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EX-10.J - EXHIBIT 10.J - CAMPBELL SOUP COcpb-7302017x10xkxexb10j.htm
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EX-10.I - EXHIBIT 10.I - CAMPBELL SOUP COcpb-7302017x10xkxexb10i.htm

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 30, 2017
 
 
 
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 27, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of capital stock held by non-affiliates of the registrant was approximately $11,934,667,846. There were 300,528,501 shares of capital stock outstanding as of September 20, 2017.
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on November 15, 2017, are incorporated by reference into Part III.







TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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

Item 1. Business
The Company
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
We are a manufacturer and marketer of high-quality, branded food and beverage products. We organized as a business corporation under the laws of New Jersey on November 23, 1922; however, through predecessor organizations, we trace our heritage in the food business back to 1869. Our principal executive offices are in Camden, New Jersey 08103-1799.
In 2013, we acquired BF Bolthouse Holdco LLC (Bolthouse Farms) and Plum, PBC (formerly Plum Inc.) (Plum). In 2014, we acquired Kelsen Group A/S (Kelsen) and divested our European simple meals business. In 2015, we acquired the assets of Garden Fresh Gourmet. In 2017, we entered into an agreement to acquire Pacific Foods of Oregon, Inc. for $700 million. For additional information on this pending acquisition, see our Form 8-K filed with the U.S. Securities and Exchange Commission on July 6, 2017. See also Note 3 to the Consolidated Financial Statements for additional information on our recent acquisitions.
Reportable Segments
We manage our businesses in three segments focused mainly on product categories. The segments are:
The Americas Simple Meals and Beverages segment, which includes the retail and food service businesses in the U.S., Canada and Latin America. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; Plum food and snacks; V8 juices and beverages; and Campbell’s tomato juice;
The Global Biscuits and Snacks segment, which includes: Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail; Arnott’s biscuits in Australia and Asia Pacific; and Kelsen cookies globally. The segment also includes the simple meals and shelf-stable beverages business in Australia and Asia Pacific; and
The Campbell Fresh segment, which includes: Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips; and the U.S. refrigerated soup business.
Beginning in 2018, the business in Latin America will be managed as part of the Global Biscuits and Snacks segment. See Note 6 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding our reportable segments.
Ingredients and Packaging
The ingredients and packaging materials required for the manufacture of our food and beverage products are purchased from various suppliers. These items are subject to price fluctuations from a number of factors, including changes in crop size, cattle cycles, crop disease and/or crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, government-sponsored agricultural programs, import and export requirements, drought, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be beyond our control during the growing and harvesting seasons. To help reduce some of this price volatility, we use a combination of purchase orders, short- and long-term contracts, inventory management practices and various commodity risk management tools for most of our ingredients and packaging. Ingredient inventories are at a peak during the late fall and decline during the winter and spring. Since many ingredients of suitable quality are available in sufficient quantities only during certain seasons, we make commitments for the purchase of such ingredients in their respective seasons. At this time, we do not anticipate any material restrictions on the availability of ingredients or packaging that would have a significant impact on our businesses. For information on the impact of inflation, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

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Customers
In most of our markets, sales and merchandising activities are conducted through our own sales force and/or third-party brokers and distribution partners. In the U.S., Canada and Latin America, our products are generally resold to consumers through retail food chains, mass discounters, mass merchandisers, club stores, convenience stores, drug stores, dollar stores and other retail, commercial and non-commercial establishments. Pepperidge Farm also has a direct-store-delivery distribution model that uses independent contractor distributors. In the Asia Pacific region, our products are generally resold to consumers through retail food chains, convenience stores and other retail, commercial and non-commercial establishments. We make shipments promptly after acceptance of orders.
Our five largest customers accounted for approximately 39% of our consolidated net sales in 2017, 40% in 2016 and 38% in 2015. Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 20% of our consolidated net sales in 2017, 2016 and 2015. All of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates. No other customer accounted for 10% or more of our consolidated net sales. For additional information on our customers, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Trademarks and Technology
As of September 20, 2017, we owned over 3,700 trademark registrations and applications in over 160 countries. We believe our trademarks are of material importance to our business. Although the laws vary by jurisdiction, trademarks generally are valid as long as they are in use and/or their registrations are properly maintained and have not been found to have become generic. Trademark registrations generally can be renewed indefinitely as long as the trademarks are in use. We believe that our principal brands, including Arnott's, Bolthouse Farms, Campbell's, Garden Fresh Gourmet, Goldfish, Kjeldsens, Milano, Pace, Pepperidge Farm, Plum, Prego, Swanson, and V8, are protected by trademark law in the major markets where they are used.
Although we own a number of valuable patents, we do not regard any segment of our business as being dependent upon any single patent or group of related patents. In addition, we own copyrights, both registered and unregistered, proprietary trade secrets, technology, know-how, processes and other intellectual property rights that are not registered.
Competition
We operate in a highly competitive industry and experience competition in all of our categories. This competition arises from numerous competitors of varying sizes across multiple food and beverage categories, and includes producers of generic and store brand products, as well as other branded food and beverage manufacturers. All of these competitors vie for trade merchandising support and consumer dollars. The number of competitors cannot be reliably estimated. The principal areas of competition are brand recognition, taste, quality, nutritional value, price, advertising, promotion, convenience and service.
Working Capital
For information relating to our cash flows from operations and working capital items, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Capital Expenditures
During 2017, our aggregate capital expenditures were $338 million. We expect to spend approximately $400 million for capital projects in 2018. Major capital projects based on planned spend in 2018 include a U.S. warehouse optimization project, insourcing of manufacturing for certain simple meal products, and ongoing refrigeration system replacement projects.
Research and Development
During the last three fiscal years, our expenditures on research and development activities relating to new products and the improvement and maintenance of existing products were $98 million in 2017, $124 million in 2016, and $117 million in 2015. The decrease from 2016 to 2017 was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year; increased benefits from cost savings initiatives; and lower incentive compensation costs, partially offset by inflation and other factors, and investments in long-term innovation. The increase from 2015 to 2016 was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments and increased costs to support long-term innovation, partially offset by benefits from cost savings initiatives.
Regulation
The manufacture and sale of consumer food products is highly regulated. In the U.S., our activities are subject to regulation by various federal government agencies, including the Food and Drug Administration, U.S. Department of Agriculture, Federal Trade Commission, Department of Labor, Department of Commerce and Environmental Protection Agency, as well as various state and local agencies. Our business is also regulated by similar agencies outside of the U.S.


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Environmental Matters
We have requirements for the operation and design of our facilities that meet or exceed applicable environmental rules and regulations. Of our $338 million in capital expenditures made during 2017, approximately $14 million was for compliance with environmental laws and regulations in the U.S. We further estimate that approximately $13 million of the capital expenditures anticipated during 2018 will be for compliance with U.S. environmental laws and regulations. We believe that continued compliance with existing environmental laws and regulations (both within the U.S. and elsewhere) will not have a material effect on capital expenditures, earnings or our competitive position. In addition, we continue to monitor existing and pending environmental laws and regulations within the U.S. and elsewhere relating to climate change and greenhouse gas emissions. While the impact of these laws and regulations cannot be predicted with certainty, we do not believe that compliance with these laws and regulations will have a material effect on capital expenditures, earnings or our competitive position.
Seasonality
Demand for soup products is seasonal, with the fall and winter months usually accounting for the highest sales volume. Sales of Kelsen products are also highest in the fall and winter months due primarily to holiday gift giving, including the Chinese New Year. Demand for our other products is generally evenly distributed throughout the year.
Employees
On July 30, 2017, we had approximately 18,000 employees.
Financial Information
Financial information for our reportable segments and geographic areas is found in Note 6 to the Consolidated Financial Statements. For risks attendant to our foreign operations, see "Risk Factors."
Websites
Our primary corporate website can be found at www.campbellsoupcompany.com. We make available free of charge at this website (under the "Investor Center — Financial Information — SEC Filings" caption) all of our reports (including amendments) filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.
All websites appearing in this Annual Report on Form 10-K are inactive textual references only, and the information in, or accessible through, such websites is not incorporated into this Annual Report on Form 10-K, or into any of our other filings with the Securities and Exchange Commission.
Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this Report, the following risks and uncertainties could materially adversely affect our business, financial condition and results of operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition.
Operational Risk Factors
We operate in a highly competitive industry
We operate in the highly competitive food and beverage industry and experience competition in all of our categories. The principal areas of competition are brand recognition, taste, quality, nutritional value, price, advertising, promotion, convenience and service. A number of our primary competitors are larger than us and have substantial financial, marketing and other resources. In addition, reduced barriers to entry and easier access to funding are creating new competition. A strong competitive response from one or more of these competitors to our marketplace efforts, or a continued shift towards store brand offerings, could result in us reducing prices, increasing marketing or other expenditures, and/or losing market share.
Our results are dependent on strengthening our core businesses while diversifying into faster-growing spaces
Our strategy is focused on strengthening our core businesses while diversifying our portfolio into faster-growing spaces. Our core businesses are concentrated in slower-growing center-store categories in traditional retail grocery channels. Factors that may impact our success include our ability to:
identify and capture market share in faster-growing spaces;
identify and capitalize on customer or consumer trends, including those related to fresh or organic products;
design and implement effective retail execution plans;
design and implement effective advertising and marketing programs, including digital programs; and
secure or maintain sufficient shelf space at retailers.

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If we are not successful in addressing these factors, or if there are changes in the underlying growth rates of the categories in which we compete, our strategy may not be successful and/or our business or financial results may be adversely impacted.
We may be adversely impacted by a changing customer landscape and the increased significance of some of our customers
Our businesses are largely concentrated in the traditional retail grocery trade, which has experienced slower growth than alternative retail channels, such as dollar stores, drug stores, club stores, Internet-based retailers and meal-delivery services. This trend towards alternative channels is expected to continue in the future. If we are not successful in expanding sales in alternative retail channels, our business or financial results may be adversely impacted. In addition, retailers with increased buying power and negotiating strength are seeking more favorable terms, including increased promotional programs funded by their suppliers. These customers may use more of their shelf space for their store brand products. If we are unable to use our scale, marketing expertise, product innovation and category leadership positions to respond to these customer dynamics, our business or financial results could be adversely impacted.
In 2017, our five largest customers accounted for approximately 39% of our consolidated net sales, with the largest customer, Wal-Mart Stores, Inc. and its affiliates, accounting for approximately 20% of our consolidated net sales. There can be no assurance that our largest customers will continue to purchase our products in the same mix or quantities or on the same terms as in the past. Disruption of sales to any of these customers, or to any of our other large customers, for an extended period of time could adversely affect our business or financial results.
We may not realize the anticipated benefits from our cost reduction, organizational design or other initiatives
We are pursuing a multi-year cost savings initiative with targeted annualized cost savings of $450 million by the end of 2020. In addition, we are making other organizational changes, including changes to our sales and supply chain functions. These initiatives will require a substantial amount of management and operational resources. Our management team must successfully execute the administrative and operational changes necessary to achieve the anticipated benefits of the initiatives. These and related demands on our resources may divert the organization's attention from other business issues, have adverse effects on existing business relationships with suppliers and customers and impact employee morale. From time-to-time, we may also implement other information technology or related initiatives. Our success is partly dependent upon properly executing, and realizing cost savings or other benefits from, these often complex initiatives. Any failure to implement our initiatives could adversely affect our business or financial results.
Our results may be adversely affected by our inability to complete or realize the projected benefits of acquisitions, divestitures and other strategic transactions
We expect to continue to seek acquisitions and other strategic transactions. Our ability to meet our objectives with respect to acquisitions and other strategic transactions may depend in part on our ability to identify suitable counterparties, negotiate favorable financial and other contractual terms, obtain all necessary regulatory approvals on the terms expected and complete those transactions. Potential risks also include:
the inability to integrate acquired businesses into our existing operations in a timely and cost-efficient manner;
diversion of management's attention from other business concerns;
potential loss of key employees, suppliers and/or customers of acquired businesses;
assumption of unknown risks and liabilities;
the inability to achieve anticipated benefits, including revenues or other operating results;
operating costs of acquired businesses may be greater than expected;
the inability to promptly implement an effective control environment; and
the risks inherent in entering markets or lines of business with which we have limited or no prior experience.
Acquisitions outside the U.S. may present added unique challenges and increase our exposure to risks associated with foreign operations, including foreign currency risks and risks associated with local regulatory regimes.
For divestitures, our ability to meet our objectives may depend in part on our ability to identify suitable buyers, negotiate favorable financial and other contractual terms and obtain all necessary regulatory approvals on the terms expected. Potential risks of divestitures may also include the inability to separate divested businesses or business units effectively and efficiently from our existing business operations and to reduce or eliminate associated overhead costs.
Disruption to our supply chain could adversely affect our business
Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing or distribution capabilities, or to the capabilities of our suppliers or contract manufacturers, due to factors that are hard to predict or beyond our control, such as product or raw material scarcity, adverse weather conditions, natural disasters, fire, terrorism, pandemics, strikes or other events. Production of the agricultural commodities used in our business may also be adversely affected

