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EX-10.B - EXHIBIT 10.B - CAMPBELL SOUP COcpb-4292018x10xqxexb10b.htm
EX-10.A - EXHIBIT 10.A - CAMPBELL SOUP COcpb-4292018x10xqxexb10a.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
 
 
 
Commission File Number
April 29, 2018
 
 
 
1-3822
cpblogoa06.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

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 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

There were 300,645,629 shares of capital stock outstanding as of May 31, 2018.








TABLE OF CONTENTS




2






PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(unaudited)
(millions, except per share amounts)
 
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2018
 
April 30,
2017
 
April 29,
2018
 
April 30,
2017
Net sales
$
2,125

 
$
1,853

 
$
6,466

 
$
6,226

Costs and expenses
 
 
 
 
 
 
 
Cost of products sold
1,507

 
1,188

 
4,299

 
3,899

Marketing and selling expenses
232

 
212

 
679

 
682

Administrative expenses
163

 
142

 
477

 
408

Research and development expenses
27

 
28

 
84

 
80

Other expenses / (income)
647

 
(15
)
 
688

 
197

Restructuring charges
24

 

 
59

 

Total costs and expenses
2,600

 
1,555

 
6,286

 
5,266

Earnings (loss) before interest and taxes
(475
)
 
298

 
180

 
960

Interest expense
44

 
29

 
107

 
87

Interest income
2

 
1

 
3

 
3

Earnings (loss) before taxes
(517
)
 
270

 
76

 
876

Taxes on earnings
(124
)
 
94

 
(91
)
 
307

Net earnings (loss)
(393
)
 
176

 
167

 
569

Less: Net earnings (loss) attributable to noncontrolling interests

 

 

 

Net earnings (loss) attributable to Campbell Soup Company
$
(393
)
 
$
176

 
$
167

 
$
569

Per Share — Basic
 
 
 
 
 
 
 
Net earnings (loss) attributable to Campbell Soup Company
$
(1.31
)
 
$
.58

 
$
.55

 
$
1.86

Dividends
$
.35

 
$
.35

 
$
1.05

 
$
1.05

Weighted average shares outstanding — basic
301

 
304

 
301

 
306

Per Share — Assuming Dilution
 
 
 
 
 
 
 
Net earnings attributable to Campbell Soup Company
$
(1.31
)
 
$
.58

 
$
.55

 
$
1.85

Weighted average shares outstanding — assuming dilution
301

 
306

 
302

 
308

See accompanying Notes to Consolidated Financial Statements.



3






CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(unaudited)
(millions)
 
Three Months Ended
 
April 29, 2018
 
April 30, 2017
 
Pre-tax amount
 
Tax (expense) benefit
 
After-tax amount
 
Pre-tax amount
 
Tax (expense) benefit
 
After-tax amount
Net earnings (loss)
 
 
 
 
$
(393
)
 
 
 
 
 
$
176

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(59
)
 
$

 
(59
)
 
$
(4
)
 
$

 
(4
)
Cash-flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
11

 
(3
)
 
8

 
2

 

 
2

Reclassification adjustment for (gains) losses included in net earnings
1

 

 
1

 
2

 
(1
)
 
1

Pension and other postretirement benefits:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost arising during the period
1

 
(1
)
 

 

 

 

Reclassification of prior service credit included in net earnings
(7
)
 
2

 
(5
)
 
(5
)
 
1

 
(4
)
Other comprehensive income (loss)
$
(53
)
 
$
(2
)
 
(55
)
 
$
(5
)
 
$

 
(5
)
Total comprehensive income (loss)
 
 
 
 
$
(448
)
 
 
 
 
 
$
171

Total comprehensive income (loss) attributable to noncontrolling interests
 
 
 
 

 
 
 
 
 

Total comprehensive income (loss) attributable to Campbell Soup Company
 
 
 
 
$
(448
)
 
 
 
 
 
$
171

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
April 29, 2018
 
April 30, 2017
 
Pre-tax amount
 
Tax (expense) benefit
 
After-tax amount
 
Pre-tax amount
 
Tax (expense) benefit
 
After-tax amount
Net earnings (loss)
 
 
 
 
$
167

 
 
 
 
 
$
569

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(25
)
 
$

 
(25
)
 
$
(28
)
 
$

 
(28
)
Cash-flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
22

 
(7
)
 
15

 
32

 
(11
)
 
21

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

 

 
2

 
9

 
(3
)
 
6

Pension and other postretirement benefits:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost arising during the period
(2
)
 

 
(2
)
 

 

 

Reclassification of prior service credit included in net earnings
(20
)
 
6

 
(14
)
 
(18
)
 
6

 
(12
)
Other comprehensive income (loss)
$
(23
)
 
$
(1
)
 
(24
)
 
$
(5
)
 
$
(8
)
 
(13
)
Total comprehensive income (loss)
 
 
 
 
$
143

 
 
 
 
 
$
556

Total comprehensive income (loss) attributable to noncontrolling interests
 
 
 
 
(1
)
 
 
 
 
 
1

Total comprehensive income (loss) attributable to Campbell Soup Company
 
 
 
 
$
144

 
 
 
 
 
$
555

See accompanying Notes to Consolidated Financial Statements.

4






CAMPBELL SOUP COMPANY
Consolidated Balance Sheets
(unaudited)
(millions, except per share amounts)
 
April 29,
2018
 
July 30,
2017
Current assets
 
 
 
Cash and cash equivalents
$
199

 
$
319

Accounts receivable, net
873

 
605

Inventories
1,076

 
902

Other current assets
181

 
74

Total current assets
2,329

 
1,900

Plant assets, net of depreciation
3,174

 
2,454

Goodwill
4,608

 
2,115

Other intangible assets, net of amortization
4,273

 
1,118

Other assets ($69 as of 2018 and $51 as of 2017 attributable to variable interest entity)
182

 
139

Total assets
$
14,566

 
$
7,726

Current liabilities
 
 
 
Short-term borrowings
$
1,763

 
$
1,037

Payable to suppliers and others
848

 
666

Accrued liabilities
671

 
561

Dividends payable
107

 
111

Accrued income taxes
14

 
20

Total current liabilities
3,403

 
2,395

Long-term debt
8,080

 
2,499

Deferred taxes
936

 
490

Other liabilities
736

 
697

Total liabilities
13,155

 
6,081

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
336

 
359

Earnings retained in the business
2,236

 
2,385

Capital stock in treasury, at cost
(1,104
)
 
(1,066
)
Accumulated other comprehensive loss
(76
)
 
(53
)
Total Campbell Soup Company shareholders' equity
1,404

 
1,637

Noncontrolling interests
7

 
8

Total equity
1,411

 
1,645

Total liabilities and equity
$
14,566

 
$
7,726

See accompanying Notes to Consolidated Financial Statements.


