) | | (1 | ) | | (1 | ) |
| Recognized net actuarial loss | 23 |
| | 7 |
| | 5 |
|
| Curtailment loss | — |
| | 6 |
| | — |
|
| Net periodic benefit expense | $ | 38 |
| | $ | 29 |
| | $ | 23 |
|
The curtailment loss of $6 in 2015 was related to a voluntary employee separation program and was included in Restructuring charges. See also Note 8. |
| | | | | | | | | | | |
| | Postretirement |
| | 2019 | | 2018 | | 2017 |
| Service cost | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
| Interest cost | 8 |
| | 7 |
| | 10 |
|
| Amortization of prior service credit | (29 | ) | | (27 | ) | | (25 | ) |
| Recognized net actuarial (gain) loss | 14 |
| | (16 | ) | | (14 | ) |
| Net periodic benefit expense (income) | $ | (6 | ) | | $ | (35 | ) | | $ | (28 | ) |
The estimated prior service credit that will be amortized from Accumulated other comprehensive loss into net periodic postretirement expense during 20172020 is $25.$28. The prior service credit is primarily related to the amendmentamendments in July 2016.2016, July 2017, and July 2018.
Change in benefit obligation:
| | | | | Pension | | Postretirement | | Pension | | Postretirement |
| | | 2016 | | 2015 | | 2016 | | 2015 | | 2019 | | 2018 | | 2019 | | 2018 |
| Obligation at beginning of year | | $ | 2,569 |
| | $ | 2,539 |
| | $ | 392 |
| | $ | 388 |
| | $ | 2,257 |
| | $ | 2,450 |
| | $ | 235 |
| | $ | 276 |
|
| Service cost | | 26 |
| | 28 |
| | 1 |
| | 2 |
| | 21 |
| | 24 |
| | 1 |
| | 1 |
|
| Interest cost | | 98 |
| | 105 |
| | 15 |
| | 15 |
| | 82 |
| | 74 |
| | 8 |
| | 7 |
|
| Actuarial loss | | 210 |
| | 106 |
| | 23 |
| | 7 |
| |
| Actuarial loss (gain) | | | 168 |
| | (110 | ) | | 14 |
| | (16 | ) |
| Participant contributions | | — |
| | — |
| | 1 |
| | 3 |
| | — |
| | — |
| | — |
| | 1 |
|
| Plan amendments | | — |
| | — |
| | (93 | ) | | — |
| | — |
| | 2 |
| | — |
| | (11 | ) |
| Benefits paid | | (116 | ) | | (151 | ) | | (30 | ) | | (33 | ) | | (154 | ) | | (165 | ) | | (24 | ) | | (26 | ) |
| Settlements | | (160 | ) | | — |
| | — |
| | — |
| | (20 | ) | | — |
| | — |
| | — |
|
| Medicare subsidies | | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | — |
| | 1 |
| | 3 |
|
| Other | | (6 | ) | | (1 | ) | | — |
| | — |
| | (1 | ) | | (2 | ) | | — |
| | — |
|
| Special termination benefits | | | — |
| | 2 |
| | — |
| | — |
|
| Curtailment | | — |
| | 1 |
| | — |
| | 6 |
| | — |
| | (2 | ) | | — |
| | — |
|
| Foreign currency adjustment | | 5 |
| | (58 | ) | | — |
| | — |
| | (8 | ) | | (16 | ) | | — |
| | — |
|
| Benefit obligation at end of year | | $ | 2,626 |
| | $ | 2,569 |
| | $ | 313 |
| | $ | 392 |
| | $ | 2,345 |
| | $ | 2,257 |
| | $ | 235 |
| | $ | 235 |
|
Change in the fair value of pension plan assets:
| | | | | 2016 | | 2015 | | 2019 | | 2018 |
| Fair value at beginning of year | | $ | 2,316 |
| | $ | 2,364 |
| | $ | 2,154 |
| | $ | 2,183 |
|
| Actual return on plan assets | | 54 |
| | 143 |
| | 162 |
| | 137 |
|
| Employer contributions | | 2 |
| | 5 |
| | 5 |
| | 5 |
|
| Benefits paid | | (106 | ) | | (141 | ) | | (141 | ) | | (155 | ) |
| Settlements | | (160 | ) | | — |
| | (20 | ) | | — |
|
| Foreign currency adjustment | | 5 |
| | (55 | ) | | (7 | ) | | (16 | ) |
| Fair value at end of year | | $ | 2,111 |
| | $ | 2,316 |
| | $ | 2,153 |
| | $ | 2,154 |
|
Amounts
Net amounts recognized in the Consolidated Balance Sheets:
| | | | | Pension | | Postretirement | | Pension | | Postretirement |
| | | 2016 | | 2015 | | 2016 | | 2015 | | 2019 | | 2018 | | 2019 | | 2018 |
| Other assets | | | $ | 21 |
| | $ | 61 |
| | $ | — |
| | $ | — |
|
| Accrued liabilities | | $ | 14 |
| | $ | 20 |
| | $ | 28 |
| | $ | 30 |
| | 14 |
| | 14 |
| | 25 |
| | 29 |
|
| Other liabilities | | 501 |
| | 233 |
| | 285 |
| | 362 |
| | 179 |
| | 141 |
| | 210 |
| | 206 |
|
| Amounts recognized | | $ | 515 |
| | $ | 253 |
| | $ | 313 |
| | $ | 392 |
| |
| Noncurrent liabilities of discontinued operations | | | 20 |
| | 9 |
| | — |
| | — |
|
| Net amounts recognized | | | $ | 192 |
| | $ | 103 |
| | $ | 235 |
| | $ | 235 |
|
| | | Amounts recognized in accumulated other comprehensive income (loss) consist of: | | Pension | | Postretirement | | Pension | | Postretirement |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2019 | | 2018 | | 2019 | | 2018 |
| Prior service credit | | $ | — |
| | $ | — |
| | $ | 96 |
| | $ | 4 |
| |
| Prior service (cost) credit | | | $ | (1 | ) | | $ | (2 | ) | | $ | 38 |
| | $ | 67 |
|
The change in amounts recognized in accumulated other comprehensive income (loss) associated with postretirement benefits was due to the plan amendmentamortization in July 2016.2019.
The following table provides information for pension plans with accumulated benefit obligations in excess of plan assets:
| | | | | 2016 | | 2015 | | 2019 | | 2018 |
| Projected benefit obligation | | $ | 2,434 |
| | $ | 1,926 |
| | $ | 1,771 |
| | $ | 249 |
|
| Accumulated benefit obligation | | $ | 2,385 |
| | $ | 1,906 |
| | $ | 1,749 |
| | $ | 241 |
|
| Fair value of plan assets | | $ | 1,933 |
| | $ | 1,684 |
| | $ | 1,558 |
| | $ | 85 |
|
The accumulated benefit obligation for all pension plans was $2,557$2,317 at July 31, 2016,28, 2019, and $2,516$2,227 at August 2, 2015.July 29, 2018.
Weighted-average assumptions used to determine benefit obligations at the end of the year:
| | | | | Pension | | Postretirement | | Pension | | Postretirement |
| | | 2016 | | 2015 | | 2016 | | 2015 | | 2019 | | 2018 | | 2019 | | 2018 |
| Discount rate | | 3.39% | | 4.19% | | 3.20% | | 4.00% | | 3.46% | | 4.15% | | 3.28% | | 4.06% |
| Rate of compensation increase | | 3.25% | | 3.29% | | 3.25% | | 3.25% | | 3.20% | | 3.21% | | 3.25% | | 3.25% |
Weighted-average assumptions used to determine net periodic benefit cost for the years ended:
| | | | | Pension | | Pension |
| | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
| Discount rate | | 4.19% | | 4.33% | | 4.82% | | 4.15% | | 3.74% | | 3.39% |
| Expected return on plan assets | | 7.35% | | 7.62% | | 7.62% | | 6.86% | | 6.84% | | 7.09% |
| Rate of compensation increase | | 3.29% | | 3.30% | | 3.30% | | 3.21% | | 3.24% | | 3.25% |
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 4.00%4.06% in 20162019, 3.45% in 2018, and 2015, and 4.50%3.20% in 2014.
2017.
Assumed health care cost trend rates at the end of the year:
| | | | | 2016 | | 2015 | | 2019 | | 2018 |
| Health care cost trend rate assumed for next year | | 7.25% | | 7.75% | | 6.25% | | 6.75% |
| Rate to which the cost trend rate is assumed to decline (ultimate trend rate) | | 4.50% | | 4.50% | | 4.50% | | 4.50% |
| Year that the rate reaches the ultimate trend rate | | 2022 | | 2022 | | 2023 | | 2023 |
A one-percentage-point changeincrease or decrease in assumed health care costs would havenot significantly impact 2019 reported service and interest cost nor the following effects on 2016 reported amounts:
|
| | | | | | | | |
| | | Increase | | Decrease |
| Effect on service and interest cost | | $ | — |
| | $ | — |
|
| Effect on the 2016 accumulated benefit obligation | | $ | 12 |
| | $ | (11 | ) |
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.
Our year-end pension plan weighted-average asset allocations by category were:
| | | | Strategic Target | | 2016 | | 2015 | Strategic Target | | 2019 | | 2018 |
| Equity securities | 51% | | 51% | | 50% | 39% | | 42% | | 42% |
| Debt securities | 35% | | 35% | | 34% | 50% | | 46% | | 46% |
| Real estate and other | 14% | | 14% | | 16% | 11% | | 12% | | 12% |
| Net periodic benefit expense | 100% | | 100% | | 100% | |
| Total | | 100% | | 100% | | 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.
The following table presents our pension plan assets by asset category at July 31, 2016,28, 2019, and August 2, 2015:July 29, 2018:
| | | | Fair Value
as of
July 31,
2016 | | Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy | | Fair Value
as of
August 2,
2015 | | Fair Value Measurements at
August 2, 2015 Using
Fair Value Hierarchy | Fair Value
as of
July 28, 2019 | | Fair Value Measurements at
July 28, 2019 Using
Fair Value Hierarchy | | Fair Value
as of
July 29, 2018 | | Fair Value Measurements at
July 29, 2018 Using
Fair Value Hierarchy |
| | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Short-term investments | $ | 43 |
| | $ | 41 |
| | $ | 2 |
| | $ | — |
| | $ | 32 |
| | $ | 32 |
| | $ | — |
| | $ | — |
| $ | 78 |
| | $ | 32 |
| | $ | 46 |
| | $ | — |
| | $ | 61 |
| | $ | 29 |
| | $ | 32 |
| | $ | — |
|
| Equities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | 349 |
| | 349 |
| | — |
| | — |
| | 386 |
| | 386 |
| | — |
| | — |
| 267 |
| | 267 |
| | — |
| | — |
| | 284 |
| | 284 |
| | — |
| | — |
|
| Non-U.S. | 273 |
| | 273 |
| | — |
| | — |
| | 312 |
| | 312 |
| | — |
| | — |
| 217 |
| | 217 |
| | — |
| | — |
| | 230 |
| | 230 |
| | — |
| | — |
|
| Corporate bonds: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | 469 |
| | — |
| | 469 |
| | — |
| | 494 |
| | — |
| | 494 |
| | — |
| 635 |
| | — |
| | 635 |
| | — |
| | 597 |
| | — |
| | 597 |
| | — |
|
| Non-U.S. | 98 |
| | — |
| | 98 |
| | — |
| | 102 |
| | — |
| | 102 |
| | — |
| 142 |
| | — |
| | 142 |
| | — |
| | 138 |
| | — |
| | 138 |
| | — |
|
| Government and agency bonds: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | 49 |
| | — |
| | 49 |
| | — |
| | 42 |
| | — |
| | 42 |
| | — |
| 73 |
| | — |
| | 73 |
| | — |
| | 70 |
| | — |
| | 70 |
| | — |
|
| Non-U.S. | 29 |
| | — |
| | 29 |
| | — |
| | 36 |
| | — |
| | 36 |
| | — |
| 29 |
| | — |
| | 29 |
| | — |
| | 33 |
| | — |
| | 33 |
| | — |
|
| Municipal bonds | 67 |
| | — |
| | 67 |
| | — |
| | 68 |
| | — |
| | 68 |
| | — |
| 64 |
| | — |
| | 64 |
| | — |
| | 61 |
| | — |
| | 61 |
| | — |
|
| Mortgage and asset backed securities | 7 |
| | — |
| | 7 |
| | — |
| | 9 |
| | — |
| | 9 |
| | — |
| 36 |
| | — |
| | 36 |
| | — |
| | 15 |
| | — |
| | 15 |
| | — |
|
| Real estate | 19 |
| | 13 |
| | — |
| | 6 |
| | 14 |
| | 8 |
| | — |
| | 6 |
| 9 |
| | 5 |
| | — |
| | 4 |
| | 10 |
| | 4 |
| | — |
| | 6 |
|
| Hedge funds | 45 |
| | — |
| | — |
| | 45 |
| | 39 |
| | — |
| | — |
| | 39 |
| 32 |
| | — |
| |
|
| | 32 |
| | 34 |
| | — |
| | — |
| | 34 |
|
| Derivative assets | 6 |
| | — |
| | 6 |
| | — |
| | 5 |
| | — |
| | 5 |
| | — |
| 4 |
| | — |
| | 4 |
| | — |
| | 8 |
| | — |
| | 8 |
| | — |
|
| Derivative liabilities | (7 | ) | | — |
| | (7 | ) | | — |
| | (6 | ) | | — |
| | (6 | ) | | — |
| (6 | ) | | — |
| | (6 | ) | | — |
| | (4 | ) | | — |
| | (4 | ) | | — |
|
| Total assets at fair value | $ | 1,447 |
| | $ | 676 |
| | $ | 720 |
| | $ | 51 |
| | $ | 1,533 |
| | $ | 738 |
| | $ | 750 |
| | $ | 45 |
| $ | 1,580 |
| | $ | 521 |
| | $ | 1,023 |
| | $ | 36 |
| | $ | 1,537 |
| | $ | 547 |
| | $ | 950 |
| | $ | 40 |
|
| Investments measured at net asset value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Short-term investments | 20 |
| | | | | | | | 28 |
| | | | | | | 23 |
| | | | | | | | 21 |
| | | | | | |
| Commingled funds: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equities | 309 |
| | | | | | | | 375 |
| | | | | | | 319 |
| | | | | | | | 310 |
| | | | | | |
| Fixed income | 31 |
| | | | | | | | 31 |
| | | | | | | 35 |
| | | | | | | | 31 |
| | | | | | |
| Blended | 79 |
| | | | | | | | 79 |
| | | | | | | 84 |
| | | | | | | | 85 |
| | | | | | |
| Real estate | 108 |
| | | | | | | | 117 |
| | | | | | | 107 |
| | | | | | | | 89 |
| | | | | | |
| Hedge funds | 144 |
| | | | | | | | 175 |
| | | | | | | 76 |
| | | | | | | | 95 |
| | | | | | |
| Total investments measured at net asset value: | 691 |
| | | | | | | | 805 |
| | | | | | | 644 |
| | | | | | | | 631 |
| | | | | | |
| Other items to reconcile to fair value of plan assets | (27 | ) | | | | | | | | (22 | ) | | | | | | | (71 | ) | | | | | | | | (14 | ) | | | | | | |
| Total pension assets at fair value | $ | 2,111 |
| | | | | | | | $ | 2,316 |
| | | | | | | |
| Total pension plan assets at fair value | | $ | 2,153 |
| | | | | | | | $ | 2,154 |
| | | | | | |
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.