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by drought, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients, crop size, cattle cycles, crop disease and/or crop pests. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, may adversely affect our business or financial results, particularly in circumstances when a product is sourced from a single supplier or location. Disputes with significant suppliers or contract manufacturers, including disputes regarding pricing or performance, may also adversely affect our ability to manufacture and/or sell our products, as well as our business or financial results.
Our non-U.S. operations pose additional risks to our business
In 2017, approximately 19% of our consolidated net sales were generated outside of the U.S. Sales outside the U.S. are expected to continue to represent a significant portion of consolidated net sales. Our business or financial condition may be adversely affected due to the risks of doing business in markets outside of the U.S., including but not limited to the following:
unfavorable changes in tariffs, quotas, trade barriers or other export and import restrictions;
the difficulty and/or costs of complying with a wide variety of laws, treaties and regulations, including anti-corruption laws and regulations such as the U.S. Foreign Corrupt Practices Act;
the difficulty and/or costs of designing and implementing an effective control environment across diverse regions and employee bases;
the adverse impact of foreign tax treaties and policies;
political or economic instability, including the possibility of civil unrest, public corruption, armed hostilities or terrorist acts;
the possible nationalization of operations;
the difficulty of enforcing remedies and protecting intellectual property in various jurisdictions; and
restrictions on the transfer of funds to and from countries outside of the U.S., including potential adverse tax consequences.
In addition, we hold assets and incur liabilities, generate revenue, and pay expenses in a variety of currencies other than the U.S. dollar, primarily the Australian dollar and the Canadian dollar. Our consolidated financial statements are presented in U.S. dollars, and we must translate our assets, liabilities, sales and expenses into U.S. dollars for external reporting purposes. As a result, changes in the value of the U.S. dollar due to fluctuations in currency exchange rates or currency exchange controls may materially and adversely affect the value of these items in our consolidated financial statements, even if their value has not changed in their local currency.
Our results may be adversely impacted by increases in the price of raw and packaging materials
The raw and packaging materials used in our business include tomato paste, grains, beef, poultry, dairy, vegetables, steel, glass, paper and resin. Many of these materials are subject to price fluctuations from a number of factors, including changes in crop size, cattle cycles, crop disease and/or crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, government-sponsored agricultural programs, import and export requirements, drought, water scarcity, temperature extremes, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be beyond our control. To the extent any of these factors result in an increase in raw and packaging material prices, we may not be able to offset such increases through productivity or price increases or through our commodity hedging activity.
Price increases may not be sufficient to cover increased costs, or may result in declines in sales volume due to pricing elasticity in the marketplace
We expect to pass along to customers some or all cost increases in raw and packaging materials and other inputs through increases in the selling prices of, or decreases in the packaging sizes of, some of our products. Higher product prices or smaller packaging sizes may result in reductions in sales volume. To the extent the price increases or packaging size decreases are not sufficient to offset increased raw and packaging materials and other input costs, and/or if they result in significant decreases in sales volume, our business results and financial condition may be adversely affected.
If our food products become adulterated or are mislabeled, we might need to recall those items, and we may experience product liability claims and damage to our reputation
We have in the past and we may, in the future, need to recall some of our products if they become adulterated or if they are mislabeled, and we may also be liable if the consumption of any of our products causes injury to consumers. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the unavailability of product for a period of time. We could also suffer losses from a significant adverse product liability judgment. A significant product recall or product liability claim could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in the safety and/or quality of our products, ingredients or packaging. In addition, if another company recalls or experiences negative publicity related to a product in a category in which we compete, consumers might reduce their overall consumption of products in this category.

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Our results may be adversely impacted if consumers do not maintain their favorable perception of our brands
We have a number of iconic brands with significant value. Maintaining and continually enhancing the value of these brands is critical to the success of our business. Brand value is based in large part on consumer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products. Brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products, packaging and/or ingredients (whether or not valid), our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers. The growing use of social and digital media by consumers increases the speed and extent that information and opinions can be shared. Negative posts or comments about us, our brands, products or packaging on social or digital media could seriously damage our brands and reputation. If we do not maintain the favorable perception of our brands, our results could be adversely impacted.
We may be adversely impacted by inadequacies in, or security breaches of, our information technology systems
Our information technology systems are critically important to our operations. We rely on our information technology systems (some of which are outsourced to third parties) to manage the data, communications and business processes for all of our functions, including our marketing, sales, manufacturing, logistics, customer service, accounting and administrative functions. If we do not allocate and effectively manage the resources necessary to build, sustain and protect an appropriate technology infrastructure, our business or financial results could be adversely impacted. Furthermore, our information technology systems may be vulnerable to material security breaches (including the access to or acquisition of customer, consumer or other confidential data), cyber-based attacks or other material system failures. We periodically test our systems to attempt to detect vulnerabilities. If we are unable to prevent or adequately respond to and resolve these events, our operations may be impacted, and we may suffer other adverse consequences such as reputational damage, litigation, remediation costs and/or penalties under various data privacy laws and regulations. Although unauthorized users have attempted and continue to attempt to infiltrate our information technology systems, we are not aware of a material security breach and all immaterial security breaches we have detected have been successfully remediated.
An impairment of the carrying value of goodwill or other indefinite-lived intangible assets could adversely affect our financial results and net worth
As of July 30, 2017, we had goodwill of $2.115 billion and other indefinite-lived intangible assets of $912 million. Goodwill and indefinite-lived intangible assets are initially recorded at fair value and not amortized, but are tested for impairment at least annually or more frequently if impairment indicators arise. We test goodwill at the reporting unit level by comparing the carrying value of the net assets of the reporting unit, including goodwill, to the unit's fair value. Similarly, we test indefinite-lived intangible assets by comparing the fair value of the assets to their carrying values. Fair value for both goodwill and other indefinite-lived intangible assets is determined based on a discounted cash flow analysis. If the carrying values of the reporting unit or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets are considered impaired and reduced to fair value. Factors that could result in an impairment include a change in revenue growth rates, operating margins, weighted average cost of capital, future economic and market conditions or assumed royalty rates. See "Significant Accounting Estimates" for additional information on past impairments. We may be required in the future to record additional impairment of the carrying value of goodwill or other indefinite-lived intangible assets, which could adversely affect our financial results and net worth.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands
We consider our intellectual property rights, particularly our trademarks, to be a significant and valuable aspect of our business. We protect our intellectual property rights through a combination of trademark, patent, copyright and trade secret protection, contractual agreements and policing of third-party misuses of our intellectual property. Our failure to obtain or adequately protect our intellectual property or any change in law that lessens or removes the current legal protections of our intellectual property may diminish our competitiveness and adversely affect our business and financial results.
Competing intellectual property claims that impact our brands or products may arise unexpectedly. Any litigation or disputes regarding intellectual property may be costly and time-consuming and may divert the attention of our management and key personnel from our business operations. We also may be subject to significant damages or injunctions against development, launch and sale of certain products. Any of these occurrences may harm our business and financial results.
We may be adversely impacted by increased liabilities and costs related to our defined benefit pension plans
We sponsor a number of defined benefit pension plans for certain employees in the U.S. and various non-U.S. locations. The major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of securities and other investments. Changes in regulatory requirements or the market value of plan assets, investment returns, interest rates and mortality rates may affect the funded status of our defined benefit pension plans and cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status as recorded on the balance sheet. A significant increase in our obligations or future funding requirements could have a material adverse effect on our financial results.

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We may not be able to attract and retain the highly skilled people we need to support our business 
We depend on the skills and continued service of key personnel, including our experienced management team. In addition, our ability to achieve our strategic and operating goals depends on our ability to identify, hire, train and retain qualified individuals. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure may adversely affect our business or financial results. In addition, activities related to identifying, recruiting, hiring and integrating qualified individuals may require significant time and expense. We may not be able to locate suitable replacements for any key employees who leave, or offer employment to potential replacements on reasonable terms, each of which may adversely affect our business and financial results.
Market Conditions and Other General Risk Factors
We face risks related to recession, financial and credit market disruptions and other economic conditions
Customer and consumer demand for our products may be impacted by weak economic conditions, recession, equity market volatility or other negative economic factors in the U.S. or other nations. Similarly, disruptions in financial and/or credit markets may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors. In addition, changes in tax or interest rates in the U.S. or other nations, whether due to recession, financial and credit market disruptions or other reasons, may adversely impact us.
Adverse changes in the global climate or extreme weather conditions could adversely affect our business or operations
Our business or financial results could be adversely affected by changing global temperatures or weather patterns or by extreme or unusual weather conditions. Adverse changes in the global climate or extreme or unusual weather conditions could:
unfavorably impact the cost or availability of raw or packaging materials, especially if such events have an adverse impact on agricultural productivity or on the supply of water;
disrupt our ability, or the ability of our suppliers or contract manufacturers, to manufacture or distribute our products;
disrupt the retail operations of our customers; or
unfavorably impact the demand for, or the consumer's ability to purchase, our products.
In addition, there is growing concern that the release of carbon dioxide and other greenhouse gases into the atmosphere may be impacting global temperatures and weather patterns and contributing to extreme or unusual weather conditions. This growing concern may result in more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. Adoption of such additional regulation may result in increased compliance costs, capital expenditures and other financial obligations that could adversely affect our business or financial results.
Legal and Regulatory Risk Factors
We may be adversely impacted by legal and regulatory proceedings or claims
We are party to a variety of legal and regulatory proceedings and claims arising out of the normal course of business. Since these actions are inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such proceedings or claims, or that our assessment of the materiality or immateriality of these matters, including any reserves taken in connection with such matters, will be consistent with the ultimate outcome of such proceedings or claims. The marketing of food products has come under increased regulatory scrutiny in recent years, and the food industry has been subject to an increasing number of proceedings and claims relating to alleged false or deceptive marketing under federal, state and foreign laws or regulations. In addition, the independent contractor distribution model, which is used by Pepperidge Farm, has come under increased legal and regulatory scrutiny in recent years. We are a defendant in state law class action litigation challenging the independent contractor classification of a small percentage of the total Pepperidge Farm distribution network. We are contesting class certification and the merits as appropriate and plan to defend against these claims vigorously. In the event we are unable to successfully defend ourselves against these proceedings or claims, or if our assessment of the materiality of these proceedings or claims proves inaccurate, our business or financial results may be adversely affected. In addition, our reputation could be damaged by allegations made in proceedings or claims (even if untrue).
Increased regulation or changes in law could adversely affect our business or financial results
The manufacture and marketing of food products is extensively regulated. Various laws and regulations govern the processing, packaging, storage, distribution, marketing, advertising, labeling, quality and safety of our food products, as well as the health and safety of our employees and the protection of the environment. In the U.S., we are subject to regulation by various government agencies, including the Food and Drug Administration, the Department of Agriculture, the Federal Trade Commission, the Occupational Safety and Health Administration and the Environmental Protection Agency, as well as various state and local agencies. We are also regulated by similar agencies outside the U.S.
Governmental and administrative bodies within the U.S. are considering a variety of tax, trade and other regulatory reforms. Changes in legal or regulatory requirements (such as new food safety requirements and revised nutrition facts labeling and serving

9






size regulations), or evolving interpretations of existing legal or regulatory requirements, may result in increased compliance cost, capital expenditures and other financial obligations that could adversely affect our business or financial results.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive offices are company-owned and located in Camden, New Jersey. The following table sets forth our principal manufacturing facilities and the business segment that primarily uses each of the facilities:
Principal Manufacturing Facilities
Inside the U.S.
 
 
 
 
California
 
Michigan
 
Texas
Bakersfield (CF)
 
Ferndale (CF)
 
Paris (ASMB)
Dixon (ASMB)
 
Grand Rapids (CF)
 
Utah
Stockton (ASMB)
 
New Jersey
 
Richmond (GBS)
Connecticut
 
East Brunswick (GBS)
 
Washington
Bloomfield (GBS)
 
North Carolina
 
Everett (CF)
Florida
 
Maxton (ASMB)
 
Prosser (CF)
Lakeland (GBS)
 
Ohio
 
Wisconsin
Illinois
 
Napoleon (ASMB)
 
Milwaukee (ASMB)
Downers Grove (GBS)
 
Willard (GBS)
 
 
 
 
Pennsylvania
 
 
 
 
Denver (GBS)
 
 
 
 
Downingtown (GBS)
 
 
Outside the U.S.
 
