UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
_________________________________________________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
 
 
 
Commission File Number
July 29, 2018
 
 
 
1-3822
logoa02.jpg
CAMPBELL SOUP COMPANY 
New Jersey
21-0419870
State of Incorporation
I.R.S. Employer Identification No.
1 Campbell Place
Camden, New Jersey 08103-1799
Principal Executive Offices
Telephone Number: (856) 342-4800
Securities registered pursuant to Section 12(b) of the Act: 
Title of Each Class
 
Name of Each Exchange on Which Registered
Capital Stock, par value $.0375
 
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, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer 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 of January 26, 2018 (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 $9,014,993,646. There were 300,656,129 shares of capital stock outstanding as of September 17, 2018.
Portions of the Registrant’s Proxy Statement for the 2018 Annual Meeting of Shareholders are incorporated by reference into Part III.







TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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PART I
This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations regarding our future results of operations, economic performance, financial condition and achievements. These forward-looking statements can be identified by words such as "anticipate," "believe," "estimate," "expect," "will," "goal," "plan," "vision" and similar expressions. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts, and may reflect anticipated cost savings or implementation of our strategic plan. These statements reflect our current plans and expectations and are based on information currently available to us. They rely on several assumptions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties. Risks and uncertainties include, but are not limited to, those discussed in "Risk Factors" and in the "Cautionary Factors That May Affect Future Results" in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this Report. Our consolidated financial statements and the accompanying notes to the consolidated financial statements are presented in "Financial Statements and Supplementary Data."

Item 1. Business
The Company
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
We are a manufacturer and marketer of high-quality, branded food and beverage products. We organized as a business corporation under the laws of New Jersey on November 23, 1922; however, through predecessor organizations, we trace our heritage in the food business back to 1869. Our principal executive offices are in Camden, New Jersey 08103-1799.
In 2013, we acquired BF Bolthouse Holdco LLC (Bolthouse Farms) and Plum, PBC (formerly Plum Inc.) (Plum). In 2014, we acquired Kelsen Group A/S (Kelsen) and divested our European simple meals business. In 2015, we acquired the assets of Garden Fresh Gourmet. On December 12, 2017, we acquired Pacific Foods of Oregon, LLC (Pacific Foods) and, on March 26, 2018, we acquired Snyder's-Lance, Inc. (Snyder's-Lance). See Note 3 to the Consolidated Financial Statements for additional information on our recent acquisitions.
On August 30, 2018, we announced our vision to be a leading snacks and simple meals company, with a portfolio of best-in-class products and brands in our core North American market. In support of this strategy, we will continue to focus on the integration of Snyder’s-Lance. We also 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. In 2018, the international biscuits and snacks operating segment and the Campbell Fresh operating segment combined represent approximately $2.1 billion in net sales. We expect to use the proceeds from these divestitures to reduce debt. As a result of a more focused portfolio, we are pursuing increased multi-year cost savings initiatives with targeted annualized cost savings of $945 million by the end of 2022, which includes $295 million in synergies and run-rate cost savings from our acquisition of Snyder's-Lance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding our strategy and cost savings initiatives.
Reportable Segments
Commencing in the third quarter of 2018, we have four operating segments and three reportable segments. The segments are aggregated based on similar economic characteristics, products, production processes, types or classes of customers, distribution methods, and regulatory environment. The reportable segments are:
The Americas Simple Meals and Beverages segment, which includes the retail and food service businesses in the U.S. and Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; Plum food and snacks; V8 juices and beverages; Campbell’s tomato juice; and Pacific broth, soups, non-dairy beverages and other simple meals;
The Global Biscuits and Snacks segment, which represents an aggregation of the following operating segments: the U.S. snacks operating segment, which includes Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail, and Snyder’s-Lance pretzels, sandwich crackers, potato chips, tortilla chips and other snacking products in the U.S. and Europe; and the international biscuits and snacks operating segment, which includes Arnott’s biscuits in Australia and Asia Pacific, Kelsen cookies globally, the simple meals and shelf-stable beverages business in Australia and Asia Pacific, and the business in Latin America; and
The Campbell Fresh segment, which includes: Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips; and the U.S. refrigerated soup business.

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See Note 6 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding our reportable segments.
Ingredients and Packaging
The ingredients and packaging materials required for the manufacture of our food and beverage products are purchased from various suppliers. These items are subject to price fluctuations from a number of factors, including changes in crop size, cattle cycles, crop disease, crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, government-sponsored agricultural programs, import and export requirements (including tariffs), drought, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be beyond our control during the growing and harvesting seasons. To help reduce some of this price volatility, we use a combination of purchase orders, short- and long-term contracts, inventory management practices and various commodity risk management tools for most of our ingredients and packaging. Ingredient inventories are 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 new or recently proposed 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 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 and Europe, our products are generally resold to consumers through retail food chains, convenience stores, e-commerce and other retail, commercial and non-commercial establishments. We make shipments promptly after acceptance of orders.
Our five largest customers accounted for approximately 38% of our consolidated net sales in 2018, 39% in 2017 and 40% in 2016. Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 18% of our consolidated net sales in 2018, and 20% of our consolidated net sales in 2017 and 2016. All of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates. No other customer accounted for 10% or more of our consolidated net sales. For additional information on our customers, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Trademarks and Technology
As of September 17, 2018, we owned over 4,400 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, Cape Cod, Chunky, Emerald, Garden Fresh Gourmet, Goldfish, KETTLE, Kettle Brand, Kjeldsens, Lance, Late July, Milano, Pace, Pacific, Pepperidge Farm, Plum, Pop Secret, Prego, Royal Dansk, 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 competition in all of our categories. This competition arises from numerous competitors of varying sizes across multiple food and beverage categories, and includes producers of private label products, as well as other branded food and beverage manufacturers. Private label products are generally sold at prices lower than prices for 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. The principal areas of competition are brand recognition, taste, nutritional value, price, promotion, innovation, shelf space and customer service.
Working Capital
For information relating to our cash flows from operations and working capital items, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

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Capital Expenditures
During 2018, our aggregate capital expenditures were $407 million. We expect to spend approximately $400 million for capital projects in 2019. Major capital projects based on planned spend in 2019 include a U.S. warehouse optimization project, transition of production of the Toronto manufacturing facility to our U.S. thermal plants and ongoing refrigeration system replacement projects.
Research and Development
During the last three fiscal years, our expenditures on research and development activities relating to new products and the improvement and maintenance of existing products were $110 million in 2018, $111 million in 2017, and $105 million in 2016. The decrease from 2017 to 2018 was primarily due to lower investments in long-term innovation and lower incentive compensation costs, partially offset by the impact of acquisitions, inflation and other factors. The increase from 2016 to 2017 was primarily due to inflation and other factors, and investments in long-term innovation, partially offset by increased benefits from cost savings initiatives and lower incentive compensation costs.
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, 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 tariffs. In response, other countries have adopted and/or 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 $407 million in capital expenditures made during 2018, approximately $12 million were for compliance with environmental laws and regulations in the U.S. We further estimate that approximately $28 million of the capital expenditures anticipated during 2019 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 29, 2018, we had approximately 23,000 employees.
Financial Information
Financial information for our reportable segments and geographic areas is found in Note 6 to the Consolidated Financial Statements. For risks attendant to our foreign operations, see "Risk Factors."
Websites
Our primary corporate website can be found at www.campbellsoupcompany.com. We make available free of charge at this website (under the "Investor Center — Financial Information — SEC Filings" caption) all of our reports (including amendments) filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.
All websites appearing in this Annual Report on Form 10-K are inactive textual references only, and the information in, or accessible through, such websites is not incorporated into this Annual Report on Form 10-K, or into any of our other filings with the Securities and Exchange Commission.
Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this Report, the following risks and uncertainties could materially adversely affect our business, financial condition and results of operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition.

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Operational Risk Factors
Our strategy may not be successful and our business or financial results may be adversely impacted
On August 30, 2018, we announced our vision to be a leading snacks and simple meals company, with a portfolio of best-in-class products and brands in our core North American market. This strategy entails a refocused portfolio that includes brands concentrated in slower-growing center-store categories in traditional retail grocery channels. Factors that may impact our success include our ability to:
capture increased market share in certain snacking and simple meals categories, while maintaining our leading market share in other categories;
identify and capitalize on customer or consumer trends;
design and implement effective retail execution plans;
design and implement effective advertising and marketing programs, including digital programs; and
secure or maintain sufficient shelf space at retailers.
If we are not successful in addressing these factors, or if there are changes in the underlying growth rates of the categories in which we compete, our strategy may not be successful and our business or financial results may be adversely impacted.
Our results may be adversely affected by our inability to complete or realize the projected benefits of divestitures
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 expect to use the proceeds from these divestitures to reduce debt. Our ability to successfully divest these businesses and any other businesses we decide to divest may depend in part on our ability to identify suitable buyers, negotiate favorable financial and other contractual terms and obtain all necessary regulatory approvals on the terms expected. Potential risks of divestitures may also include diversion of management's attention from other business concerns, loss of key employees, suppliers and/or customers of divested businesses, the inability to separate divested businesses or business units effectively and efficiently from our existing business operations and the inability to reduce or eliminate associated overhead costs. If we are unable to complete or realize the projected benefits of planned and/or future divestitures, we may not be able to reduce our debt as planned and our business or financial results may be adversely impacted.
We incurred substantial indebtedness to finance the acquisition of Snyder's-Lance
In connection with the closing of the acquisition of Snyder's-Lance and the payoff of Snyder's-Lance indebtedness, we incurred approximately $6.2 billion of indebtedness through a combination of senior notes and a senior unsecured term loan facility. This substantial level of indebtedness increased our debt service obligations. It may also have other important consequences to our business, including but not limited to:
increasing our exposure to fluctuations in interest rates;
subjecting us to financial and other covenants, the non-compliance with which could result in an event of default;
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 further 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 information regarding our credit ratings.
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.

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We may not realize the anticipated benefits from our cost reduction initiatives
We are pursuing multi-year cost savings initiatives with targeted annualized cost savings of $945 million 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 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 these initiatives and, in some respects, our plans to achieve these cost savings continue to be in development. 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 business or financial results.
The anticipated benefits of acquiring Snyder's-Lance may not be fully realized or realized within the time frame that we expect
We expect that the acquisition of Snyder's-Lance will result in various benefits including, among other things, cost savings, cost synergies, a strengthened market position and revenue opportunities. Achieving these anticipated benefits is subject to uncertainties, including whether we integrate in an efficient and effective manner, and general competitive factors in the marketplace. Integrating Snyder's-Lance will be a complex and time-consuming process that requires investment. We may experience unanticipated difficulties, delays or expenses related to the integration, including but not limited to:
diversion of management's attention from ongoing business concerns;
managing a larger combined business;
finalizing the integration of Snyder's-Lance's past acquisitions to the extent not yet completed;
perceived adverse changes in product offerings to consumers, whether or not these changes actually occur;
assumption of unknown risks and liabilities;
the retention of key suppliers and customers of Snyder's-Lance;
attracting new business and operational relationships; and
retaining and integrating key employees and maintaining employee morale.
We plan to combine certain operations, functions, systems and processes, which we may be unsuccessful or delayed in implementing. In addition, costs for synergies and integration may be more than anticipated, and there are many factors beyond our control that could affect the total amount or timing of these expenses. Although we expect that the elimination of duplicative costs and realization of other efficiencies related to the integration of the businesses will offset incremental costs over time, any net benefit may not be achieved in the near term or at all. The failure to effectively address any of these risks, or any other risks related to the integration of the Snyder's-Lance acquisition, may adversely affect our business and financial results.
We may not be able to increase prices to fully offset increases in the cost of transportation and logistics and prices of raw and packaging materials
The cost of distribution has increased due to a significant 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 new or recently proposed 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, 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, import and export requirements (including tariffs), drought, water scarcity, temperature extremes, 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.