5






CAMPBELL SOUP COMPANY
Consolidated Statements of Cash Flows
(unaudited)
(millions)
 
Nine Months Ended
 
April 29,
2018
 
April 30,
2017
Cash flows from operating activities:
 
 
 
Net earnings
$
167

 
$
569

Adjustments to reconcile net earnings to operating cash flow
 
 
 
Impairment charges
694

 
212

Restructuring charges
59

 

Stock-based compensation
48

 
48

Noncurrent income taxes
52

 

Amortization of inventory fair value adjustment from acquisition
37

 

Pension and postretirement benefit income
(48
)
 
(35
)
Depreciation and amortization
266

 
234

Deferred income taxes
(192
)
 
11

Other, net
10

 
15

Changes in working capital, net of acquisitions
 
 
 
Accounts receivable
(18
)
 
1

Inventories
50

 
144

Prepaid assets
(84
)
 
(20
)
Accounts payable and accrued liabilities
26

 
(116
)
Other
(43
)
 
(52
)
Net cash provided by operating activities
1,024

 
1,011

Cash flows from investing activities:
 
 
 
Purchases of plant assets
(223
)
 
(195
)
Purchases of route businesses
(5
)
 

Sales of route businesses
5

 

Businesses acquired, net of cash acquired
(6,773
)
 

Other, net
(12
)
 
(14
)
Net cash used in investing activities
(7,008
)
 
(209
)
Cash flows from financing activities:
 
 
 
Net short-term borrowings (repayments)
234

 
(66
)
Long-term borrowings
6,200

 

Long-term repayments
(43
)
 
(76
)
Dividends paid
(321
)
 
(314
)
Treasury stock purchases
(86
)
 
(305
)
Treasury stock issuances

 
2

Payments related to tax withholding for stock-based compensation
(23
)
 
(21
)
Repurchase of noncontrolling interest
(47
)
 

Payments of debt issuance costs
(49
)
 

Net cash provided by (used in) financing activities
5,865

 
(780
)
Effect of exchange rate changes on cash
(1
)
 
(5
)
Net change in cash and cash equivalents
(120
)
 
17

Cash and cash equivalents — beginning of period
319

 
296

Cash and cash equivalents — end of period
$
199

 
$
313

See accompanying Notes to Consolidated Financial Statements.

6






CAMPBELL SOUP COMPANY
Consolidated Statements of Equity
(unaudited)
(millions, except per share amounts)
 
Campbell Soup Company Shareholders’ Equity
 
 
 
 
 
Capital Stock
 
Additional Paid-in
Capital
 
Earnings Retained in the
Business
 
Accumulated Other Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
 
 
Issued
 
In Treasury
 
 
 
 
 
Total
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance at July 31, 2016
323

 
$
12

 
(15
)
 
$
(664
)
 
$
354

 
$
1,927

 
$
(104
)
 
$
8

 
$
1,533

Net earnings (loss)

 

 

 

 

 
569

 

 

 
569

Other comprehensive income (loss)

 

 

 

 

 

 
(14
)
 
1

 
(13
)
Dividends ($1.05 per share)

 

 

 

 

 
(323
)
 

 

 
(323
)
Treasury stock purchased

 

 
(5
)
 
(305
)
 

 

 

 

 
(305
)
Treasury stock issued under management incentive and stock option plans
 
 
 
 
1

 
35

 
(6
)
 

 

 

 
29

Balance at April 30, 2017
323

 
$
12

 
(19
)
 
$
(934
)
 
$
348

 
$
2,173

 
$
(118
)
 
$
9

 
$
1,490

Balance at July 30, 2017
323

 
$
12

 
(22
)
 
$
(1,066
)
 
$
359

 
$
2,385

 
$
(53
)
 
$
8

 
$
1,645

Noncontrolling interest acquired
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47

 
47

Repurchase of noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(47
)
 
(47
)
Net earnings (loss)

 

 

 

 

 
167

 

 

 
167

Other comprehensive income (loss)

 

 

 

 

 

 
(23
)
 
(1
)
 
(24
)
Dividends ($1.05 per share)

 

 

 

 

 
(316
)
 

 

 
(316
)
Treasury stock purchased

 

 
(2
)
 
(86
)
 

 

 

 

 
(86
)
Treasury stock issued under management incentive and stock option plans


 


 
2

 
48

 
(23
)
 


 


 

 
25

Balance at April 29, 2018
323

 
$
12

 
(22
)
 
$
(1,104
)
 
$
336

 
$
2,236

 
$
(76
)
 
$
7

 
$
1,411

See accompanying Notes to Consolidated Financial Statements.

7






Notes to Consolidated Financial Statements
(unaudited)
(currency in millions, except per share amounts)
1.
Basis of Presentation and Significant Accounting Policies
In this Form 10-Q, unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
The consolidated financial statements include our accounts and entities in which we maintain a controlling financial interest and a variable interest entity (VIE) for which we are the primary beneficiary. Intercompany transactions are eliminated in consolidation. Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation.
The financial statements reflect all adjustments which are, in our opinion, necessary for a fair statement of the results of operations, financial position, and cash flows for the indicated periods. The accounting policies we used in preparing these financial statements are substantially consistent with those we applied in our Annual Report on Form 10-K for the year ended July 30, 2017, except as described in Note 2.
The results for the period are not necessarily indicative of the results to be expected for other interim periods or the full year. Our fiscal year ends on the Sunday nearest July 31.
2.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued revised guidance on the recognition of revenue from contracts with customers. The guidance is designed to create greater comparability for financial statement users across industries and jurisdictions. The guidance also requires enhanced disclosures. The guidance was originally effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. In July 2015, the FASB decided to delay the effective date of the new revenue guidance by one year to fiscal years, and interim periods within those years, beginning after December 15, 2017. Entities will be permitted to adopt the new revenue standard early, but not before the original effective date. The guidance permits the use of either a full retrospective or modified retrospective transition method. We have substantially completed the diagnostic review of our arrangements with customers across our significant businesses, including our practices of offering rebates, refunds, discounts and other price allowances, and trade and consumer promotion programs. As we evaluate our methods of estimating the amount and timing of these various forms of variable consideration, we expect to accelerate the expense recognition of certain trade and consumer promotion programs. However, based on our assessment to date, the impact is not expected to be material on an annual basis. We are continuing to evaluate the impact that the new guidance will have on our consolidated financial statements. We expect to use the modified retrospective method when we adopt the new guidance in 2019.
In January 2016, the FASB issued guidance that amends the recognition and measurement of financial instruments. The changes primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments in unconsolidated entities that are not accounted for under the equity method will generally be measured at fair value through earnings. When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In February 2016, the FASB issued guidance that amends accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities for most leases but will recognize expenses similar to current lease accounting. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In August 2016, the FASB issued guidance on the classification of certain cash receipts and payments in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The guidance must be applied retrospectively to all periods presented but may be applied prospectively if retrospective application would be impracticable. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In October 2016, the FASB issued guidance on tax accounting for intra-entity asset transfers. Under current guidance, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recognized. The new guidance requires companies to account for the income tax effects on intercompany transfers of assets other than inventory when the transfer occurs. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted in the first interim period of a fiscal year. The modified retrospective