 
 
 
Australia
 
Canada
 
Indonesia
Huntingwood (GBS)
 
Toronto (ASMB)
 
Jawa Barat (GBS)
Marleston (GBS)
 
Denmark
 
Malaysia
Shepparton (GBS)
 
Nørre Snede (GBS)
 
Selangor Darul Ehsan (GBS)
Virginia (GBS)
 
Ribe (GBS)
 
 
______________________________ 
ASMB - Americas Simple Meals and Beverages
GBS - Global Biscuits and Snacks
CF - Campbell Fresh
Each of the foregoing manufacturing facilities is company-owned, except the Selangor Darul Ehsan, Malaysia, and the East Brunswick, New Jersey, facilities, which are leased. We also maintain principal business unit offices in Norwalk, Connecticut; Santa Monica, California; Emeryville, California; Toronto, Canada; Nørre Snede, Denmark; and North Strathfield, Australia.
We believe that our manufacturing and processing plants are well maintained and, together with facilities operated by our contract manufacturers, are generally adequate to support the current operations of the businesses.

Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not applicable.

10






Executive Officers of the Company
The following is a list of our executive officers as of September 20, 2017:
Name
Present Title & Business Experience
Age
Year First
Appointed
Executive
Officer
Mark R. Alexander
Senior Vice President. We have employed Mr. Alexander in an executive or managerial capacity for at least five years.
53
2009
Carlos J. Barroso
Senior Vice President. President and Founder of CJB and Associates, LLC, an R&D consulting firm (2009 - 2013).
58
2013
Edward L. Carolan
Senior Vice President. We have employed Mr. Carolan in an executive or managerial capacity for at least five years.
48
2015
Adam G. Ciongoli
Senior Vice President and General Counsel. Executive Vice President and General Counsel of Lincoln Financial Group (2012 - 2015) and Group General Counsel and Secretary of Willis Group Holdings, PLC (2007 - 2012).
49
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.
58
2004
Robert J. Furbee
Senior Vice President. We have employed Mr. Furbee in an executive or managerial capacity for at least five years.
55
2017
Bethmara Kessler
Senior Vice President. Vice President of Campbell Soup Company (2014 - 2016), Senior Vice President of Warner Music Group (2013 - 2014) and Managing Director of The Fraud and Risk Advisory Group (2008 - 2013).
53
2016
Luca Mignini
Senior Vice President. Chief Executive Officer of the Findus Italy division of IGLO Group (2010 - 2012).
55
2013
Denise M. Morrison
President and Chief Executive Officer. We have employed Ms. Morrison in an executive or managerial capacity for at least five years.
63
2003
Robert W. Morrissey
Senior Vice President and Chief Human Resources Officer. We have employed Mr. Morrissey in an executive or managerial capacity for at least five years.
59
2012
All of the executive officers were appointed at the November 2016 meeting of the Board of Directors, except Mr. Furbee was appointed at the May 2017 meeting with this appointment being effective as of June 1, 2017.
PART II
Item 5.
Market for Registrant’s Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market for Registrant’s Capital Stock
Our capital stock is listed and principally traded on the New York Stock Exchange. On September 20, 2017, there were 19,235 holders of record of our capital stock. Market price and dividend information with respect to our capital stock are set forth in Note 20 to the Consolidated Financial Statements. Future dividends will be dependent upon future earnings, financial requirements and other factors.
Return to Shareholders* Performance Graph
The information contained in this Return to Shareholders Performance Graph section shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent we specifically incorporate it by reference into a document filed under the Securities Exchange Act of 1933, as amended, or the Exchange Act.
The following graph compares the cumulative total shareholder return (TSR) on our stock with the cumulative total return of the Standard & Poor’s 500 Stock Index (the S&P 500) and the Standard & Poor’s Packaged Foods Index (the S&P Packaged Foods Group). The graph assumes that $100 was invested on July 27, 2012, in each of our stock, the S&P 500 and the S&P Packaged Foods Group, and that all dividends were reinvested. The total cumulative dollar returns shown on the graph represent the value that such investments would have had on July 28, 2017.


11






cpb-7302017_chartx04744.jpg

* Stock appreciation plus dividend reinvestment.
 
 
2012
 
2013
 
2014
 
2015
 
2016
 
2017
Campbell
 
100
 
147
 
134
 
162
 
210
 
182
S&P 500
 
100
 
125
 
145
 
162
 
171
 
198
S&P Packaged Foods Group
 
100
 
136
 
144
 
180
 
211
 
199

12






Issuer Purchases of Equity Securities
Period
Total Number
of Shares
Purchased (1) 
 
Average
Price Paid
Per Share (2) 
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs (3)
 
Approximate
Dollar Value of
Shares that may yet
be Purchased
Under the Plans or
Programs
($ in Millions) (3)
5/1/17 - 5/31/17
840,649

(4) 
$58.25
(4) 
783,564

 
$1,454
6/1/17 - 6/30/17
305,694

 
$55.29
 
305,694

 
$1,437
7/3/17 - 7/28/17
1,289,997

 
$51.69
 
1,289,997

 
$1,371
Total
2,436,340

(4) 
$54.40
(4) 
2,379,255

 
$1,371
____________________________________ 
(1) 
Shares purchased are as of the trade date.
(2) 
Average price paid per share is calculated on a settlement basis and excludes commission.
(3) 
During the fourth quarter of 2017, we had a publicly announced strategic share repurchase program. Under this program, which was announced on March 22, 2017 and effective May 1, 2017, our Board of Directors authorized the purchase of up to $1.5 billion of our stock. The program has no expiration date. Pursuant to our longstanding practice, under a separate 2017 authorization, we expect to continue purchasing shares sufficient to offset the impact of dilution from shares issued under our incentive compensation plans.
(4) 
Includes 57,085 shares repurchased in open-market transactions at an average price of $57.61 primarily to offset the dilutive impact to existing shareholders of issuances under stock compensation plans.

Item 6. Selected Financial Data
Fiscal Year
2017(1)
 
2016(2)
 
2015(3)
 
2014(4)
 
2013(5)
(Millions, except per share amounts)
 
Summary of Operations
 
 
 
 
 
 
 
 
 
Net sales
$
7,890

 
$
7,961

 
$
8,082

 
$
8,268

 
$
8,052

Earnings before interest and taxes
1,400

 
960

 
1,054

 
1,267

 
1,474

Earnings before taxes
1,293

 
849

 
949

 
1,148

 
1,349

Earnings from continuing operations
887

 
563

 
666

 
774

 
934

Earnings (loss) from discontinued operations

 

 

 
81

 
(231
)
Net earnings
887

 
563

 
666

 
855

 
703

Net earnings attributable to Campbell Soup Company
887

 
563

 
666

 
866

 
712

Financial Position
 
 
 
 
 
 
 
 
 
Plant assets - net
$
2,454

 
$
2,407

 
$
2,347

 
$
2,318

 
$
2,260

Total assets
7,726

 
7,837

 
8,077

 
8,100

 
8,290

Total debt
3,536

 
3,533

 
4,082

 
4,003

 
4,438

Total equity
1,645

 
1,533

 
1,377

 
1,602

 
1,192

Per Share Data
 
 
 
 
 
 
 
 
 
Earnings from continuing operations attributable to Campbell Soup Company - basic
$
2.91

 
$
1.82

 
$
2.13

 
$
2.50

 
$
3.00

Earnings from continuing operations attributable to Campbell Soup Company - assuming dilution
2.89

 
1.81

 
2.13

 
2.48

 
2.97

Net earnings attributable to Campbell Soup Company - basic
2.91

 
1.82

 
2.13

 
2.76

 
2.27

Net earnings attributable to Campbell Soup Company - assuming dilution
2.89

 
1.81

 
2.13

 
2.74

 
2.25

Dividends declared
1.40

 
1.248

 
1.248

 
1.248

 
1.16

Other Statistics
 
 
 
 
 
 
 
 
 
Capital expenditures
$
338

 
$
341

 
$
380

 
$
347

 
$
336

Weighted average shares outstanding - basic
305

 
309

 
312

 
314

 
314

Weighted average shares outstanding - assuming dilution
307

 
311

 
313

 
316

 
317


13






____________________________________ 
(All per share amounts below are on a diluted basis)
In March 2016, the Financial Accounting Standards Board (FASB) issued guidance that amends accounting for share-based payments, including the accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classification in the statement of cash flows. We adopted the guidance in 2017. In accordance with the prospective adoption of the recognition of excess tax benefits and deficiencies in the Consolidated Statements of Earnings, we recognized a $6 million tax benefit in Taxes on earnings in 2017.
In April 2015, the FASB issued guidance that requires debt issuance costs to be presented in the balance sheet as a reduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. We adopted the guidance in 2016 and retrospectively adjusted all prior periods.
In November 2015, the FASB issued guidance that requires deferred tax liabilities and assets to be classified as noncurrent in the balance sheet. We adopted the guidance in 2016 on a prospective basis and modified the presentation of deferred taxes in the Consolidated Balance Sheet as of July 31, 2016.
The 2014 fiscal year consisted of 53 weeks. All other periods had 52 weeks.
(1) 
The 2017 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge, related costs and administrative expenses of $37 million ($.12 per share) associated with restructuring and cost savings initiatives; gains of $116 million ($.38 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; impairment charges of $180 million ($.59 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit; and a tax benefit and reduction to interest expense of $56 million ($.18 per share) primarily associated with the sale of intercompany notes receivable to a financial institution.
(2) 
The 2016 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and administrative expenses of $49 million ($.16 per share) associated with restructuring and cost savings initiatives; losses of $200 million ($.64 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; a gain of $25 million ($.08 per share) associated with a settlement of a claim related to the Kelsen acquisition; and an impairment charge of $127 million ($.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit.
(3) 
The 2015 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and administrative expenses of $78 million ($.25 per share) associated with restructuring and cost savings initiatives and losses of $87 million ($.28 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans.
(4) 
The 2014 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and related costs of $36 million ($.11 per share) associated with restructuring initiatives; losses of $19 million ($.06 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; a loss of $6 million ($.02 per share) on foreign exchange forward contracts used to hedge the proceeds from the sale of the European simple meals business; $7 million ($.02 per share) tax expense associated with the sale of the European simple meals business; and the estimated impact of the additional week of $25 million ($.08 per share). Earnings from discontinued operations included a gain of $72 million ($.23 per share) on the sale of the European simple meals business.
(5) 
The 2013 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and related costs of $87 million ($.27 per share) associated with restructuring initiatives; gains of $183 million ($.58 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; and $7 million ($.02 per share) of transaction costs related to the acquisition of Bolthouse Farms. Earnings from discontinued operations were impacted by an impairment charge on the intangible assets of the simple meals business in Europe of $263 million ($.83 per share) and tax expense of $18 million ($.06 per share) representing taxes on the difference between the book value and tax basis of the business.

Selected Financial Data should be read in conjunction with the Notes to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements presented in "Financial Statements and Supplementary Data," as well as the information contained in "Risk Factors."  