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We operate in a highly competitive industry
We operate in the highly competitive food and beverage industry and experience competition in all of our categories. The principal areas of competition are brand recognition, taste, nutritional value, price, promotion, innovation, shelf space and customer service. A number of our primary competitors are larger than us and have substantial financial, marketing and other resources. In addition, reduced barriers to entry and easier access to funding are creating new competition. A strong competitive response from one or more of these competitors to our marketplace efforts, or a continued shift towards private label offerings, could result in us reducing prices, increasing marketing or other expenditures, and/or losing market share.
We may be adversely impacted by a changing customer landscape and the increased significance of some of our customers
Our businesses are largely concentrated in the traditional retail grocery trade, which has experienced slower growth than other retail channels, such as dollar stores, drug stores, club stores and e-commerce retailers. This trend away from traditional retail grocery is expected to continue in the future. If we are not successful in expanding sales in growing retail channels, our business or financial results may be adversely impacted. In addition, retailers with increased buying power and negotiating strength are seeking more favorable terms, including increased promotional programs funded by their suppliers. In 2018, U.S. soup sales declined primarily due to a key customer's different promotional approach for soup. These customers may also use more of their shelf space for their private label 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 2018, our five largest customers accounted for approximately 38% of our consolidated net sales, with the largest customer, Wal-Mart Stores, Inc. and its affiliates, accounting for approximately 18% of our consolidated net sales. There can be no assurance that our largest customers will continue to purchase our products in the same mix or quantities or on the same terms as in the past. Disruption of sales to any of these customers, or to any of our other large customers, for an extended period of time could adversely affect our business or financial results.
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 primarily based 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 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.
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, contract manufacturers, logistics 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 or other events. Production of the agricultural commodities used in our business may also be adversely affected by drought, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients, crop size, cattle cycles, crop disease and 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, 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.
If our food products become adulterated or are mislabeled, we might need to recall those items, and we may experience product liability claims and damage to our reputation
We have in the past and we may, in the future, need to recall some of our products if they become adulterated or if they are mislabeled, and we may also be liable if the consumption of any of our products causes injury to consumers. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the unavailability of product for a period of time. We could also suffer losses from a significant adverse product liability judgment. A significant product recall or product liability claim could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in the safety and/or quality of our products, ingredients or packaging. In addition, if another company recalls or experiences negative publicity related to a product in a category in which we compete, consumers might reduce their overall consumption of products in that category.

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Our non-U.S. operations pose additional risks to our business
In 2018, approximately 19% of our consolidated net sales were generated outside of the U.S. Our business or financial condition may be adversely affected due to the risks of doing business in these markets, including but not limited to the following:
unfavorable changes in tariffs, quotas, trade barriers or other export and import restrictions;
the adverse impact of foreign tax treaties and policies;
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;
political or economic instability, including the possibility of civil unrest, public corruption, armed hostilities or terrorist acts;
the possible nationalization of operations;
the difficulty of enforcing remedies and protecting intellectual property in various jurisdictions; and
restrictions on the transfer of funds to and from countries outside of the U.S., including potential adverse tax consequences.
In addition, we hold assets and incur liabilities, generate revenue, and pay expenses in a variety of currencies other than the U.S. dollar, primarily the Australian dollar and the Canadian dollar. Our consolidated financial statements are presented in U.S. dollars, and we must translate our assets, liabilities, sales and expenses into U.S. dollars for external reporting purposes. As a result, changes in the value of the U.S. dollar due to fluctuations in currency exchange rates or currency exchange controls may materially and adversely affect the value of these items in our consolidated financial statements, even if their value has not changed in their local currency.
On August 30, 2018, we announced plans to pursue the divestiture of our international biscuits and snacks operating segment, which includes Arnott’s, Kelsen and our operations in Indonesia, Malaysia, Hong Kong and Japan. If and until this operating segment is divested, we expect to continue to conduct business as usual in markets outside of the U.S.
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 29, 2018, we had goodwill of $4.580 billion and other indefinite-lived intangible assets of $3.123 billion. Goodwill and indefinite-lived intangible assets are initially recorded at fair value and not amortized, but are tested for impairment at least annually or more frequently if impairment indicators arise. We test goodwill at the reporting unit level by comparing the carrying value of the net assets of the reporting unit, including goodwill, to the unit's fair value. Similarly, we test indefinite-lived intangible assets by comparing the fair value of the assets to their carrying values. Fair value for both goodwill and other indefinite-lived intangible assets is determined based on a discounted cash flow analysis. If the carrying values of the reporting unit or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets are considered impaired and reduced to fair value. Factors that could result in an impairment include a change in revenue growth rates, operating margins, weighted average cost of capital, future economic and market conditions or assumed royalty rates. We have, in the most recently completed and prior years, experienced impairment charges. See "Significant Accounting Estimates" and Note 5 to the Consolidated Financial Statements for additional information on past impairments. We may be required in the future to record additional impairment of the carrying value of goodwill or other indefinite-lived intangible assets, which could adversely affect our financial results and net worth.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands
We consider our intellectual property rights, particularly our trademarks, to be a significant and valuable aspect of our business. We protect our intellectual property rights through a combination of trademark, patent, copyright and trade secret protection, contractual agreements and policing of third-party misuses of our intellectual property. Our failure to obtain or adequately protect our intellectual property or any change in law that lessens or removes the current legal protections of our intellectual property may diminish our competitiveness and adversely affect our business and financial results.
Competing intellectual property claims that impact our brands or products may arise unexpectedly. Any litigation or disputes regarding intellectual property may be costly and time-consuming and may divert the attention of our management and key personnel from our business operations. We also may be subject to significant damages or injunctions against development, launch and sale of certain products. Any of these occurrences may harm our business and financial results.

9






We may be adversely impacted by increased liabilities and costs related to our defined benefit pension plans
We sponsor a number of defined benefit pension plans for certain employees in the U.S. and various non-U.S. locations. The major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of securities and other investments. Changes in regulatory requirements or the market value of plan assets, investment returns, interest rates and mortality rates may affect the funded status of our defined benefit pension plans and cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status as recorded on the balance sheet. A significant increase in our obligations or future funding requirements could have a material adverse effect on our financial results.
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 privacy 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. 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.
We may not be able to attract and retain the highly skilled people we need to support our business 
We depend on the skills and continued service of key personnel, including our experienced management team. In addition, our ability to achieve our strategic and operating goals depends on our ability to identify, hire, train and retain qualified individuals. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure may adversely affect our business or financial results. In addition, activities related to identifying, recruiting, hiring and integrating qualified individuals may require significant time and expense. We may not be able to locate suitable replacements for any key employees who leave, or offer employment to potential replacements on reasonable terms, each of which may adversely affect our business and financial results.
On May 18, 2018, we announced the appointment of an Interim President and Chief Executive Officer.  The search for and transition to a permanent President and Chief Executive Officer may result in disruptions to our business and uncertainty among investors, employees and others concerning our future direction and performance. Any such disruptions and uncertainty, as well as the failure to successfully identify, attract or retain a permanent President and Chief Executive Officer, could have an adverse effect on our business and financial results.
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.
Acquisitions outside the U.S. may present added unique challenges and increase our exposure to risks associated with foreign operations, including foreign currency risks and risks associated with local regulatory regimes.

10







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 have become the target of activist shareholder activities. 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, disrupt 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 market disruptions or other reasons, may adversely impact us.
Adverse changes in the global climate or extreme weather conditions could adversely affect our business or operations
Our business or financial results could be adversely affected by changing global temperatures or weather patterns or by extreme or unusual weather conditions. Adverse changes in the global climate or extreme or unusual weather conditions could:
unfavorably impact the cost or availability of raw or packaging materials, especially if such events have an adverse impact on agricultural productivity or on the supply of water;
disrupt our ability, or the ability of our suppliers or contract manufacturers, to manufacture or distribute our products;
disrupt the retail operations of our customers; or
unfavorably impact the demand for, or the consumer's ability to purchase, our products.
In addition, there is growing concern that the release of carbon dioxide and other greenhouse gases into the atmosphere may be impacting global temperatures and weather patterns and contributing to extreme or unusual weather conditions. This growing concern may result in more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. Adoption of such additional regulation may result in increased compliance costs, capital expenditures and other financial obligations that could adversely affect our business and financial results.
Legal and Regulatory Risk Factors
We may be adversely impacted by legal and regulatory proceedings or claims
We are party to a variety of legal and regulatory proceedings and claims arising out of the normal course of business. Since these actions are inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such proceedings or claims, or that our assessment of the materiality or immateriality of these matters, including any reserves taken in connection with such matters, will be consistent with the ultimate outcome of such proceedings or claims. The marketing of food products has come under increased regulatory scrutiny in recent years, and the food industry has been subject to an increasing number of proceedings and claims relating to alleged false or deceptive marketing under federal, state and foreign laws or regulations. In addition, the independent contractor distribution model, which is used by Pepperidge Farm and Snyder’s-Lance, has come under increased regulatory scrutiny. Our independent contractor distribution model has also been the subject of various lawsuits in recent years. 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 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.

11






Changes in legal or regulatory requirements (such as new food safety requirements and revised regulatory requirements for the labeling of nutrition facts, serving sizes and 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 and financial results.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive offices are company-owned and located in Camden, New Jersey. The following table sets forth our principal manufacturing facilities and the business segment that primarily uses each of the facilities:
Principal Manufacturing Facilities
Inside the U.S.
 
 
 
 
Arizona
 
Massachusetts
 
Pennsylvania
Goodyear (GBS)
 
Hyannis (GBS)
 
Denver (GBS)
California
 
Michigan
 
Downingtown (GBS)
Bakersfield (CF)
 
Ferndale (CF)
 
Hanover (GBS)
Dixon (ASMB)
 
Grand Rapids (CF)
 
Texas
Stockton (ASMB)
 
New Jersey
 
Paris (ASMB)
Connecticut
 
East Brunswick (GBS)
 
Utah
Bloomfield (GBS)
 
North Carolina
 
Richmond (GBS)
Florida
 
Charlotte (GBS)
 
Washington
Lakeland (GBS)
 
Maxton (ASMB)
 
Everett (CF)
Georgia
 
Ohio
 
Prosser (CF)
Columbus (GBS)
 
Ashland (GBS)
 
Wisconsin
Illinois
 
Napoleon (ASMB)
 
Beloit (GBS)
Downers Grove (GBS)
 
Willard (GBS)
 
Franklin (GBS)
Indiana
 
Oregon
 
Milwaukee (ASMB)
Jeffersonville (GBS)
 
Salem (GBS)
 
 
 
 
Tualatin (ASMB)
 
 
Outside the U.S.
 