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 31, 2016,28, 2019, and August 2, 2015:July 29, 2018: | | | | | Real Estate | | Hedge Funds | | Total | | Real Estate | | Hedge Funds | | Total |
| Fair value at August 2, 2015 | | $ | 6 |
| | $ | 39 |
| | $ | 45 |
| |
| Fair value at July 29, 2018 | | | $ | 6 |
| | $ | 34 |
| | $ | 40 |
|
| Actual return on plan assets | | 1 |
| | 1 |
| | 2 |
| | 1 |
| | — |
| | 1 |
|
| Purchases | | — |
| | 5 |
| | 5 |
| | — |
| | — |
| | — |
|
| Sales | | (1 | ) | | — |
| | (1 | ) | | (3 | ) | | (2 | ) | | (5 | ) |
| Settlements | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Transfers out of Level 3 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Fair value at July 31, 2016 | | $ | 6 |
| | $ | 45 |
| | $ | 51 |
| |
| Fair value at July 28, 2019 | | | $ | 4 |
| | $ | 32 |
| | $ | 36 |
|
| | | | | Real Estate | | Hedge Funds | | Total | | Real Estate | | Hedge Funds | | Total |
| Fair value at August 3, 2014 | | $ | 3 |
| | $ | 30 |
| | $ | 33 |
| |
| Fair value at July 30, 2017 | | | $ | 7 |
| | $ | 38 |
| | $ | 45 |
|
| Actual return on plan assets | | 1 |
| | 2 |
| | 3 |
| | 2 |
| | 2 |
| | 4 |
|
| Purchases | | 2 |
| | 7 |
| | 9 |
| | — |
| | — |
| | — |
|
| Sales | | — |
| | — |
| | — |
| | (3 | ) | | (6 | ) | | (9 | ) |
| Settlements | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Transfers out of Level 3 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Fair value at August 2, 2015 | | $ | 6 |
| | $ | 39 |
| | $ | 45 |
| |
| Fair value at July 29, 2018 | | | $ | 6 |
| | $ | 34 |
| | $ | 40 |
|
The following table presentstables present additional information about the pension plan assets valued using net asset value as a practical expedient within the fair value hierarchy table.table:
| | | | | 2016 | | 2015 | | | 2019 | | 2018 | |
| | | Fair Value | | Unfunded Commitments | | Fair Value | | Unfunded Commitments | | Redemption Frequency | | Redemption Notice Period Range | | Fair Value | | Fair Value | | Redemption Frequency | | Redemption Notice Period Range |
| Short-term investments | | $ | 20 |
| | $ | — |
| | $ | 28 |
| | $ | — |
| | Daily | | 1 Day | | $ | 23 |
| | $ | 21 |
| | Daily | | 1 Day |
| Commingled funds: | | | | | | | | | | | | | | |
| Equities | | 309 |
| | — |
| | 375 |
| | — |
| | Daily, | Monthly | | 1 | to | 60 Days | | 319 |
| | 310 |
| | Daily, | Monthly | | 2 | to | 60 Days |
| Fixed income | | 31 |
| | — |
| | 31 |
| | — |
| | Daily | | 1 Day | | 35 |
| | 31 |
| | Daily | | 1 Day |
| Blended | | 79 |
| | — |
| | 79 |
| | — |
| | Primarily Daily | | 1 Day | | 84 |
| | 85 |
| | Primarily Daily | | 1 | to | 20 Days |
Real estate funds(1) | | 108 |
| | — |
| | 117 |
| | 3 |
| | Primarily Quarterly | | 1 | to | 90 Days | | 107 |
| | 89 |
| | Quarterly | | 45 | to | 90 Days |
Hedge funds(2) | | 144 |
| | — |
| | 175 |
| | 25 |
| | Monthly, | Quarterly | | 5 | to | 65 Days | | 76 |
| | 95 |
| | Monthly | | 5 | to | 30 Days |
| Total | | $ | 691 |
| | $ | — |
| | $ | 805 |
| | $ | 28 |
| | | $ | 644 |
| | $ | 631 |
| |
There were no unfunded commitments in 2019 or 2018. | |
(1)
| Includes real estate investments valued at $34 for which a redemption queue has been imposed by the investment manager increasing the redemption receipt period to up to 9 months after notice.
|
| |
(2)
| Includes a fund valued at $45 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, 2016. |
No contributions are expected to be made to U.S. pension plans in 2017.2020. We do not expect contributions to non-U.S. pension plans to be approximately $5material in 2017.2020.
Estimated future benefit payments are as follows: |
| | | | | | | | |
| | | Pension | | Postretirement |
| 2017 | | $ | 176 |
| | $ | 28 |
|
| 2018 | | $ | 164 |
| | $ | 28 |
|
| 2019 | | $ | 168 |
| | $ | 27 |
|
| 2020 | | $ | 161 |
| | $ | 26 |
|
| 2021 | | $ | 161 |
| | $ | 24 |
|
| 2022-2026 | | $ | 808 |
| | $ | 99 |
|
|
| | | | | | | | |
| | | Pension | | Postretirement |
| 2020 | | $ | 172 |
| | $ | 25 |
|
| 2021 | | $ | 170 |
| | $ | 23 |
|
| 2022 | | $ | 164 |
| | $ | 22 |
|
| 2023 | | $ | 158 |
| | $ | 21 |
|
| 2024 | | $ | 153 |
| | $ | 19 |
|
| 2025-2029 | | $ | 728 |
| | $ | 78 |
|
The estimated future benefit payments include payments from funded and unfunded plans.
Defined Contribution Plans — All Snyder’s-Lance U.S. employees are eligible to participate in a 401(k) Retirement Plan — We sponsor employee savings plans that coverprovides participants with matching contributions equal to 100% of the first 4% of qualified wages and 50% of the next 1% of qualified wages. For substantially all U.S. employees. Effectiveemployees except Snyder's-Lance 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. Prior to January 1, 2011, we provided a matching contribution of 60% (50% at certain locations) of the employee contributions up to 5% of compensation after one year of continued service. Amounts charged to Costs and expenses of continuing operations were $33$52 in 2016,2019, $42 in 2018 and $31 in 20152017. Amounts charged to Costs and $29expenses of discontinued operations were $4 in 2014.2019, $3 in 2018 and $3 in 2017.
The provision for income taxes on earnings from continuing operations consists of the following:
| | | | 2016 | | 2015 | | 2014 | 2019 | | 2018 | | 2017 |
| Income taxes: | | | | | | | | | | |
| Currently payable: | | | | | | | | | | |
| Federal | $ | 235 |
| | $ | 246 |
| | $ | 252 |
| $ | 104 |
| | $ | 93 |
| | $ | 241 |
|
| State | 34 |
| | 31 |
| | 30 |
| 19 |
| | 26 |
| | 39 |
|
| Non-U.S. | 47 |
| | 55 |
| | 42 |
| 5 |
| | 11 |
| | 2 |
|
| | 316 |
| | 332 |
| | 324 |
| 128 |
| | 130 |
| | 282 |
|
| Deferred: | | | | | | | | | | |
| Federal | (17 | ) | | (47 | ) | | 56 |
| 19 |
| | (26 | ) | | 97 |
|
| State | — |
| | 1 |
| | 3 |
| 7 |
| | 14 |
| | 2 |
|
| Non-U.S. | (13 | ) | | (3 | ) | | (9 | ) | (3 | ) | | (12 | ) | | 11 |
|
| | (30 | ) | | (49 | ) | | 50 |
| 23 |
| | (24 | ) | | 110 |
|
| | $ | 286 |
| | $ | 283 |
| | $ | 374 |
| $ | 151 |
| | $ | 106 |
| | $ | 392 |
|
| | | | | 2016 | | 2015 | | 2014 | | 2019 | | 2018 | | 2017 |
| Earnings from continuing operations before income taxes: | | | | | | | | | | | | |
| United States | | $ | 705 |
| | $ | 803 |
| | $ | 1,064 |
| | $ | 624 |
| | $ | 832 |
| | $ | 1,264 |
|
| Non-U.S. | | 144 |
| | 146 |
| | 84 |
| | 1 |
| | (2 | ) | | 52 |
|
| | | $ | 849 |
| | $ | 949 |
| | $ | 1,148 |
| | $ | 625 |
| | $ | 830 |
| | $ | 1,316 |
|
The following is a reconciliation of the effective income tax rate on continuing operations to the U.S. federal statutory income tax rate:
| | | | 2016 | | 2015 | | 2014 | 2019 | | 2018 | | 2017 |
| Federal statutory income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % | 21.0 | % | | 21.0 | % | | 35.0 | % |
| State income taxes (net of federal tax benefit) | 2.7 |
| | 2.2 |
| | 2.0 |
| 2.2 |
| | 3.0 |
| | 2.1 |
|
| Tax effect of international items | (3.0 | ) | | (2.5 | ) | | (1.0 | ) | — |
| | (0.5 | ) | | (0.4 | ) |
| Settlement of tax contingencies | — |
| | (0.8 | ) | | — |
| |
| Federal manufacturing deduction | (3.2 | ) | | (2.9 | ) | | (2.2 | ) | — |
| | (1.4 | ) | | (2.2 | ) |
| Goodwill impairment | 4.3 |
| | — |
| | — |
| |
| Claim settlement | (0.8 | ) | | — |
| | — |
| |
Tax Reform - impact on U.S. deferred tax assets and liabilities(1) | | — |
| | (21.7 | ) | | — |
|
Tax Reform - transition tax(1) | | 0.3 |
| | 6.4 |
| | — |
|
Effect of higher U.S. federal statutory tax rate(1) | | — |
| | 5.3 |
| | — |
|
Foreign exchange losses(2) | | — |
| | — |
| | (3.8 | ) |
| Divestiture impact on deferred taxes | | 1.2 |
| | — |
| | — |
|
| Other | (1.3 | ) | | (1.2 | ) | | (1.2 | ) | (0.5 | ) | | 0.7 |
| | (0.9 | ) |
| Effective income tax rate | 33.7 | % | | 29.8 | % | | 32.6 | % | 24.2 | % | | 12.8 | % | | 29.8 | % |
| |
(1) | The Tax Cuts and Jobs Act of 2017 (the Act) was enacted into law on December 22, 2017, and made significant changes to corporate taxation. Changes under the Act included: |
Reducing the federal corporate tax rate from 35% to 21% effective January 1, 2018. A blended rate applied for fiscal 2018 non-calendar year end companies for the fiscal periods that included the effective date of the rate change. The impact of this is shown as "Effect of higher U.S. federal statutory tax rate;"
Repealing the exception for deductibility of performance-based compensation to covered employees, which impacted us beginning in 2019, along with expanding the number of covered employees;
Transitioning to a territorial system for taxation on foreign earnings along with the imposition of a transition tax in 2018 on the deemed repatriation of unremitted foreign earnings;
Immediate expensing of machinery and equipment placed into service after September 27, 2017;
Eliminating the deduction for domestic manufacturing activities, which impacted us beginning in 2019;
Changes to the taxation of multinational companies, including a new minimum tax on Global Intangible Low-Taxed Income, a new Base Erosion Anti-Abuse Tax, and a new U.S. corporate deduction for Foreign-Derived Intangible Income, all of which were effective for us beginning in 2019; and
Limiting the deductibility of interest expense to 30% of adjusted taxable income, which was effective for us beginning in 2019.
As a result of the Act, we recognized a benefit of $179 in 2018 on the remeasurement of deferred tax assets and liabilities and expenses of $2 in 2019 and $53 in 2018 on the transition tax on unremitted foreign earnings.
| |
(2) | 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. |
Deferred tax liabilities and assets of continuing operations and discontinued operations are comprised of the following:
| | | | 2016 | | 2015 | 2019 | | 2018 |
| Depreciation | $ | 362 |
| | $ | 306 |
| $ | 336 |
| | $ | 342 |
|
| Amortization | 541 |
| | 541 |
| 877 |
| | 868 |
|
| Other | 23 |
| | 17 |
| 16 |
| | 35 |
|
| Deferred tax liabilities | 926 |
| | 864 |
| 1,229 |
| | 1,245 |
|
| Benefits and compensation | 266 |
| | 298 |
| 157 |
| | 144 |
|
| Pension benefits | 185 |
| | 92 |
| 46 |
| | 24 |
|
| Tax loss carryforwards | 37 |
| | 44 |
| 43 |
| | 65 |
|
| Capital loss carryforwards | 88 |
| | 85 |
| 287 |
| | 88 |
|
| Outside basis difference | | 116 |
| | — |
|
| Other | 113 |
| | 101 |
| 82 |
| | 92 |
|
| Gross deferred tax assets | 689 |
| | 620 |
| 731 |
| | 413 |
|
| Deferred tax asset valuation allowance | (118 | ) | | (122 | ) | (427 | ) | | (133 | ) |
| Net deferred tax assets | 571 |
| | 498 |
| |
| Deferred tax assets, net of valuation allowance | | 304 |
| | 280 |
|
| Net deferred tax liability | $ | 355 |
| | $ | 366 |
| $ | 925 |
| | $ | 965 |
|
At July 31, 2016,28, 2019, our U.S. and non-U.S. subsidiaries had tax loss carryforwards of approximately $173.$438. Of these carryforwards, $157 expire between 2017 and 2036, and $16$48 may be carried forward indefinitely.indefinitely, and $390 expire between 2020 and 2037, with the majority expiring after 2028. At July 31, 2016,28, 2019, deferred tax asset valuation allowances have been established to offset $143$165 of these tax loss carryforwards. Additionally, atas of July 31, 2016,28, 2019, our U.S. and non-U.S. subsidiaries had capital loss carryforwards of approximately $307,$1,096, of which $1,060 were fully offset by valuation allowances. We may use a portion of our capital losses to offset the capital gain anticipated from the pending sale of the Arnott's and international operations, which could result in a U.S. valuation allowance release and recognition of a material income tax benefit in 2020. The sale of the Arnott's and international operations, which has not been finalized, is expected to be completed in the first half of 2020. After considering all available evidence, we concluded that we should maintain a valuation allowance as of July 28, 2019.
The net change in the deferred tax asset valuation allowance in 20162019 was a decreasean increase of $4.$294. The decreaseincrease was primarily due to the expirationsale of tax losses, partially offset byBolthouse Farms and the recognitionpending sale of additional valuation allowance on tax loss carryforwards.the Arnott's and international operations. The net change in the deferred tax asset valuation allowance in 20152018 was a decreasean increase of $29.$13. The decreaseincrease was primarily due to the acquisition of Snyder's-Lance and the impact of currency. 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 expiration of tax losses, partially offset by the recognition of additional valuation allowances on other foreigntax loss carryforwards.carryforwards, partially offset by the expiration of tax losses.