14






Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
Executive Summary
We are a manufacturer and marketer of high-quality, branded food and beverage products. We operate in a highly competitive industry and experience competition in all of our categories. We manage our businesses in three divisions focused mainly on product categories. The divisions, which represent our operating and reportable segments, are: Americas Simple Meals and Beverages; Global Biscuits and Snacks; and Campbell Fresh. See "Business - Reportable Segments" for a description of the products included in each segment.
Our goal is to be the leading health and well-being food company. Guided by our purpose - Real food that matters for life’s moments, we are pursuing this goal through a dual strategy of strengthening our core businesses while expanding into faster-growing spaces. We believe that this commitment to health and well-being will build shareholder value by driving sustainable, profitable net sales growth.
Industry Trends
Our businesses are being influenced by a variety of trends that we anticipate will continue in the future, including: shifting demographics; changing consumer preferences for food; technological and digital advancements that are reshaping the retailer landscape and the consumer shopping experience; and socioeconomic shifts.
We believe Millennials and Generation Z are replacing Baby Boomers as the key influencers of societal and cultural norms in the U.S. and are increasingly focused on health and well-being. We expect consumers to continue to seek products that they associate with health and well-being, including fresh, naturally functional and organic foods. While demanding products with these qualities, consumers also continue to gravitate toward store brands and value offerings. Consumers are also changing their eating habits by increasing the type and frequency of snacks consumed.
Digital media and technology are changing the way consumers purchase food. Although e-commerce represents only a small percent of total food sales, we anticipate it will accelerate rapidly through the growth of pure-play e-tailers, increased focus of brick and mortar retailers on e-commerce and the continued growth of meal delivery services. Consumers are also increasingly using technology to customize their diets for their individual lifestyle, physiology and health goals.
Retailers continue to use their buying power and negotiating strength to seek increased promotional programs funded by their suppliers and more favorable terms. We expect consolidations among retailers will continue to create large and sophisticated customers that may further this trend. In addition, new and existing retailers continue to grow and promote store brands that compete with branded products.
Strategic Imperatives
We are responding to the above-described industry trends by continuing to focus on four strategic imperatives:
Building greater trust with consumers through real food, transparency and sustainability;
Accelerating digital marketing and e-commerce efforts;
Continuing to diversify our portfolio in fresh foods and health and well-being; and
Increasing our presence in the faster-growing snacking category.
Building Greater Trust with Consumers through Real Food, Transparency and Sustainability
Our goal is to strengthen the trust of our consumers and customers through real food. For example, we are in the process of removing artificial flavors and colors from certain of our products, increasing the use of vegetables and whole grains and transitioning to chicken with no antibiotics. We have also removed Bisphenol A (BPA) from the lining of our U.S. and Canadian soup cans. In addition, we recently entered into an agreement with the Sage Project to partner on customizable and digital labels for our products that include nutrition facts and product attributes. We also support and remain committed to mandatory national genetically modified organism labeling and implementation of the Food and Drug Administration's nutrition facts panel. Our www.whatsinmyfood.com website promotes transparency by providing consumers with a wide range of details about how certain of our foods and beverages are made and the choices behind the ingredients we use in those products.
Accelerating Digital Marketing and E-Commerce Efforts
We are responding to the growing consumer shift to digital and mobile technologies by investing in digital and e-commerce across our company with a goal of building industry-leading capabilities. We are working to increase the scale of our digital marketing capabilities using content, marketing technology and data analytics. We are building an experienced business team in North America to pursue these initiatives. We are also pursuing digital and e-commerce innovation with new business models and development of cross-portfolio e-commerce solutions. To support these efforts, we are developing a more flexible and cost effective

15






distribution system that we believe will position us well to grow with the expanding e-commerce market. We also plan to continue partnering with leading e-commerce companies, such as our recently announced partnership with a meal-delivery service.
Continuing to Diversify our Portfolio in Fresh Foods and Health and Well-Being
Capitalizing on recent consumer and retailer trends, we are continuing to increase our portfolio's commitment to fresh food and health and well-being through internal innovation, changes to recipes and our recent acquisitions. We expect to continue expanding our product offerings in key growth areas, such as in the packaged fresh category and with organic and clean label products. We are focusing on naturally functional foods by leveraging our vegetable and whole grain capabilities. While we are working to develop brands and innovate these products, we are developing increased distribution capabilities in new channels that also support this commitment.
Increasing our Presence in the Faster-Growing Snacking Category
Through a company-wide approach, we plan to expand our brand footprint by driving our existing snacking portfolio, pursuing expansion in promising emerging markets, building global brands and leveraging global capabilities to build sustainable business models. We are pursuing this goal with a plan to reach new consumers and existing consumers more frequently, including new snacking products that are premium snacks and focused on health and well-being. We also intend to broaden our snacking business beyond cookies and baked snacks to include soup, mini meals and fresh snacks. In addition, we expect to introduce snack products with new packaging formats.
To support these four imperatives, we will continue to pursue different models of innovation, including internal and external development, disciplined mergers and acquisitions, strategic partnerships and venture investing.
Cost Savings Initiative
We are pursuing a multi-year cost savings initiative with targeted annualized cost savings of $450 million by the end of 2020. These savings are above and beyond our existing supply-chain productivity initiatives. See "Restructuring Charges and Cost Savings Initiatives" for additional information on these initiatives. We expect to reinvest a portion of these savings into the businesses that we have identified as high growth and that are consistent with our strategic imperatives.
Summary of Results
This Summary of Results provides significant highlights from the discussion and analysis that follows.
Net sales decreased 1% in 2017 to $7.890 billion, primarily due to lower volume and increased promotional spending.
Gross profit, as a percent of sales, increased to 38.8% from 34.9% a year ago. The increase was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year, productivity improvements and increased benefits from cost savings initiatives, partially offset by higher supply chain costs and cost inflation, and higher promotional spending.
Administrative expenses decreased 24% to $488 million from $641 million a year ago. The decrease was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year, increased benefits from cost savings initiatives, lower incentive compensation costs and lower costs related to the implementation of the new organizational structure and cost savings initiatives, partially offset by inflation and investments in long-term innovation.
Other expenses increased to $238 million in 2017 from $131 million in 2016, primarily due to non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit in 2017. In 2016, we recorded a $141 million non-cash impairment charge on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit, partially offset by a gain from the settlement of a claim related to the Kelsen acquisition.
The effective tax rate was 31.4% in 2017, compared to 33.7% in 2016. In 2017, the effective rate reflected a tax benefit of $52 million primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes.
Earnings per share were $2.89 in 2017, compared to $1.81 a year ago. The current and prior year included expenses of $.15 and $1.13 per share, respectively, from items impacting comparability as discussed below.
Cash flow from operations was $1.291 billion in 2017, compared to $1.491 billion in 2016. The decline was primarily due to lapping significant reductions in working capital in the prior year, as well as lower cash earnings and lower receipts from hedging activities in the current year.
Net Earnings attributable to Campbell Soup Company - 2017 Compared with 2016
The following items impacted the comparability of earnings and earnings per share:

16






In 2017, we recognized gains of $178 million in Costs and expenses ($116 million after tax, or $.38 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans. In 2016, we recognized losses of $313 million in Costs and expenses ($200 million after tax, or $.64 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans;
In 2015, we implemented a new enterprise design and initiatives to reduce costs and to streamline our organizational structure. In 2017, we expanded these cost savings initiatives by further optimizing our supply chain network, primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent acquisitions. In 2017, we recorded a pre-tax restructuring charge of $18 million and implementation costs and other related costs of $36 million in Administrative expenses and $4 million in Cost of products sold (aggregate impact of $37 million after tax, or $.12 per share) related to these initiatives. In 2016, we recorded a pre-tax restructuring charge of $35 million and implementation costs and other related costs of $47 million in Administrative expenses related to these initiatives. In 2016, we also recorded a reduction to pre-tax restructuring charges of $4 million related to the 2014 initiatives. The aggregate after-tax impact in 2016 of restructuring charges, implementation costs and other related costs was $49 million, or $.16 per share. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
In the second quarter of 2017, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit as operating performance was well below expectations and a new leadership team of the Campbell Fresh division initiated a strategic review which led to a revised outlook for future sales, earnings, and cash flow. We recorded a non-cash impairment charge of $147 million ($139 million after tax, or $.45 per share) related to intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and a non-cash impairment charge of $65 million ($41 million after tax, or $.13 per share) related to the intangible assets of the Garden Fresh Gourmet reporting unit (aggregate pre-tax impact of $212 million, $180 million after tax, or $.59 per share). In the fourth quarter of 2016, as part of the annual review of intangible assets, we recorded a non-cash impairment charge of $141 million ($127 million after tax, or $.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit. The charges are included in Other expenses / (income). See Note 5 to the Consolidated Financial Statements for additional information;
In 2017, we recorded a tax benefit of $52 million in Taxes on earnings primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes. In addition, we recorded a $6 million reduction to interest expense ($4 million after tax) related to premiums and fees received on the sale of the notes. The aggregate impact was $56 million after tax, or $.18 per share. See Note 11 to the Consolidated Financial Statements for additional information; and
In 2016, we recorded a gain of $25 million ($.08 per share) in Other expenses / (income) from a settlement of a claim related to the Kelsen acquisition. The claim was for a warranty breach and has no meaningful ongoing impact on Kelsen.
The items impacting comparability are summarized below:
 
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 attributable to Campbell Soup Company were $887 million ($2.89 per share) in 2017, compared to $563 million ($1.81 per share) in 2016. After adjusting for items impacting comparability, earnings increased primarily due to an improved gross profit performance and lower administrative expenses, partially offset by lower sales. Earnings per share benefited from a reduction in the weighted average diluted shares outstanding, primarily due to share repurchases under our strategic share repurchase program.

17






Net Earnings attributable to Campbell Soup Company - 2016 Compared with 2015
In addition to the 2016 items that impacted comparability of Net earnings discussed above, the following items impacted the comparability of earnings and earnings per share:
In 2015, we recognized losses of $138 million in Costs and expenses ($87 million after tax, or $.28 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; and
In 2015, we recorded a pre-tax restructuring charge of $102 million and implementation costs of $22 million recorded in Administrative expenses related to the 2015 initiatives (aggregate impact of $78 million after tax, or $.25 per share). See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information.
The items impacting comparability are summarized below:
 
2016
 
2015
(Millions, except per share amounts)
Earnings
Impact
 
EPS
Impact
 
Earnings
Impact
 
EPS
Impact
Net earnings attributable to Campbell Soup Company
$
563

 
$
1.81

 
$
666

 
$
2.13

 
 
 
 
 
 
 
 
Pension and postretirement benefit mark-to-market adjustments
$
(200
)
 
$
(.64
)
 
$
(87
)
 
$
(.28
)
Restructuring charges, implementation costs and other related costs
(49
)
 
(.16
)
 
(78
)
 
(.25
)
Impairment charge
(127
)
 
(.41
)
 

 

Claim settlement
25

 
.08

 

 

Impact of items on Net earnings
$
(351
)
 
$
(1.13
)
 
$
(165
)
 
$
(.53
)
Net earnings were $563 million ($1.81 per share) in 2016, compared to $666 million ($2.13 per share) in 2015. After adjusting for items impacting comparability, earnings increased primarily due to an improved gross profit performance, lower administrative expenses and lower marketing and selling expenses, partially offset by the negative impact of currency translation and a higher effective tax rate.
Net earnings (loss) attributable to noncontrolling interests
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support our soup and broth business in China.
We own a 70% controlling interest in a Malaysian food products manufacturing company.
In addition, beginning in 2016, we own a 99.8% interest in Acre Venture Partners, L.P., a limited partnership formed to make venture capital investments in innovative new companies in food and food-related industries. See Note 14 to the Consolidated Financial Statements for additional information.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings.
DISCUSSION AND ANALYSIS
Sales
An analysis of net sales by reportable segment follows:
 
 
 
 
 
 
 
% Change
(Millions)
2017
 
2016
 
2015
 
2017/2016
 
2016/2015
Americas Simple Meals and Beverages
$
4,325

 
$
4,380

 
$
4,483

 
(1)%
 
(2)%
Global Biscuits and Snacks
2,598

 
2,564

 
2,631

 
1
 
(3)
Campbell Fresh
967

 
1,017

 
968

 
(5)
 
5
 
$
7,890

 
$
7,961

 
$
8,082

 
(1)%
 
(1)%

18






An analysis of percent change of net sales by reportable segment follows:
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)%

2016 versus 2015
Americas Simple Meals and Beverages
 
Global Biscuits and Snacks(2)
 
Campbell Fresh(2)
 
Total
Volume and Mix
(2)%
 
1%
 
(3)%
 
(1)%
Price and Sales Allowances
1
 
1
 
 
1
Increased Promotional Spending(1)
 
 
(1)
 
Currency
(1)
 
(4)
 
 
(2)
Acquisitions
 
 
10
 
1
 
(2)%
 
(3)%
 
5%
 
(1)%
__________________________________________
(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 2017, Americas Simple Meals and Beverages sales decreased 1% primarily due to declines in V8 beverages and soup, partly offset by gains in Prego pasta sauces and Campbell's pasta. U.S. soup sales decreased 1% due to declines in condensed soups and broth, partly offset by gains in ready-to-serve soups. Gains in ready-to-serve soups were primarily driven by Campbell’s Chunky soups due to improved execution, including merchandising and dedicated advertising, as well as new items, and the launch of Well Yes! soups. Promotional spending had a negative impact of 1% on sales, with increases on broth, in Canada and on V8 beverages. We increased promotional spending on broth and V8 beverages to remain competitive, and in Canada to hold certain promoted prices following list price increases. For 2018, we were unable to reach an agreement with a large customer on a promotional program for U.S. soup. As a result, we expect our U.S. soup sales to decline in 2018. 
In 2016, Americas Simple Meals and Beverages sales decreased 2%. Sales decreased primarily due to declines in soup and V8 beverages, partially offset by gains in Prego pasta sauces, Plum products and Pace Mexican sauces. U.S. soup sales decreased 4% primarily as a result of the impact of our net price realization actions and category declines, which were partly related to warmer weather. Further details of U.S. soup include:
Sales of condensed soups were comparable to the prior year.
Sales of ready-to-serve soups declined 13%. The sales decrease in ready-to-serve soups was also due to marketing execution issues on Campbell's Chunky soups.
Broth sales increased 1%.
V8 beverages continued to be under pressure from competition from specialty and packaged fresh beverages.
In 2017, Global Biscuits and Snacks sales increased 1% reflecting a 1% favorable impact from currency translation. Excluding the favorable impact of currency translation, segment sales were comparable to the prior year as gains in Pepperidge Farm were offset by declines in Kelsen, mostly in the U.S., and in Arnott's in Indonesia. Pepperidge Farm sales increased due to gains in Goldfish crackers and in cookies, benefiting from new items, partly offset by declines in fresh bakery and frozen products.
In 2016, Global Biscuits and Snacks sales decreased 3% reflecting a 4% negative impact from currency translation. Excluding the negative impact of currency translation, segment sales increased primarily due to gains in Goldfish crackers and Arnott's biscuits in Australia, partially offset by declines in Kelsen.
In 2017, Campbell Fresh sales decreased 5% primarily due to lower sales of refrigerated beverages and carrots, partly offset by gains in refrigerated soup. The decrease in refrigerated beverages reflects the adverse impact of supply constraints related to enhanced quality processes following the voluntary recall of Bolthouse Farms Protein PLUS drinks in June 2016. The carrot sales performance reflects the market share impact of quality and execution issues experienced in 2016, as well as the adverse impact of weather conditions in the second quarter of 2017.