 
 
 
Australia
 
Denmark
 
Indonesia
Huntingwood (GBS)
 
Nørre Snede (GBS)
 
Bekasi (GBS)
Marleston (GBS)
 
Ribe (GBS)
 
Malaysia
Shepparton (GBS)
 
England
 
Selangor Darul Ehsan (GBS)
Virginia (GBS)
 
Norwich (GBS)
 
 
Canada
 
Wednesbury (GBS)
 
 
Toronto (ASMB)
 
 
 
 
______________________________ 
ASMB - Americas Simple Meals and Beverages
GBS - Global Biscuits and Snacks
CF - Campbell Fresh
Each of the foregoing manufacturing facilities is company-owned, except the Selangor Darul Ehsan, Malaysia, and the East Brunswick, New Jersey, facilities, which are leased. We also maintain principal business unit offices in Charlotte, North Carolina; Hanover, Pennsylvania; Norwalk, Connecticut; Santa Monica, California; Tualatin, Oregon; Mexico City, Mexico; Nørre Snede, Denmark; North Strathfield, Australia; Norwich, England; and Toronto, Canada.
We believe that our manufacturing and processing plants are well maintained and, together with facilities operated by our contract manufacturers, are generally adequate to support the current operations of the businesses.

12






Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Company
The following is a list of our executive officers as of September 17, 2018:
Name
Present Title & Business Experience
Age
Year First
Appointed
Executive
Officer
Xavier 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).
54
2018
Adam G. Ciongoli
Senior Vice President and General Counsel. Executive Vice President and General Counsel of Lincoln Financial Group (2012 - 2015).
50
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.
59
2004
Robert J. Furbee
Senior Vice President. We have employed Mr. Furbee in an executive or managerial capacity for at least five years.
56
2017
Keith R. McLoughlin
Interim President and Chief Executive Officer. Director of Campbell Soup Company (2016 - present). President and Chief Executive Officer of AB Electrolux (2011 - 2016).
62
2018
Luca Mignini
Senior Vice President and Chief Operating Officer. We have employed Mr. Mignini in an executive or managerial capacity for at least five years.
56
2013
Emily Waldorf
Senior Vice President, Corporate Strategy. We have employed Ms. Waldorf in positions related to corporate strategy for at least five years.
40
2018
All of the executive officers were appointed at the November 2017 meeting of the Board of Directors, except (i) Mr. Boza was appointed at an August 2018 meeting with his appointment effective as of August 1, 2018, (ii) Mr. McLoughlin was appointed at a May 2018 meeting with his appointment effective as of May 18, 2018, and (iii) Ms. Waldorf was appointed by resolution with her appointment effective as of April 5, 2018.
PART II
Item 5.
Market for Registrant’s Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market for Registrant’s Capital Stock
Our capital stock is listed and principally traded on the New York Stock Exchange. On September 17, 2018, there were 18,414 holders of record of our capital stock. Market price and dividend information with respect to our capital stock are set forth in Note 20 to the Consolidated Financial Statements. Future dividends will be dependent upon future earnings, financial requirements and other factors.
Return to Shareholders* Performance Graph
The information contained in this Return to Shareholders Performance Graph section shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent we specifically incorporate it by reference into a document filed under the Securities Exchange Act of 1933, as amended, or the Exchange Act.
The following graph compares the cumulative total shareholder return (TSR) on our stock with the cumulative total return of the Standard & Poor’s 500 Stock Index (the S&P 500) and the Standard & Poor’s Packaged Foods Index (the S&P Packaged Foods Group). The graph assumes that $100 was invested on July 26, 2013, 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, 2018.


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cpb7292018chart.jpg

* Stock appreciation plus dividend reinvestment.
 
 
2013
 
2014
 
2015
 
2016
 
2017
 
2018
Campbell
 
100
 
92
 
111
 
143
 
125
 
100
S&P 500
 
100
 
116
 
130
 
137
 
159
 
185
S&P Packaged Foods Group
 
100
 
106
 
132
 
155
 
146
 
136

14






Issuer Purchases of Equity Securities
None.

Item 6. Selected Financial Data
Fiscal Year
2018(1)
 
2017(2)
 
2016(3)
 
2015(4)
 
2014(5)
(Millions, except per share amounts)
 
Summary of Operations
 
 
 
 
 
 
 
 
 
Net sales
$
8,685

 
$
7,890

 
$
7,961

 
$
8,082

 
$
8,268

Earnings before interest and taxes
469

 
1,400

 
960

 
1,054

 
1,267

Earnings before taxes
272

 
1,293

 
849

 
949

 
1,148

Earnings from continuing operations
261

 
887

 
563

 
666

 
774

Earnings from discontinued operations

 

 

 

 
81

Net earnings
261

 
887

 
563

 
666

 
855

Net earnings attributable to Campbell Soup Company
261

 
887

 
563

 
666

 
866

Financial Position
 
 
 
 
 
 
 
 
 
Plant assets - net
$
3,233

 
$
2,454

 
$
2,407

 
$
2,347

 
$
2,318

Total assets
14,529

 
7,726

 
7,837

 
8,077

 
8,100

Total debt
9,894

 
3,536

 
3,533

 
4,082

 
4,003

Total equity
1,373

 
1,645

 
1,533

 
1,377

 
1,602

Per Share Data
 
 
 
 
 
 
 
 
 
Earnings from continuing operations attributable to Campbell Soup Company - basic
$
0.87

 
$
2.91

 
$
1.82

 
$
2.13

 
$
2.50

Earnings from continuing operations attributable to Campbell Soup Company - assuming dilution
0.86

 
2.89

 
1.81

 
2.13

 
2.48

Net earnings attributable to Campbell Soup Company - basic
0.87

 
2.91

 
1.82

 
2.13

 
2.76

Net earnings attributable to Campbell Soup Company - assuming dilution
0.86

 
2.89

 
1.81

 
2.13

 
2.74

Dividends declared
1.40

 
1.40

 
1.248

 
1.248

 
1.248

Other Statistics
 
 
 
 
 
 
 
 
 
Capital expenditures
$
407

 
$
338

 
$
341

 
$
380

 
$
347

Weighted average shares outstanding - basic
301

 
305

 
309

 
312

 
314

Weighted average shares outstanding - assuming dilution
302

 
307

 
311

 
313

 
316

____________________________________ 
(All per share amounts below are on a diluted basis)
In March 2017, the Financial Accounting Standards Board (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.
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.
In April 2015, the FASB issued guidance that requires debt issuance costs to be presented in the balance sheet as a reduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. We adopted the guidance in 2016 and retrospectively adjusted all prior periods.
In November 2015, the FASB issued guidance that requires deferred tax liabilities and assets to be classified as noncurrent in the balance sheet. We adopted the guidance in 2016 on a prospective basis and modified the presentation of deferred taxes in the Consolidated Balance Sheet as of July 31, 2016.
The 2014 fiscal year consisted of 53 weeks. All other periods had 52 weeks.
(1) 
The 2018 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge, related costs and administrative and marketing and selling expenses of $136 million ($.45 per share)

15






associated with restructuring and cost savings initiatives; gains of $103 million ($.34 per share) associated with mark-to-market and curtailment adjustments for defined benefit pension and postretirement plans; impairment charges of $612 million ($2.03 per share) related to the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, the deli reporting unit, the Bolthouse Farms carrot and carrot ingredients reporting unit and 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 Tax Cuts and Jobs Act that was signed into law in December 2017; and a loss of $15 million ($.05 per share) related to the settlement of a legal claim.
(2) 
The 2017 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge, related costs and administrative expenses of $37 million ($.12 per share) associated with restructuring and cost savings initiatives; gains of $116 million ($.38 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; impairment charges of $180 million ($.59 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit; and a tax benefit and reduction to interest expense of $56 million ($.18 per share) primarily associated with the sale of intercompany notes receivable to a financial institution.
(3) 
The 2016 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and administrative expenses of $49 million ($.16 per share) associated with restructuring and cost savings initiatives; losses of $200 million ($.64 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; a gain of $25 million ($.08 per share) associated with a settlement of a claim related to the Kelsen acquisition; and an impairment charge of $127 million ($.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit.
(4) 
The 2015 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and administrative expenses of $78 million ($.25 per share) associated with restructuring and cost savings initiatives and losses of $87 million ($.28 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans.
(5) 
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.

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.
Executive Summary
We are a manufacturer and marketer of high-quality, branded food and beverage products. We operate in a highly competitive industry and experience competition in all of our categories. On December 12, 2017, we completed the acquisition of Pacific Foods of Oregon, LLC (Pacific Foods). The purchase price was $688 million. On March 26, 2018, we completed the acquisition of Snyder’s-Lance, Inc. (Snyder's-Lance) for total consideration of $6.112 billion. For additional information on our recent acquisitions, see Note 3 to the Consolidated Financial Statements.
Commencing in the third quarter of 2018, we formed a new U.S. snacking unit, which combines Snyder's-Lance and Pepperidge Farm, and is an operating segment. As of the third quarter of 2018, we have four operating segments based primarily on product type, and three reportable segments. The U.S. snacking operating segment is aggregated with the international biscuits and snacks operating segment to form the Global Biscuits and Snacks reportable segment. The reportable segments are: Americas Simple Meals and Beverages; Global Biscuits and Snacks; and Campbell Fresh. Through the fourth quarter of 2017, our business in Latin America was managed as part of the Americas Simple Meals and Beverages segment. Beginning in 2018, our business in Latin America is managed as part of the Global Biscuits and Snacks segment. See "Business - Reportable Segments" for a description of the products included in each segment.