8






approach is required upon adoption, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In January 2017, the FASB issued guidance that revises the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If it is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. We will prospectively apply the guidance to applicable transactions.
In March 2017, the FASB issued guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. Under the revised guidance, the service cost component of benefit cost is classified in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost (such as interest expense, return on assets, amortization of prior service credit, actuarial gains and losses, settlements and curtailments) are required to be presented in the income statement separately from the service cost component. The guidance also allows only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory). The guidance should be applied retrospectively for the presentation of the service cost component and the other components of benefit cost in the income statement, and applied prospectively on and after the effective date for the capitalization of the service cost component. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. We elected to early adopt the guidance in the first quarter of 2018. The retrospective impact of presenting net periodic benefit cost in accordance with the new guidance is as follows:
 
 
Three Months Ended
 
Nine Months Ended
 Increase / (decrease) in expense
 
April 30,
2017
 
April 30,
2017
Cost of products sold
 
$
13

 
$
17

Marketing and selling expenses
 
$
3

 
$
8

Administrative expenses
 
$
2

 
$
6

Research and development expenses
 
$
1

 
$
2

Other expenses / (income)
 
$
(19
)
 
$
(33
)
In May 2017, the FASB issued guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, modification accounting is required only if the value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for fiscal years beginning after December 15, 2017. Early adoption is permitted. We will apply the guidance in evaluating future changes to terms or conditions of share-based payment awards.
In August 2017, the FASB issued guidance that amends hedge accounting. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. The new guidance amends presentation and disclosure requirements, and how effectiveness is assessed. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In February 2018, the FASB issued guidance that provides entities an option to reclassify the tax effects of the Tax Cuts and Jobs Act of 2017 on items within accumulated other comprehensive income to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Entities are able to early adopt the guidance in any interim or annual period for which financial statements have not yet been issued and apply it either in the period of adoption or retrospectively to each period in which the tax effects of the Tax Cuts and Jobs Act of 2017 related to items in accumulated other comprehensive income are recognized. New disclosures are required regardless of whether an entity elects to reclassify the tax effects. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
3.
Acquisitions
On March 26, 2018, we completed the acquisition of Snyder's-Lance, Inc. (Snyder's-Lance) for $50.00 per share. Total consideration was $6,112, which included the payoff of approximately $1,100 of Snyder's-Lance indebtedness. The acquisition was financed through a single draw 3-year senior unsecured term loan facility and the issuance of senior notes. See Note 12 for additional information. Snyder's-Lance is a snack food company that manufactures, distributes, markets and sells snack food products in North America and Europe. Its primary brands include Snyder’s of Hanover and Lance, as well as Kettle Brand, KETTLE Chips, Cape CodSnack Factory Pretzel CrispsPop Secret, Emerald and Late July.

9






The excess of the purchase price over the estimated fair values of identifiable net assets was recorded as $2,867 of goodwill. The goodwill is not deductible for tax purposes. The goodwill was primarily attributable to future growth opportunities, anticipated synergies, and intangible assets that did not qualify for separate recognition. The goodwill is included in the Global Biscuits and Snacks segment.
On December 12, 2017, we completed the acquisition of Pacific Foods of Oregon, LLC (Pacific Foods) for $689, subject to customary post-closing adjustments. Pacific Foods produces broth, soups, non-dairy beverages and other simple meals. The excess of the purchase price over the estimated fair values of identifiable net assets was recorded as $202 of goodwill. The goodwill is deductible for tax purposes. The goodwill was primarily attributable to future growth opportunities, anticipated synergies, and intangible assets that did not qualify for separate recognition. The goodwill is included in the Americas Simple Meals and Beverages segment.
The acquired assets and assumed liabilities include the following:
 
 
Snyder's-Lance
 
Pacific Foods
Cash
 
$
21

 
$
7

Accounts receivable
 
220

 
16

Inventories
 
219

 
50

Other current assets
 
35

 
1

Plant assets
 
699

 
78

Goodwill
 
2,867

 
202

Other intangible assets
 
2,947

 
366

Other assets
 
61

 

Short-term debt
 
(1
)
 

Accounts payable
 
(124
)
 
(25
)
Accrued liabilities
 
(116
)
 
(6
)
Deferred income taxes
 
(637
)
 

Other liabilities
 
(32
)
 

Noncontrolling interest
 
(47
)
 

Total assets acquired and liabilities assumed
 
$
6,112

 
$
689

The identifiable intangible assets of Snyder's-Lance consist of:
 
 
Type
 
Life in Years
 
Value
Trademarks
 
Non-amortizable
 
Indefinite
 
$
2,131

Customer relationships
 
Amortizable
 
15
to
22
 
808

Other
 
Amortizable
 
1.5
 
8

Total identifiable intangible assets
 
 
 
 
 
 
 
$
2,947

The identifiable intangible assets of Pacific Foods consist of $280 in non-amortizable trademarks, and $86 in customer relationships to be amortized over 20 years.
The purchase price allocations are preliminary and are subject to the finalization of valuations, which will be completed within the allowable measurement period.
For the three- and nine-month periods ended April 29, 2018, the contribution of the Pacific Foods acquisition to Net sales was $55 and $83, respectively. The contribution to Net earnings was not material.
We recognized transaction costs and integration costs of $64 and $88, associated with the Snyder's-Lance acquisition in the three- and nine-month periods ended April 29, 2018, respectively. Approximately $29 in the three-month period and $53 in the nine-month period represented transactions costs, including bridge financing costs and outside advisory costs, and were recorded in Other expenses / (income). Integration costs in the three- and nine-month periods included the following:
amortization of most of the acquisition date fair value adjustment to inventories of $37 that was recorded in Cost of products sold;
$10 of Restructuring charges;
$6 of Administrative expenses; and