As of July 31, 2016,28, 2019, other deferred tax assets included $2$13 of state tax credit carryforwards related to various states that expire between 20182021 and 2025.2031. As of August 2, 2015,July 28, 2019, deferred tax asset valuation allowances have been established to offset $13 of the state credit carryforwards. The decrease in state tax credit carryforwards was primarily due to the utilization of credits and the sale of Bolthouse Farms. As of July 29, 2018, other deferred tax assets included $2$23 of state tax credit carryforwards related to various states that expire between 2021 and 2031. As of July 29, 2018, and 2024. Nodeferred tax asset valuation allowances have been established related to these deferred tax assets.offset $15 of the state credit carryforwards.
As of July 31, 2016, U.S. income taxes have not been provided on28, 2019, we had approximately $638$156 of undistributed earnings of non-U.S. subsidiaries, most of which were subject to U.S. tax under the transition tax on foreign earnings due under the Act. Consistent with prior years, these unremitted earnings and the investment in our foreign subsidiaries are deemed to be permanently reinvested.reinvested and no additional tax has been provided. 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:
| | | | 2016 | | 2015 | | 2014 | 2019 | | 2018 | | 2017 |
| Balance at beginning of year | $ | 58 |
| | $ | 71 |
| | $ | 61 |
| $ | 32 |
| | $ | 64 |
| | $ | 63 |
|
| Increases related to prior-year tax positions | 2 |
| | 9 |
| | — |
| 1 |
| | — |
| | 4 |
|
| Decreases related to prior-year tax positions | — |
| | — |
| | (1 | ) | (1 | ) | | (37 | ) | | — |
|
| Increases related to current-year tax positions | 3 |
| | 5 |
| | 11 |
| 2 |
| | 2 |
| | 4 |
|
| Settlements | — |
| | (27 | ) | | — |
| (9 | ) | | (1 | ) | | (7 | ) |
| Lapse of statute | — |
| | — |
| | — |
| (1 | ) | | — |
| | — |
|
| Increase due to acquisitions | | — |
| | 4 |
| | — |
|
| Balance at end of year | $ | 63 |
| | $ | 58 |
| | $ | 71 |
| $ | 24 |
| | $ | 32 |
| | $ | 64 |
|
The amount of unrecognized tax benefits that, if recognized, would impact the annual effective tax rate was $42$17 as of July 31, 2016, $39 as of August 2, 2015, and28, 2019, $23 as of August 3, 2014.July 29, 2018, and $19 as of July 30, 2017. 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 as accounts receivable in the Consolidated Balance Sheets as of July 31, 2016, and August 2, 2015.
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
of Earnings was $3 in 2016, andwere earnings of $1 in 20152019, and 2014.expense of $1 in 2018 and $4 in 2017. The total amount of interest and penalties recognized in the Consolidated Balance Sheets in Other liabilities was $6$4 as of July 31, 2016,28, 2019, and $3$5 as of August 2, 2015.July 29, 2018.
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 20162019 tax year is currently under audit by the Internal Revenue Service. In addition, several state income tax examinations are in progress for the years 19992006 to 2015.2017.
With limited exceptions, we have been audited for income tax purposes in Australia andthrough 2014, in Denmark through 2010,2015, and in Canada through 2009.2014.
| |
| 13. | Short-term Borrowings and Long-term Debt |
Short-term borrowings consist of the following:
| | | | 2016 | | 2015 | 2019 | | 2018 |
| Commercial paper | $ | 770 |
| | $ | 1,532 |
| $ | 853 |
| | $ | 1,140 |
|
| Current portion of long-term debt | 400 |
| | — |
| |
| Notes | | 500 |
| | 300 |
|
| Current portion of Canadian credit facility | 42 |
| | — |
| — |
| | 90 |
|
| Variable-rate bank borrowings | 6 |
| | 1 |
| |
| Fixed-rate bank borrowings | — |
| | 9 |
| |
| Capital leases | 2 |
| | 1 |
| 1 |
| | — |
|
| Build-to-suit lease commitment | | 20 |
| | — |
|
Other(1) | (1 | ) | | — |
| (3 | ) | | (5 | ) |
| Total short-term borrowings | $ | 1,219 |
| | $ | 1,543 |
| $ | 1,371 |
| | $ | 1,525 |
|
| |
(1) | Includes unamortized net discount/premium on debt issuances and debt issuance costs. |
As of July 31, 2016,28, 2019, the weighted-average interest rate of commercial paper, which consisted of U.S. borrowings, was 0.74%2.97%. As of August 2, 2015,July 29, 2018, the weighted-average interest rate of commercial paper, which consisted of U.S. borrowings, was 0.58%2.54%.
AtAs of July 31, 2016,28, 2019, we had $1,219$1,371 of short-term borrowings of continuing operations due within one year, of which $770$853 was comprised of commercial paper borrowings. In addition, as of July 28, 2019, we had short-term borrowings of $232 reflected in Current liabilities of discontinued operations. As of July 31, 2016,28, 2019, we issued $47$46 of standby letters of credit. We have a committed revolving credit facility totaling $2,200$1,850 that matures in December 2018.2021. This U.S. facility remained unused at July 31, 2016,28, 2019, except for $3$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. We may increase the commitment under the U.S. facility up to an additional $500, upon the agreement of either existing lenders or of additional banks not currently parties to the facility. In July 2016, we entered into a committed revolving credit facility totaling CAD $280, or $215, that matures in July 2019. The Canadian facility's commitment mandatorily reduces to CAD $225 in July 2017 and to CAD $185 in July 2018. The Canadian facility supports general corporate purposes.
As of July 31, 2016,29, 2018, we borrowed CAD $280, or $215, at a ratehad short-term borrowings of 1.78% pursuant to this facility,$371 reflected in Current liabilities of which CAD $55, or $42, is classified as short-term borrowings. In August 2016, we reduced the borrowings and commitment under the Canadian facility by CAD $35, or $27.discontinued operations.
Long-term debt consists of the following: | | | Type | | Fiscal Year of Maturity | | Rate | | 2016 | | 2015 | | Fiscal Year of Maturity | | Rate | | 2019 | | 2018 |
| Canadian credit facility | | | 2019 | | Variable | | $ | — |
| | $ | 90 |
|
| Notes | | 2017 | | 3.05% | | $ | 400 |
| | $ | 400 |
| | 2019 | | 4.50% | | — |
| | 300 |
|
| Notes | | | 2020 | | Variable | | 500 |
| | 500 |
|
| Notes | | | 2021 | | Variable | | 400 |
| | 400 |
|
| Senior Term Loan | | | 2021 | | Variable | | 499 |
| | 900 |
|
| Notes | | 2019 | | 4.50% | | 300 |
| | 300 |
| | 2021 | | 3.30% | | 650 |
| | 650 |
|
| Notes | | 2021 | | 4.25% | | 500 |
| | 500 |
| | 2021 | | 4.25% | | 500 |
| | 500 |
|
| Debentures | | 2021 | | 8.88% | | 200 |
| | 200 |
| | 2021 | | 8.88% | | 200 |
| | 200 |
|
| Notes | | 2023 | | 2.50% | | 450 |
| | 450 |
| | 2023 | | 2.50% | | 450 |
| | 450 |
|
| Notes | | 2025 | | 3.30% | | 300 |
| | 300 |
| | 2023 | | 3.65% | | 1,200 |
| | 1,200 |
|
| Notes | | 2043 | | 3.80% | | 400 |
| | 400 |
| | 2025 | | 3.95% | | 850 |
| | 850 |
|
| Canadian credit facility | | 2019 | | Variable | | 215 |
| | — |
| |
| Notes | | | 2025 | | 3.30% | | 300 |
| | 300 |
|
| Notes | | | 2028 | | 4.15% | | 1,000 |
| | 1,000 |
|
| Notes | | | 2043 | | 3.80% | | 400 |
| | 400 |
|
| Notes | | | 2048 | | 4.80% | | 700 |
| | 700 |
|
| Capital leases | | 8 |
| | 10 |
| | 3 |
| | — |
|
Other(1) | | (18 | ) | | (21 | ) | | (49 | ) | | (59 | ) |
| Total | | $ | 2,755 |
| | $ | 2,539 |
| | $ | 7,603 |
| | $ | 8,381 |
|
Less current portion(1) | | 441 |
| | — |
| |
| Less current portion | | | 500 |
| | 390 |
|
| Total long-term debt | | $ | 2,314 |
| | $ | 2,539 |
| | $ | 7,103 |
| | $ | 7,991 |
|
| |
(1) | Includes unamortized net discount/premium on debt issuances and debt issuance costs. |
In March 2015, weWe issued $300 of 3.30%$5,300 senior notes that mature on March 19, 2025.16, 2018, and borrowed $900 under a single draw 3-year senior unsecured term loan facility on March 26, 2018 to finance the acquisition of Snyder's-Lance. The interest rate on the $900 senior unsecured term loan facility resets in one, two, three, or six-month periods dependent upon our election. Interest on the senior unsecured term loan facility is due upon the earlier of an interest reset or quarterly. The senior unsecured term loan facility may be prepaid at par at any time. The senior unsecured term loan facility contains a financial covenant based on our maximum leverage ratio. Pursuant to this covenant, if our credit rating is less than BBB+ from Standard & Poor's and Baa1 from Moody's Investors Service, Inc and the amount borrowed under the facility is in excess of $500, we must maintain a leverage ratio below (i) for the last day of each quarter ending on or prior to April 30, 2020, 5.75:1.00, and (ii) thereafter, 5.25:1.00. Our leverage ratio is calculated based on the ratio of consolidated net debt to consolidated adjusted EBITDA, each as defined in the credit agreement for the senior unsecured term loan facility. In addition, the senior unsecured term loan facility contains other customary covenants and events of default for credit facilities of this type. During the fourth quarter of 2019, we prepaid $401 of the senior unsecured term loan facility. As a result of such prepayment, the maximum leverage ratio covenant in the senior unsecured term loan facility no longer applies. Interest on the 2-year floating rate senior notes is due quarterly on March 16, June 16, September 16, and December 16, commencing on June 16, 2018. Interest on the 3-year floating rate senior notes is due quarterly on March 15, June 15, September 15, and December 15, commencing on June 15, 2018. Interest on the fixed rate senior notes is due semi-annually on March 1915 and September 19,15, commencing on September 19, 2015.15, 2018. The fixed rate senior notes may be redeemed, in whole or in part, at our option at any time at the applicable redemption price. In certain circumstances,If change of control triggering events occur, we maywill be required to repurchase some or alloffer to purchase the senior notes at a purchase price equal to 101% of the notes upon a change in control of our companyprincipal amount plus accrued and a downgrade ofunpaid interest, if any, to the notes below investment grade. The net proceeds were used for general corporate purposes.purchase date.
Principal amounts of long-term debt including the current portion of long-term debt in Short-term borrowings,continuing operations mature as follows: $444$2,250 in 2017; $322021; $2 in 2018; $4422022; $1,651 in 2019;2023; $1 in 2020; $700 in 2021;2024; and a total of $1,156$3,254 in periods beyond 2021.thereafter.
In addition, we have long-term debt of $6 and $7 in 2019 and 2018, respectively, reflected in Noncurrent liabilities of discontinued operations.
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, rate locks, options, forwards and commodity futures. We enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our 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 dodid not have credit-risk-related contingent features in our derivative instruments as of July 31, 2016.28, 2019, or July 29, 2018.
We are also exposed to credit risk from our customers. During 2016,2019, our largest customer accounted for approximately 20% of consolidated net sales.sales from continuing operations. Our five largest customers accounted for approximately 40%43% of our consolidated net sales from continuing operations in 2016.2019.
We closely monitor credit risk associated with counterparties and customers.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk related to our international operations, including non-functional currency intercompany debt and net investments in subsidiaries. We are also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. Principal currencies hedged include the Canadian dollar, Australian dollar and U.S. dollar. We utilize foreign exchange forward purchase and sale contracts, as well as cross-currency swaps, to hedge these exposures. The contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge portions of our forecasted foreign currency transaction exposure with foreign exchange forward contracts for periods typically up to 18 months. To hedge currency exposures related to intercompany debt, we enter into foreign exchange forward purchase and sale contracts, as well as cross-currency swap contracts, for periods consistent with the underlying debt. The notional
amount of foreign exchange forward contracts accounted for as cash-flow hedges was $91146 at July 31, 2016,28, 2019, and $53104 at August 2, 2015.July 29, 2018. Of these amounts, $80 at July 28, 2019, and $92 at July 29, 2018 relate to discontinued operations. 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 $175177 and $230140 at July 31, 2016,28, 2019, and August 2, 2015,July 29, 2018, respectively. The notional amount of cross-currency swap contracts that are not designated as accounting hedges was $250Of these amounts, $3 at August 2, 2015.July 28, 2019 and July 29, 2018, relate to discontinued operations. There were no cross-currency swap contracts outstanding as of July 31, 2016.28, 2019, or July 29, 2018.
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 or treasury rate lock contracts 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 swapsThe contracts are accounted foreither designated as cash-flow hedges.hedging instruments or are undesignated. The effective portion of the changes in fair value on thesedesignated 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 outstandingchange in fair value on undesignated instruments is recorded in interest expense. There were no forward starting interest rate swaps totaled $300 at or treasury rate lock contracts outstanding as of July 31, 2016 and August 2, 2015, respectively, which relates to an anticipated debt issuance in28, 2019, or July 29, 2018. We settled forward starting interest rate swaps with a notional value of $250 during 2015 at a loss of $4. The effective portion of the loss was recorded in other comprehensive income (loss) and will be recognized as additional interest expense over the 10-year life of debt issued in March 2015.
Commodity Price Risk
We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of soybean oil, wheat, diesel fuel, aluminum, soybean oil, cocoa, natural gas, soybean meal, corn, cocoa, butter, corn 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 31, 2016,28, 2019, or August 2, 2015.July 29, 2018. The notional amount of commodity contracts not designated as accounting hedges was $88183 at July 31, 2016,28, 2019, and $95$118 at July 29, 2018. Of these amounts, $3 at July 28, 2019, and $2 at July 29, 2018, relate to discontinued operations.August 2, 2015.
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 was approximately $27 as of July 28, 2019, and $33 as of July 29, 2018. The fair value was not material as of July 28, 2019, and July 29, 2018. 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 Institutional Plus Shares, and the total return of the Vanguard Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty eithereither: 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;Index Institutional Plus Shares; 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 31, 2016,28, 2019, and July 29, 2018, were $31 and August 2, 2015, were $44 and $4941, respectively.