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Strategy
Based on a recent Board-led strategy and portfolio review, we announced our vision to be a leading snacks and simple meals company, with a portfolio of best-in-class products and brands in our core North American market that we believe will generate sustainable value for our shareholders, customers and consumers. Guided by our purpose - Real food that matters for life’s moments, each of our brands will be driven within a framework of two differentiated portfolio roles:
Drive Profitable Growth. These brands primarily include Cape Cod, Goldfish, Kettle Brand, Lance, Late July, Pace, Pacific, Pepperidge Farm Farmhouse and Milano cookies, Prego and Snyder’s of Hanover, and will be managed to grow disproportionately relative to the categories in which they compete. We believe investments in innovation and consumer engagement will enable these brands to leverage evolving consumer tastes and trends; and
Maximize Margin and Cash Flow. These brands primarily include Campbell’s soups, Pepperidge Farm fresh bakery, SpaghettiOs and V8, and will be managed with a disciplined focus and aligned investments to support their strong market positions and optimize operating margins and cash flow.
In support of this strategy, we will continue to focus on the integration of Snyder’s-Lance. We also 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. The international biscuits and snacks operating segment and the Campbell Fresh operating segment combined represent approximately $2.1 billion in net sales in 2018. We expect to use the proceeds from these divestitures to reduce debt.
As a result of a more focused portfolio, we are pursuing increased multi-year cost savings initiatives with targeted annualized cost savings of $945 million by the end of 2022, which includes $295 million in synergies and run-rate cost savings from our acquisition of Snyder's-Lance. We expect to achieve these additional savings by streamlining our organization, expanding our zero-based budgeting efforts and continuing to optimize our manufacturing network. See "Restructuring Charges and Cost Savings Initiatives" for additional information on these initiatives.
Business Trends
Our businesses are being influenced by a variety of trends that we anticipate will continue in the future, including: changing consumer preferences; a changing retail environment; and significant cost inflation.
Our strategy is designed, in part, to capture growing consumer preferences for snacking and convenience. For example, consumers are changing their eating habits by increasing the type and frequency of snacks they consume. We also expect consumers to continue to seek products that they associate with health and well-being, including naturally functional and organic foods.
Retailers continue to use their buying power and negotiating strength to seek increased promotional programs funded by their suppliers and more favorable terms. In 2018, U.S. soup sales declined primarily due to a key customer's different promotional approach for soup. We expect consolidations among retailers will continue to create large and sophisticated customers that may further this trend. At the same time, new and existing retailers continue to grow and promote store brands that compete with branded products. In addition, although e-commerce represents only a small percentage of total food sales, we anticipate it will continue to grow rapidly.
The cost of distribution has increased due to a significant 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 steel, have been or may be impacted by new or recently proposed tariffs. We expect these cost pressures to continue in 2019. In connection with our transition to our new U.S. warehouse optimization model, we are also experiencing significantly higher than expected cost increases and shipment delays associated with the startup of our Findlay, Ohio distribution facility. The Findlay facility, operated by a third-party logistics service provider, serves as the Midwest hub for distribution of Campbell’s soups, Swanson broth, V8 beverages and Pace, Prego and Plum products. Additionally, in September, our Maxton, North Carolina manufacturing and distribution capabilities were negatively impacted by flooding associated with Hurricane Florence. We expect the collective impact of these cost increases, shipment delays and weather-related issues to have a negative impact on our results of operations for the first quarter ending October 28, 2018.
Summary of Results
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 the prior year were reclassified to conform to the current presentation. 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.
Net sales increased 10% in 2018 to $8.685 billion, primarily due to an 11-point benefit from the acquisitions of Snyder's-Lance and Pacific Foods.

17






Gross profit, as a percent of sales, decreased to 32.4% from 37.1% a year ago. The decrease was primarily due to cost inflation and higher supply chain costs, the dilutive impact of acquisitions, partially offset by productivity improvements.
Administrative expenses increased 19% to $654 million from $550 million a year ago. The increase was primarily due to higher expenses related to cost savings initiatives, the impact of acquisitions, including integration costs, partially offset by lower incentive compensation costs.
Other expenses / (income) increased to expense of $619 million in 2018 from income of $9 million in 2017. The current year included non-cash impairment charges of $737 million on the intangible assets of Campbell Fresh and the Plum trademark, transaction costs of $53 million related to the Snyder's-Lance acquisition, expense of $22 million related to a settlement of a legal claim, and gains of $136 million on pension and postretirement benefit mark-to-market and curtailment adjustments. The prior year included non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit and gains of $178 million on pension and postretirement benefit mark-to-market adjustments. For additional information on the impairment charges, see "Significant Accounting Estimates."
Interest expense increased to $201 million from $112 million primarily due to higher levels of debt associated with funding the acquisitions.
The effective tax rate was 4.0% in 2018, compared to 31.4% in 2017. The current year included a $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 11 to the Consolidated Financial Statements for additional information. In 2017, the effective rate reflected a tax benefit of $52 million primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes. After adjusting for these items, the remaining decrease in the effective tax rate was primarily due to the ongoing lower U.S. federal tax rate as a result of the Act.
Earnings per share were $.86 in 2018, compared to $2.89 a year ago. The current and prior year included expenses of $2.01 and $.15 per share, respectively, from items impacting comparability as discussed below.
Cash flows from operations were $1.305 billion in 2018, compared to $1.291 billion in 2017. The increase was primarily due to lower working capital requirements, partially offset by lower cash earnings.
Net Earnings attributable to Campbell Soup Company - 2018 Compared with 2017
The following items impacted the comparability of earnings and earnings per share:
In 2018, we recognized gains of $136 million in Other expenses / (income) ($103 million after tax, or $.34 per share) associated with mark-to-market and curtailment adjustments for defined benefit pension and postretirement plans. In 2017, we recognized gains of $178 million in Other expenses / (income) ($116 million after tax, or $.38 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans;
In 2015, we implemented initiatives to reduce costs and to streamline our organizational structure. In 2017, we expanded these cost savings initiatives by further optimizing our supply chain network, primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent acquisitions. In January 2018, as part of the expanded 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 latest cloud technology platform. In 2018, we recorded a pre-tax restructuring charge of $49 million and implementation costs and other related costs of $88 million in Administrative expenses, $45 million in Cost of products sold, and $3 million in Marketing and selling expenses (aggregate impact of $136 million after tax, or $.45 per share) related to these initiatives. In 2017, we recorded a pre-tax restructuring charge of $18 million and implementation costs and other related costs of $36 million in Administrative expenses and $4 million in Cost of products sold (aggregate impact of $37 million after tax, or $.12 per share) related to these initiatives. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" 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;
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

18






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).
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 the anticipated loss of refrigerated soup business with certain private label customers, as well as the recent 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, of which $11 million was recorded in Cost of products sold and $608 million in Other expenses / (income), ($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 in Other expenses / (income) ($74 million after tax, or $.25 per share).
In 2018, the total non-cash impairment charges recorded were $748 million, of which $11 million was recorded in Cost of products sold and $737 million in Other expenses / (income), ($612 million after tax, or $2.03 per share).
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). The charges were included in Other expenses / (income). See Note 5 to the Consolidated Financial Statements for additional information;
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;
In 2018, we reflected the impact on taxes of the enactment of the Act that was signed into law in December 2017. 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 11 to the Consolidated Financial Statements and "Taxes on Earnings" for additional information; and
In 2017, we recorded a tax benefit of $52 million in Taxes on earnings primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes. In addition, we recorded a $6 million reduction to interest expense ($4 million after tax) related to premiums and fees received on the sale of the notes. The aggregate impact was $56 million after tax, or $.18 per share. See Note 11 to the Consolidated Financial Statements for additional information.

19






The items impacting comparability are summarized below:
 
2018
 
2017
(Millions, except per share amounts)
Earnings
Impact
 
EPS
Impact
 
Earnings
Impact
 
EPS
Impact
Net earnings attributable to Campbell Soup Company
$
261

 
$
.86

 
$
887

 
$
2.89

 
 
 
 
 
 
 
 
Pension and postretirement benefit mark-to-market and curtailment adjustments
$
103

 
$
.34

 
$
116

 
$
.38

Restructuring charges, implementation costs and other related costs
(136
)
 
(.45
)
 
(37
)
 
(.12
)
Transaction and integration costs
(73
)
 
(.24
)
 

 

Impairment charges
(612
)
 
(2.03
)
 
(180
)
 
(.59
)
Claim settlement
(15
)
 
(.05
)
 

 

Tax reform
126

 
.42

 

 

Sale of notes

 

 
56

 
.18

Impact of items on Net earnings
$
(607
)
 
$
(2.01
)
 
$
(45
)
 
$
(.15
)
Net earnings attributable to Campbell Soup Company were $261 million ($0.86 per share) in 2018, compared to $887 million ($2.89 per share) in 2017. After adjusting for items impacting comparability, earnings decreased primarily due to declines on the base business reflecting a lower gross profit performance, and the dilutive impact of acquisitions, partially offset by a lower effective tax rate. Earnings per share benefited from a reduction in the weighted average diluted shares outstanding, reflecting share repurchases. We suspended our share repurchases as of the second quarter of 2018.
Net Earnings attributable to Campbell Soup Company - 2017 Compared with 2016
In addition to the 2017 items that impacted comparability of Net earnings discussed above, the following items impacted the comparability of earnings and earnings per share:
In 2016, we recognized losses of $313 million in Other expenses / (income) ($200 million after tax, or $.64 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans;
In 2016, we recorded a pre-tax restructuring charge of $35 million and implementation costs and other related costs of $47 million in Administrative expenses related to the 2015 initiatives. In 2016, we also recorded a reduction to pre-tax restructuring charges of $4 million related to the 2014 initiatives. The aggregate after-tax impact in 2016 of restructuring charges, implementation costs and other related costs was $49 million, or $.16 per share. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
In the fourth quarter of 2016, as part of the annual review of intangible assets, we recorded a non-cash impairment charge of $141 million ($127 million after tax, or $.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit. The charges are included in Other expenses / (income); and
In 2016, we recorded a gain of $25 million ($.08 per share) in Other expenses / (income) from a settlement of a claim related to the Kelsen acquisition. The claim was for a warranty breach and has no meaningful ongoing impact on Kelsen.
The items impacting comparability are summarized below:
 
2017
 
2016
(Millions, except per share amounts)
Earnings
Impact
 
EPS
Impact
 
Earnings
Impact
 
EPS
Impact
Net earnings attributable to Campbell Soup Company
$
887

 
$
2.89

 
$
563

 
$
1.81

 
 
 
 
 
 
 
 
Pension and postretirement benefit mark-to-market adjustments
$
116

 
$
.38

 
$
(200
)
 
$
(.64
)
Restructuring charges, implementation costs and other related costs
(37
)
 
(.12
)
 
(49
)
 
(.16
)
Impairment charges
(180
)
 
(.59
)
 
(127
)
 
(.41
)
Sale of notes
56

 
.18

 

 

Claim settlement

 

 
25

 
.08

Impact of items on Net earnings
$
(45
)
 
$
(.15
)
 
$
(351
)
 
$
(1.13
)
Net earnings were $887 million ($2.89 per share) in 2017, compared to $563 million ($1.81 per share) in 2016. After adjusting for items impacting comparability, earnings increased primarily due to an improved gross profit performance and lower

20






administrative expenses, partially offset by lower sales. Earnings per share benefited from a reduction in the weighted average diluted shares outstanding, primarily due to share repurchases under our strategic share repurchase program.
DISCUSSION AND ANALYSIS
Sales
An analysis of net sales by reportable segment follows:
 
 
 
 
 
 
 
% Change
(Millions)
2018
 
2017
 
2016
 
2018/2017(1)
 
2017/2016
Americas Simple Meals and Beverages
$
4,213

 
$
4,256

 
$
4,313

 
(1)%
 
(1)%
Global Biscuits and Snacks
3,499

 
2,667

 
2,631

 
31
 
1
Campbell Fresh
970

 
967

 
1,017

 
 
(5)
Corporate
3

 

 

 
n/m
 
 
$
8,685

 
$
7,890

 
$
7,961

 
10%
 
(1)%
__________________________________________
(1) 
n/m - Not meaningful.