10






$18 gain in Interest expense on treasury rate lock contracts used to hedge the planned financing of the acquisition.
For the three- and nine-month periods ended April 29, 2018, the contribution of the Snyder's-Lance acquisition to Net sales was $207. The contribution to Net earnings (loss) was a loss of $52 for the three-month period ended April 29, 2018, including the effect of the transaction and integration costs, and interest expense on the debt to finance the acquisition.
The following unaudited summary information is presented on a consolidated pro forma basis as if the Snyder's-Lance and Pacific Foods acquisitions had occurred on August 1, 2016:
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2018
 
April 30,
2017
 
April 29,
2018
 
April 30,
2017
Net sales
$
2,448

 
$
2,435

 
$
8,003

 
$
8,042

Net earnings (loss) attributable to Campbell Soup Company
$
(368
)
 
$
151

 
$
272

 
$
468

Net earnings (loss) per share attributable to Campbell Soup Company - basic
$
(1.22
)
 
$
0.50

 
$
0.90

 
$
1.53

Net earnings per share attributable to Campbell Soup Company - assuming dilution
$
(1.22
)
 
$
0.49

 
$
0.90

 
$
1.52

The pro forma amounts include additional interest expense on the debt issued to finance the purchases, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and plant assets, and related tax effects. The pro forma results are not necessarily indicative of the combined results had the Snyder's-Lance and Pacific Foods acquisitions been completed on August 1, 2016, nor are they indicative of future combined results. The pro forma results for 2017 include pre-tax transaction costs of $53, pre-tax amortization of the acquisition date fair value adjustment to inventories of $42 (of which $37 was recognized as of the third quarter 2018), and a pre-tax gain of $18 on treasury rate lock contracts. Therefore, the pro forma results for 2018 exclude these items, as they are reflected in 2017.
4.
Accumulated Other Comprehensive Income (Loss)
The components of Accumulated other comprehensive income (loss) consisted of the following:
 
 
Foreign Currency Translation Adjustments(1)
 
Gains (Losses) on Cash Flow Hedges(2)
 
Pension and Postretirement Benefit Plan Adjustments(3)
 
Total Accumulated Comprehensive Income (Loss)
Balance at July 31, 2016
 
$
(124
)
 
$
(41
)
 
$
61

 
$
(104
)
Other comprehensive income (loss) before reclassifications
 
(29
)
 
21

 

 
(8
)
Amounts reclassified from accumulated other comprehensive income (loss)
 

 
6

 
(12
)
 
(6
)
Net current-period other comprehensive income (loss)
 
(29
)
 
27

 
(12
)
 
(14
)
Balance at April 30, 2017
 
$
(153
)
 
$
(14
)
 
$
49

 
$
(118
)
Balance at July 30, 2017
 
$
(84
)
 
$
(22
)
 
$
53

 
$
(53
)
Other comprehensive income (loss) before reclassifications
 
(24
)
 
15

 
(2
)
 
(11
)
Amounts reclassified from accumulated other comprehensive income (loss)
 

 
2

 
(14
)
 
(12
)
Net current-period other comprehensive income (loss)
 
(24
)
 
17

 
(16
)
 
(23
)
Balance at April 29, 2018
 
$
(108
)
 
$
(5
)
 
$
37

 
$
(76
)
_____________________________________
(1) 
Included a tax expense of $6 as of April 29, 2018, July 30, 2017, April 30, 2017, and July 31, 2016.
(2) 
Included a tax benefit of $5 as of April 29, 2018, $12 as of July 30, 2017, $9 as of April 30, 2017, and $23 as of July 31, 2016.
(3) 
Included a tax expense of $24 as of April 29, 2018, $30 as of July 30, 2017, $29 as of April 30, 2017, and $35 as of July 31, 2016.
Amounts related to noncontrolling interests were not material.

11






The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:
 
 
Three Months Ended
 
Nine Months Ended
 
 
Details about Accumulated Other Comprehensive Income (Loss) Components
 
April 29, 2018
 
April 30, 2017
 
April 29, 2018
 
April 30, 2017
 
Location of (Gain) Loss Recognized in Earnings
(Gains) losses on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
 
$

 
$
1

 
$

 
$
5

 
Cost of products sold
Foreign exchange forward contracts
 

 

 

 
1

 
Other expenses / (income)
Forward starting interest rate swaps
 
1

 
1

 
2

 
3

 
Interest expense
Total before tax
 
1

 
2

 
2

 
9

 
 
Tax expense (benefit)
 

 
(1
)
 

 
(3
)
 
 
(Gain) loss, net of tax
 
$
1

 
$
1

 
$
2

 
$
6

 
 
 
 
 
 
 
 
 
 
 
 
 
Pension and postretirement benefit adjustments:
 
 
 
 
 
 
 
 
 
 
Prior service credit
 
$
(7
)
 
$
(5
)
 
$
(20
)
 
$
(18
)
 
Other expenses / (income)
Tax expense (benefit)
 
2

 
1

 
6

 
6

 
 
(Gain) loss, net of tax
 
$
(5
)
 
$
(4
)
 
$
(14
)
 
$
(12
)
 
 
5.
Goodwill and Intangible Assets
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
 

Americas Simple Meals and Beverages
 
Global
Biscuits
and
Snacks
 
Campbell Fresh
 
Total
Net balance at July 30, 2017(1)
$
780

 
$
795

 
$
540

 
$
2,115

Acquisitions
202

 
2,867

 

 
3,069

Impairment charges

 

 
(540
)
 
(540
)
Foreign currency translation adjustment
(3
)
 
(33
)
 