The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of July 31, 2016,28, 2019, and August 2, 2015:July 29, 2018:
| | | | Balance Sheet Classification | | 2016 | | 2015 | Balance Sheet Classification | | 2019 | | 2018 |
| Asset Derivatives | | | | | | | | |
| Derivatives designated as hedges: | | | | | | | | |
| Foreign exchange forward contracts | Other current assets | | $ | 1 |
| | $ | 3 |
| Current assets of discontinued operations | | $ | — |
| | $ | 1 |
|
| Total derivatives designated as hedges | | $ | 1 |
| | $ | 3 |
| | $ | — |
| | $ | 1 |
|
| Derivatives not designated as hedges: | | | | | | | | |
| Commodity derivative contracts | Other current assets | | $ | 3 |
| | $ | 1 |
| Other current assets | | $ | 3 |
| | $ | 5 |
|
| Cross-currency swap contracts | Other current assets | | — |
| | 18 |
| |
| Deferred compensation derivative contracts | Other current assets | | 1 |
| | 1 |
| Other current assets | | 1 |
| | 1 |
|
| Foreign exchange forward contracts | Other current assets | | — |
| | 9 |
| Other current assets | | 1 |
| | 3 |
|
| Cross-currency swap contracts | Other assets | | — |
| | 22 |
| |
| Total derivatives not designated as hedges | | $ | 4 |
| | $ | 51 |
| | $ | 5 |
| | $ | 9 |
|
| Total asset derivatives | | $ | 5 |
| | $ | 54 |
| | $ | 5 |
| | $ | 10 |
|
| | | | Balance Sheet Classification | | 2016 | | 2015 | Balance Sheet Classification | | 2019 | | 2018 |
| Liability Derivatives | | | | | | | | |
| Derivatives designated as hedges: | | | | | | | | |
| Foreign exchange forward contracts | Accrued liabilities | | $ | 4 |
| | $ | — |
| Current liabilities of discontinued operations | | $ | 2 |
| | $ | 2 |
|
| Forward starting interest rate swaps | Other liabilities | | 44 |
| | 8 |
| |
| Total derivatives designated as hedges | | $ | 48 |
| | $ | 8 |
| | $ | 2 |
| | $ | 2 |
|
| Derivatives not designated as hedges: | | | | | | | | |
| Commodity derivative contracts | Accrued liabilities | | $ | 4 |
| | $ | 10 |
| Accrued liabilities | | $ | 6 |
| | $ | 3 |
|
| Deferred compensation derivative contracts | Accrued liabilities | | 1 |
| | — |
| |
| Foreign exchange forward contracts | Accrued liabilities | | 7 |
| | 2 |
| Accrued liabilities | | 2 |
| | — |
|
| Commodity derivative contracts | | Other liabilities | | — |
| | 1 |
|
| Total derivatives not designated as hedges | | $ | 12 |
| | $ | 12 |
| | $ | 8 |
| | $ | 4 |
|
| Total liability derivatives | | $ | 60 |
| | $ | 20 |
| | $ | 10 |
| | $ | 6 |
|
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 31, 2016,28, 2019, and August 2, 2015,July 29, 2018, would be adjusted as detailed in the following table:
| | | | | 2016 | | 2015 | | 2019 | | 2018 |
| Derivative Instrument | | Gross Amounts Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements | | Net Amount | | Gross Amounts Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements | | Net Amount | | Gross Amounts Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements | | Net Amount | | Gross Amounts Presented in the Consolidated Balance Sheet | | Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements | | Net Amount |
| Total asset derivatives | | $ | 5 |
| | $ | (4 | ) | | $ | 1 |
| | $ | 54 |
| | $ | (13 | ) | | $ | 41 |
| | $ | 5 |
| | $ | (2 | ) | | $ | 3 |
| | $ | 10 |
| | $ | (3 | ) | | $ | 7 |
|
| Total liability derivatives | | $ | 60 |
| | $ | (4 | ) | | $ | 56 |
| | $ | 20 |
| | $ | (13 | ) | | $ | 7 |
| | $ | 10 |
| | $ | (2 | ) | | $ | 8 |
| | $ | 6 |
| | $ | (3 | ) | | $ | 3 |
|
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.positions for exchange-traded commodity derivative instruments. At July 31, 2016,28, 2019, and August 2, 2015,July 29, 2018, a cash margin account balance of $5$7 and $12,$2, respectively, was included in Other current assets in the Consolidated Balance Sheets.
The following tables show the effect of our derivative instruments designated as cash-flow hedges for the years ended July 31, 2016,28, 2019, July 29, 2018, and August 2, 2015,July 30, 2017 in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:
Derivatives Designated as Cash-Flow Hedges
| | | | | Total Cash-Flow Hedge OCI Activity | | | Total Cash-Flow Hedge OCI Activity |
| | | | 2016 | | 2015 | | 2014 | |
| Derivatives Designated as Cash-Flow Hedges | | | | 2019 | | 2018 | | 2017 |
| OCI derivative gain (loss) at beginning of year | | $ | (10 | ) | | $ | (4 | ) | | $ | 8 |
| | $ | (8 | ) | | $ | (34 | ) | | $ | (64 | ) |
| Effective portion of changes in fair value recognized in OCI: | | | | | | | | | | | | |
| Foreign exchange forward contracts | | (9 | ) | | 18 |
| | — |
| | (3 | ) | | 8 |
| | (4 | ) |
| Forward starting interest rate swaps | | (36 | ) | | (23 | ) | | (12 | ) | | — |
| | 15 |
| | 23 |
|
| Amount of (gain) loss reclassified from OCI to earnings: | Location in Earnings | | | | | | | Location in Earnings | | | | | | |
| Foreign exchange forward contracts | Cost of products sold | | (11 | ) | | (4 | ) | | (4 | ) | Cost of products sold | | (4 | ) | | 5 |
| | 3 |
|
| Foreign exchange forward contracts | Other expenses / (income) | | (2 | ) | | (1 | ) | | 1 |
| Other expenses / (income) | | — |
| | — |
| | 1 |
|
| Foreign exchange forward contracts | | Loss from discontinued operations | | 2 |
| | (4 | ) | | 3 |
|
| Forward starting interest rate swaps | Interest expense | | 4 |
| | 4 |
| | 3 |
| Interest expense | | 2 |
| | 2 |
| | 4 |
|
| OCI derivative gain (loss) at end of year | | $ | (64 | ) | | $ | (10 | ) | | $ | (4 | ) | | $ | (11 | ) | | $ | (8 | ) | | $ | (34 | ) |
Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next 12 months is a loss of $13.$3. The ineffective portion and amount excluded from effectiveness testing were not material.
The following table shows the effect of our derivative instruments designated as fair-value hedges in the Consolidated Statements of Earnings:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Amount of Gain (Loss) Recognized in Earnings on Derivatives | | Amount of Gain (Loss) Recognized in Earnings on Hedged Item |
Derivatives Designated
as Fair-Value Hedges | | Location of Gain (Loss)
Recognized in Earnings | | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
| Interest rate swaps | | Interest expense | | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | 1 |
|
The following table shows the effects of our derivative instruments not designated as hedges in the Consolidated Statements of Earnings:
| | | | | Amount of (Gain) Loss Recognized in Earnings on Derivatives | | Amount of (Gain) Loss Recognized in Earnings on Derivatives |
| Derivatives not Designated as Hedges | | Location of (Gain) Loss
Recognized in Earnings | | 2016 | | 2015 | | 2014 | | Location of (Gain) Loss
Recognized in Earnings | | 2019 | | 2018 | | 2017 |
| Foreign exchange forward contracts | | Cost of products sold | | $ | — |
| | $ | (2 | ) | | $ | (3 | ) | | Cost of products sold | | $ | — |
| | $ | (1 | ) | | $ | 1 |
|
| Foreign exchange forward contracts | | Other expenses / (income) | | (1 | ) | | 3 |
| | 12 |
| | Other expenses / (income) | | — |
| | (1 | ) | | 14 |
|
| Cross-currency swap contracts | | Other expenses / (income) | | 2 |
| | (58 | ) | | (7 | ) | |
| Foreign exchange forward contracts | | | Loss from discontinued operations | | — |
| | — |
| | (1 | ) |
| Commodity derivative contracts | | | Cost of products sold | | 6 |
| | (2 | ) | | (11 | ) |
| Commodity derivative contracts | | Cost of products sold | | 6 |
| | 19 |
| | 4 |
| | Loss from discontinued operations | | (1 | ) | | — |
| | — |
|
| Deferred compensation derivative contracts | | Administrative expenses | | (6 | ) | | (7 | ) | | (2 | ) | | Administrative expenses | | (2 | ) | | (2 | ) | | (3 | ) |
| Treasury rate lock contracts | | | Interest expense | | — |
| | (18 | ) | | — |
|
| Total | | $ | 1 |
| | $ | (45 | ) | | $ | 4 |
| | $ | 3 |
| | $ | (24 | ) | | $ | — |
|
| |
| 15. | Variable Interest Entity |
In February 2016, we agreed to make a $125 capital commitment subject to certain qualifications of up to $125 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 31, 2016,28, 2019, we funded $35$83 of the capital commitment. ExceptOn August 29, 2018, we provided notice of termination of the investment period and have no obligation to make any further capital contributions to Acre for new investments, but are required to pay obligations made prior to the remaining unfunded capital commitmentnotice of $90, we do not have obligations to provide additional financial or other support to Acre.termination, the management fee and permitted partnership expenses.
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 $34$76 and $77 as of July 28, 2019, and July 29, 2018, 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 through July 31, 2016. TheCurrent assets and liabilities of Acre were not material.material as of July 28, 2019, or July 29, 2018.
| |
| 16. | 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.
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 31, 2016,28, 2019, and August 2, 2015,July 29, 2018, consistent with the fair value hierarchy:
| | | | Fair Value
as of
July 31,
2016 | | Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy | | Fair Value
as of
August 2,
2015 | | Fair Value Measurements at
August 2, 2015 Using
Fair Value Hierarchy | Fair Value
as of
July 28,
2019 | | Fair Value Measurements at
July 28, 2019 Using
Fair Value Hierarchy | | Fair Value
as of
July 29,
2018 | | Fair Value Measurements at
July 29, 2018 Using
Fair Value Hierarchy |
| | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange forward contracts(1) | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| | $ | 12 |
| | $ | — |
| $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 4 |
| | $ | — |
|
Commodity derivative contracts(2) | 3 |
| | 2 |
| | 1 |
| | — |
| | 1 |
| | 1 |
| | — |
| | — |
| 3 |
| | 2 |
| | 1 |
| | — |
| | 5 |
| | 5 |
| | — |
| | — |
|
Cross-currency swap contracts(3) | — |
| | — |
| | — |
| | — |
| | 40 |
| | — |
| | 40 |
| | — |
| |
Deferred compensation derivative contracts(4) | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| |
Deferred compensation derivative contracts(3) | | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
| | 1 |
| | — |
|
Deferred compensation investments(4) | | 4 |
| | 4 |
| | — |
| | — |
| | 6 |
| | 6 |
| | — |
| | — |
|
Fair value option investments (5) | 33 |
| | — |
| | 8 |
| | 25 |
| | — |
| | — |
| | — |
| | — |
| 76 |
| | — |
| | — |
| | 76 |
| | 77 |
| | — |
| | — |
| | 77 |
|
| Total assets at fair value | $ | 38 |
| | $ | 2 |
| | $ | 11 |
| | $ | 25 |
| | $ | 54 |
| | $ | 1 |
| | $ | 53 |
| | $ | — |
| $ | 85 |
| | $ | 6 |
| | $ | 3 |
| | $ | 76 |
| | $ | 93 |
| | $ | 11 |
| | $ | 5 |
| | $ | 77 |
|
| | | | Fair Value
as of
July 31,
2016 | | Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy | | Fair Value
as of
August 2,
2015 | | Fair Value Measurements at
August 2, 2015 Using
Fair Value Hierarchy | Fair Value
as of
July 28,
2019 | | Fair Value Measurements at
July 28, 2019 Using
Fair Value Hierarchy | | Fair Value
as of
July 29,
2018 | | Fair Value Measurements at
July 29, 2018 Using
Fair Value Hierarchy |
| | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forward starting interest rate swaps(6) | $ | 44 |
| | $ | — |
| | $ | 44 |
| | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | 8 |
| | $ | — |
| |
Foreign exchange forward contracts(1) | 11 |
| | — |
| | 11 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
| $ | 4 |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 2 |
| | $ | — |
|
Commodity derivative contracts(2) | 4 |
| | 4 |
| | — |
| | — |
| | 10 |
| | 10 |
| | — |
| | — |
| 6 |
| | 3 |
| | 3 |
| | — |
| | 4 |
| | 3 |
| | 1 |
| | — |
|
Deferred compensation derivative contracts(4) | 1 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Deferred compensation obligation(7) | 119 |
| | 119 |
| | — |
| | — |
| | 120 |
| | 120 |
| | — |
| | — |
| |
Deferred compensation obligation(4) | | 95 |
| | 95 |
| | — |
| | — |
| | 108 |
| | 108 |
| | — |
| | — |
|
| Total liabilities at fair value | $ | 179 |
| | $ | 123 |
| | $ | 56 |
| | $ | — |
| | $ | 140 |
| | $ | 130 |
| | $ | 10 |
| | $ | — |
| $ | 105 |
| | $ | 98 |
| | $ | 7 |
| | $ | — |
| | $ | 114 |
| | $ | 111 |
| | $ | 3 |
| | $ | — |
|
| |
(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 observable local benchmarks for currencyLIBOR and interestequity index swap rates. |
| |
(4) | Based on LIBOR and equity index swap rates.the fair value of the participants’ investments. |
| |
(5) | 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 in 2016.Acre. See Note 15 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, 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 through July 31, 2016. |
| |
(6)The following table summarizes the changes in fair value of Level 3 investments for the years ended July 28, 2019, and July 29, 2018: | | | | | | | | | | | | | 2019 | | 2018 | | Fair value at beginning of year | | $ | 77 |
| | $ | 49 |
| | Gains (losses) | | (1 | ) | | 9 |
| | Purchases | | — |
| | 19 |
| | Fair value at end of year | | $ | 76 |
| | $ | 77 |
|
| Based on LIBOR swap rates. |
| |
(7)
| 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.
We recognized impairment charges on goodwill, trademarks, other intangible assets and plant assets in connection with interim and annual assessments of assets in recent years. See also Notes 3 and 6 for additional information on the impairment charges.
Fair value was determined based on unobservable Level 3 inputs. The fair value of plant assets was determined based on cash flows associated with the asset group that include significant management assumptions, including expected proceeds. The fair values of trademarks was determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average costs of capital and assumed royalty rates. 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 costs of capital, and future economic and market conditions.
The following table presents fair value measurements:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Impairment Charges | | Fair Value |
| | | Plant Assets | | Amortizable Intangibles | | Trademark | | Goodwill | | Plant Assets | | Amortizable Intangibles | | Trademark | | Goodwill |
| Continuing Operations | | | | | | | | | | | | | | | | |
| July 29, 2018 | | | | | | | | | | | | | | | | |
| Plum | | | | | | $ | 54 |
| | | | | | | | $ | 61 |
| | |
| | | | | | | | | | | | | | | | | |
| Discontinued Operations | | | | | | | | | | | | | | | | |
| January 27, 2019 | | | | | | | | | | | | | | | | |
| Bolthouse Farms carrot and carrot ingredients | | $ | 104 |
| | $ | 55 |
| | $ | 18 |
| | | | $ | 102 |
| | $ | 25 |
| | $ | 30 |
| | |
| Bolthouse Farms refrigerated beverages and salad dressings | | $ | 9 |
| | $ | 22 |
| | $ | 74 |
| | | | $ | 100 |
| | $ | 12 |
| | $ | 76 |
| | |
| Garden Fresh Gourmet | | $ | 2 |
| | $ | 39 |
| | $ | 23 |
| | | | $ | 25 |
| | $ | — |
| | $ | — |
| | |
| October 28, 2018 | | | | | | | | | | | | | | | | |
| Refrigerated soup | | $ | 14 |
| | | | | | | | $ | 38 |
| | | | | | |
| April 29, 2018 | | | | | | | | | | | | | | | | |
| Deli | | $ | 11 |
| | | | $ | 13 |
| | $ | 81 |
| | $ | 53 |
| | | | $ | 23 |
| | $ | — |
|
| Bolthouse Farms refrigerated beverages and salad dressings | | | | | | $ | 130 |
| | $ | 384 |
| | | | | | $ | 150 |
| | $ | — |
|
| January 28, 2018 | | | | | | | | | | | | | | | | |
| Bolthouse Farms carrot and carrot ingredients | | | | | | | | $ | 75 |
| | | | | | | | $ | — |
|
| January 29, 2017 | | | | | | | | | | | | | | | | |
| Bolthouse Farms carrot and carrot ingredients | | | | | | $ | 20 |
| | $ | 127 |
| | | | | | $ | 48 |
| | $ | 75 |
|
| Garden Fresh Gourmet | | | | | | $ | 1 |
| | $ | 64 |
| | | | | | $ | 37 |
| | $ | 52 |
|
In the fourth quarter of 2016,2019, we recorded an impairment charge of $16 on customer relationships intangible assets within the European chips business. The carrying value was not material.