An analysis of percent change of net sales by reportable segment follows:
2018 versus 2017
Americas Simple Meals and Beverages
 
Global Biscuits and Snacks(2)
 
Campbell Fresh(2)
 
Total
Volume and Mix
(3)%
 
1%
 
1%
 
(1)%
Price and Sales Allowances
(1)
 
1
 
 
(Increased)/Decreased Promotional Spending(1)
 
 
 
Currency
 
1
 
 
Acquisitions
3
 
29
 
 
11
 
(1)%
 
31%
 
—%
 
10%

2017 versus 2016
Americas Simple Meals and Beverages(2)
 
Global Biscuits and Snacks(2)
 
Campbell Fresh(2)
 
Total(2)
Volume and Mix
(1)%
 
1%
 
(5)%
 
(1)%
(Increased)/Decreased Promotional Spending(1)
(1)
 
 
1
 
(1)
Currency
 
1
 
 
 
(1)%
 
1%
 
(5)%
 
(1)%
__________________________________________
(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 2018, Americas Simple Meals and 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 2017, Americas Simple Meals and Beverages sales decreased 1% primarily due to declines in V8 beverages and soup, partly offset by gains in Prego pasta sauces and SpaghettiOs pasta. U.S. soup sales decreased 1% due to declines in condensed soups and broth, partly offset by gains in ready-to-serve soups. Gains in ready-to-serve soups were primarily driven by Chunky soups due to improved execution, including merchandising and dedicated advertising, as well as new items, and the launch of Well Yes! soups. Promotional spending had a negative impact of 1% on sales, with increases on broth, in Canada and on V8 beverages. We increased promotional spending on broth and V8 beverages to remain competitive, and in Canada to hold certain promoted prices following list price increases.

21






In 2018, Global Biscuits and Snacks sales increased 31% primarily due to the 29-point benefit of the acquisition of Snyder’s-Lance. Excluding Snyder’s-Lance and the favorable impact of currency translation, sales increased primarily due to gains in Pepperidge Farm, reflecting growth in Goldfish crackers and in cookies, as well as gains of Kelsen cookies in China, partially offset by declines in Arnott’s biscuits, primarily in Indonesia.
In 2017, Global Biscuits and Snacks sales increased 1% reflecting a 1% favorable impact from currency translation. Excluding the favorable impact of currency translation, segment sales were comparable to the prior year as gains in Pepperidge Farm were offset by declines in Kelsen, mostly in the U.S., and in Arnott's in Indonesia. Pepperidge Farm sales increased due to gains in Goldfish crackers and in cookies, benefiting from new items, partly offset by declines in fresh bakery and frozen products.
In 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 2017, Campbell Fresh sales decreased 5% primarily due to lower sales of refrigerated beverages and carrots, partly offset by gains in refrigerated soup. The decrease in refrigerated beverages reflects the adverse impact of supply constraints related to enhanced quality processes following the voluntary recall of Bolthouse Farms Protein PLUS drinks in June 2016. The carrot sales performance reflects the market share impact of quality and execution issues experienced in 2016, as well as the adverse impact of weather conditions in the second quarter of 2017.
Gross Profit
Gross profit, defined as Net sales less Cost of products sold, decreased by $109 million in 2018 from 2017 and decreased by $3 million in 2017 from 2016. As a percent of sales, gross profit was 32.4% in 2018, 37.1% in 2017 and 36.8% in 2016.
The 4.7 percentage-point decrease in gross profit percentage in 2018 and 0.3 percentage-point increase in gross profit percentage in 2017 were due to the following factors:
 
Margin Impact
 
2018
 
2017
Cost inflation, supply chain costs and other factors(1)
(3.0)
 
(1.0)
Impact of acquisitions(2)
(1.8)
 
Restructuring-related costs
(0.5)
 
Mix
(0.3)
 
(0.2)
Higher level of promotional spending
(0.2)
 
(0.4)
Impairment charge on plant assets
(0.2)
 
Price and sales allowances
(0.1)
 
0.1
Productivity improvements
1.4
 
1.8
 
(4.7)%
 
0.3%
__________________________________________
(1) 
2018 includes a positive margin impact of 0.9 from cost savings initiatives, which was more than offset by cost inflation and other factors, including higher transportation and logistics costs and higher costs in Campbell Fresh. 2017 includes a positive margin impact of 1 from cost savings initiatives.
(2) 
2018 includes a negative margin impact of 0.5 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 10.4% in 2018, 10.8% in 2017 and 10.7% in 2016. Marketing and selling expenses increased 5% in 2018 from 2017. The increase was primarily due to the impact of acquisitions (approximately 9 percentage points) and investments in e-commerce (approximately 1 percentage point), partially offset by increased benefits from cost savings initiatives (approximately 2 percentage points); lower marketing overhead expenses (approximately 1 percentage point); lower advertising and consumer promotion expenses (approximately 1 percentage point) and lower incentive compensation costs (approximately 1 percentage point).
Marketing and selling expenses were comparable in 2017 and 2016 as increased benefits from cost savings initiatives (approximately 2 percentage points); and lower incentive compensation costs (approximately 1 percentage point) were offset by higher selling expenses (approximately 1 percentage point) and inflation (approximately 1 percentage point).
Administrative Expenses
Administrative expenses as a percent of sales were 7.5% in 2018, 7.0% in 2017 and 7.2% in 2016. Administrative expenses increased 19% in 2018 from 2017. The increase was primarily due to higher costs related to cost savings initiatives (approximately 9 percentage points); the impact of acquisitions (approximately 7 percentage points); acquisition integration costs (approximately 2 percentage points); consulting costs incurred in connection with the strategic review (approximately 1 percentage point);

22






investments in long-term innovation (approximately 1 percentage point); the impact of currency translation (approximately 1 percentage point) and inflation and other factors (approximately 4 percentage points), partially offset by lower incentive compensation (approximately 5 percentage points) and increased benefits from cost savings initiatives (approximately 1 percentage point).
Administrative expenses decreased 4% in 2017 from 2016. The decrease was primarily due to increased benefits from cost savings initiatives (approximately 3 percentage points); lower incentive compensation costs (approximately 3 percentage points); and lower costs related to cost savings initiatives (approximately 2 percentage points), partially offset by inflation (approximately 2 percentage points) and investments in long-term innovation (approximately 1 percentage point).
Research and Development Expenses
Research and development expenses decreased $1 million, or 1%, in 2018 from 2017. The decrease was primarily due to lower investments in long-term innovation (approximately 3 percentage points); and lower incentive compensation costs (approximately 2 percentage points), partially offset by the impact of acquisitions (approximately 3 percentage points) and inflation and other factors (approximately 1 percentage point).
Research and development expenses increased $6 million, or 6%, in 2017 from 2016. The increase was primarily due to inflation and other factors (approximately 8 percentage points) and investments in long-term innovation (approximately 1 percentage point), partially offset by increased benefits from cost savings initiatives (approximately 2 percentage points) and lower incentive compensation costs (approximately 2 percentage points).
Other Expenses / (Income)
Other expenses in 2018 included the following:
non-cash impairment charges of $737 million related to the intangible assets of the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, the deli reporting unit, the Bolthouse Farms carrot and carrots ingredients reporting unit and the Plum trademark;
$53 million of transaction costs associated with the acquisition of Snyder's-Lance;
$34 million of amortization of intangible assets;
$22 million of expense related to the settlement of a legal claim; and
$231 million of net periodic benefit income, including gains of $136 million on pension and postretirement benefit mark-to-market and curtailment adjustments.
Other expenses in 2017 included the following:
non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit;
$19 million of amortization of intangible assets; and
$247 million of net periodic benefit income, including gains of $178 million on pension and postretirement benefit mark-to-market adjustments.
Other expenses in 2016 included the following:
net periodic benefit expense of $274 million, including losses of $313 million on pension and postretirement benefit mark-to-market adjustments;
a non-cash impairment charge of $141 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit;
$20 million of amortization of intangible assets; and
a $25 million gain from a settlement of a claim related to the Kelsen acquisition.
For additional information on the impairment charges, see "Significant Accounting Estimates."
Operating Earnings
Segment operating earnings decreased 5% in 2018 from 2017 and increased 1% in 2017 from 2016.

23






An analysis of operating earnings by segment follows:
 
 
 
 
 
 
 
 
% Change(2)
(Millions)
 
2018
 
2017
 
2016
 
2018/2017
 
2017/2016
Americas Simple Meals and Beverages
 
$
982

 
$
1,111

 
$
1,060

 
(12)%
 
5
%
Global Biscuits and Snacks
 
540

 
463

 
431

 
17
 
7

Campbell Fresh
 
(43
)
 
(9
)
 
60

 
n/m
 
n/m
 
 
1,479

 
1,565

 
1,551

 
(5)%
 
1
%
Corporate
 
(948
)
 
(147
)
 
(560
)
 
 
 
 
Restructuring charges(1)
 
(62
)
 
(18
)
 
(31
)
 
 
 
 
Earnings before interest and taxes
 
$
469

 
$
1,400

 
$
960

 
 
 
 
__________________________________________
(1)
See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges.
(2) 
n/m - Not meaningful.
Operating earnings from Americas Simple Meals and Beverages decreased 12% in 2018 versus 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 Americas Simple Meals and Beverages increased 5% in 2017 versus 2016. The increase was primarily due to a higher gross profit percentage, benefiting from productivity improvements, and lower administrative expenses, partly offset by volume declines.
Operating earnings from Global Biscuits and Snacks increased 17% 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 a lower gross profit percentage. Gross profit performance was impacted by higher levels of cost inflation, particularly on butter, higher transportation and logistics costs and costs associated with the voluntary product recall of flavor-blasted Goldfish crackers in July 2018.
Operating earnings from Global Biscuits and Snacks increased 7% in 2017 versus 2016. The increase was primarily due to lower administrative expenses, lower marketing and selling expenses and higher sales voume.
Operating earnings from Campbell Fresh decreased from a loss of $9 million in 2017 to a loss of $43 million in 2018. The decrease was primarily due to a lower gross profit percentage, reflecting higher supply chain costs including lower manufacturing efficiencies and cost inflation, as well as higher carrot costs attributable to the adverse impact of weather conditions on crop yields.
Operating earnings from Campbell Fresh decreased from $60 million in 2016 to a loss of $9 million in 2017. The decrease was primarily due to lower volume and unfavorable mix; higher carrot costs, which were partly associated with the adverse impact on crop yields of heavy rains in December and January of fiscal 2017, as well as excess organic carrots; the cost impact of both lower beverage operating efficiencies and enhanced quality processes; and higher administrative expenses.
Corporate in 2018 included the following:
non-cash impairment charges of $748 million related to the assets of the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, the deli reporting unit, the Bolthouse Farms carrot and carrots ingredients reporting unit and the Plum trademark;
transaction and integration costs of $107 million associated with the acquisition of Snyder's-Lance;
costs of $136 million related to the cost savings initiatives;
$22 million of expense related to the settlement of a legal claim; and
$136 million of gains on pension and postretirement benefit mark-to-market and curtailment adjustments.
Corporate in 2017 included non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit, costs of $40 million related to cost savings initiatives and a $178 million gain associated with pension and postretirement benefit mark-to-market adjustments. Excluding these amounts, the remaining decrease in costs was primarily due to higher pension and postretirement benefit income in 2018, and lower incentive compensation costs, partially offset by higher administrative expenses and losses on open commodity contracts in the current year.
Corporate in 2016 included a $313 million loss associated with pension and postretirement benefit mark-to-market adjustments, a non-cash impairment charge of $141 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting

24






unit, costs of $47 million related to cost savings initiatives, and a $25 million gain from a settlement of a claim related to the Kelsen acquisition. The remaining decrease in 2017 was primarily due to lower postretirement benefit costs as a result of amortization of prior service credit, partially offset by investments in long-term innovation.
Interest Expense
Interest expense increased to $201 million in 2018 from $112 million in 2017. The increase in interest 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 a gain of $18 million on treasury rate lock contracts used to hedge the planned financing of the Snyder's-Lance acquisition.
Interest expense decreased to $112 million in 2017 from $115 million in 2016. In 2017, we recorded a $6 million reduction to interest expense related to premiums and fees received from the sale of intercompany notes receivable to a financial institution. Excluding the premium and fees, interest expense increased reflecting higher average interest rates on the debt portfolio, partially offset by lower average levels of debt.
Taxes on Earnings
The effective tax rate was 4.0% in 2018, 31.4% in 2017 and 33.7% in 2016.
On December 22, 2017, the Act was enacted into law and made significant changes to corporate taxation. As a result, the following items are reflected in 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.
The amounts recorded represent provisional amounts based on our best estimates and current interpretation of the provisions of the Act and may change as additional guidance is issued. See Note 11 to the Consolidated Financial Statements for additional information.
Tax expense decreased from $406 million in 2017 to $11 million in 2018.
The following items impacted 2018 and 2017:
In 2018, we recognized tax expense of $33 million on $136 million of pension and postretirement benefit mark-to-market and curtailment gains. In 2017, we recognized a tax expense of $62 million on $178 million of pension and postretirement benefit mark-to-market gains;
In 2018, we recognized a $49 million tax benefit on $185 million of restructuring charges, implementation costs and other related costs. In 2017, we recognized a $21 million tax benefit on $58 million of restructuring charges, implementation costs and other related costs;
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;
In 2018, we recognized a $136 million tax benefit on the $748 million impairment charges on the assets of the deli reporting unit, the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, the Bolthouse Farms carrot and carrot ingredients reporting unit and the Plum trademark. In 2017, we recognized a $32 million tax benefit on the $212 million impairment charges on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit;
In 2018, we recognized a $7 million tax benefit on the $22 million of expense related to the settlement of a legal claim;
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; and
In 2017, we recognized a tax benefit of $52 million primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes.
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. federal tax rate as a result of the Act.
The following items impacted the tax rate in 2016:
In 2016, we recognized a tax benefit of $113 million on $313 million of pension and postretirement benefit mark-to-market losses;
In 2016, we recognized a $14 million tax benefit on the $141 million impairment charge on the intangible assets associated with the Bolthouse Farms carrot and carrot ingredients reporting unit;

25






In 2016, we recognized a $29 million tax benefit on $78 million of restructuring charges, implementation costs and other related costs; and
In 2016, the $25 million gain from a settlement of a claim related to the Kelsen acquisition was not subject to tax.
In addition, in 2017 the effective rate was favorably impacted by the recognition of $6 million of excess tax benefits in connection with the adoption of new accounting guidance on stock-based compensation in the first quarter of 2017.
Restructuring Charges and Cost Savings Initiatives
2015 Initiatives
In fiscal 2015, we implemented initiatives to reduce costs and 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. We extended the time horizon for the initiatives to 2022. Cost estimates for these expanded initiatives, as well as timing for certain activities, are continuing to be developed.
A summary of the restructuring charges and charges recorded in Administrative expenses, Cost of products sold, and Marketing and selling expenses related to the initiatives is as follows:
 (Millions, except per share amounts)
2018
 
2017
 
2016
 
2015
Restructuring charges
$
49

 
$
18

 
$
35

 
$
102

Administrative expenses
88

 
36

 
47

 
22

Cost of products sold
45

 
4

 

 

Marketing and selling expenses
3

 

 

 

Total pre-tax charges
$
185

 
$
58

 
$
82

 
$
124

 
 
 
 
 
 
 
 
Aggregate after-tax impact
$
136

 
$
37

 
$
52

 
$
78

Per share impact
$
.45

 
$
.12

 
$
.17

 
$
.25

A summary of the pre-tax costs associated with the initiatives is as follows:
(Millions)
Recognized as of July 29, 2018
Severance pay and benefits
$
180

Asset impairment/accelerated depreciation
45

Implementation costs and other related costs
224

Total
$
449

The total estimated pre-tax costs for actions that have been identified are approximately $570 million to $605 million. This estimate will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions that have been identified to date to consist of the following: approximately $195 million in severance pay and benefits; approximately $95 million in asset impairment and accelerated depreciation; and approximately $280 million to $315 million in implementation costs and other related costs.We expect these pre-tax costs to be associated with our segments as follows: Americas Simple Meals and Beverages - approximately 45%; Global Biscuits and Snacks - approximately 30%; Campbell Fresh - approximately 3%; and Corporate - approximately 22%.
Of the aggregate $570 million to $605 million of pre-tax costs identified to date, we expect approximately $465 million to $500 million will be cash expenditures. In addition, we expect to invest approximately $250 million in capital expenditures through 2020 primarily related to the U.S. warehouse optimization project, transition of production of the Toronto manufacturing facility to our U.S. thermal plants, insourcing of manufacturing for certain simple meal products and optimization of information technology infrastructure and applications, of which we invested approximately $114 million as of July 29, 2018.

26






We expect to incur the costs for the actions that have been identified to date through 2020 and to fund the costs through cash flows from operations and short-term borrowings.
We expect the initiatives for actions that have been identified to date to generate pre-tax savings of $470 million in 2019, and once all phases are implemented, to generate annual ongoing savings of approximately $650 million by the end of 2022. The annual pre-tax savings generated by the initiatives were as follows:
(Millions)
2018
 
2017
 
2016
 
2015
Total pre-tax savings
$
420

 
$
325

 
$
215

 
$
85

Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs incurred to date associated with segments is as follows:
(Millions)
2018
 
Costs Incurred to Date
Americas Simple Meals and Beverages
$
86

 
$
178

Global Biscuits and Snacks
73

 
151

Campbell Fresh
5

 
11

Corporate
21

 
109

Total
$
185

 
$
449

Snyder's-Lance Cost Transformation Program and Integration
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.
We are developing the detailed plans to implement the Snyder's-Lance cost transformation program and to achieve the cost synergies and therefore we cannot reasonably estimate the total expected pre-tax costs and timing of when we expect to incur those costs, as well as the expected future cash expenditures. We expect the pre-tax costs to be associated primarily with Global Biscuits and Snacks.
In 2018, we recorded a restructuring charge of $13 million and incurred $12 million in Administrative expenses related to the integration of Snyder's-Lance.
We expect the Snyder's-Lance cost transformation program and integration to generate pre-tax annual savings of $105 million in 2019, and once all phases are implemented, to generate annual ongoing savings of approximately $295 million beginning in 2022. In 2018, pre-tax savings were $35 million.
Segment operating results do not include restructuring charges, nor implementation and integration costs because we evaluate segment performance excluding such charges. The pre-tax costs of $25 million incurred in 2018 were associated with the Global Biscuits and Snacks segment.
2015 Initiatives and Snyder's-Lance Cost Transformation Program and Integration
We generated annual pre-tax savings of $455 million in 2018 for both programs and expect once all phases of these programs are implemented, to generate annual ongoing savings of approximately $945 million by the end of 2022.
2014 Initiatives
In 2014, we implemented initiatives to reduce overhead across the organization, restructure manufacturing and streamline operations for our soup and broth business in China and improve supply chain efficiency in Australia.
In 2016, we recorded a reduction to restructuring charges of $4 million ($3 million after tax, or $.01 per share) related to the 2014 initiatives. As of July 31, 2016, we incurred substantially all of the costs related to the 2014 initiatives.

27






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

_______________________________________
(1) 
Recognized as of August 2, 2015.
See Note 7 to the Consolidated Financial Statements for additional information.
LIQUIDITY AND CAPITAL RESOURCES
We expect foreseeable liquidity and capital resource requirements to be met through anticipated cash flows from operations; long-term borrowings; short-term borrowings, including commercial paper; credit facilities; and cash and cash equivalents. We believe that our sources of financing will be adequate to meet our future requirements.
We generated cash flows from operations of $1.305 billion in 2018, compared to $1.291 billion in 2017. The increase in 2018 was primarily due to lower working capital requirements, partially offset by lower cash earnings.
We generated cash flows from operations of $1.291 billion in 2017, compared to $1.491 billion in 2016. The decline in 2017 was primarily due to lapping significant reductions in working capital in 2016, as well as lower cash earnings and lower receipts from hedging activities in 2017.
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 $1.298 billion as of July 29, 2018, and $495 million as of July 30, 2017. Debt maturing within one year was $1.896 billion as of July 29, 2018, and $1.037 billion as of July 30, 2017.
Capital expenditures were $407 million in 2018, $338 million in 2017 and $341 million in 2016. Capital expenditures are expected to total approximately $400 million in 2019. Capital expenditures in 2018 included a U.S. warehouse optimization project (approximately $50 million); transition of production of the Toronto manufacturing facility to our U.S. thermal plants (approximately $23 million); insourcing manufacturing for certain simple meal products (approximately $18 million); replacement of a Pepperidge Farm refrigeration system (approximately $9 million); and an Australian multi-pack biscuit capacity expansion project (approximately $2 million). Capital expenditures in 2017 included projects to expand: Australian multi-pack biscuit capacity (approximately $15 million); beverage and salad dressing capacity at Bolthouse Farms (approximately $8 million); and capacity at Garden Fresh (approximately $3 million); as well as the continued enhancement of our corporate headquarters (approximately $11 million); replacement of a Pepperidge Farm refrigeration system (approximately $12 million); and a U.S. warehouse optimization project (approximately $10 million). Capital expenditures in 2016 included projects to expand: beverage and salad dressing capacity at Bolthouse Farms (approximately $22 million); biscuit capacity in Indonesia (approximately $11 million); warehouse capacity in North America (approximately $11 million); cracker capacity at Pepperidge Farm (approximately $9 million); and capacity in Malaysia (approximately $6 million); as well as the continued enhancement of our corporate headquarters (approximately $15 million) and the ongoing initiative to simplify the soup-making process in North America (approximately $5 million).
On December 12, 2017, we completed the acquisition of Pacific Foods. The purchase price was $688 million and was funded through the issuance of commercial paper.
On March 26, 2018, we completed the acquisition of 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 interest 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 and the first interest payment is due in June 2018. The senior unsecured term loan facility may be prepaid at par at any time. The senior unsecured term loan facility contains customary covenants and events of default for credit facilities of this type.
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 $400 million, respectively. We issued 3, 5, 7, 10, and 30-year fixed rate senior notes in the amount of $650 million$1.2 billion$850 million$1 billion, and $700 million, respectively. Interest on the 2-year floating rate senior notes is due quarterly on March 16, June 16, September 16, and December 16, commencing on