 
(36
)
Net balance at April 29, 2018(1)
$
979

 
$
3,629

 
$

 
$
4,608

_____________________________________
(1) 
The Campbell Fresh segment includes accumulated impairment charges of $837 as of April 29, 2018, and $297 as of July 30, 2017 related to the Bolthouse Farms carrot and carrot ingredients reporting unit, the deli reporting unit, and the Bolthouse Farms refrigerated beverages and salad dressings reporting unit.
In March 2018, we acquired Snyder's-Lance for $6,112. Goodwill related to the acquisition was $2,867. In addition, we acquired Pacific Foods in December 2017 for $689 and goodwill related to the acquisition was $202. See Note 3 for additional information.
During the third quarter of 2018, we performed an interim impairment assessment on the intangible assets of the deli reporting unit, which includes Garden Fresh Gourmet and the U.S. refrigerated soup business, within Campbell Fresh. During the third quarter of 2018, certain of our private label refrigerated soup customers, which represent a majority of the business, informed us of their intention to in-source production beginning in 2019, and the sales and operating profit outlook of the Garden Fresh Gourmet business was reduced. Due to the anticipated loss of refrigerated soup business with these customers, as well as the recent performance of the Garden Fresh Gourmet business, we revised the long-term outlook for future sales, operating margins and discounted cash flows for this reporting unit, which resulted in an $81 impairment charge, representing a write-down of the remaining goodwill in the reporting unit.
In addition, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms refrigerated beverages and salad dressings reporting unit as the operating performance in the third quarter was below expectations. We assessed sales performance of refrigerated beverages and key drivers impacting gross profit for the unit. We revised our long-term outlook for future earnings and discounted cash flows to reflect reduced sales expectations to modest growth and decreased our gross profit outlook to reflect the inflation and manufacturing efficiency pressures that remain with the unit. This revised outlook resulted in a $384 impairment charge, representing a write-down of the remaining goodwill in the reporting unit.

12






During the second quarter of 2018, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit within Campbell Fresh as operating performance was below expectations. The business was impacted by adverse weather conditions and the implementation of enhanced quality protocols, which impacted crop yields and resulted in higher costs. This cost volatility continued to be higher than expected and caused us to reassess our short- and long-term margin expectations for this business. Based on this performance, we reduced our outlook for future operating margins and discounted cash flows, which resulted in a $75 impairment charge, representing a write-down of the remaining goodwill in the reporting unit.
Intangible Assets
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
Intangible Assets
 
April 29,
2018
 
July 30,
2017
Amortizable intangible assets
 
 
 
 
Customer relationships
 
$
1,117

 
$
223

Technology
 
40

 
40

Other
 
43

 
35

Total gross amortizable intangible assets
 
$
1,200

 
$
298

Accumulated amortization
 
(110
)
 
(92
)
Total net amortizable intangible assets
 
$
1,090

 
$
206

Non-amortizable intangible assets
 
 
 
 
Trademarks
 
3,183

 
912

Total net intangible assets
 
$
4,273

 
$
1,118

Non-amortizable intangible assets consist of trademarks, which include Snyder's of Hanover, Lance, Kettle Brand, Pace, Pacific Foods, Snack Factory, Cape Cod, Bolthouse Farms, Plum, Kjeldsens, and Garden Fresh Gourmet. Other amortizable intangible assets consist of recipes, non-compete agreements, trademarks, patents and distributor relationships.
Amortization of intangible assets was $18 and $15 for the nine-month periods ended April 29, 2018, and April 30, 2017, respectively. Amortization expense for the next 5 years is estimated to be $34 in 2018, $65 in 2019, $60 in 2020, and $59 in 2021 through 2022. Asset useful lives range from 5 to 20 years.
Due to the factors described above, we performed an interim impairment assessment in the third quarter of 2018 on the trademarks in the deli reporting unit and the Bolthouse Farms refrigerated beverages and salad dressings reporting unit. We recorded impairment charges of $13 related to the Garden Fresh Gourmet trademark within the deli reporting unit and $130 related to the Bolthouse Farms refrigerated beverages and salad dressings trademark. This reduced the fair value of the trademarks to $23 in the deli reporting unit and to $150 in the Bolthouse Farms refrigerated beverages and salad dressings reporting unit.
In the second quarter of 2018, we performed an interim impairment assessment on the trademark in the Bolthouse Farms carrot and carrot ingredients reporting unit. The fair value of the trademark exceeded the carrying value, which was $48.
6.
Segment Information
Commencing in the third quarter of 2018 with the acquisition of Snyder's-Lance, we formed a new U.S. snacking unit, which combines Snyder's-Lance and Pepperidge Farm, and is an operating segment. As of the third quarter of 2018, we have four operating segments based primarily on product type, and three reportable segments. The U.S. snacking operating segment is aggregated with the international biscuit and snacks operating segment to form the Global Biscuits and Snacks reportable segment. The operating segments are aggregated based on similar economic characteristics, products, production processes, types or classes of customers, distribution methods, and regulatory environment. Our reportable segments are as follows:
Americas Simple Meals and Beverages segment includes the retail and food service businesses in the U.S. and Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; Plum food and snacks; V8 juices and beverages; Campbell’s tomato juice; and as of December 12, 2017, Pacific Foods broth, soups, non-dairy beverages and other simple meals;
Global Biscuits and Snacks segment represents an aggregation of the following operating segments: U.S. snacks operating segment, which includes Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail, and Snyder’s-Lance pretzels, sandwich crackers, potato chips, tortilla chips and other snacking products in the U.S. and Europe; and the international biscuits and snacks operating segment, which includes Arnott’s biscuits in Australia and Asia Pacific,

13






Kelsen cookies globally, the simple meals and shelf-stable beverages business in Australia and Asia Pacific, and beginning in 2018, the business in Latin America; and
Campbell Fresh segment includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings, Garden Fresh Gourmet salsa, hummus, dips and tortilla chips, and the U.S. refrigerated soup business.
Prior to 2018, the business in Latin America was managed as part of the Americas Simple Meals and Beverages segment. Segment results have been adjusted retrospectively to reflect this change.
We evaluate segment performance before interest, taxes and costs associated with restructuring activities. Unrealized gains and losses on commodity hedging activities are excluded from segment operating earnings and are recorded in Corporate as these open positions represent hedges of future purchases. Upon closing of the contracts, the realized gain or loss is transferred to segment operating earnings, which allows the segments to reflect the economic effects of the hedge without exposure to quarterly volatility of unrealized gains and losses. Only the service cost component of pension and postretirement expense is allocated to segments. All other components of expense, including interest cost, expected return on assets, amortization of prior service credits and recognized actuarial gains and losses are reflected in Corporate and not included in segment operating results. Asset information by segment is not discretely maintained for internal reporting or used in evaluating performance.
 