In the fourth quarter of 2019, as part of our annual review of intangible assets, we recognized an impairment charge of $106$7 on a trademark and $10 on goodwill in Kelsen due to a lower long-term outlook for sales and the pending sale of the Bolthouse Farms carrot and carrot ingredients reporting unit to reduce the carrying value to the implied fair value of $202. The impairment was attributable tobusiness. On July 12, 2019, we signed a revised future outlookdefinitive agreement for the business, with reduced expectations for sales, margins, and discounted cash flows. Fair value was determined based on unobservable Level 3 inputs. The discounted estimatessale 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.our Kelsen business.
In the fourth quarter of 2016, as part of our annual review of intangible assets,2017, we recognized an$12 of charges, primarily asset impairment, charge of $35 on a trademark within the Bolthouse Farms carrot and carrot ingredients reporting unit. The carrying value of the trademark was $68 as of July 31, 2016. Fair value was determined based on unobservable Level 3 inputs. Fair value was determined based on discounted cash flow analysis that include significant management assumptions such as revenue growth rates, weighted average cost of capital, and assumed royalty rates.
In the fourth quarter of 2015, as part of our annual review of intangible assets, we recognized an impairment charge of $6 on minor trademarks used in the Global Biscuits and Snacks segment. The carrying value was $9 as of August 2, 2015. Fair value was determined based on unobservable Level 3 inputs. Fair value was determined based on discounted cash flow analysis that include significant management assumptions such as revenue growth rates, weighted average cost of capital, and assumed royalty rates.
See also Note 6 for additional information on the impairment charges.
In the second quarter of 2014, we recognized an impairment charge of $11 on plant assets associated with the initiative to restructure manufacturing and streamline operations for our soup and broth business2015 restructuring initiatives described in China. See also Note 8. The carrying value was reduced to estimated fair value based on expected proceeds. The carrying value was not material.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and accounts payable and short-term borrowings, excluding the current portion of long-term debt, approximate fair value.
Cash equivalents of $74discontinued operations of $19 at July 31, 2016,28, 2019, and $39$14 at August 2, 2015,July 29, 2018, 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 short- and long-term debt including the current portion of long-term debt in Short-term borrowings, was $2,9498,642 at July 31, 2016,28, 2019, and $2,623$9,268 at August 2, 2015.July 29, 2018. The carrying value was $2,755$8,474 at July 31, 2016,28, 2019, and $2,539$9,516 at August 2, 2015.July 29, 2018. The fair value of short- and long-term debt of discontinued operations was $238 at July 28, 2019, and $378 at July 29, 2018. The carrying value was $238 at July 28, 2019, and $378 at July 29, 2018. 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.
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 June 2011,March 2017, the Board authorized thea share repurchase program to purchase of up to $1,000 of our stock. This$1,500. The program has no expiration date.date, but it may be suspended or discontinued at any time. In addition to this publicly announced program, we also have a separate Board authorization to purchase shares to offset the impact of dilution from shares issued under our stock compensation plans.
In 2016, we repurchased 3 million shares at a cost We suspended our share repurchases as of $143. Of this amount, $100 was used to repurchase shares pursuant to our June 2011 publicly announced share repurchase program.the second quarter of 2018. Approximately $450$1,296 remained available under thisthe March 2017 program as of July 31, 2016.28, 2019. In 2015, we repurchased 5 million shares at a cost of $244 and in 2014,2018, we repurchased 2 million shares at a cost of $76.$86, and in 2017, we repurchased 8 million shares at a cost of $437.
| |
| 18. | 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, free cash flow (FCF) 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 arewere 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 FCF performance restricted stock units will be earned based upon the achievement of free cash flow (defined as Net cash provided by operating activities less capital expenditures and certain investing and financing activities) compared to annual operating plan objectives over a three-year period. An annual objective will be established each fiscal year for three consecutive years. Performance against these objectives will be averaged at the end of the three-year period to determine the number of underlying units that will vest at the end of the three years. A recipient of FCF performance restricted stock units may earn 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 20162019, 2018, and were not part of the long-term incentive compensation program for 2015 or 2014.2017. 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 20162019, 2018, and 2017, under these plans vest ratably over a three-year period. In 2019, we also granted options under these plans that vest at the end of 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 2016,2019, we issued stock options, time-lapse restricted stock units, unrestricted stock, EPSTSR performance restricted stock units and TSRFCF performance restricted stock units. We did not issue EPS performance restricted stock units, strategic performance restricted stock units or special performance restricted units in 2016.2019.
In determining stock-based compensation expense, we estimate forfeitures expected to occur. Total pre-tax stock-based compensation expense and tax-related benefits recognized in Earnings from continuing operations were as follows:
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Total pre-tax stock-based compensation expense | $ | 50 |
| | $ | 55 |
| | $ | 53 |
|
| Tax-related benefits | $ | 8 |
| | $ | 9 |
| | $ | 20 |
|
Total pre-tax stock-based compensation expense and tax-related benefits recognized in Earnings from continuing operations was $64 for 2016, $57 for 2015 and $56 for 2014. The pre-tax stock-based compensation expense recognized in Earnings (loss)Loss from discontinued operations was $1 for 2014. Tax-related benefits of $24 were recognized for 2016, and $21 were recognized for 2015 and 2014.as follows:
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Total pre-tax stock-based compensation expense | $ | 8 |
| | $ | 6 |
| | $ | 7 |
|
| Tax-related benefits | $ | 2 |
| | $ | 2 |
| | $ | 2 |
|
The following table summarizes stock option activity as of July 31, 2016:28, 2019:
| | | | Options | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Life | | Aggregate Intrinsic Value | Options | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| | (Options in thousands) | | | | (In years) | | | (Options in thousands) | | | | (In years) | | |
| Outstanding at August 2, 2015 | 74 |
| | $ | 29.91 |
| | | | | |
| Exercisable at July 29, 2018 | | 1,537 |
| | $ | 50.36 |
| | |
| Granted | 711 |
| | $ | 50.21 |
| | | | | 596 |
| | $ | 35.74 |
| | |
| Exercised | (74 | ) | | $ | 29.91 |
| | | | | — |
| | $ | — |
| | |
| Terminated | (30 | ) | | $ | 50.21 |
| | | | | (74 | ) | | $ | 49.05 |
| | |
| Outstanding at July 31, 2016 | 681 |
| | $ | 50.21 |
| | 9.2 |
| | $ | 8 |
| |
| Exercisable at July 31, 2016 | — |
| | $ | — |
| | — |
| | $ | — |
| |
| Outstanding at July 28, 2019 | | 2,059 |
| | $ | 46.17 |
| | 7.3 | | $ | 3 |
|
| Exercisable at July 28, 2019 | | 1,035 |
| | $ | 50.88 |
| | 5.9 | | $ | — |
|
TheNo options were exercised during 2018. During 2017, the total intrinsic value of options exercised during 2016, 2015 and 2014, was $2, $5 and $12, respectively.not material. 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 following weighted-average assumptions were usedand grant-date fair values for grants in 2016:2019, 2018, and 2017 were as follows:
|
| |
| 2016 |
Risk-free interest rate | 1.68% |
Expected dividend yield | 2.46% |
Expected volatility | 18.35% |
Expected term | 6 years |
|
| | | | | |
| | 2019 | | 2018 | | 2017 |
| Risk-free interest rate | 2.79% | | 2.06% | | 1.28% |
| Expected dividend yield | 3.84% | | 2.95% | | 2.26% |
| Expected volatility | 25.28% | | 19.60% | | 18.64% |
| Expected term | 6.1 years | | 6 years | | 6 years |
| Grant-date fair value | $6.27 | | $6.67 | | $7.51 |
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 31, 2016,28, 2019, total remaining unearned compensation related to nonvested stock options was $2, which will be amortized over the weighted-average remaining service period of 1.82.3 years.
The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units strategic performance restricted stock units and specialFCF performance restricted stock units as of July 31, 2016:28, 2019:
| | | | Units | | Weighted- Average Grant-Date Fair Value | Units | | Weighted- Average Grant-Date Fair Value |
| | (Restricted stock units in thousands) | | | (Restricted stock units in thousands) | | |
| Nonvested at August 2, 2015 | 2,410 |
| | $ | 41.40 |
| |
| Nonvested at July 29, 2018 | | 1,652 |
| | $ | 47.01 |
|
| Granted | 698 |
| | $ | 50.44 |
| 1,340 |
| | $ | 36.51 |
|
| Vested | (862 | ) | | $ | 39.50 |
| (711 | ) | | $ | 47.83 |
|
| Forfeited | (242 | ) | | $ | 43.73 |
| (321 | ) | | $ | 40.67 |
|
| Nonvested at July 31, 2016 | 2,004 |
| | $ | 45.08 |
| |
| Nonvested at July 28, 2019 | | 1,960 |
| | $ | 40.57 |
|
We determine the fair value of time-lapse restricted stock units, EPS performance restricted stock units, strategic performance restricted stock units, special performance restricted stock units and specialFCF 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 20866 thousand EPS performance target grants outstanding at July 31, 2016,28, 2019, with a weighted-average grant-date fair value of $45.30.
$49.10. We will expense strategicFCF performance restricted stock units on a straight-line basis over the requisite service period.period of each objective. In 2019, we issued approximately 388 thousand FCF performance restricted stock units and of those, granted 129 thousand, which are included in the table above. There were 336113 thousand strategic FCF performance target grants outstanding at July 31, 2016,28, 2019, with a grant-dategrant date fair value of $41.21.$37.62. The actual number of EPS performance restricted stock units, strategic performance restricted stock units, and strategicFCF 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 will receive aearned 35% payoutof the initial grants based on actual performance achieved during a three-year period ended July 31, 2016. There were no strategic performance restricted stock units outstanding at July 28, 2019 or July 29, 2018.
In 2015, we issued special performance restricted stock units for which vesting iswas contingent upon meeting various financial goals and performance milestones to support innovation and growth initiatives. These awards vest over a period of 2 years and are includedvested in the table above. There were 92 thousand special performance restricted stock units outstanding at July 31, 2016, with a grant-date fair value of $42.22. In the first quarter of 2017, recipients2017. Recipients of special performance restricted stock units will receive aearned 0% and 100% payout, respectively,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 31, 2016,28, 2019, total remaining unearned compensation related to nonvested time-lapse restricted stock units, EPS performance restricted stock units strategicand FCF performance restricted stock units and special performance restricted stock units was $2535, which will be amortized over the weighted-average remaining service period of 1.61.7 years. The fair value of restricted stock units vested during 2016, 20152019, 2018 and 20142017 was $44, $56$26, $30 and $106,$55, respectively. The weighted-average grant-date fair value of the restricted stock units granted during 20152018 and 20142017 was $43.00$44.18 and $39.97,$54.79, respectively.
The following table summarizes TSR performance restricted stock units as of July 31, 2016:28, 2019:
| | | | Units | | Weighted- Average Grant-Date Fair Value | Units | | Weighted- Average Grant-Date Fair Value |
| | (Restricted stock units in thousands) | | | (Restricted stock units in thousands) | | |
| Nonvested at August 2, 2015 | 1,579 |
| | $ | 40.75 |
| |
| Nonvested at July 29, 2018 | | 1,664 |
| | $ | 46.66 |
|
| Granted | 682 |
| | $ | 62.44 |
| 388 |
| | $ | 31.29 |
|
| Vested | (438 | ) | | $ | 39.76 |
| — |
| | $ | — |
|
| Forfeited | (182 | ) | | $ | 48.77 |
| (744 | ) | | $ | 55.07 |
|
| Nonvested at July 31, 2016 | 1,641 |
| | $ | 49.13 |
| |
| Nonvested at July 28, 2019 | | 1,308 |
| | $ | 37.33 |
|
We estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation. AssumptionsWeighted-average assumptions used in the Monte Carlo simulation were as follows:
| | | | 2016 | | 2015 | | 2014 | 2019 | | 2018 | | 2017 |
| Risk-free interest rate | 0.92% | | 0.97% | | 0.60% | 2.80% | | 1.58% | | 0.85% |
| Expected dividend yield | 2.46% | | 2.91% | | 2.98% | 3.79% | | 2.95% | | 2.26% |
| Expected volatility | 17.25% | | 16.20% | | 15.76% | 24.50% | | 19.07% | | 17.78% |
| Expected term | 3 years | | 3 years | | 3 years | 3 years | | 3 years | | 3 years |
We recognize compensation expense on a straight-line basis over the service period. As of July 31, 2016,28, 2019, total remaining unearned compensation related to TSR performance restricted stock units was $3414, which will be amortized over the weighted-average remaining service period of 1.81.6 years. 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. In the first quarter of 2014,2019, recipients of TSR performance restricted stock units earned 0% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 26, 2013.27, 2018. In the first quarter of 2018, recipients of TSR performance restricted stock units earned 125% of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 28, 2017. As a result, approximately 160 thousand additional shares were awarded. 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. The fair value of TSR performance restricted stock units vested during 20162018 and 2017 was $22.$38 and $14, respectively. The grant-date fair value of the TSR performance restricted stock units granted during 20152018 and 20142017 was $43.39$39.39 and $36.26, $39.53,
respectively. In the first quarter of 2017,2020, recipients of TSR performance restricted stock units will receive a 75%0% payout based upon our TSR ranking in a performance peer group during a three-year period ended July 29, 2016.26, 2019.
The excess tax deficiencies of $6 in 2019 and $3 in 2018, and the excess tax benefits of $6 in 2017, on the exercise of stock options and vested restricted stock were presented as cash flows from financing activities were $7 in 2016, $6 in 2015 and $13 in 2014.operating activities. Cash received from the exercise of stock options was $2 $9 and $18 for 2016, 2015 and 2014, respectively,2017, and are reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows.
| |
| 19. | 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 resolving through settlement numerous claims over an extended period of time, demonstrates to managementus 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.