19






In 2016, Campbell Fresh sales increased 5% primarily due to the acquisition of Garden Fresh Gourmet, which was acquired on June 29, 2015. Excluding the acquisition, sales declined reflecting lower sales in carrots and carrot ingredients, partially offset by gains in refrigerated beverages and salad dressings. In 2016, carrot sales performance primarily reflected the adverse impact of weather conditions on crop yields, and execution issues in response to those conditions, which led to customer dissatisfaction and a loss of business in the second half of the year. The increase in refrigerated beverages was primarily due to new product launches, partially offset by the impact of the voluntary recall of Bolthouse Farms Protein PLUS drinks in June 2016. In 2016, promotional spending was increased to remain competitive and to support new product launches.
Gross Profit
Gross profit, defined as Net sales less Cost of products sold, increased by $279 million in 2017 from 2016 and decreased by $2 million in 2016 from 2015. As a percent of sales, gross profit was 38.8% in 2017, 34.9% in 2016 and 34.4% in 2015.
The 3.9 percentage-point increase in gross profit percentage in 2017 and 0.5 percentage-point increase in gross profit percentage in 2016 were due to the following factors:
 
Margin Impact
 
2017
 
2016
Pension and postretirement benefit mark-to-market adjustments(1)
3.3%
 
(1.2)%
Productivity improvements
1.8
 
2.0
Higher selling prices
0.1
 
0.6
Mix
0.1
 
0.4
Higher level of promotional spending
(0.4)
 
(0.2)
Cost inflation, supply chain costs and other factors(2)
(1.0)
 
(0.8)
Impact of acquisitions
 
(0.3)
 
3.9%
 
0.5%
__________________________________________
(1) 
Pension and postretirement benefit mark-to-market gains were $85 in 2017 and losses were $176 million in 2016.
(2) 
2017 includes a positive margin impact of 1 point from cost savings initiatives. 2016 includes a positive margin impact of 0.6 points from cost savings initiatives.
Marketing and Selling Expenses
Marketing and selling expenses as a percent of sales were 10.4% in 2017, 11.2% in 2016 and 10.9% in 2015. Marketing and selling expenses decreased 9% in 2017 from 2016. The decrease was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year (approximately 8 percentage points); increased benefits from cost savings initiatives (approximately 2 percentage points); and lower incentive compensation costs (approximately 1 percentage point), partially offset by higher selling expenses (approximately 1 percentage point) and inflation (approximately 1 percentage point).
Marketing and selling expenses increased 1% in 2016 from 2015. The increase was due to increased losses on pension and postretirement benefit mark-to-market adjustments (approximately 3 percentage points); higher advertising and consumer promotion expenses (approximately 2 percentage points); lower marketing overhead expenses and lower selling expenses (approximately 1 percentage point); and inflation (approximately 1 percentage point), partially offset by benefits from cost savings initiatives (approximately 4 percentage points) and the impact of currency translation (approximately 2 percentage points). The increase in advertising and consumer promotion expenses in 2016 was primarily in Global Biscuits and Snacks.
Administrative Expenses
Administrative expenses as a percent of sales were 6.2% in 2017, 8.1% in 2016 and 7.4% in 2015. Administrative expenses decreased 24% in 2017 from 2016. The decrease was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year (approximately 19 percentage points); increased benefits from cost savings initiatives (approximately 3 percentage points); lower incentive compensation costs (approximately 3 percentage points); and lower costs related to the implementation of the new organizational structure and cost savings initiatives (approximately 2 percentage points), partially offset by inflation (approximately 2 percentage points) and investments in long-term innovation (approximately 1 percentage point).
Administrative expenses increased 7% in 2016 from 2015. The increase was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments (approximately 7 percentage points); higher costs related to the implementation of the new organizational structure and cost savings initiatives (approximately 4 percentage points); inflation (approximately 2 percentage points); and higher incentive compensation costs (approximately 1 percentage point), partially offset by benefits from

20






cost savings initiatives (approximately 6 percentage points) and the impact of currency translation (approximately 1 percentage point).
Research and Development Expenses
Research and development expenses decreased $26 million, or 21%, in 2017 from 2016. The decrease was primarily due to gains on pension and postretirement benefit mark-to-market adjustments in the current year compared to losses in the prior year (approximately 25 percentage points); increased benefits from cost savings initiatives (approximately 2 percentage points); and lower incentive compensation costs (approximately 2 percentage points), partially offset by inflation and other factors (approximately 7 percentage points) and investments in long-term innovation (approximately 1 percentage point).
Research and development expenses increased $7 million, or 6%, in 2016 from 2015. The increase was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments (approximately 9 percentage points) and increased costs to support long-term innovation (approximately 3 percentage points), partially offset by benefits from cost savings initiatives (approximately 6 percentage points).
Other Expenses / (Income)
Other expenses in 2017 included non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit, and the Garden Fresh Gourmet reporting unit, which are part of the Campbell Fresh segment. The impairment charges were recorded as a result of an interim impairment assessment on the intangible assets of these reporting units in the second quarter. In addition, 2017 included $19 million of amortization of intangible assets.
Other expenses in 2016 included a non-cash impairment charge of $141 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit. The impairment charge was recorded as a result of our annual review of intangible assets. In addition, 2016 included $20 million of amortization of intangible assets and a $25 million gain from a settlement of a claim related to the Kelsen acquisition.
Other expenses in 2015 included $17 million of amortization of intangible assets and an impairment charge of $6 million related to minor trademarks used in the Global Biscuits and Snacks segment.
See Note 5 to the Consolidated Financial Statements for additional information on the impairment charges.
Operating Earnings
Segment operating earnings increased 1% in 2017 from 2016 and increased 11% in 2016 from 2015.
An analysis of operating earnings by segment follows:
 
 
 
 
 
 
 
 
% Change(2)
(Millions)
 
2017
 
2016
 
2015
 
2017/2016
 
2016/2015
Americas Simple Meals and Beverages
 
$
1,120

 
$
1,069

 
$
948

 
5%
 
13
 %
Global Biscuits and Snacks
 
454

 
422

 
383

 
8
 
10

Campbell Fresh
 
(9
)
 
60

 
61

 
n/m
 
(2
)
 
 
1,565

 
1,551

 
1,392

 
1%
 
11
 %
Corporate
 
(147
)
 
(560
)
 
(236
)
 
 
 
 
Restructuring charges(1)
 
(18
)
 
(31
)
 
(102
)
 
 
 
 
Earnings before interest and taxes
 
$
1,400

 
$
960

 
$
1,054

 
 
 
 
__________________________________________
(1)
See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges.
(2) 
n/m - Not meaningful.
Operating earnings from Americas Simple Meals and Beverages increased 5% in 2017 versus 2016. The increase was primarily due to a higher gross profit percentage, benefiting from productivity improvements, and lower administrative expenses, partly offset by volume declines.
Operating earnings from Americas Simple Meals and Beverages increased 13% in 2016 versus 2015. The increase was primarily due to a higher gross profit percentage, benefiting from productivity improvements and increased net price realization, as well as lower marketing and selling expenses, partially offset by volume declines.
Operating earnings from Global Biscuits and Snacks increased 8% in 2017 versus 2016. The increase was primarily due to lower administrative expenses, lower marketing and selling expenses and the favorable impact of currency translation.

21






Operating earnings from Global Biscuits and Snacks increased 10% in 2016 versus 2015. The increase was primarily due to a higher gross profit percentage, volume gains, lower selling expenses and lower administrative expenses, partly offset by the negative impact of currency translation and higher advertising and consumer promotion expenses.
Operating earnings from Campbell Fresh decreased from $60 million in 2016 to a loss of $9 million in 2017. The decrease was primarily due to lower volume and unfavorable mix; higher carrot costs, which were partly associated with the adverse impact on crop yields of heavy rains in December and January of this fiscal year, as well as excess organic carrots; the cost impact of both lower beverage operating efficiencies and enhanced quality processes; and higher administrative expenses.
Operating earnings from Campbell Fresh decreased 2% in 2016 versus 2015. The decrease was primarily due to higher carrot costs, and the impact of the voluntary recall of Bolthouse Farms Protein PLUS drinks and the related production outages, partially offset by productivity improvements and lower administrative expenses.
Corporate in 2017 included a $178 million gain associated with pension and postretirement benefit mark-to-market adjustments, non-cash impairment charges of $212 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit, and costs of $40 million related to the implementation of our new organizational structure and cost savings initiatives. Corporate in 2016 included a $313 million loss associated with pension and postretirement benefit mark-to-market adjustments, a non-cash impairment charge of $141 million on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit, costs of $47 million related to the implementation of our new organizational structure and cost savings initiatives, and a $25 million gain from a settlement of a claim related to the Kelsen acquisition. The remaining decrease in 2017 was primarily due to lower postretirement benefit costs as a result of amortization of prior service credit, partially offset by investments in long-term innovation.
Corporate in 2015 included a $138 million loss associated with pension and postretirement benefit mark-to-market adjustments and costs of $22 million related to the implementation of our new organizational structure and cost savings initiatives. The remaining increase in 2016 was primarily due to an increase in pension benefit cost, resulting from a reduction in expected return on assets partially offset by lower interest cost.
Interest Expense
Interest expense decreased to $112 million in 2017 from $115 million in 2016. In 2017, we recorded a $6 million reduction to interest expense related to premiums and fees received from the sale of intercompany notes receivable to a financial institution. Excluding the premium and fees, interest expense increased reflecting higher average interest rates on the debt portfolio, partially offset by lower average levels of debt.
Interest expense increased to $115 million in 2016 from $108 million in 2015, reflecting higher average interest rates on the debt portfolio, partially offset by lower average levels of debt.
Taxes on Earnings
The effective tax rate was 31.4% in 2017, 33.7% in 2016 and 29.8% in 2015.
The following items impacted the tax rate in 2017 and 2016:
In 2017, we recognized a tax benefit of $52 million primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes;
In 2017, we recognized tax expense of $62 million on $178 million of pension and postretirement benefit mark-to-market gains. In 2016, we recognized a tax benefit of $113 million on $313 million of pension and postretirement benefit mark-to-market losses;
In 2017, we recognized a $32 million tax benefit on the $212 million impairment charges on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit. In 2016, we recognized a $14 million tax benefit on the $141 million impairment charge on the trademark and goodwill associated with the Bolthouse Farms carrot and carrot ingredients reporting unit;
In 2017, we recognized a $21 million tax benefit on $58 million of restructuring charges, implementation costs and other related costs. In 2016, we recognized a $29 million tax benefit on $78 million of restructuring charges, implementation costs and other related costs; and
In 2016, the $25 million gain from a settlement of a claim related to the Kelsen acquisition was not subject to tax.
In addition, in 2017 the effective rate was favorably impacted by the recognition of $6 million of excess tax benefits in connection with the adoption of new accounting guidance on stock-based compensation in the first quarter. See Note 2 to the Consolidated Financial Statements for additional information on the adoption of the new accounting guidance.
In 2015, we recognized a tax benefit of $51 million on $138 million of pension and postretirement benefit mark-to-market losses and a $46 million tax benefit on $124 million of restructuring charges and implementation costs. After adjusting for the