 
Three Months Ended
 
Nine Months Ended
 
 
April 29,
2018
 
April 30,
2017
 
April 29,
2018
 
April 30,
2017
Net sales
 
 
 
 
 
 
 
 
Americas Simple Meals and Beverages
 
$
1,010

 
$
966

 
$
3,424

 
$
3,459

Global Biscuits and Snacks
 
862

 
639

 
2,297

 
2,025

Campbell Fresh
 
251

 
248

 
742

 
742

Corporate
 
2

 

 
3

 

Total
 
$
2,125

 
$
1,853

 
$
6,466

 
$
6,226

 
 
Three Months Ended
 
Nine Months Ended
 
 
April 29,
2018
 
April 30,
2017
 
April 29,
2018
 
April 30,
2017
Earnings before interest and taxes
 
 
 
 
 
 
 
 
Americas Simple Meals and Beverages
 
$
217

 
$
224

 
$
827

 
$
915

Global Biscuits and Snacks
 
123

 
100

 
382

 
352

Campbell Fresh
 
(19
)
 
1

 
(36
)
 
(1
)
Corporate(1)
 
(772
)
 
(27
)
 
(934
)
 
(306
)
Restructuring charges(2)
 
(24
)
 

 
(59
)
 

Total
 
$
(475
)
 
$
298

 
$
180

 
$
960

_______________________________________
(1) 
Represents unallocated items. Pension and postretirement benefit mark-to-market adjustments are included in Corporate. There were gains of $14 in the nine-month period ended April 29, 2018, and losses of $20 in the nine-month period ended April 30, 2017. Costs related to the cost savings initiatives were $46 and $7 in the three-month periods ended April 29, 2018, and April 30, 2017, respectively, and $90 and $18 in the nine-month periods ended April 29, 2018, and April 30, 2017, respectively. Transaction and integration costs associated with the acquisition of Snyder's-Lance were $72 and $96 in the three- and nine-month periods ended April 29, 2018, respectively. Intangible asset impairment charges of $608 were included in the three-month period ended April 29, 2018, and $683 and $212 in the nine-month periods ended April 29, 2018, and April 30, 2017, respectively (See Note 5 for additional information). Plant asset impairment charges of $11 were include in the three- and nine-month periods ended April 29, 2018. A charge of $22 related to the settlement of a legal claim was included in the three- and nine-month periods ended April 29, 2018.
(2) 
See Note 7 for additional information.

14






Our global net sales based on product categories are as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
April 29,
2018
 
April 30,
2017
 
April 29,
2018
 
April 30,
2017
Net sales
 
 
 
 
 
 
 
 
Soup
 
$
596

 
$
557

 
$
2,217

 
$
2,251

Snacks
 
821

 
600

 
2,188

 
1,914

Other simple meals
 
429

 
434

 
1,298

 
1,299

Beverages
 
277

 
262

 
760

 
762

Other
 
2

 

 
3

 

Total
 
$
2,125

 
$
1,853

 
$
6,466

 
$
6,226

Soup includes various soup, broths and stock products. Snacks include cookies, pretzels, crackers, biscuits, popcorn, nuts, potato chips, tortilla chips and other salty snacks and baked products. Other simple meals include sauces, carrot products, refrigerated salad dressings, refrigerated salsa, hummus, dips and Plum foods and snacks.
7.
Restructuring Charges and Cost Savings Initiatives
2015 Initiatives
In fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure. As part of these initiatives, we commenced a voluntary employee separation program available to certain U.S.-based salaried employees nearing retirement who met age, length-of-service and business unit/function criteria.
In February 2017, we announced that we were expanding these initiatives by further optimizing our supply chain network, primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent acquisitions. We extended the time horizon for the initiatives from 2018 to 2020. In January 2018, as part of the expanded initiatives, we authorized additional pre-tax costs to improve the operational efficiency of our thermal supply chain network in North America by closing our manufacturing facility in Toronto, Ontario, and to optimize our information technology infrastructure by migrating certain applications to the latest cloud technology platform. Cost estimates for these expanded initiatives, as well as timing for certain activities, are continuing to be developed.
A summary of the restructuring charges and charges recorded in Administrative expenses, Cost of products sold, and Marketing and selling expenses related to the initiatives is as follows:
 
Three Months Ended
 
Nine Months Ended
 
Year Ended
 
April 29, 2018
 
April 30, 2017
 
April 29, 2018
 
April 30, 2017
 
July 30, 2017
 
July 31, 2016
 
August 2, 2015
Restructuring charges
$
14

 
$

 
$
49

 
$

 
$
18

 
$
35

 
$
102

Administrative expenses
30

 
7

 
68

 
18

 
36

 
47

 
22

Cost of products sold
14

 

 
20

 

 
4

 

 

Marketing and selling expenses
2

 

 
2

 

 

 

 

Total pre-tax charges
$
60

 
$
7

 
$
139

 
$
18

 
$
58

 
$
82

 
$
124

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

Asset impairment/accelerated depreciation
31

Implementation costs and other related costs
192

Total
$
403

The total estimated pre-tax costs for actions that have been identified are approximately $535 to $580. We expect to incur substantially all of the costs through 2019. This estimate will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions that have been identified to date to consist of the following: approximately $180 in severance pay and benefits; approximately $90 in asset impairment and accelerated depreciation; and approximately $265 to $310 in

15






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 43%; Global Biscuits and Snacks - approximately 31%; Campbell Fresh - approximately 4%; and Corporate - approximately 22%.
Of the aggregate $535 to $580 of pre-tax costs identified to date, we expect approximately $435 to $480 will be cash expenditures. In addition, we expect to invest approximately $250 in capital expenditures through 2020 primarily related to the U.S. warehouse optimization project, transition of production of the Toronto manufacturing facility to our U.S. thermal plants, insourcing of manufacturing for certain simple meal products and optimization of information technology infrastructure and applications, of which we invested approximately $56 as of April 29, 2018.
A summary of the restructuring activity and related reserves associated with the initiatives at April 29, 2018, is as follows:
 
 
Severance Pay and Benefits
 
Non-Cash Benefits(3)
 
Implementation Costs and Other Related Costs(4)
 
Asset Impairment/Accelerated Depreciation
 
Other Non-Cash Exit Costs(5)
 
Total Charges
Accrued balance at July 30, 2017(1)
 
$
26

 
 
 
 
 
 
 
 
 
 
     2018 charges
 
43

 
2

 
72

 
19

 
3

 
$
139

     2018 cash payments
 
(23
)
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
(1
)
 
 
 
 
 
 
 
 
 
 
Accrued balance at April 29, 2018(2)
 
$
45

 
 
 
 
 
 
 
 
 
 
_______________________________________
(1)  
Includes $2 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
(2) 
Includes $29 of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
(3) 
Represents pension termination benefits. See Note 10 for additional information.
(4)  
Includes other costs recognized as incurred that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. The costs are included in Administrative expenses, Cost of products sold, and Marketing and selling expenses in the Consolidated Statements of Earnings.
(5) 
Includes non-cash costs that are not reflected in the restructuring reserve in the Consolidated Balance Sheet.
Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs associated with segments is as follows:
 