28






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 15 and September 15, commencing on September 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. If change of control triggering events occur, we will be required to offer 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.
In June 2017, we sold intercompany notes to a financial institution, including an AUD $280 million, or $224 million, note with an interest rate of 4.88% that matures on September 18, 2018, and an AUD $190 million, or $152 million, note with an interest rate of 6.98% that matures on March 29, 2021, but is payable upon demand. Interest on both notes is due semi-annually on January 23 and July 23. The net proceeds were used for general corporate purposes. 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 matures on September 11, 2019. The interest rate on the new facility is floating based on an Australian dollar rate for the applicable interest period plus a margin. The interest period resets in one, two, three or six-month periods, based on our election. The facility contains customary covenants and events of default for credit facilities of this type.
Dividend payments were $426 million in 2018, $420 million in 2017 and $390 million in 2016. Annual dividends declared were $1.40 per share in 2018 and 2017, and $1.248 per share in 2016. The 2018 fourth quarter dividend was $.35 per share.
We repurchased approximately 2 million shares at a cost of $86 million in 2018, approximately 8 million shares at a cost of $437 million in 2017, and approximately 3 million shares at a cost of $143 million in 2016. As a result of the acquisition of Snyder's-Lance, we suspended our share repurchases as of the second quarter of 2018. See Note 16 to the Consolidated Financial Statements for additional information.
As of July 29, 2018, we had $1.896 billion of short-term borrowings due within one year, of which $1.14 billion was comprised of commercial paper borrowings, $348 million of Australian notes and $300 million of 4.5% notes. On September 18, 2018, we repaid a portion of the Australian notes and refinanced the remainder with a new AUD $400 million single-draw syndicated facility that matures on September 18, 2019. As of July 29, 2018, we issued $59 million of standby letters of credit. We have a committed revolving credit facility totaling $1.85 billion that matures in December 2021. This U.S. facility remained unused at July 29, 2018, except for $1 million of standby letters of credit that we issued under it. The U.S. facility supports our commercial paper programs and other general corporate purposes. As of July 29, 2018, the total commitment under a Canadian committed revolving credit facility was CAD $125 million, or $96 million, and we had borrowings of CAD $117 million, or $90 million, at a rate of 3.17% under this facility. The Canadian facility supports general corporate purposes. We expect to continue to access the commercial paper markets, bank credit lines and utilize cash flows from operations to support our short-term liquidity requirements.
Our credit ratings were recently downgraded by Standard & Poor's and reaffirmed with a negative outlook by Moody's Investors Service, Inc. If our credit ratings are further 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.
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 29, 2018. For additional information on debt, see Note 12 to the Consolidated Financial Statements. Operating leases are primarily entered into for warehouse and office facilities and certain equipment. Purchase commitments represent purchase orders and long-term purchase arrangements related to the procurement of ingredients, supplies, machinery, equipment and services. These commitments are not expected to have a material impact on liquidity. Other long-term liabilities primarily represent payments related to deferred compensation obligations. For additional information on other long-term liabilities, see Note 19 to the Consolidated Financial Statements.

29






 
Contractual Payments Due by Fiscal Year
(Millions)
Total
 
2019
 
2020-2021
 
2022-2023
 
Thereafter
Debt obligations(1)
$
9,958

 
$
1,901

 
$
3,151

 
$
1,652

 
$
3,254

Interest payments(2)
2,607

 
318

 
558

 
351

 
1,380

Derivative payments(3)
6

 
5

 
1

 

 

Purchase commitments
1,238

 
1,032

 
163

 
37

 
6

Operating leases
360

 
75

 
109

 
67

 
109

Other long-term payments(4)
178

 

 
81

 
30

 
67

Total long-term cash obligations
$
14,347

 
$
3,331

 
$
4,063

 
$
2,137

 
$
4,816

_______________________________________
(1) 
Excludes unamortized net discount/premium on debt issuances and debt issuance costs. For additional information on debt obligations, see Note 12 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.
(3) 
Represents payments of foreign exchange forward contracts and commodity contracts.
(4) 
Represents other long-term liabilities, excluding unrecognized tax benefits, postretirement benefits and payments related to pension plans. For additional information on pension and postretirement benefits, see Note 10 to the Consolidated Financial Statements. For additional information on unrecognized tax benefits, see Note 11 to the Consolidated Financial Statements.
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 for the purchase of distribution routes. The maximum potential amount of the future payments under existing guarantees we could be required to make is $210 million. Our guarantees are indirectly secured by the distribution routes. We do not expect that we will be required to make material guarantee payments as a result of defaults on the bank loans guaranteed.
With the acquisition of Snyder's-Lance, we guarantee approximately 2,400 bank loans made to independent business owners by third-party financial institutions for the purchase of distribution routes. The outstanding aggregate balance on these loans was $187 million as of July 29, 2018. Our guarantees are indirectly secured by the distribution routes. We do not expect that we will be required to make material guarantee payments as a result of defaults on the bank loans guaranteed.
See also Note 18 to the Consolidated Financial Statements for information on off-balance sheet arrangements.
INFLATION
We are exposed to the impact of inflation on our cost of products sold. We use a number of strategies to mitigate the effects of cost inflation including increasing prices, commodity hedging and pursuing cost productivity initiatives such as global procurement strategies and capital investments that improve the efficiency of operations.
MARKET RISK SENSITIVITY
The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. International operations, which accounted for 19% of 2018 net sales, are concentrated principally in Australia and Canada. We manage our foreign currency exposures by borrowing in various foreign currencies and utilizing cross-currency swaps and foreign exchange forward contracts. We enter into cross-currency swaps and foreign exchange forward contracts for periods consistent with related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments.
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, natural gas, soybean meal, corn, cocoa, butter, 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 29, 2018. Fair values included herein have been determined based on quoted market prices or pricing models using current market rates. The information presented below should be read in conjunction with Notes 12, 13 and 15 to the Consolidated Financial Statements.

30






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 29, 2018.
 
Expected Fiscal Year of Maturity
 
 
 
Fair Value of Liabilities
(Millions)
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
 
Debt(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate(2)
$
649

 
$

 
$
1,351

 
$
1

 
$
1,651

 
$
3,254

 
$
6,906

 
$
6,658

Weighted-average interest rate
5.16
%
 
%
 
4.48
%
 
9.82
%
 
3.34
%
 
4.12
%
 
4.10
%
 
 
Variable rate(3)
$
1,252

 
$
500

 
$
1,300

 
$

 
$

 
$

 
$
3,052

 
$
3,052

Weighted-average interest rate
2.59
%
 
2.83
%
 
3.13
%
 
%
 
%
 
%
 
2.86
%
 
 
_______________________________________
(1) 
Expected maturities exclude unamortized net discount/premium on debt issuances and debt issuance costs.
(2) 
Represents $6.552 billion of USD borrowings and $348 million equivalent of AUD borrowings and $7 million equivalent of borrowings in other currencies.
(3) 
Represents $2.941 billion of USD borrowings, $90 million equivalent of CAD borrowings and $20 million equivalent of borrowings in other currencies.
As of July 30, 2017, fixed-rate debt of approximately $2.534 billion with an average interest rate of 4.37% and variable-rate debt of approximately $1.014 billion with an average interest rate of 1.44% were outstanding. As of July 30, 2017, forward starting interest rate swaps with a notional amount of $300 million were outstanding. The average rate to be received on these swaps was 2.27%, and the average rate to be paid was estimated to be 3.09% over the remaining life of the swaps. For the swaps, variable rates are the weighted-average forward rates for the term of each contract.
We are 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 29, 2018.
(Millions)
Notional Value
 
Average Contractual Exchange Rate (currency paid/ currency received)
Foreign Exchange Forward Contracts
 
Receive USD/Pay CAD
$
149

 
1.2726
Receive AUD/Pay NZD
$
41

 
1.0817
Receive DKK/Pay USD
$
40

 
0.1649
We had an additional number of smaller contracts to purchase or sell various other currencies with a notional value of $14 million as of July 29, 2018. The aggregate fair value of all contracts was a gain of $2 million as of July 29, 2018. The total notional value of foreign exchange forward contracts outstanding was $420 million, and the aggregate fair value was a loss of $18 million as of July 30, 2017.
We enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations for commodities. As of July 29, 2018, the notional value of these contracts was $118 million, and the aggregate fair value of these contracts was a gain of $1 million. As of July 30, 2017, the notional value of these contracts was $90 million, and the aggregate fair value of these contracts was a gain of $5 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, and the total return of the Vanguard Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty either: the total return on our capital stock; the total return of the Standard & Poor's 500 Index, which is expected to approximate the total return of the Vanguard Institutional Index; or the total return of the iShares MSCI EAFE Index, which is expected to approximate the total return of the Vanguard Total International Stock Index. The notional value of the contract that is linked to the total return on our capital stock was $8 million at July 29, 2018, and $9 million at July 30, 2017. The average forward interest rate applicable to this contract, which expires in April 2019, was 2.97% at July 29, 2018. The notional value of the contract that is linked to the return on the Standard & Poor's 500 Index was $23 million at July 29, 2018, and $26 million at July 30, 2017. The average forward interest rate applicable to this contract, which expires in March 2019, was 2.97% at July 29, 2018. The notional value of the contract that is linked to the total return of the iShares MSCI EAFE Index was $10 million at July 29, 2018, and $8 million at July 30, 2017. The average forward interest rate applicable to this contract, which expires in March 2019, was 2.60% at July 29, 2018. As of July 29, 2018 and July 30, 2017, the fair value of these contracts was a gain of $1 million.

31






Our utilization of financial instruments in managing market risk exposures described above is consistent with the prior year. Changes in the portfolio of financial instruments are a function of the results of operations, debt repayment and debt issuances, market effects on debt and foreign currency, and our acquisition and divestiture activities.
SIGNIFICANT ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated Financial Statements for a discussion of significant accounting policies. The following areas all require the use of subjective or complex judgments, estimates and assumptions:
Trade and consumer promotion programs — We offer various sales incentive programs to customers and consumers, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees, and coupons. The mix between promotion programs, which are classified as reductions in revenue, and advertising or other marketing activities, which are classified as marketing and selling expenses, fluctuates between periods based on our overall marketing plans, and such fluctuations have an impact on revenues. The measurement and recognition of the costs for trade and consumer promotion programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors. Typically, programs that are offered have a very short duration. Historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial statements. However, actual expenses may differ if the level of redemption rates and performance were to vary from estimates.
Valuation of long-lived assets — Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if impairment exists. If impairment is determined to exist, the loss is calculated based on estimated fair value.
Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. In January 2017, the FASB issued revised guidance that simplifies the test for goodwill impairment, effective for fiscal years beginning after December 15, 2019, with early adoption 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 was the difference between the carrying value of the goodwill and the "implied" fair value, which was calculated as if the reporting unit had just been acquired and accounted for as a business combination.
Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair value is determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average cost of capital, and assumed royalty rates. If the carrying value exceeds fair value, an impairment charge will be recorded to reduce the asset to fair value.
2016 Assessments
In the fourth quarter of 2016, as part of our annual review of intangible assets, we recognized an impairment charge of $106 million on goodwill and $35 million on a trademark within the Bolthouse Farms carrot and carrot ingredients reporting unit, which is included in the Campbell Fresh segment. In 2016, carrot performance primarily reflected the adverse impact of weather conditions on crop yields, and execution issues in response to those conditions, which led to customer dissatisfaction, a loss of business, and higher carrot costs in the second half of the year. The impairment was attributable to a decline in profitability in the second half of 2016 and a revised outlook for the business, with reduced expectations for sales, operating margins, and discounted cash flows.
2017 Assessments
During the second 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