22






items above, the remaining increase in the effective tax rate in 2016 was primarily due to lapping the favorable resolution of an intercompany pricing agreement between the U.S. and Canada in 2015.
Restructuring Charges and Cost Savings Initiatives
2015 Initiatives
On January 29, 2015, we announced plans to implement a new enterprise design focused mainly on product categories. Under the new structure, which we fully implemented at the beginning of 2016, our businesses are organized in the following divisions: Americas Simple Meals and Beverages, Global Biscuits and Snacks, and Campbell Fresh.
In support of the new structure, we designed and implemented a new Integrated Global Services organization to deliver shared services across the company. We also streamlined our organizational structure, implemented an initiative to reduce overhead across the organization and are pursuing other initiatives to reduce costs and increase effectiveness, such as adopting zero-based budgeting over time. As part of these initiatives, we commenced a voluntary employee separation program available to certain U.S.-based salaried employees nearing retirement who met age, length-of-service and business unit/function criteria. A total of 471 employees elected the program. The electing employees remained with us through at least July 31, 2015, with some remaining beyond that date.
In February 2017, we announced that we are expanding these cost savings initiatives by further optimizing our supply chain network, primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent acquisitions. We have extended the time horizon for the initiatives from 2018 to 2020. Cost estimates for these expanded initiatives, as well as timing for certain activities, are being developed.
A summary of the restructuring charges we recorded and charges incurred in Administrative expenses and Cost of products sold related to the implementation of the new organizational structure and costs savings initiatives is as follows:
 (Millions, except per share amounts)
2017
 
2016
 
2015
Restructuring charges
18

 
35

 
102

Administrative expenses
36

 
47

 
22

Cost of products sold
4

 

 

Total pre-tax charges
$
58

 
$
82

 
$
124

 
 
 
 
 
 
Aggregate after-tax impact
$
37

 
$
52

 
$
78

Per share impact
$
.12

 
$
.17

 
$
.25

A summary of the pre-tax costs associated with the initiatives is as follows:
(Millions)
Recognized as of July 30, 2017
Severance pay and benefits
$
135

Asset impairment/accelerated depreciation
12

Implementation costs and other related costs
117

Total
$
264

The total estimated pre-tax costs for actions that have been identified are approximately $380 million to $420 million. This estimate will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions that have been identified to date to consist of the following: approximately $135 million in severance pay and benefits; approximately $20 million in asset impairment and accelerated depreciation; and approximately $225 million to $265 million in implementation costs and other related costs.We expect these pre-tax costs to be associated with our segments as follows: Americas Simple Meals and Beverages - approximately 30%; Global Biscuits and Snacks - approximately 38%; Campbell Fresh - approximately 4%; and Corporate - approximately 28%.
Of the aggregate $380 million to $420 million of pre-tax costs identified to date, we expect approximately $350 million to $390 million will be cash expenditures. In addition, we expect to invest approximately $180 million in capital expenditures through 2019 primarily related to the construction of a network of distribution centers for our U.S. thermal plants and insourcing of manufacturing for certain simple meal products, of which we invested approximately $10 million as of July 30, 2017.
We expect to incur substantially all of the costs through 2019 and to fund the costs through cash flows from operations and short-term borrowings.

23






We expect the initiatives for actions that have been identified to date to generate pre-tax savings of $390 million in 2018, and once all phases are implemented, to generate annual ongoing savings of approximately $450 million beginning in 2020. The annual pre-tax savings generated by the initiatives were as follows:
(Millions)
2017
 
2016
 
2015
Total pre-tax savings
$
325

 
$
215

 
$
85

Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs incurred to date associated with segments is as follows:
(Millions)
2017
 
Costs Incurred to Date
Americas Simple Meals and Beverages
$
21

 
$
92

Global Biscuits and Snacks
12

 
78

Campbell Fresh
4

 
6

Corporate
21

 
88

Total
$
58

 
$
264

2014 Initiatives
In 2014, we implemented initiatives to reduce overhead across the organization, restructure manufacturing and streamline operations for our soup and broth business in China and improve supply chain efficiency in Australia.
In 2016, we recorded a reduction to restructuring charges of $4 million ($3 million after tax, or $.01 per share) related to the 2014 initiatives. As of July 31, 2016, we incurred substantially all of the costs related to the 2014 initiatives.
A summary of the pre-tax costs associated with the 2014 initiatives is as follows:
(Millions)
Total Program(1)
 
Change in Estimate
 
Recognized as of July 31, 2016
Severance pay and benefits
$
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 $1.291 billion in 2017, compared to $1.491 billion in 2016. The decline in 2017 was primarily due to lapping significant reductions in working capital in the prior year, as well as lower cash earnings and lower receipts from hedging activities in the current year.
We generated cash flows from operations of $1.491 billion in 2016, compared to $1.206 billion in 2015. The increase in 2016 was primarily due to higher cash earnings and lower working capital requirements, primarily inventories.
Current assets are less than current liabilities as a result of our level of current maturities of long-term debt and short-term borrowings and our focus to lower core working capital requirements by reducing trade receivables and inventories while extending payment terms for accounts payables. We had negative working capital of $495 million as of July 30, 2017, and $647 million as of July 31, 2016. Debt maturing within one year was $1.037 billion as of July 30, 2017, and $1.219 billion as of July 31, 2016.
Capital expenditures were $338 million in 2017, $341 million in 2016 and $380 million in 2015. Capital expenditures are expected to total approximately $400 million in 2018. Capital expenditures in 2017 included projects to expand: Australian multi-pack biscuit capacity (approximately $15 million); beverage and salad dressing capacity at Bolthouse Farms (approximately $8 million); and capacity at Garden Fresh (approximately $3 million); as well as the continued enhancement of our corporate

24






headquarters (approximately $11 million); replacement of a Pepperidge Farm refrigeration system (approximately $12 million); and a U.S. warehouse optimization project (approximately $10 million). Capital expenditures in 2016 included projects to expand: beverage and salad dressing capacity at Bolthouse Farms (approximately $22 million); biscuit capacity in Indonesia (approximately $11 million); warehouse capacity in North America (approximately $11 million); cracker capacity at Pepperidge Farm (approximately $9 million); and capacity in Malaysia (approximately $6 million); as well as the continued enhancement of our corporate headquarters (approximately $15 million) and the ongoing initiative to simplify the soup-making process in North America (also known as the soup common platform initiative) (approximately $5 million). Capital expenditures in 2015 included projects to expand: cracker capacity at Pepperidge Farm (approximately $36 million); beverage and salad dressing capacity at Bolthouse Farms (approximately $33 million); warehouse capacity at Bolthouse Farms (approximately $13 million); biscuit capacity in Indonesia (approximately $13 million); and aseptic broth capacity (approximately $6 million); as well as the ongoing soup common platform initiative in North America (approximately $30 million); and continued enhancement of our corporate headquarters (approximately $12 million).
On June 29, 2015, we completed the acquisition of the assets of Garden Fresh Gourmet. The purchase price was $232 million, and was funded through the issuance of commercial paper.
On July 6, 2017, we entered into an agreement to acquire Pacific Foods of Oregon, Inc. (Pacific Foods) for $700 million, subject to customary purchase price adjustments related to the amount of Pacific Foods' cash, debt, working capital and transaction expenses. We expect to fund the acquisition through debt. The closing of the transaction is subject to customary closing conditions and termination rights. The agreement provides that if we fail to close the transaction when all conditions to closing have been satisfied or if we are in breach of the agreement, we will be required to pay Pacific Foods a $50 million termination fee. On August 21, 2017, the estate of a former Pacific Foods shareholder, Edward C. Lynch, filed a lawsuit against Pacific Foods and certain of its directors, among others, seeking in excess of $250 million in damages. Because of the impediment that the lawsuit creates to closing, on September 27, 2017, we noticed Pacific Foods that it has 60 days under the terms of the agreement to resolve the issues arising from the suit if the transaction is to close. After the 60-day period, we may in our sole discretion extend the cure period or terminate the agreement. We do not believe a termination of the agreement under these circumstances will result in any termination fee payable by us. For additional information on this pending acquisition, see our Form 8-K filed with the U.S. Securities and Exchange Commission on July 6, 2017.
In June 2017, we sold intercompany notes to a financial institution, including an AUD $280 million, or $224 million, note with an interest rate of 4.88% that matures on September 18, 2018, and an AUD $190 million, or $152 million, note with an interest rate of 6.98% that matures on March 29, 2021, but is payable upon demand. Interest on both notes is due semi-annually on January 23 and July 23. The net proceeds were used for general corporate purposes.
In March 2015, we issued $300 million of 3.30% notes that mature on March 19, 2025. Interest on the notes is due semi-annually on March 19 and September 19, commencing on September 19, 2015. The notes may be redeemed in whole, or in part, at our option at any time at the applicable redemption price. In certain circumstances, we may be required to repurchase some or all of the notes upon a change in control of our company and a downgrade of the notes below investment grade. The net proceeds were used for general corporate purposes.
Dividend payments were $420 million in 2017, $390 million in 2016 and $394 million in 2015. Annual dividends declared were $1.40 per share in 2017, and $1.248 per share in 2016 and 2015. The 2017 fourth quarter dividend was $.35 per share.
We repurchased approximately 8 million shares at a cost of $437 million in 2017, approximately 3 million shares at a cost of $143 million in 2016, and approximately 5 million shares at a cost of $244 million in 2015. See Note 16 to the Consolidated Financial Statements and "Market for Registrant's Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities" for more information.
As of July 30, 2017, we had $1.037 billion of short-term borrowings due within one year, of which $874 million was comprised of commercial paper borrowings. As of July 30, 2017, we issued $48 million of standby letters of credit. We have a committed revolving credit facility totaling $1.85 billion that matures in December 2021. This U.S. facility remained unused at July 30, 2017, except for $1 million of standby letters of credit that we issued under it. The U.S. facility supports our commercial paper programs and other general corporate purposes. In July 2016, we entered into a Canadian committed revolving credit facility that matures in July 2019. As of July 30, 2017, the total commitment under the Canadian facility was CAD $170 million, or $137 million, and we had borrowings of CAD $162 million, or $130 million, at a rate of 2.09% under this facility. The Canadian facility supports general corporate purposes.
In July 2017, we filed a shelf registration statement with the Securities and Exchange Commission that registered an indeterminate amount of debt securities. Under the registration statement, we may issue debt securities from time to time, depending on market conditions.
We are in compliance with the covenants contained in our revolving credit facilities and debt securities.

25






CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
Contractual Obligations
The following table summarizes our obligations and commitments to make future payments under certain contractual obligations as of July 30, 2017. For additional information on debt, see Note 12 to the Consolidated Financial Statements. Operating leases are primarily entered into for warehouse and office facilities and certain equipment. Purchase commitments represent purchase orders and long-term purchase arrangements related to the procurement of ingredients, supplies, machinery, equipment and services. These commitments are not expected to have a material impact on liquidity. Other long-term liabilities primarily represent payments related to deferred compensation obligations. For additional information on other long-term liabilities, see Note 19 to the Consolidated Financial Statements.
 
Contractual Payments Due by Fiscal Year
(Millions)
Total
 
2018
 
2019-2020
 
2021-2022
 
Thereafter
Debt obligations(1)
$
3,548

 
$
1,037

 
$
655

 
$
701

 
$
1,155

Interest payments(2)
710

 
113

 
164

 
101

 
332

Derivative payments(3)
44

 
43

 
1

 

 

Purchase commitments
1,125

 
813

 
211

 
66

 
35

Operating leases
163

 
38

 
64

 
40

 
21

Other long-term payments(4)
145

 

 
58

 
32

 
55

Total long-term cash obligations
$
5,735

 
$
2,044

 
$
1,153

 
$
940

 
$
1,598

_______________________________________
(1) 
Excludes unamortized net discount/premium on debt issuances and debt issuance costs. For additional information on debt 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, commodity contracts and forward starting interest rate swaps.
(4) 
Represents other long-term liabilities, excluding unrecognized tax benefits, postretirement benefits and payments related to pension plans. For additional information on pension and postretirement benefits, see Note 10 to the Consolidated Financial Statements. For additional information on unrecognized tax benefits, see Note 11 to the Consolidated Financial Statements.
In July 2017, we entered into an agreement to acquire Pacific Foods for $700 million. For additional information on this pending acquisition, see our Form 8-K filed with the U.S. Securities and Exchange Commission on July 6, 2017, and Note 3 to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements and Other Commitments
We guarantee approximately 2,000 bank loans to Pepperidge Farm independent contractor distributors by third-party financial institutions used to purchase distribution routes. The maximum potential amount of the future payments under existing guarantees we could be required to make is $204 million. Our guarantees are indirectly secured by the distribution routes. We do not believe that it is probable that we will be required to make material guarantee payments as a result of defaults on the bank loans guaranteed. See also Note 18 to the Consolidated Financial Statements for information on off-balance sheet arrangements.
INFLATION
We are exposed to the impact of inflation on our cost of products sold. We use a number of strategies to mitigate the effects of cost inflation including increasing prices, commodity hedging and pursuing cost productivity initiatives such as global procurement strategies and capital investments that improve the efficiency of operations.
MARKET RISK SENSITIVITY
The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. International operations, which accounted for 19% of 2017 net sales, are concentrated principally in Australia and Canada. We manage our foreign currency exposures by borrowing in various foreign currencies and utilizing cross-currency swaps and foreign exchange forward contracts. We enter into cross-currency swaps and foreign exchange forward contracts for periods consistent with related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments.