April 29, 2018
 
Three Months Ended
 
Nine Months Ended
 
Costs Incurred to Date
Americas Simple Meals and Beverages
$
16

 
$
56

 
$
148

Global Biscuits and Snacks
36

 
63

 
141

Campbell Fresh
1

 
4

 
10

Corporate
7

 
16

 
104

Total
$
60

 
$
139

 
$
403


Snyder's-Lance Cost Transformation Program and Integration
On March 26, 2018, we completed the acquisition of Snyder's-Lance. Prior to the acquisition, in April 2017, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We expect to continue to implement this program and to achieve a majority of the program's targeted savings. In addition, we have identified opportunities for additional cost synergies as we integrate Snyder's-Lance.
We are developing the detailed plans to implement the Snyder's-Lance cost transformation program and to achieve the cost synergies and therefore we cannot reasonably estimate the total expected pre-tax costs and timing of when we expect to incur those costs, as well as the expected future cash expenditures. We expect the pre-tax costs to be associated primarily with Global Biscuits and Snacks.
In the three-month period ended April 29, 2018, we recorded a restructuring charge of $10 and incurred $6 in Administrative expenses related to the integration of Snyder's-Lance.

16






A summary of the restructuring activity and related reserves associated with the Snyder's-Lance integration at April 29, 2018, is as follows:
 
 
Severance Pay and Benefits
 
Implementation and Integration Costs(1)
 
Total Charges
     2018 charges
 
$
10

 
6

 
$
16

     2018 cash payments
 

 
 
 
 
Accrued balance at April 29, 2018
 
$
10

 
 
 
 
_______________________________________
(1)  
Includes other costs recognized as incurred that are not reflected in the restructuring reserve in the Consolidated Balance Sheet. The costs are included in Administrative expenses in the Consolidated Statements of Earnings.
Segment operating results do not include restructuring charges, nor implementation and integration costs because we evaluate segment performance excluding such charges. The pre-tax costs of $16 incurred in the three-month period ended April 29, 2018 were associated with the Global Biscuits and Snacks segment.
8.
Earnings per Share (EPS)
For the periods presented in the Consolidated Statements of Earnings, the calculations of basic EPS and EPS assuming dilution vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and other share-based payment awards, except when such effect would be antidilutive. The per share calculation for the three-month period ended April 29, 2018, excludes approximately 2 million stock options that would have been antidilutive. The earnings per share calculation for the nine-month period ended April 29, 2018, excludes approximately 1 million stock options that would have been antidilutive. The earnings per share calculation for the three- and nine-month periods ended April 30, 2017, excludes less than 1 million stock options that would have been antidilutive.
9.
Noncontrolling Interests
We own a 60% controlling interest in a joint venture formed with Swire Pacific Limited to support the development of our soup and broth business in China and a 70% controlling interest in a Malaysian food products manufacturing company. We also own a 99.8% interest in Acre Venture Partners, L.P. (Acre), a limited partnership formed to make venture capital investments in innovative new companies in food and food-related industries. See Note 14 for additional information.
On March 26, 2018, we acquired Snyder's-Lance, including an 80% interest in one of its subsidiaries. In April 2018, we purchased the remaining 20% interest for $47.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings. The noncontrolling interests in these entities were included in Total equity in the Consolidated Balance Sheets and Consolidated Statements of Equity.
10.
Pension and Postretirement Benefits
Components of net benefit expense (income) were as follows:
 
Three Months Ended
 
Nine Months Ended
 
Pension
 
Postretirement
 
Pension
 
Postretirement
 
April 29,
2018
 
April 30,
2017
 
April 29,
2018
 
April 30,
2017
 
April 29,
2018
 
April 30,
2017
 
April 29,
2018
 
April 30,
2017
Service cost
$
6

 
$
6

 
$
1

 
$

 
$
18

 
$
19

 
$
1

 
$
1

Interest cost
19

 
21

 
1

 
2

 
56

 
64

 
5

 
7

Expected return on plan assets
(36
)
 
(36
)
 

 

 
(108
)
 
(108
)
 

 

Amortization of prior service credit

 

 
(7
)
 
(5
)
 

 

 
(20
)
 
(18
)
Special termination benefits

 

 

 

 
2

 

 

 

Net periodic benefit income
$
(11
)
 
$
(9
)
 
$
(5
)
 
$
(3
)
 
$
(32
)
 
$
(25
)
 
$
(14
)
 
$
(10
)

17






The special termination benefits of $2 related to the planned closure of the manufacturing facility in Toronto, Ontario, and were included in Restructuring charges. See Note 7 for additional information.
The components of net periodic benefit expense (income) other than the service cost component are included in Other expenses / (income) in the Consolidated Statements of Earnings. Beginning in 2018, under the revised FASB guidance adopted in the first quarter, only the service cost component of net periodic benefit expense (income) is eligible for capitalization.
Beginning in 2018, we changed the method we use to estimate the service and interest cost components of net periodic benefit expense (income). We elected to use a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation of the relevant projected cash flows. Previously, we estimated service cost and interest cost using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We 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 accounted for this change prospectively in 2018 as a change in accounting estimate. As a result of this change, net periodic benefit income increased by approximately $4 and $12 in the three- and nine-month periods ended April 29, 2018, respectively, compared to what the net periodic benefit income would have been under the previous method.
11.
Taxes on Earnings
The Tax Cuts and Jobs Act of 2017 (the Act) was enacted into law on December 22, 2017, and made significant changes to corporate taxation. Changes under the Act include:
Reducing the federal corporate tax rate from 35% to 21% effective January 1, 2018;
Eliminating the deduction for domestic manufacturing activities, which impacts us beginning in 2019;
Repealing the exception for deductibility of performance-based compensation to covered employees, which impacts us beginning in 2019, along with expanding the number of covered employees;
Transitioning to a territorial system for taxation on foreign earnings along with the imposition of a transition tax in 2018 on the deemed repatriation of unremitted foreign earnings;
Limiting the deductibility of interest expense to 30% of adjusted taxable income, which is effective for us beginning in 2019;
Immediate expensing of machinery and equipment placed into service after September 27, 2017; and
Changes to the taxation of multinational companies, including a new minimum tax on Global Intangible Low-Taxed Income, a new Base Erosion Anti-Abuse Tax, and a new U.S. corporate deduction for Foreign-Derived Intangible Income, all of which are effective for us beginning in 2019.
The U.S. Securities and Exchange Commission recently released Staff Accounting Bulletin (SAB) 118, which allows for a measurement period while a company obtains, prepares, and analyzes the information necessary to finalize its accounting for the effects of the Act. Specifically, SAB 118 details a three-step process that should apply to each reporting period:
First, report the effects of the Act for which the accounting is complete;
Second, report provisional amounts for which the accounting is not complete, but a reasonable estimate can be determined; and
Third, do not report a provisional amount for which a reasonable estimate cannot be made.
Based on the Act and SAB 118, the following items are reflected in 2018:
 