32






weather conditions on carrot costs. In addition, as part of a strategic review initiated by a new leadership team of Campbell Fresh during the second quarter, we decided to reduce emphasis on growing sales of carrot ingredients, which are a by-product of the manufacturing process, and to manage carrots sold at retail for modest sales growth consistent with the category while improving profitability. Accordingly, we reduced our expectations for recovery of retail carrot market share. As a consequence of 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 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 $127 million impairment charge on goodwill and $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
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 as operating performance was below expectations. The business was impacted by adverse weather conditions and the implementation of enhanced quality protocols, which impacted crop yields and resulted in higher costs. This cost volatility continued to be higher than expected and caused us to reassess our short- and long-term margin expectations for this business. Based on this performance, we reduced our outlook for future operating margins and discounted cash 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.
In the fourth quarter of 2018, as part of our annual review of intangible assets, we recognized an impairment charge of $54 million 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.
As of July 29, 2018, the carrying value of goodwill was $4.58 billion. Holding all other assumptions used in the 2018 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 would not result any impairment charges.
As of July 29, 2018, the carrying value of indefinite-lived trademarks was $3.123 billion, of which $48 million related to the Bolthouse Farms carrot and carrot ingredients reporting unit, $150 million related to the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, $23 million related to the Garden Fresh Gourmet trademark, and $61 million related to the Plum trademark. Holding all other assumptions used in the 2018 fair value measurement constant, changes in the assumptions below would reduce fair value of these trademarks and result in impairment charges of approximately:

33






(Millions)
 
Bolthouse Farms Carrot and Carrot Ingredients
 
Bolthouse Farms Refrigerated Beverages and Salad Dressings
 
Garden Fresh Gourmet
 
Plum
1% increase in the weighted-average cost of capital
 
$

 
$
(30
)
 
$
(5
)
 
$
(10
)
1% reduction in revenue growth
 
$

 
$
(20
)
 
$

 
$
(5
)
The carrying value of the Pace trademark was $292 million as of July 29, 2018, and the estimated fair value exceeded the carrying value by less than 10%. Holding all other assumptions used in the 2018 fair value measurement of the Pace trademark constant, a 1% increase in the weighted-average cost of capital assumption would result in an impairment charge of approximately $30 million, and a 1% reduction in the revenue growth assumption would result in an impairment charge of approximately $10 million.
The carrying value of trademarks of $280 million associated with the Pacific Foods acquisition and $2.131 billion associated with the Snyder's-Lance acquisition represents fair value. Holding all other assumptions used in the acquisition valuation measurement 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
)
 
$
(270
)
1% reduction in revenue growth
 
$
(20
)
 
$
(135
)
For the remaining balance of our other trademarks, holding all other assumptions used in the 2018 fair value measurement constant, neither a 1% increase in the weighted-average cost of capital assumption nor a 1% reduction in the revenue growth assumption would result in any material impairment.
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.
If assumptions are not achieved or market conditions decline, potential additional impairment charges could result. We will continue to monitor the valuation of our long-lived assets.
See also Note 5 to the Consolidated Financial Statements for additional information on goodwill and intangible assets.
Pension and postretirement benefits — We provide certain pension and postretirement benefits to employees and retirees. Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, turnover rates and health care trend rates. Independent actuaries, in accordance with accounting principles generally accepted 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.

34






Net periodic pension and postretirement expense (income) was $(185) million in 2018, $(258) million in 2017 and $317 million in 2016.
Significant weighted-average assumptions as of the end of the year were as follows:
 
2018
 
2017
 
2016
Pension
 
 
 
 
 
Discount rate for benefit obligations
4.15%
 
3.74%
 
3.39%
Expected return on plan assets
6.86%
 
6.84%
 
7.09%
Postretirement
 
 
 
 
 
Discount rate for obligations
4.06%
 
3.45%
 
3.20%
Initial health care trend rate
6.75%
 
7.25%
 
7.25%
Ultimate health care trend rate
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 million and would result in an immediate loss recognition of approximately $122 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.
No contributions were made to U.S. pension plans in 2018, 2017 and 2016. Contributions to non-U.S. plans were $5 million in 2018 and 2017, and $2 million in 2016. We do not expect to contribute to the U.S. pension plans in 2019. Contributions to non-U.S. plans are expected to be approximately $4 million in 2019.
See also Note 10 to the Consolidated Financial Statements for additional information on pension and postretirement benefits.
Income taxes — The effective tax rate reflects statutory tax rates, tax planning opportunities available in the various jurisdictions in which we operate and management’s estimate of the ultimate outcome of various tax audits and issues. Significant judgment is required in determining the effective tax rate and in evaluating tax positions. Income taxes are recorded based on amounts refundable or payable in the current year and include the effect of deferred taxes. Deferred tax assets and liabilities are recognized for the future impact of differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. Valuation allowances are established for deferred tax assets when it is more likely than not that a tax benefit will not be realized.
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 11 to the Consolidated Financial Statements for further discussion on income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for information on recent accounting pronouncements.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations regarding our future results of operations, economic performance, financial condition and achievements. These forward-looking statements can be identified by words such as "anticipate," "believe," "estimate," "expect," "will," "goal," "plan," "vision" and similar expressions. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts, and may reflect anticipated cost savings or implementation of our strategic plan. These statements reflect our current plans and expectations and are based on information currently available to us. They rely on several assumptions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties.
We wish to caution the reader that the following important factors and those important factors described in Part 1, Item 1A and elsewhere in this Report, or in our 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 execute on and realize the expected benefits from the actions we intend to take as a result of our recent strategy and portfolio review;
our ability to differentiate our products and protect our category leading positions, especially in soup;
our ability to complete and to realize the projected benefits of planned divestitures and other business portfolio changes;

35






our ability to realize the projected benefits, including cost synergies, from the recent acquisitions of Snyder's-Lance and Pacific Foods;
our ability to realize projected cost savings and benefits from efficiency and/or restructuring initiatives;
our indebtedness and ability to pay such indebtedness;
disruptions to our supply chain, including fluctuations in the supply of and inflation in energy and raw and packaging materials cost;
our ability to manage changes to our organizational structure and/or business processes, including selling, distribution, manufacturing and information management systems or processes;
the impact of strong competitive responses to our efforts to leverage brand power with product innovation, promotional programs and new advertising;
the risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products and pricing and promotional strategies;
changes in consumer demand for our products and favorable perception of our brands;
changing inventory management practices by certain of our key customers;
a changing customer landscape, with value and e-commerce retailers expanding their market presence, while certain of our key customers maintain significance to our business;
product quality and safety issues, including recalls and product liabilities;
the costs, disruption and diversion of management’s attention associated with campaigns commenced by 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;
the impact of non-U.S. operations, including trade restrictions, public corruption and compliance with foreign laws and regulations;
impairment to goodwill or other intangible assets;
our ability to protect our intellectual property rights;
increased liabilities and costs related to our defined benefit pension plans;
a material failure in or breach of our information technology systems;
our ability to attract and retain key talent;
changes in currency exchange rates, tax rates, interest rates, debt and equity markets, inflation rates, economic conditions, law, regulation and other external factors; and
unforeseen business disruptions in one or more of our markets due to political instability, civil disobedience, terrorism, armed hostilities, extreme weather conditions, natural disasters or other calamities.
This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact our outlook. We disclaim any obligation or intent to update forward-looking statements made by us in order to reflect new information, events or circumstances after the date they are made.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The information presented in the section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Sensitivity" is incorporated herein by reference.

36






Item 8. Financial Statements and Supplementary Data

CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(millions, except per share amounts)
 
 
2018
 
2017
 
2016
Net sales
$
8,685

 
$
7,890

 
$
7,961

Costs and expenses
 
 
 
 
 
Cost of products sold
5,869

 
4,965

 
5,033

Marketing and selling expenses
902

 
855

 
852

Administrative expenses
654

 
550

 
575

Research and development expenses
110

 
111

 
105

Other expenses / (income)
619

 
(9
)
 
405

Restructuring charges
62

 
18

 
31

Total costs and expenses
8,216

 
6,490

 
7,001

Earnings before interest and taxes
469

 
1,400

 
960

Interest expense
201

 
112

 
115

Interest income
4

 
5

 
4

Earnings before taxes
272

 
1,293

 
849

Taxes on earnings
11

 
406

 
286

Net earnings
261

 
887

 
563

Less: Net earnings (loss) attributable to noncontrolling interests

 

 

Net earnings attributable to Campbell Soup Company
$
261

 
$
887

 
$
563

Per Share — Basic
 
 
 
 
 
Net earnings attributable to Campbell Soup Company
$
.87

 
$
2.91

 
$
1.82

Weighted average shares outstanding — basic
301

 
305

 
309

Per Share — Assuming Dilution
 
 
 
 
 
Net earnings attributable to Campbell Soup Company
$
.86

 
$
2.89

 
$
1.81

Weighted average shares outstanding — assuming dilution
302

 
307

 
311

See accompanying Notes to Consolidated Financial Statements.



37






CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(millions)
 
2018
 
2017
 
2016
 
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
 
 
 
 
$
261

 
 
 
 
 
$
887

 
 
 
 
 
$
563

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(69
)
 
$

 
(69
)
 
$
40

 
$

 
40

 
$
45

 
$

 
45

Cash-flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during period
23

 
(7
)
 
16

 
19

 
(7
)
 
12

 
(45
)
 
16

 
(29
)
Reclassification adjustment for (gains) losses included in net earnings
3

 
(1
)
 
2

 
11

 
(4
)
 
7

 
(9
)
 
2

 
(7
)
Pension and other postretirement benefits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service credit arising during the period
9

 
(2
)
 
7

 
12

 
(4
)
 
8

 
93

 
(34
)
 
59

Reclassification of prior service credit included in net earnings
(27
)
 
7

 
(20
)
 
(25
)
 
9

 
(16
)
 
(1
)
 

 
(1
)
Other comprehensive income (loss)
$
(61
)
 
$
(3
)
 
(64
)
 
$
57

 
$
(6
)
 
51

 
$
83

 
$
(16
)
 
67

Total comprehensive income (loss)
 
 
 
 
$
197

 
 
 
 
 
$
938

 
 
 
 
 
$
630

Total comprehensive income (loss) attributable to noncontrolling interests
 
 
 
 
1

 
 
 
 
 

 
 
 
 
 
3

Total comprehensive income (loss) attributable to Campbell Soup Company
 
 
 
 
$
196

 
 
 
 
 
$
938

 
 
 
 
 
$
627

See accompanying Notes to Consolidated Financial Statements.

38






CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(millions, except per share amounts)
 
July 29,
2018
 
July 30,
2017
Current assets
 
 
 
Cash and cash equivalents
$
226

 
$
319

Accounts receivable, net
785

 
605

Inventories
1,199

 
902

Other current assets
86

 
74

Total current assets
2,296

 
1,900

Plant assets, net of depreciation
3,233

 
2,454

Goodwill
4,580

 
2,115

Other intangible assets, net of amortization
4,196

 
1,118

Other assets ($77 as of 2018 and $51 as of 2017 attributable to variable interest entity)
224

 
139

Total assets
$
14,529

 
$
7,726

Current liabilities
 
 
 
Short-term borrowings
$
1,896

 
$
1,037

Payable to suppliers and others
893

 
666

Accrued liabilities
676

 
561

Dividends payable
107

 
111

Accrued income taxes
22

 
20

Total current liabilities
3,594

 
2,395

Long-term debt
7,998

 
2,499

Deferred taxes
995

 
490

Other liabilities
569

 
697

Total liabilities
13,156

 
6,081

Commitments and contingencies

 

Campbell Soup Company shareholders' equity