On January 7, 2019, three purported shareholder class action lawsuits pending in the United States District Court for the District of New Jersey were consolidated under the caption, In re Campbell Soup Company Securities Litigation, Civ. No. 1:18-cv-14385-NLH-JS (the Action). Oklahoma Firefighters Pension and Retirement System was appointed lead plaintiff in the Action and, on March 1, 2019, filed an amended consolidated complaint. The company, Denise Morrison (the company's former President and Chief Executive Officer), and Anthony DiSilvestro (the company's Senior Vice President and Chief Financial Officer) are defendants in the Action. The consolidated complaint alleges that, in public statements between July 19, 2017 and May 17, 2018, the defendants made materially false and misleading statements and/or omitted material information about the company's business, operations, customer relationships, and prospects, specifically with regard to the Campbell Fresh segment. The consolidated complaint seeks unspecified monetary damages and other relief. On April 30, 2019, the defendants filed a motion to dismiss the consolidated complaint. We are vigorously defending against the Action.
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 31, 2016.28, 2019. While the potential future charges could be material in a particular quarter or annual period, based on information currently known by management, management doesus, we do not believe any such charges are likely to have a material adverse effect on our consolidated results of operations or financial condition. In the third quarter of 2018, we recorded expense of $22 from a settlement of a claim.
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 $45$102 in 2016, $482019, $74 in 20152018 and $50$53 in 2014. The amount2017. These amounts included $17 in 2014 included $22019, 2018, and 2017, respectively, related to discontinued operations. Future minimum annual rental payments under these operating leases as of July 31, 2016,28, 2019, are as follows:
|
| | | | | |
| 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter |
| $38 | $31 | $25 | $22 | $16 | $26 |
|
| | | | | |
| 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter |
| $68 | $54 | $40 | $29 | $21 | $88 |
The future minimum annual rental payments included $7 in 2020, $6 in 2021, $4 in 2022, $3 in 2023, $1 in 2024, and none thereafter related to discontinued operations.
Other Contingencies
We guarantee approximately 2,000 bank loans made to Pepperidge Farm independent contractor distributors by third‑partythird-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 $198.$220. We guarantee approximately 2,400 bank loans made to Snyder'-Lance independent contract distributors by third-party financial institutions for the purchase of distribution routes. The outstanding aggregate balance
on these loans was $194 as of July 28, 2019. Our guarantees are indirectly secured by the distribution routes. We do not believe it is probableexpect 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 31, 2016,28, 2019, and August 2, 2015,July 29, 2018, 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 31, 2016,28, 2019, and August 2, 2015.July 29, 2018.
| |
| 20. | Supplemental Financial Statement Data |
Balance Sheets
| | | | 2016 | | 2015 | 2019 | | 2018 |
| Accounts receivable | | | | | | |
| Customer accounts receivable | $ | 566 |
| | $ | 570 |
| $ | 538 |
| | $ | 528 |
|
| Allowances | (12 | ) | | (13 | ) | (13 | ) | | (18 | ) |
| Subtotal | $ | 554 |
| | $ | 557 |
| $ | 525 |
| | $ | 510 |
|
| Other | 72 |
| | 90 |
| 49 |
| | 53 |
|
| | $ | 626 |
| | $ | 647 |
| $ | 574 |
| | $ | 563 |
|
| | | | | | | |
| Inventories | | | | | | |
| Raw materials, containers and supplies | $ | 391 |
| | $ | 427 |
| $ | 271 |
| | $ | 312 |
|
| Finished products | 549 |
| | 568 |
| 592 |
| | 575 |
|
| | $ | 940 |
| | $ | 995 |
| $ | 863 |
| | $ | 887 |
|
| | | | | | | |
| Other current assets | | | | |
Deferred taxes(1) | $ | — |
| | $ | 114 |
| |
| Fair value of derivatives | 5 |
| | 32 |
| |
| Other | 41 |
| | 52 |
| |
| | $ | 46 |
| | $ | 198 |
| |
| | | | | |
| Plant assets | | | | | | |
| Land | $ | 58 |
| | $ | 57 |
| $ | 83 |
| | $ | 82 |
|
| Buildings | 1,488 |
| | 1,416 |
| 1,474 |
| | 1,439 |
|
| Machinery and equipment | 4,042 |
| | 3,802 |
| 3,473 |
| | 3,554 |
|
| Projects in progress | 176 |
| | 238 |
| 185 |
| | 164 |
|
| Total cost | $ | 5,764 |
| | $ | 5,513 |
| $ | 5,215 |
| | $ | 5,239 |
|
Accumulated depreciation(2) | (3,357 | ) | | (3,166 | ) | |
Accumulated depreciation(1) | | (2,760 | ) | | (2,773 | ) |
| | $ | 2,407 |
| | $ | 2,347 |
| $ | 2,455 |
| | $ | 2,466 |
|
| | | | | | | |
| Other assets | | | | | | |
| Fair value of derivatives | $ | — |
| | $ | 22 |
| |
| Investments | 47 |
| | 10 |
| $ | 77 |
| | $ | 92 |
|
| Deferred taxes | 41 |
| | 25 |
| 2 |
| | 2 |
|
| Pensions | | 21 |
| | 61 |
|
| Other | 19 |
| | 31 |
| 27 |
| | 34 |
|
| | $ | 107 |
| | $ | 88 |
| $ | 127 |
| | $ | 189 |
|
| | | | 2016 | | 2015 | 2019 | | 2018 |
| Accrued liabilities | | | | | | |
| Accrued compensation and benefits | $ | 263 |
| | $ | 255 |
| $ | 234 |
| | $ | 162 |
|
| Fair value of derivatives | 16 |
| | 12 |
| 8 |
| | 3 |
|
| Accrued trade and consumer promotion programs | 130 |
| | 125 |
| 135 |
| | 130 |
|
| Accrued interest | 35 |
| | 35 |
| 97 |
| | 102 |
|
| Restructuring | 57 |
| | 54 |
| 29 |
| | 19 |
|
| Other | 103 |
| | 108 |
| 106 |
| | 100 |
|
| | $ | 604 |
| | $ | 589 |
| $ | 609 |
| | $ | 516 |
|
| | | | | | | |
| Other liabilities | | | | | | |
| Pension benefits | $ | 501 |
| | $ | 233 |
| $ | 179 |
| | $ | 141 |
|
Deferred compensation(3) | 100 |
| | 104 |
| 79 |
| | 90 |
|
| Postretirement benefits | 285 |
| | 362 |
| 210 |
| | 206 |
|
| Fair value of derivatives | 44 |
| | 8 |
| |
| Transition tax on unremitted foreign earnings | | — |
| | 7 |
|
| Unrecognized tax benefits | 31 |
| | 26 |
| 19 |
| | 22 |
|
| Restructuring | 17 |
| | 49 |
| 8 |
| | 24 |
|
| Other | 61 |
| | 68 |
| 64 |
| | 57 |
|
| | $ | 1,039 |
| | $ | 850 |
| $ | 559 |
| | $ | 547 |
|
| |
(1) | 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. |
| |
(2)
| Depreciation expense was $288$389 in 2016, $2862019, $360 in 20152018 and $287$299 in 2014.2017. Depreciation expense of continuing operations was $315 in 2019, $259 in 2018 and $192 in 2017. 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. |
| |
(3)
| 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 Liquidity TempFund. 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. |
Statements of Earnings |
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Other expenses / (income) | | | | | |
| Amortization of intangible assets | $ | 48 |
| | $ | 20 |
| | $ | 1 |
|
Impairment of intangible assets(1) | 16 |
| | 54 |
| | — |
|
| Net periodic benefit expense (income) other than the service cost | 71 |
| | (225 | ) | | (224 | ) |
| Investment losses | 1 |
| | 10 |
| | 9 |
|
Transaction costs(2) | — |
| | 53 |
| | — |
|
| Legal settlements | — |
| | 22 |
| | — |
|
| Other | 4 |
| | (7 | ) | | (2 | ) |
| | $ | 140 |
| | $ | (73 | ) | | $ | (216 | ) |
| | | | | | |
Advertising and consumer promotion expense(3) | $ | 347 |
| | $ | 327 |
| | $ | 327 |
|
| | | | | | |
| Interest expense | | | | | |
| Interest expense | $ | 359 |
| | $ | 186 |
| | $ | 117 |
|
| Less: Interest capitalized | 3 |
| | 3 |
| | 2 |
|
| | $ | 356 |
| | $ | 183 |
| | $ | 115 |
|
|
| | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 |
| Other expenses / (income) | | | | | |
Foreign exchange (gains) / losses(1) | $ | (2 | ) | | $ | — |
| | $ | 6 |
|
| Amortization of intangible assets | 20 |
| | 17 |
| | 18 |
|
Impairment of intangible assets(2) | 141 |
| | 6 |
| | — |
|
Claim settlement(3) | (25 | ) | | — |
| | — |
|
| Other | (3 | ) | | 1 |
| | (2 | ) |
| | $ | 131 |
| | $ | 24 |
| | $ | 22 |
|
| | | | | | |
Advertising and consumer promotion expense(4) | $ | 397 |
| | $ | 385 |
| | $ | 411 |
|
| | | | | | |
| Interest expense | | | | | |
| Interest expense | $ | 118 |
| | $ | 111 |
| | $ | 124 |
|
| Less: Interest capitalized | 3 |
| | 3 |
| | 2 |
|
| | $ | 115 |
| | $ | 108 |
| | $ | 122 |
|
| |
(1) | 2014 included a loss of $9 on foreign exchange forward contracts used to hedge the proceeds from the sale of the European simple meals business.See Note 6 for additional information. |
| |
(2) | In 2016,2018, we recognized an impairment chargetransaction costs of $141$53 related to the intangible assetsacquisition of the Bolthouse Farmscarrot and carrot ingredients reporting unitand in 2015 we recognized an impairment charge of $6 related to minor trademarks used in the Global Biscuits and Snacks segment.Snyder's-Lance. See also Note 6. 4 for additional information. |
| |
(3) | In 2016, we recorded a gain of $25 from a settlement of a claim related to the Kelsen acquisition. |
| |
(4)
| Included in Marketing and selling expenses. |
| | | | 2016 | | 2015 | | 2014 | 2019 | | 2018 | | 2017 |
| Cash Flows from Operating Activities | | | | | | | | | | |
| Other | | | | | | | | | | |
| Benefit related payments | $ | (55 | ) | | $ | (53 | ) | | $ | (52 | ) | $ | (60 | ) | | $ | (59 | ) | | $ | (58 | ) |
| Other | (3 | ) | | 1 |
| | (1 | ) | (4 | ) | | 5 |
| | 3 |
|
| | $ | (58 | ) | | $ | (52 | ) | | $ | (53 | ) | $ | (64 | ) | | $ | (54 | ) | | $ | (55 | ) |
| | | | | | | | | | | |
| Other Cash Flow Information | | | | | | | | | | |
| Interest paid | $ | 113 |
| | $ | 111 |
| | $ | 122 |
| $ | 367 |
| | $ | 152 |
| | $ | 110 |
|
| Interest received | $ | 4 |
| | $ | 3 |
| | $ | 3 |
| $ | 3 |
| | $ | 4 |
| | $ | 5 |
|
| Income taxes paid | $ | 325 |
| | $ | 333 |
| | $ | 421 |
| $ | 117 |
| | $ | 128 |
| | $ | 320 |
|
| | | | | | | |
| Non-cash Activity | | | | | | |
| Build-to-suit lease commitment | | $ | 20 |
| | $ | — |
| | $ | — |
|
| |
| 21. | Quarterly Data (unaudited) |
| | | | 2016 | 2019 |
| | First | | Second | | Third | | Fourth | First | | Second | | Third | | Fourth |
| Net sales | $ | 2,203 |
| | $ | 2,201 |
| | $ | 1,870 |
| | $ | 1,687 |
| $ | 2,202 |
| | $ | 2,172 |
| | $ | 1,953 |
| | $ | 1,780 |
|
| Gross profit | 755 |
| | 819 |
| | 660 |
| | 546 |
| 726 |
| | 706 |
| | 655 |
| | 606 |
|
| Earnings (loss) from continuing operations attributable to Campbell Soup Company | | 180 |
| | 176 |
| | 123 |
| | (5 | ) |
| Earnings (loss) from discontinued operations | | 14 |
| | (235 | ) | | (39 | ) | | (3 | ) |
| Net earnings (loss) attributable to Campbell Soup Company | 194 |
| | 265 |
| | 185 |
| | (81 | ) | 194 |
| | (59 | ) | | 84 |
| | (8 | ) |
| Per share - basic | | | | | | | | | | | | | | |
| Net earnings (loss) attributable to Campbell Soup Company | .63 |
| | .85 |
| | .60 |
| | (.26 | ) | |
| Earnings (loss) from continuing operations attributable to Campbell Soup Company | | .60 |
| | .58 |
| | .41 |
| | (.02 | ) |
| Earnings (loss) from discontinued operations | | .05 |
| | (.78 | ) | | (.13 | ) | | (.01 | ) |
Net earnings (loss) attributable to Campbell Soup Company (1) | | .64 |
| | (.20 | ) | | .28 |
| | (.03 | ) |
| Dividends | .312 |
| | .312 |
| | .312 |
| | .312 |
| .35 |
| | .35 |
| | .35 |
| | .35 |
|
| Per share - assuming dilution | | | | | | | | |
| Net earnings (loss) attributable to Campbell Soup Company | .62 |
| | .85 |
| | .59 |
| | (.26 | ) | |
| Market price | | | | | | | | |
| High | $ | 52.37 |
| | $ | 56.63 |
| | $ | 65.48 |
| | $ | 67.89 |
| |
| Low | $ | 45.23 |
| | $ | 47.77 |
| | $ | 54.97 |
| | $ | 59.51 |
| |
| Earnings per share - assuming dilution | | | | | | | | |
| From continuing operations attributable to Campbell Soup Company | | .60 |
| | .58 |
| | .41 |
| | (.02 | ) |
| From discontinued operations | | .05 |
| | (.78 | ) | | (.13 | ) | | (.01 | ) |
Net attributable to Campbell Soup Company (1) | | .64 |
| | (.20 | ) | | .28 |
| | (.03 | ) |
| |
(1) | The sum of individual per share amounts may not add due to rounding. |
|
| | | | | | | | | | | | | | | |
| | 2016 |
| | First | | Second | | Third | | Fourth |
| In 2016, the following charges (gains) were recorded in Net earnings attributable to Campbell Soup Company: | | | | | | | |
| Impairment charge | $ | — |
| | $ | — |
| | $ | — |
| | $ | 127 |
|
| Restructuring charges, implementation costs and other related costs | 23 |
| | 10 |
| | 9 |
| | 7 |
|
| Pension and postretirement benefit mark-to-market adjustments | 80 |
| | (4 | ) | | 34 |
| | 90 |
|
| Claim settlement | — |
| | — |
| | (25 | ) | | — |
|
| Per share - assuming dilution | | | | | | | |
| Impairment charge | — |
| | — |
| | — |
| | .41 |
|
| Restructuring charges, implementation costs and other related costs | .07 |
| | .03 |
| | .03 |
| | .02 |
|
| Pension and postretirement benefit mark-to-market adjustments | .26 |
| | (.01 | ) | | .11 |
| | .29 |
|
| Claim settlement | — |
| | — |
| | (.08 | ) | | — |
|
|
| | | | | | | | | | | | | | | |
| | 2015 |
| | First | | Second | | Third | | Fourth |
| Net sales | $ | 2,255 |
| | $ | 2,234 |
| | $ | 1,900 |
| | $ | 1,693 |
|
| Gross profit | 795 |
| | 743 |
| | 682 |
| | 562 |
|
| Net earnings attributable to Campbell Soup Company | 248 |
| | 222 |
| | 179 |
| | 17 |
|
| Per share - basic | | | | | | | |
| Net earnings attributable to Campbell Soup Company | .79 |
| | .71 |
| | .58 |
| | .05 |
|
| Dividends | .312 |
| | .312 |
| | .312 |
| | .312 |
|
| Per share - assuming dilution | | | | | | | |
| Net earnings attributable to Campbell Soup Company | .78 |
| | .71 |
| | .57 |
| | .05 |
|
| Market price | | | | | | | |
| High | $ | 45.12 |
| | $ | 47.45 |
| | $ | 48.31 |
| | $ | 49.54 |
|
| Low | $ | 41.15 |
| | $ | 42.70 |
| | $ | 44.45 |
| | $ | 44.92 |
|
| | | | 2015 | 2019 |
| | First | | Second | | Third | | Fourth | First | | Second | | Third | | Fourth |
| In 2015, the following charges were recorded in Net earnings attributable to Campbell Soup Company: | | | | | | | | |
| Restructuring charges and implementation costs | $ | — |
| | $ | — |
| | $ | 11 |
| | $ | 67 |
| |
| In 2019, the following charges (gains) were recorded in Earnings (loss) from continuing operations attributable to Campbell Soup Company: | | | | | | | | |
| Restructuring charges, implementation costs and other related costs | | $ | 34 |
| | $ | 18 |
| | $ | 16 |
| | $ | 24 |
|
| Impairment charges | | — |
| | — |
| | — |
| | 13 |
|
| Pension and postretirement benefit mark-to-market adjustments | 2 |
| | — |
| | 16 |
| | 69 |
| — |
| | — |
| | — |
| | 93 |
|
| Pension settlement | | — |
| | — |
| | 22 |
| | — |
|
| Tax reform | | — |
| | 2 |
| | — |
| | — |
|
| Per share - assuming dilution | | | | | | | | | | | | | | |
| Restructuring charges and implementation costs | — |
| | — |
| | .04 |
| | .21 |
| |
| Restructuring charges, implementation costs and other related costs | | .11 |
| | .06 |
| | .05 |
| | .08 |
|
| Impairment charges | | — |
| | — |
| | — |
| | .04 |
|
| Pension and postretirement benefit mark-to-market adjustments | .01 |