26






We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, diesel fuel, soybean oil, natural gas, cocoa, aluminum, butter, corn, soybean meal and cheese, which impact the cost of raw materials.
The information below summarizes our market risks associated with debt obligations and other significant financial instruments as of July 30, 2017. Fair values included herein have been determined based on quoted market prices or pricing models using current market rates. The information presented below should be read in conjunction with Notes 12, 13 and 15 to the Consolidated Financial Statements.
The following table presents principal cash flows and related interest rates by fiscal year of maturity for debt obligations. Interest rates disclosed on variable-rate debt represent the weighted-average rates at July 30, 2017. Notional amounts and related interest rates of interest rate swaps are presented by fiscal year of maturity. For the swaps, variable rates are the weighted-average forward rates for the term of each contract.
 
Expected Fiscal Year of Maturity
 
 
 
Fair Value of Liabilities
(Millions)
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
 
Debt(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate(2)
$
153

 
$
524

 
$
1

 
$
700

 
$
1

 
$
1,155

 
$
2,534

 
$
2,620

Weighted-average interest rate
6.97
%
 
4.66
%
 
5.00
%
 
5.57
%
 
5.00
%
 
3.17
%
 
4.37
%
 
 
Variable rate(3)
$
884

 
$
130

 
$

 
$

 
$

 
$

 
$
1,014

 
$
1,015

Weighted-average interest rate
1.34
%
 
2.09
%
 
%
 
%
 
%
 
%
 
1.44
%
 
 
Interest Rate Swaps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash-flow swaps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable to fixed
$
300

 
$

 
$

 
$

 
$

 
$

 
$
300

 
$
22

Average pay rate
3.09
%
 
%
 
%
 
%
 
%
 
%
 
3.09
%
 
 
Average receive rate
2.27
%
 
%
 
%
 
%
 
%
 
%
 
2.27
%
 
 
_______________________________________
(1) 
Expected maturities exclude unamortized net discount/premium on debt issuances and debt issuance costs.
(2) 
Represents $2.150 billion of USD borrowings, $376 million equivalent of AUD borrowings and $8 million equivalent of borrowings in other currencies.
(3) 
Represents $874 million of USD borrowings, $130 million equivalent of CAD borrowings and $10 million equivalent of borrowings in other currencies.
As of July 31, 2016, fixed-rate debt of approximately $2.56 billion with an average interest rate of 3.97% and variable-rate debt of approximately $991 million with an average interest rate of 1.02% were outstanding. As of July 31, 2016, forward starting interest rate swaps with a notional amount of $300 million were outstanding. The average rate to be received on these swaps was 1.47%, and the average rate to be paid was estimated to be 3.09% over the remaining life of the swaps.
We are exposed to foreign exchange risk related to our international operations, including non-functional currency intercompany debt and net investments in subsidiaries.
We did not have any cross-currency swap contracts outstanding as of July 30, 2017, or July 31, 2016.
We are also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries, including subsidiary debt. We utilize foreign exchange forward purchase and sale contracts to hedge these exposures. The following table summarizes the foreign exchange forward contracts outstanding and the related weighted-average contract exchange rates as of July 30, 2017.
(Millions)
Notional Value
 
Average Contractual Exchange Rate (currency paid/ currency received)
Foreign Exchange Forward Contracts
 
Receive USD/Pay AUD
$
192

 
1.3292
Receive USD/Pay CAD
$
150

 
1.3167
Receive AUD/Pay NZD
$
35

 
1.0556
Receive DKK/Pay USD
$
31

 
0.1482

27






We had an additional number of smaller contracts to purchase or sell various other currencies with a notional value of $12 million as of July 30, 2017. The aggregate fair value of all contracts was a loss of $18 million as of July 30, 2017. The total notional value of foreign exchange forward contracts outstanding was $266 million, and the aggregate fair value was a loss of $10 million as of July 31, 2016.
We enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations for commodities. The notional value of these contracts was $90 million, and the aggregate fair value of these contracts was a gain of $5 million as of July 30, 2017. The notional value of these contracts was $88 million, and the aggregate fair value of these contracts was a loss of $1 million as of July 31, 2016.
We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of our capital stock, the total return of the Vanguard Institutional Index, and the total return of the Vanguard Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty either: the total return on our capital stock; the total return of the Standard & Poor's 500 Index, which is expected to approximate the total return of the Vanguard Institutional Index; or the total return of the iShares MSCI EAFE Index, which is expected to approximate the total return of the Vanguard Total International Stock Index. The notional value of the contract that is linked to the total return on our capital stock was $9 million at July 30, 2017, and $15 million at July 31, 2016. The average forward interest rate applicable to this contract, which expires in April 2018, was 1.82% at July 30, 2017. The notional value of the contract that is linked to the return on the Standard & Poor's 500 Index was $26 million at July 30, 2017, and $22 million at July 31, 2016. The average forward interest rate applicable to this contract, which expires in March 2018, was 1.66% at July 30, 2017. The notional value of the contract that is linked to the total return of the iShares MSCI EAFE Index was $8 million at July 30, 2017, and $7 million at July 31, 2016. The average forward interest rate applicable to this contract, which expires in March 2018, was 1.41% at July 30, 2017. The fair value of these contracts was not material at July 30, 2017, and July 31, 2016.
Our utilization of financial instruments in managing market risk exposures described above is consistent with the prior year. Changes in the portfolio of financial instruments are a function of the results of operations, debt repayment and debt issuances, market effects on debt and foreign currency, and our acquisition and divestiture activities.
SIGNIFICANT ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated Financial Statements for a discussion of significant accounting policies. The following areas all require the use of subjective or complex judgments, estimates and assumptions:
Trade and consumer promotion programs — We offer various sales incentive programs to customers and consumers, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees, and coupons. The mix between promotion programs, which are classified as reductions in revenue, and advertising or other marketing activities, which are classified as marketing and selling expenses, fluctuates between periods based on our overall marketing plans, and such fluctuations have an impact on revenues. The measurement and recognition of the costs for trade and consumer promotion programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors. Typically, programs that are offered have a very short duration. Historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial statements. However, actual expenses may differ if the level of redemption rates and performance were to vary from estimates.
Valuation of long-lived assets — Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if impairment exists. If impairment is determined to exist, the loss is calculated based on estimated fair value.
Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. In January 2017, the FASB issued revised guidance that simplifies the test for goodwill impairment, effective for fiscal years beginning after December 15, 2019, with early adoption

28






permitted. Under the revised guidance, if a reporting unit’s carrying value exceeds its fair value, an impairment charge will be recorded to reduce the reporting unit to fair value. Prior to the revised guidance, the amount of the impairment was the difference between the carrying value of the goodwill and the "implied" fair value, which was calculated as if the reporting unit had just been acquired and accounted for as a business combination.
Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair value is determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average cost of capital, and assumed royalty rates. If the carrying value exceeds fair value, an impairment charge will be recorded to reduce the asset to fair value.
In the fourth quarter of 2015, as part of our annual review of intangible assets, we recognized an impairment charge of $6 million on minor trademarks used in the Global Biscuits and Snacks segment. The trademarks were determined to be impaired as a result of a decrease in the fair value of the brands, resulting from reduced expectations for future sales and discounted cash flows.
In the fourth quarter of 2016, as part of our annual review of intangible assets, we recognized an impairment charge of $106 million on goodwill and $35 million on a trademark within the Bolthouse Farms carrot and carrot ingredients reporting unit, which is included in the Campbell Fresh segment. In 2016, carrot performance primarily reflected the adverse impact of weather conditions on crop yields, and execution issues in response to those conditions, which led to customer dissatisfaction, a loss of business, and higher carrot costs in the second half of the year. The impairment was attributable to a decline in profitability in the second half of 2016 and a revised outlook for the business, with reduced expectations for sales, operating margins, and discounted cash flows.
During the second quarter of 2017, sales and operating profit performance for Bolthouse Farms carrot and carrot ingredients were well below our revised expectations due to difficulty with regaining market share lost during 2016 and higher carrot costs from the adverse impact of heavy rains on crop yields. During the quarter, we also lowered our forecast for sales and earnings for the reporting unit for the second half of 2017 based on revised market share recovery expectations and the continuing effect of unusual weather conditions on carrot costs. In addition, as part of a strategic review initiated by a new leadership team of Campbell Fresh during the second quarter, we decided to reduce emphasis on growing sales of carrot ingredients, which are a by-product of the manufacturing process, and to manage carrots sold at retail for modest sales growth consistent with the category while improving profitability. Accordingly, we reduced our expectations for recovery of retail carrot market share. As a consequence of current-year performance and the strategic review, we lowered our sales outlook for future fiscal years.We also lowered our average margin expectations due in part to cost volatility, which has been higher than expected. Based upon the business performance in the second quarter of 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted cash flows, we performed an interim impairment assessment as of December 31, 2016, which resulted in a $127 million impairment charge on goodwill and $20 million on a trademark in the reporting unit. The updated cash flow projections include expectations that operating margins will improve from reduced levels in 2016 and 2017. We performed our annual review of intangible assets in the fourth quarter. Our long-term outlook for the business is consistent with the second quarter assessment. We will continue to monitor the performance of the business.
We acquired Garden Fresh Gourmet on June 29, 2015. During 2017, sales and operating profit performance for Garden Fresh Gourmet, which is a reporting unit within the Campbell Fresh segment, were well below expectations, and we lowered our outlook for the second half of 2017 due to customer losses and failure to meet product distribution goals. We expected to expand distribution of salsa beyond our concentration in the Midwest region, however this proved to be challenging as differentiated recipes are required to meet taste profiles in other parts of the country. In addition, as part of a strategic review initiated by a new leadership team of Campbell Fresh during the second quarter, we lowered our distribution and category growth expectations and, therefore, future sales outlook. Based upon the business performance in 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted cash flows, we performed an interim impairment assessment as of December 31, 2016, which resulted in a $64 million impairment charge on goodwill and $1 million on a trademark in the reporting unit. The updated cash flow projections include expectations that we will build distribution in the U.S., operating margins will expand partly driven by the benefits from further integration, and sales growth rates will exceed the company's overall sales growth rates. We performed our annual review of intangible assets in the fourth quarter. Our long-term outlook for the business is consistent with the second quarter assessment. We will continue to monitor the performance of the business.
During the third quarter of 2017, we reduced our expectations for 2017 Bolthouse Farms refrigerated beverages and salad dressings sales performance, principally due to constrained production capacity related to the voluntary recall of Bolthouse Farms Protein PLUS drinks in the fourth quarter of 2016. Consistent with the strategic review conducted during the second quarter, we expect that the rate of future sales growth will be above the company's overall sales growth but from a lower base in 2017. We continue to focus on improving profitability by pursuing various supply chain initiatives. While we did not believe that an interim impairment assessment was required, we performed a sensitivity analysis for the Bolthouse Farms refrigerated beverages and salad dressings trademark and goodwill as of the third quarter. We concluded that the trademark and reporting unit had risk of decreasing coverage. We performed our annual review of intangible assets in the fourth quarter, which indicated the fair value of the reporting unit and the trademark exceeded the respective carrying values by less than 10%. The carrying value of the goodwill in the reporting unit was $384 million at July 30, 2017. The carrying value of the trademark related to the Bolthouse Farms

29






refrigerated beverages and salad dressings reporting unit was $280 million at July 30, 2017. We will continue to monitor the performance of the business.
The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions, and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance, and economic conditions.
As of July 30, 2017, the carrying value of goodwill was $2.115 billion, of which $75 million related to the Bolthouse Farms carrot and carrot ingredients reporting unit and $52 million related to the Garden Fresh Gourmet reporting unit, each of which approximates fair value as a result of the impairment charges in 2017. Goodwill related to the Bolthouse Farms refrigerated beverages and salad dressings reporting unit was $384 million as of July 30, 2017. For the reporting units which comprised substantially all of the remaining goodwill, the estimated fair value of each reporting unit exceeded the carrying value by at least 30% as of the 2017 measurement. Excluding the Bolthouse Farms carrot and carrot ingredients reporting unit, the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, and the Garden Fresh Gourmet reporting unit, holding all other assumptions used in the 2017 fair value measurement constant, a 1% increase in the weighted-average cost of capital assumption for our other reporting units would not result in any material impairment.
Holding all other assumptions used in the 2017 fair value measurement constant, changes in the assumptions below would reduce fair value of the three reporting units and result in impairment charges of approximately:
(Millions)
 