| | — |
| | .05 |
| | .22 |
| — |
| | — |
| | — |
| | .31 |
|
| Pension settlement | | — |
| | — |
| | .07 |
| | — |
|
| Tax reform | | — |
| | .01 |
| | — |
| | — |
|
| In 2019, the following charges (gains) were recorded in Earnings (loss) from discontinued operations: | | | | | | | | |
| Restructuring charges, implementation costs and other related costs | | $ | 1 |
| | $ | — |
| | $ | (1 | ) | | $ | — |
|
| Impairment charges | | 11 |
| | 264 |
| | — |
| | 12 |
|
| Costs associated with divestitures | | — |
| | 8 |
| | 48 |
| | 4 |
|
| Pension benefit mark-to-market adjustments | | — |
| | — |
| | — |
| | 9 |
|
| Per share - assuming dilution | | | | | | | | |
| Restructuring charges, implementation costs and other related costs | | — |
| | — |
| | — |
| | — |
|
| Impairment charges | | .04 |
| | .87 |
| | — |
| | .04 |
|
| Costs associated with divestitures | | — |
| | .03 |
| | .16 |
| | .01 |
|
| Pension benefit mark-to-market adjustments | | — |
| | — |
| | — |
| | .03 |
|
In |
| | | | | | | | | | | | | | | |
| | 2018 |
| | First | | Second | | Third | | Fourth |
| Net sales | $ | 1,638 |
| | $ | 1,614 |
| | $ | 1,618 |
| | $ | 1,745 |
|
| Gross profit | 656 |
| | 637 |
| | 533 |
| | 548 |
|
| Earnings from continuing operations attributable to Campbell Soup Company | 227 |
| | 314 |
| | 57 |
| | 126 |
|
| Earnings (loss) from discontinued operations | 48 |
| | (29 | ) | | (450 | ) | | (32 | ) |
| Net earnings (loss) attributable to Campbell Soup Company | 275 |
| | 285 |
| | (393 | ) | | 94 |
|
| Per share - basic | | | | | | | |
| Earnings from continuing operations attributable to Campbell Soup Company | .75 |
| | 1.04 |
| | .19 |
| | .42 |
|
| Earnings (loss) from discontinued operations | .16 |
| | (.10 | ) | | (1.50 | ) | | (.11 | ) |
Net earnings (loss) attributable to Campbell Soup Company(1) | .91 |
| | .95 |
| | (1.31 | ) | | .31 |
|
| Dividends | .35 |
| | .35 |
| | .35 |
| | .35 |
|
| Per share - assuming dilution | | | | | | | |
| Earnings from continuing operations attributable to Campbell Soup Company | .75 |
| | 1.04 |
| | .19 |
| | .42 |
|
| Earnings (loss) from discontinued operations | .16 |
| | (.10 | ) | | (1.50 | ) | | (.11 | ) |
Net earnings (loss) attributable to Campbell Soup Company(1) | .91 |
| | .95 |
| | (1.31 | ) | | .31 |
|
| |
(1) | The sum of individual per share amounts may not add due to rounding. |
|
| | | | | | | | | | | | | | | |
| | 2018 |
| | First | | Second | | Third | | Fourth |
| In 2018, the following charges (gains) were recorded in Earnings from continuing operations attributable to Campbell Soup Company: | | | | | | | |
| Restructuring charges, implementation costs and other related costs | $ | 12 |
| | $ | 45 |
| | $ | 41 |
| | $ | 34 |
|
| Impairment charges | — |
| | — |
| | — |
| | 41 |
|
| Pension and postretirement benefit mark-to-market adjustments | (9 | ) | | — |
| | — |
| | (90 | ) |
| Transaction and integration costs | — |
| | 19 |
| | 46 |
| | 8 |
|
| Claim settlement | — |
| | — |
| | 15 |
| | — |
|
| Tax reform | — |
| | (124 | ) | | — |
| | (6 | ) |
| Per share - assuming dilution | | | | | | | |
| Restructuring charges, implementation costs and other related costs | .04 |
| | .15 |
| | .14 |
| | .11 |
|
| Impairment charges | — |
| | — |
| | — |
| | .14 |
|
| Pension and postretirement benefit mark-to-market adjustments | (.03 | ) | | — |
| | — |
| | (.30 | ) |
| Transaction and integration costs | — |
| | .06 |
| | .15 |
| | .03 |
|
| Claim settlement | — |
| | — |
| | .05 |
| | — |
|
| Tax reform | — |
| | (.41 | ) | | — |
| | (.02 | ) |
| In 2018, the following charges (gains) were recorded in Earnings (loss) from discontinued operations: | | | | | | | |
| Restructuring charges, implementation costs and other related costs | — |
| | 1 |
| | 4 |
| | (1 | ) |
| Impairment charges | — |
| | 74 |
| | 497 |
| | — |
|
| Pension benefit mark-to-market and curtailment adjustments | — |
| | — |
| | — |
| | (3 | ) |
| Per share - assuming dilution | | | | | | | |
| Restructuring charges, implementation costs and other related costs | — |
| | — |
| | .01 |
| | — |
|
| Impairment charges | — |
| | .25 |
| | 1.65 |
| | — |
|
| Pension benefit mark-to-market and curtailment adjustments | — |
| | — |
| | — |
| | (.01 | ) |
On September 18, 2019, we signed a definitive agreement for the fourthsale of our European chips business for £66, or approximately $80. The sale is subject to customary closing conditions including receiving the relevant regulatory approvals. We expect to complete the sale in the first quarter of 2016, an out-of-period adjustment2020. In connection with the sale, we expect to incur additional charges in the first quarter 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. Most2020 as the carrying value 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.disposal group will include allocated goodwill, as well as foreign currency translation adjustments.
Management’s Report on Internal Control Over Financial Reporting
The company’s management of Campbell Soup Company (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting.reporting (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). 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’sCompany'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;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 companyCompany are being made only in accordance with authorizations of management and Directors of the company;Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sCompany'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’sCompany’s management assessed the effectiveness of the company’sCompany’s internal control over financial reporting as of July 31, 2016.28, 2019. 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’sCompany’s internal control over financial reporting was effective as of July 31, 2016.28, 2019.
The effectiveness of the company’sCompany’s internal control over financial reporting as of July 31, 201628, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears herein.on the next page.
|
| | | |
/s/ Denise M. MorrisonMark A. Clouse | | | |
Denise M. MorrisonMark A. Clouse | | | |
| President and Chief Executive Officer | | | |
| | | | |
| /s/ Anthony P. DiSilvestro | | | |
| Anthony P. DiSilvestro | | | |
| Senior Vice President and Chief Financial Officer | | | |
| | | | |
/s/ William J. O’SheaStanley Polomski | | | |
William J. O’SheaStanley Polomski | | | |
| Vice President and Controller | | | |
| (Principal Accounting Officer) | | | |
| | | | |
September 22, 201626, 2019
Report of Independent Registered Public Accounting Firm
To the ShareholdersBoard of Directors and DirectorsShareholders of Campbell Soup Company:Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Campbell Soup Company and its subsidiaries (the "Company") as of July 28, 2019 and July 29, 2018, and the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the three years in the period ended July 28, 2019, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended July 28, 2019 appearing on page 97 (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of July 28, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 15(1)referred to above present fairly, in all material respects, the financial position of Campbell Soupthe Company as of July 28, 2019 and its subsidiaries at July 31, 2016 and August 2, 2015,29, 2018, and the results of theirits operations and theirits cash flows for each of the three fiscal years in the period ended July 31, 201628, 2019 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 accompanying index appearing under Item 15(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 31, 2016,28, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.
Basis for Opinions
The Company’sCompany's management is responsible for these consolidated 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’sManagement's Report on Internal Control overOver Financial Reporting. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements on the financial statement schedule, and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. 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.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it classifies deferred taxes in 2016 due to the adoptionDefinition and Limitations of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes.Internal Control over Financial Reporting
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Indefinite-lived Intangible Assets Impairment Test for Certain Trademarks
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s indefinite-lived intangible assets (trademarks) were $2,629 million as of July 28, 2019. Trademarks primarily included $1,996 million associated with the acquisition of Snyder's-Lance, $280 million associated with the acquisition of Pacific Foods and $292 million related to Pace. Management conducts a test at least annually for impairment, or when circumstances indicate that the carrying amount of the asset may not be recoverable. Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Management determines fair value based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average costs of capital, and assumed royalty rates.
The principal considerations for our determination that performing procedures relating to the impairment test for certain trademarks is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity involved in performing procedures relating to the fair value estimates of trademarks due to the significant amount of judgment by management when developing these estimates, (ii) significant audit effort was necessary to perform procedures and evaluate evidence relating to management’s discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average costs of capital, and assumed royalty rates, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s trademark impairment tests. These procedures also included, among others, testing management’s process for developing the fair value estimates; evaluating the appropriateness of the discounted cash flow analyses; testing the completeness, accuracy, and relevance of underlying data used in the analyses; and evaluating the significant assumptions used by management, including the revenue growth rates, weighted average costs of capital, and assumed royalty rates. Evaluating management’s assumptions related to revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance associated with the trademarks, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow analyses and certain significant assumptions, including the weighted average costs of capital and assumed royalty rates.
Divestiture of the Campbell Fresh and Campbell International Operating Segments
As described in Notes 1, 3 and 12 to the consolidated financial statements, in 2019 the Company completed the sale of the Campbell Fresh operating segment, which includes Bolthouse Farms, Garden Fresh Gourmet, and the U.S. refrigerated soup business. In addition, the Company signed definitive agreements for the sale of the Kelsen business on July 12, 2019, and on August 1, 2019, for the Arnott’s business and certain other international operations (collectively referred to as Campbell International). Management has reflected the results of these businesses and operations as discontinued operations in the consolidated statements of earnings for all periods presented. Management presents discontinued operations when there is a disposal of a component group or a group of components that, in management’s judgment, represents a strategic shift that will have a major effect on operations and financial results. The earnings (loss) from discontinued operations for Campbell Fresh and Campbell International were $(332 million) and $69 million, respectively, for the fiscal year ending July 28, 2019. As of July 28, 2019, the Company’s U.S. and non-U.S. subsidiaries had capital loss carryforwards of approximately $1,096 million, of which $1,060 million were offset by valuation allowances. As described by management, the Company may use a portion of its capital losses to offset the capital gain anticipated from the pending sale of the Arnott’s business and certain other international operations, which could result in a U.S. valuation allowance release and recognition of a material income tax benefit in 2020. After assessing all available evidence, management concluded that they should maintain a valuation allowance as of July 28, 2019.
The principal considerations for our determination that performing procedures relating to the divestiture of the Campbell Fresh and Campbell International operating segments is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity involved in performing procedures to evaluate the divestiture transactions due to the significant amount of judgment by management when assessing these transactions, (ii) significant audit effort was necessary to perform procedures and evaluate evidence relating to management's evaluation of the divestiture transactions, including whether the divestitures met the criteria for discontinued operations, and in determining the realizability of the deferred tax assets, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the evaluation of whether the divestitures met the criteria for discontinued operations and controls over the evaluation of realizability of deferred tax assets. These procedures also included, among others, evaluating management’s assessment of the discontinued operations criteria for the Campbell Fresh and Campbell International operating segments, including the quantitative and qualitative factors surrounding the qualification for discontinued operations treatment, and testing management’s assessment of the realizability of deferred tax assets, including management's weighting of significant factors considered in this assessment. Testing the realizability of deferred tax assets included evaluating the reasonableness of management’s judgments around future reversals. Professionals with specialized skill and knowledge were used to assist in the evaluation of audit evidence related to the discontinued operations criteria and assessment of the realizability of the deferred tax assets.
|
| | | | | |
| /s/ PricewaterhouseCoopers LLP | | | |
| PricewaterhouseCoopers LLP | | | | | |
| Philadelphia, Pennsylvania | | | | | |
| | | | | | |
| September 26, 2019 | | | | | |
September 22, 2016
We have served as the Company’s auditor since 1954.
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 RulesRule 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 31, 2016 (Evaluation28, 2019 (the 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 74.86. 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.pages 87-89.
The acquisition and ongoing integration of Snyder’s-Lance has materially affected our internal control over financial reporting for the year ended July 28, 2019.