Bolthouse Farms Carrot and Carrot Ingredients
 
Bolthouse Farms Refrigerated Beverages and Salad Dressings
 
Garden Fresh Gourmet
1% increase in the weighted-average cost of capital
 
$
(50
)
 
$
(110
)
 
$
(25
)
1% reduction in revenue growth
 
$
(25
)
 
$
(30
)
 
$
(10
)
1% reduction in EBITDA* margin
 
$
(40
)
 
$
(20
)
 
$
(5
)
_________________________________________
* 
Earnings before interest, taxes, depreciation and amortization.
If assumptions are not achieved or market conditions decline, potential additional impairment charges could result.
As of July 30, 2017, the carrying value of indefinite-lived trademarks was $912 million, of which $48 million related to the Bolthouse Farms carrot and carrot ingredients reporting unit, $280 million related to the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, and $37 million related to the Garden Fresh Gourmet reporting unit. Holding all other assumptions used in the 2017 fair value measurement constant, changes in the weighted-average cost of capital assumption would reduce fair value of the trademarks and result in impairment charges of approximately:
(Millions)
 
Bolthouse Farms Carrot and Carrot Ingredients
 
Bolthouse Farms Refrigerated Beverages and Salad Dressings
 
Garden Fresh Gourmet
1% increase in the weighted-average cost of capital
 
$
(5
)
 
$
(30
)
 
$
(5
)
Holding all other assumptions used in the 2017 fair value measurement constant, a 1% reduction in the revenue growth assumption would not result in any material impairment on these trademarks.
The carrying value of the Pace trademark was $292 million as of July 30, 2017, and the estimated fair value exceeded the carrying value by less than 10%. Holding all other assumptions used in the 2017 fair value measurement of the Pace trademark constant, a 1% increase in the weighted-average cost of capital assumption would result in an impairment charge of approximately $30 million, and a 1% reduction in the revenue growth assumption would result in an impairment charge of approximately $10 million.
For all of our other trademarks, holding all other assumptions used in the 2017 fair value measurement constant, neither a 1% increase in the weighted-average cost of capital assumption nor a 1% reduction in the revenue growth assumption would result in any material impairment.
If assumptions are not achieved or market conditions decline, potential additional impairment charges could result.
See also Note 5 to the Consolidated Financial Statements for additional information on goodwill and intangible assets.

30






Pension and postretirement benefits — We provide certain pension and postretirement benefits to employees and retirees. Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, turnover rates and health care trend rates. Independent actuaries, in accordance with accounting principles generally accepted in the United States, perform the required calculations to determine expense.
The discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent actuaries apply high-quality bond yield curves to the expected benefit payments of the plans. Beginning in 2018, we will change the method we use to estimate the service and interest cost components of the net periodic benefit expense. We will use a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation of the relevant projected cash flows. Previously, we estimated service cost and interest cost using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We are making this change to provide a more precise measurement of service cost and interest cost by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. This change will not affect the measurement of our benefit obligations. We will account for this change prospectively in 2018 as a change in accounting estimate.
The expected return on plan assets is a long-term assumption based upon historical experience and expected future performance, considering our current and projected investment mix. This estimate is based on an estimate of future inflation, long-term projected real returns for each asset class, and a premium for active management. Within any given fiscal period, significant differences may arise between the actual return and the expected return on plan assets. Gains and losses resulting from differences between actual experience and the assumptions are determined at each measurement date.
Net periodic pension and postretirement expense (income) was $(258) million in 2017, $317 million in 2016 and $125 million in 2015.
Significant weighted-average assumptions as of the end of the year were as follows:
 
2017
 
2016
 
2015
Pension
 
 
 
 
 
Discount rate for benefit obligations
3.74%
 
3.39%
 
4.19%
Expected return on plan assets
6.84%
 
7.09%
 
7.35%
Postretirement
 
 
 
 
 
Discount rate for obligations
3.45%
 
3.20%
 
4.00%
Initial health care trend rate
7.25%
 
7.25%
 
7.75%
Ultimate health care trend rate
4.50%
 
4.50%
 
4.50%
Estimated sensitivities to annual net periodic pension cost are as follows: a 50-basis-point decline in the discount rate would decrease expense by approximately $7 million and would result in an immediate loss recognition of approximately $135 million. A 50-basis-point reduction in the estimated return on assets assumption would increase expense by approximately $11 million. A one-percentage-point increase in assumed health care costs would have no impact on postretirement service and interest cost and would result in an immediate loss recognition of $3 million.
No contributions were made to U.S. pension plans in 2017, 2016 and 2015. Contributions to non-U.S. plans were $5 million in 2017, $2 million in 2016 and $5 million in 2015. We do not expect to contribute to the U.S. pension plans in 2018. Contributions to non-U.S. plans are expected to be approximately $5 million in 2018.
See also Note 10 to the Consolidated Financial Statements for additional information on pension and postretirement benefits.
Income taxes — The effective tax rate reflects statutory tax rates, tax planning opportunities available in the various jurisdictions in which we operate and management’s estimate of the ultimate outcome of various tax audits and issues. Significant judgment is required in determining the effective tax rate and in evaluating tax positions. Income taxes are recorded based on amounts refundable or payable in the current year and include the effect of deferred taxes. Deferred tax assets and liabilities are recognized for the future impact of differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. Valuation allowances are established for deferred tax assets when it is more likely than not that a tax benefit will not be realized.
See also Notes 1 and 11 to the Consolidated Financial Statements for further discussion on income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for information on recent accounting pronouncements.

31






CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations regarding our future results of operations, economic performance, financial condition and achievements. These forward-looking statements can be identified by words such as "anticipate," "believe," "estimate," "expect," "will," "goal," and similar expressions. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements reflect our current plans and expectations and are based on information currently available to us. They rely on several assumptions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties.
We wish to caution the reader that the following important factors and those important factors described in Part 1, Item 1A and elsewhere in this Report, or in our other Securities and Exchange Commission filings, could affect our actual results and could cause such results to vary materially from those expressed in any forward-looking statements made by, or on behalf of, us:
changes in consumer demand for our products and favorable perception of our brands;
the risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products and pricing and promotional strategies;
the impact of strong competitive response to our efforts to leverage our brand power with product innovation, promotional programs and new advertising;
changing inventory management practices by certain of our key customers;
a changing customer landscape, with value and e-commerce retailers expanding their market presence, while certain of our key customers continue to increase their significance to our business;
our ability to realize projected cost savings and benefits from our efficiency and/or restructuring initiatives;
our ability to manage changes to our organizational structure and/or business processes, including our selling, distribution, manufacturing and information management systems or processes;
product quality and safety issues, including recalls and product liabilities;
the ability to complete and to realize the projected benefits of acquisitions, divestitures and other business portfolio changes;
disruptions to our supply chain, including fluctuations in the supply of and inflation in energy and raw and packaging materials cost;
the uncertainties of litigation and regulatory actions against us;
the possible disruption to the independent contractor distribution models used by certain of our businesses, including as a result of litigation or regulatory actions affecting their independent contractor classification;
the impact of non-U.S. operations, including export and import restrictions, public corruption and compliance with foreign laws and regulations;
impairment to goodwill or other intangible assets;
our ability to protect our intellectual property rights;
increased liabilities and costs related to our defined benefit pension plans;
a material failure in or breach of our information technology systems;
our ability to attract and retain key talent;
changes in currency exchange rates, tax rates, interest rates, debt and equity markets, inflation rates, economic conditions, law, regulation and other external factors; and
unforeseen business disruptions in one or more of our markets due to political instability, civil disobedience, terrorism, armed hostilities, extreme weather conditions, natural disasters or other calamities.
This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact our outlook. We disclaim any obligation or intent to update forward-looking statements made by us in order to reflect new information, events or circumstances after the date they are made.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The information presented in the section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Sensitivity" is incorporated herein by reference.

32






Item 8. Financial Statements and Supplementary Data

CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(millions, except per share amounts)
 
 
2017
 
2016
 
2015
Net sales
$
7,890

 
$
7,961

 
$
8,082

Costs and expenses
 
 
 
 
 
Cost of products sold
4,831

 
5,181

 
5,300

Marketing and selling expenses
817

 
893

 
884

Administrative expenses
488

 
641

 
601

Research and development expenses
98

 
124

 
117

Other expenses / (income)
238

 
131

 
24

Restructuring charges
18

 
31

 
102

Total costs and expenses
6,490

 
7,001

 
7,028

Earnings before interest and taxes
1,400

 
960

 
1,054

Interest expense
112

 
115

 
108

Interest income
5

 
4

 
3

Earnings before taxes
1,293

 
849

 
949

Taxes on earnings
406

 
286

 
283

Net earnings
887

 
563

 
666

Less: Net earnings (loss) attributable to noncontrolling interests

 

 

Net earnings attributable to Campbell Soup Company
$
887

 
$
563

 
$
666

Per Share — Basic
 
 
 
 
 
Net earnings attributable to Campbell Soup Company
$
2.91

 
$
1.82

 
$
2.13

Weighted average shares outstanding — basic
305

 
309

 
312

Per Share — Assuming Dilution
 
 
 
 
 
Net earnings attributable to Campbell Soup Company
$
2.89

 
$
1.81

 
$
2.13

Weighted average shares outstanding — assuming dilution
307

 
311

 
313

See accompanying Notes to Consolidated Financial Statements.



33






CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(millions)
 
2017
 
2016
 
2015
 
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
 
 
 
 
$
887

 
 
 
 
 
$
563

 
 
 
 
 
$
666

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
40

 
$

 
40

 
$
45

 
$

 
45

 
$
(312
)
 
$
1

 
(311
)
Cash-flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during period
19

 
(7
)
 
12

 
(45
)
 
16

 
(29
)
 
(5
)
 
3

 
(2
)
Reclassification adjustment for (gains) losses included in net earnings
11

 
(4
)
 
7

 
(9
)
 
2

 
(7
)
 
(1
)
 
1

 

Pension and other postretirement benefits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service credit arising during the period
12

 
(4
)
 
8

 
93

 
(34
)
 
59

 

 

 

Reclassification of prior service credit included in net earnings
(25
)
 
9

 
(16
)
 
(1
)
 

 
(1
)
 
(2
)
 
1

 
(1
)
Other comprehensive income (loss)
$
57

 
$
(6
)
 
51

 
$
83

 
$
(16
)
 
67

 
$
(320
)
 
$
6

 
(314
)
Total comprehensive income (loss)
 
 
 
 
$
938

 
 
 
 
 
$
630

 
 
 
 
 
$
352

Total comprehensive income (loss) attributable to noncontrolling interests
 
 
 
 

 
 
 
 
 
3

 
 
 
 
 
(1
)
Total comprehensive income (loss) attributable to Campbell Soup Company
 
 
 
 
$
938

 
 
 
 
 
$
627

 
 
 
 
 
$
353

See accompanying Notes to Consolidated Financial Statements.

34






CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(millions, except per share amounts)
 
July 30,
2017
 
July 31,
2016
Current assets
 
 
 
Cash and cash equivalents
$
319

 
$
296

Accounts receivable, net
605

 
626

Inventories
902

 
940

Other current assets
74

 
46

Total current assets
1,900

 
1,908

Plant assets, net of depreciation
2,454

 
2,407

Goodwill
2,115

 
2,263

Other intangible assets, net of amortization
1,118

 
1,152

Other assets ($51 as of 2017 and $34 as of 2016 attributable to variable interest entity)
139

 
107

Total assets
$
7,726

 
$
7,837

Current liabilities
 
 
 
Short-term borrowings
$
1,037

 
$
1,219

Payable to suppliers and others
666

 
610

Accrued liabilities
561

 
604

Dividends payable
111

 
100

Accrued income taxes
20

 
22

Total current liabilities
2,395

 
2,555

Long-term debt
2,499

 
2,314

Deferred taxes
490

 
396

Other liabilities
697

 
1,039

Total liabilities
6,081

 
6,304

Commitments and contingencies

 

Campbell Soup Company shareholders' equity
 
 
 
Preferred stock; authorized 40 shares; none issued

 

Capital stock, $.0375 par value; authorized 560 shares; issued 323 shares
12

 
12

Additional paid-in capital
359