There were no changes in our internal control over financial reporting that materially affected, or were likely to materially affect, such internal control over financial reporting during the quarter ended July 31, 2016.28, 2019.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The sections entitled “Election"Item 1 — Election of Directors,” “VotingDirectors" and "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”Officers" in our Proxy Statement for the 2019 Annual Meeting of Shareholders to be held on November 16, 2016 (the 20162019 Proxy) are incorporated herein by reference. The information presented in the section entitled “Corporate"Corporate Governance Policies and Practices — Board Meetings and Committees — Board Committee Structure”Structure" in the 20162019 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"Executive Officers of the Company.”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"About Us — Corporate Governance”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"About Us — Corporate Governance”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"Compensation Discussion and Analysis,” “Executive" "Executive Compensation Tables,” “Corporate" "Corporate Governance Policies and Practices — Compensation of Directors,” “Corporate" "Corporate Governance Policies and Practices — Board Meetings and Committees — Board Committee Structure — Compensation and Organization Committee Interlocks and Insider Participation”Participation" and “Compensation"Compensation Discussion and Analysis — Compensation and Organization Committee Report”Report" in the 20162019 Proxy is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information presented in the sections entitled “Voting"Voting Securities and Principal Shareholders — Ownership of Directors and Executive Officers”Officers" and “Voting"Voting Securities and Principal Shareholders — Principal Shareholders”Shareholders" in the 20162019 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 31, 2016:28, 2019:
| | | Plan Category | | 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) | | 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) |
Equity Compensation Plans Approved by Security Holders (1) | | 4,325,971 |
| | $ | 50.21 |
| | 12,962,646 |
| | 7,203,299 |
| | $ | 46.17 |
| | 5,428,157 |
|
| Equity Compensation Plans Not Approved by Security Holders | | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
|
| Total | | 4,325,971 |
| | $ | 50.21 |
| | 12,962,646 |
| | 7,203,299 |
| | $ | 46.17 |
| | 5,428,157 |
|
| |
(1) | Column (a) represents stock options and restricted stock units outstanding under the 2015 Long-Term Incentive Plan and the 2005 Long-Term Incentive PlanPlan. Column (a) includes 3,298,028 TSR performance restricted stock units and Free Cash Flow performance restricted stock units based on the maximum number of shares potentially issuable under the awards, and the 2003 Long-Term Incentive Plan.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,stock appreciation rights, 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 31, 2016.28, 2019. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information presented in the section entitled “Corporate"Corporate Governance Policies and Practices — Transactions with Related Persons,” “Election" "Item 1 — Election of Directors," "Corporate Governance Policies and Practices — Director Independence”Independence" and “Corporate"Corporate Governance Policies and Practices — Board Meetings and Committees — Board Committee Structure”Structure" in the 20162019 Proxy is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information presented in the sectionsections entitled “Audit Matters"Item 2 — Ratification of Appointment of Independent Registered Public Accounting Firm — Audit Firm Fees and Services”Services" and "Item 2 — Ratification of Appointment of Independent Registered Public Accounting Firm — Audit Committee Pre-Approval Policy" in the 20162019 Proxy is incorporated herein by reference.
PART IV
| |
| Item 15. | Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this report:Report:
1. Financial Statements
Consolidated Statements of Earnings for 2016, 20152019, 2018 and 20142017
Consolidated Statements of Comprehensive Income for 2016, 20152019, 2018 and 20142017
Consolidated Balance Sheets as of July 31, 201628, 2019 and August 2, 2015July 29, 2018
Consolidated Statements of Cash Flows for 2016, 20152019, 2018 and 20142017
Consolidated Statements of Equity for 2016, 20152019, 2018 and 20142017
Notes to Consolidated Financial Statements
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedule
II - Valuation and Qualifying Accounts for 2016, 20152019, 2018 and 20142017
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.
3. ExhibitsINDEX TO EXHIBITS
|
| |
3(i) | |
| 2 | |
| |
| 3(a) | |
| | |
3(ii)3(b) | Campbell’s |
| | |
4(a)
| |
| | |
| 4(b) | 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 (File No.(SEC file number 1-3822) filed with the SEC on August 2, 2012. |
| | |
| 4(c) | |
| |
| 4(d) | |
| |
4(d) | Form of 4.500% Notes due 2019 is incorporated by reference to Exhibit 4.1 to Campbell's Form 8-K (File No. 1-3822) filed with the SEC on January 20, 2009.March 19, 2015. |
| | |
| 4(e) | |
| | |
| 4(f) | |
| | |
| 4(g) | |
| | |
9(a)4(h) | Major Stockholders’ Voting Trust Agreement dated June 2, 1990, as amended, |
| |
| 4(i) | Form of Floating Rate Note due 2020 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)4.2.1 to Campbell's Form 10-K8-K (SEC file number 1-3822) for the fiscal year ended August 3, 2014, each as filed with the SEC.SEC on March 16, 2018. |
| |
| 4(j) | |
| |
| 4(k) | |
| |
| 4(l) | |
| |
| 4(m) | |
| |
| 4(n) | |
| |
| 4(o) | |
| |
| 4(p) | |
| | |
| 10(a)+ | 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. |
| |
10(b)+ | |
| | |
10(c)10(b)+ | |
|
| |
| | |
10(d)10(c)+ | |
| | |
10(e)10(d)+
| |
| | |
10(f)10(e)+ | |
| | |
10(g)10(f)+ | |
| | |
10(h)10(g)+
| |
| |
| 10(h)+ | |
| |
30, 2017.
|
| |
10(i)+
| Severance Protection Agreement dated January 8, 2001, with Douglas R. Conant is incorporated herein by reference to Exhibit 10(a) to Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended January 28, 2001. Agreements with the existing executive officers listed under the heading “Executive Officers of the Company” (other than Carlos Barroso, Adam G. Ciongoli, Jeffrey T. Dunn and Luca Mignini) are in all material respects the same as Mr. Conant’s agreement. |
| | |
10(j)10(i)+
| |
| |
10(k)+ | Form of U.S. Severance Protection Agreement is incorporated by reference to Exhibit 10(c)10(j) to Campbell’sCampbell's Form 10-Q10-K (SEC file number 1-3822)number) for the fiscal quarteryear ended November 2, 2008.July 30, 2017. |
| | |
10(l)10(j)+ | 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)+ | |
| | |
10(n)10(k)+ | |
| | |
10(o)10(l)+ | Form of Amendment to U.S. and Non-U.S. Severance Protection Agreements filed herewith. |
| |
10(p)+ | 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. |
| |
10(q)+ | 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. |
| |
10(r)+ | 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. |
| |
10(s)+ | |
| | |
10(t)10(m)+ | |
| | |
10(u)*10(n)+ | Letter Agreement, dated July 22, 2014, between Campbell and Jeffrey T. Dunn 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, 2015. |
| |
10(v)+
| 2005 Long-Term Incentive Plan Time-Lapsed Restricted Stock Unit Agreement, dated as of August 1, 2014, between Campbell and Jeffrey T. Dunn, is incorporated by reference to Exhibit 10(b) to Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2015. |
| |
10(w)*+
| 2005 Long-Term Incentive Plan Performance Restricted Stock Unit Agreement, dated as of October 1, 2014, between Campbell and Jeffrey T. Dunn 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, 2015. |
| |
10(x)*+
| 2005 Long-Term Incentive Plan Performance Restricted Stock Unit Agreement, dated as of October 1, 2014, between Campbell and Jeffrey T. Dunn is incorporated by reference to Exhibit 10(d) to Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2015. |
| |
10(y)*+
| Letter Agreement, dated February 15, 2016, between Campbell and Jeffrey T. Dunn 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 19, 2016. |
| |
10(z)+ | Wm. Bolthouse Farms, Inc. Salaried & Hourly Administrative Performance-Based Incentive Plan is incorporated by reference to Exhibit 10(e) to Campbell’s Form 10-Q (SEC file number 1-3822) for the fiscal quarter ended February 1, 2015. |
| |
|
| |
| |
| 10(w) | 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. |
| |
| 10(x) | |
| |
| 10(y) | |
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| 10(z) | Support Agreement, dated November 1, 2015.26, 2018, by and among Campbell Soup Company and Third Point LLC, Third Point Partners Qualified L.P., Third Point Partners L.P., Third Point Offshore Master Fund L.P., Third Point Ultra Master Fund L.P., Third Point Enhanced L.P., Third Point Advisors LLC, Third Point Advisors II LLC and the Revocable Trust of Goerge Strawbridge, Jr., dated January 21, 1991 is incorporated by reference to Exhibit 10.1 to Campbell's Form 8-K (SEC file number 1-3822) filed with the SEC on November 26, 2018. |
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| 10(aa)+ | |
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| 10(bb)+ | |
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| 10(cc)+ | |
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| 21 | |
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| 23 | |
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| 31(a) | |
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| 31(b) | |
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| 32(a) | |
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| 32(b) | |
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| 101.INS | XBRL Instance Document |
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| 101.SCH | XBRL Schema Document |
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| 101.CAL | XBRL Calculation Linkbase Document |
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| 101.DEF | XBRL Definition Linkbase Document |
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| 101.LAB | XBRL Label Linkbase Document |
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| 101.PRE | XBRL Presentation Linkbase Document |
*Portions of this document have been omitted and filed separately with the Commission pursuant to a confidential treatment request under 17 C.F.R. 240.24b-2.
+This exhibit is a management contract or compensatory plan or arrangement.
We will furnish to the SEC, upon request, a copy of any of our long-term debt agreements not otherwise filed with the SEC.
SIGNATURES
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 22, 201626, 2019
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| | | |
| | | | 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 22, 2016.26, 2019.
|
| | |
| Signatures |
| | | |
/s/ Denise M. MorrisonMark A. Clouse | | /s/ Mary Alice D. MaloneMaria Teresa Hilado |
Denise M. MorrisonMark A. Clouse | | Mary Alice D. MaloneMaria Teresa Hilado |
| President and Chief Executive Officer and Director | | Director |
| (Principal Executive Officer) | | |
| | | |
| /s/ Anthony P. DiSilvestro | | /s/ Sara MathewSarah Hofstetter |
| Anthony P. DiSilvestro | | Sara MathewSarah Hofstetter |
| Senior Vice President and Chief Financial Officer | | Director |
| (Principal Financial Officer) | | |
| | | |
/s/ William J. O’SheaStanley Polomski | | /s/ Keith R. McLoughlinRandall W. Larrimore |
William J. O’SheaStanley Polomski | | Keith R. McLoughlinRandall W. Larrimore |
| Vice President and Controller | | Director |
| (Principal Accounting Officer) | | |
| | | |
/s/ Les C. VinneyKeith R. McLoughlin | | /s/ Charles R. PerrinMarc B. Lautenbach |
Les C. VinneyKeith R. McLoughlin | | Charles R. PerrinMarc B. Lautenbach |
ChairmanChair and Director | | Director |
| | | |
/s/ Bennett DorranceFabiola R. Arredondo | | /s/ Mary Alice D. Malone |
| Fabiola R. Arredondo | | Mary Alice D. Malone |
| Director | | Director |
| | |
| /s/ Howard M. Averill | | /s/ Kurt T. Schmidt |
| Howard M. Averill | | Kurt T. Schmidt |
| Director | | Director |
| | |
| /s/ John P. Bilbrey | | /s/ Nick Shreiber |
Bennett DorranceJohn P. Bilbrey | | Nick Shreiber |
| Director | | Director |
| | | |
/s/ Randall W. Larrimore | | /s/ Tracey T. Travis |
Randall W. Larrimore | | Tracey T. Travis |
Director | | Director |
| | |
/s/ Marc B. LautenbachBennett Dorrance | | /s/ Archbold D. van Beuren |
Marc B. LautenbachBennett Dorrance | | Archbold D. van Beuren |
| Director | | Director |
| | |
Schedule II
CAMPBELL SOUP COMPANY
Valuation and Qualifying Accounts
For the Fiscal Years ended July 31, 2016, August 2, 201528, 2019, July 29, 2018, and August 3, 2014July 30, 2017
(Millions)
This schedule of valuation and qualifying accounts should be read in conjunction with the Consolidated Financial Statements. These amounts exclude the Campbell Fresh operating segment and Campbell International, which were classified as part of Current assets of discontinued operations for the periods presented. See Note 3 to the Consolidated Financial Statements for additional information.
| | | | Balance at Beginning of Period | | Charged to/ (Reduction in) Costs and Expenses | | Deductions | | Acquisitions | |
Balance at End of Period | Balance at Beginning of Period | | Charged to/ (Reduction in) Costs and Expenses | | Deductions | | Acquisitions | |
Balance at End of Period |
| Fiscal year ended July 31, 2016 | | | | | | | | | | |
| Fiscal year ended July 28, 2019 | | | | | | | | | | |
| Cash discount | $ | 5 |
| | $ | 116 |
| | $ | (117 | ) | | $ | — |
| | $ | 4 |
| $ | 6 |
| | $ | 132 |
| | $ | (132 | ) | | $ | — |
| | $ | 6 |
|
| Bad debt reserve | 4 |
| | (1 | ) | | — |
| | — |
| | 3 |
| 3 |
| | 1 |
| | (1 | ) | | — |
| | 3 |
|
Returns reserve(1) | 4 |
| | 2 |
| | (1 | ) | | — |
| | 5 |
| 9 |
| | (2 | ) | | (3 | ) | | — |
| | 4 |
|
| Total Accounts receivable allowances | $ | 13 |
| | $ | 117 |
| | $ | (118 | ) | | $ | — |
| | $ | 12 |
| $ | 18 |
| | $ | 131 |
| | $ | (136 | ) | | $ | — |
| | $ | 13 |
|
| | | | | | | | | | | | | | | | | | | |
| Fiscal year ended August 2, 2015 | | | | | | | | | | |
| Fiscal year ended July 29, 2018 | | | | | | | | | | |
| Cash discount | $ | 4 |
| | $ | 116 |
| | $ | (115 | ) | | $ | — |
| | $ | 5 |
| $ | 4 |
| | $ | 114 |
| | $ | (114 | ) | | $ | 2 |
| | $ | 6 |
|
| Bad debt reserve | 3 |
| | 2 |
| | (1 | ) | | — |
| | 4 |
| 1 |
| | 1 |
| | (1 | ) | | 2 |
| | 3 |
|
Returns reserve(1) | 5 |
| | — |
| | (1 | ) | | — |
| | 4 |
| 3 |
| | 4 |
| | — |
| | 2 |
| | 9 |
|
| Total Accounts receivable allowances | $ | 12 |
| | $ | 118 |
| | $ | (117 | ) | | $ | — |
| | $ | 13 |
| $ | 8 |
| | $ | 119 |
| | $ | (115 | ) | | $ | 6 |
| | $ | 18 |
|
| | | | | | | | | | | | | | | | | | | |
| Fiscal year ended August 3, 2014 | | | | | | | | | | |
| Fiscal year ended July 30, 2017 | | | | | | | | | | |
| Cash discount | $ | 5 |
| | $ | 114 |
| | $ | (115 | ) | | $ | — |
| | $ | 4 |
| $ | 4 |
| | $ | 109 |
| | $ | (109 | ) | | $ | — |
| | $ | 4 |
|
| Bad debt reserve | 2 |
| | — |
| | (1 | ) | | 2 |
| | 3 |
| 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Returns reserve(1) | 4 |
| | 1 |
| | — |
| | — |
| | 5 |
| 4 |
| | (1 | ) | | — |
| | — |
| | 3 |
|
| Total Accounts receivable allowances | $ | 11 |
| | $ | 115 |
| | $ | (116 | ) | | $ | 2 |
| | $ | 12 |
| $ | 9 |
| | $ | 108 |
| | $ | (109 | ) | | $ | — |
| | $ | 8 |
|
| |
(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 $95$107 in 2016, $1052019, $104 in 20152018, and $118102 in 2014,2017, or less than 2% of net sales. |