 
Three Months Ended
 
Nine Months Ended
(Expense) / Benefit
 
April 29, 2018
 
April 29, 2018
Remeasurement of deferred tax assets and liabilities
 
$
(4
)
 
$
179

Imposition of a transition tax on unremitted foreign earnings
 
$

 
$
(59
)
In addition, the corporate rate reduction as of January 1, 2018, resulted in a blended U.S. statutory tax rate of approximately 27%.
The amounts recorded represent provisional amounts based on our best estimates and current interpretation of the provisions of the Act and may change as additional guidance is issued.


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12.
Debt to Finance the Acquisition of Snyder's-Lance
We issued $5,300 senior notes on March 16, 2018, and borrowed $900 under a single draw 3-year senior unsecured term loan facility on March 26, 2018 to finance the acquisition of Snyder's-Lance. Details are as follows:
Type
 
Fiscal Year of Maturity
 
Rate
 
2018
Notes
 
2020
 
Variable
 
$
500

Notes
 
2021
 
Variable
 
400

Senior Term Loan
 
2021
 
Variable
 
900

Notes
 
2021
 
3.30%
 
650

Notes
 
2023
 
3.65%
 
1,200

Notes
 
2025
 
3.95%
 
850

Notes
 
2028
 
4.15%
 
1,000

Notes
 
2048
 
4.80%
 
700

Other(1)
 
 
 
 
 
(49
)
Total
 
 
 
 
 
$
6,151

_______________________________________
(1) 
Includes unamortized discount on debt issuances and debt issuance costs.
The interest rate on the $900 senior unsecured term loan facility resets in one, two, three, or six-month periods dependent upon our election. Interest on the senior unsecured term loan facility is due upon the earlier of an interest reset or quarterly and the first interest payment is due in June 2018. The senior unsecured term loan facility may be prepaid at par at any time. The senior unsecured term loan facility contains customary covenants and events of default for credit facilities of this type. Interest on the 2-year floating rate senior notes is due quarterly on March 16, June 16, September 16, and December 16, commencing on June 16, 2018. Interest on the 3-year floating rate senior notes is due quarterly on March 15, June 15, September 15, and December 15, commencing on June 15, 2018. Interest on the fixed rate senior notes is due semi-annually on March 15 and September 15, commencing on September 15, 2018. The fixed rate senior notes may be redeemed, in whole or in part, at our option at any time at the applicable redemption price. If change of control triggering events occur, we will be required to offer to purchase the senior notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the purchase date.
13.
Financial Instruments
The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates, and commodity prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. In order to manage these exposures, we follow established risk management policies and procedures, including the use of derivative contracts such as swaps, rate locks, options, forwards and commodity futures. We enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our derivative programs include instruments that qualify and others that do not qualify for hedge accounting treatment.
We closely monitor credit risk.
Concentration of Credit Risk
We are exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate counterparty credit risk, we enter into contracts only with carefully selected, leading, credit-worthy financial institutions, and distribute contracts among several financial institutions to reduce the concentration of credit risk. We did not have credit-risk-related contingent features in our derivative instruments as of April 29, 2018, or July 30, 2017.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk related to our international operations, including non-functional currency intercompany debt and net investments in subsidiaries. We are also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. Principal currencies hedged include the Canadian dollar, Australian dollar and U.S. dollar. We utilize foreign exchange forward purchase and sale contracts, as well as cross-currency swaps, to hedge these exposures. The contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge portions of our forecasted foreign currency transaction exposure with foreign exchange forward contracts for periods typically up to 18 months. To hedge currency exposures related to intercompany debt, we enter into foreign exchange forward purchase and sale contracts, as well as cross-currency swap contracts, for periods consistent with the underlying debt. The notional amount of foreign exchange forward contracts accounted for as cash-flow hedges was $90 at April 29, 2018, and $84 at July 30,

19






2017. The effective portion of the changes in fair value on these instruments is recorded in other comprehensive income (loss) and is reclassified into the Consolidated Statements of Earnings on the same line item and the same period in which the underlying hedged transaction affects earnings. The notional amount of foreign exchange forward contracts that are not designated as accounting hedges was $163 and $336 at April 29, 2018, and July 30, 2017, respectively. There were no cross-currency swap contracts outstanding as of April 29, 2018, or July 30, 2017.
Interest Rate Risk
We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. Receive fixed rate/pay variable rate interest rate swaps are designated as fair-value hedges. We manage our exposure to interest rate volatility on future debt issuances by entering into forward starting interest rate swaps or treasury rate lock contracts to lock in the rate on the interest payments related to the anticipated debt issuances. The contracts are either designated as cash-flow hedging instruments or are undesignated. The effective portion of the changes in fair value on designated instruments is recorded in other comprehensive income (loss) and reclassified into the Consolidated Statements of Earnings over the life of the debt. The change in fair value on undesignated instruments is recorded in interest expense. At July 30, 2017, we had forward starting interest rate swaps accounted for as cash flow hedges with a notional value of $300, which related to the debt issuance in 2018. There were no forward starting interest rate swaps outstanding as of April 29, 2018. We settled forward starting interest rate swaps with a notional value of $300 in October 2017 at a loss of $22. We settled forward starting interest rate swaps with a notional value of $300 in March 2018 at a gain of $15. The $7 net loss on these instruments was recorded in other comprehensive income (loss) and will be recognized as additional interest expense over the 10-year life of the debt issued in March 2018. We settled undesignated treasury rate lock contracts with a notional value of $2,400 in March 2018 at a gain of $18, which was recognized in Interest expense in our Consolidated Statements of Earnings. These instruments, which were undesignated, hedged the planned financing of the acquisition of Snyder's-Lance.
Commodity Price Risk
We principally use a combination of purchase orders and various short- and long-term supply arrangements in connection with the purchase of raw materials, including certain commodities and agricultural products. We also enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations of wheat, soybean oil, diesel fuel, aluminum, natural gas, cocoa, soybean meal, corn, butter and cheese, which impact the cost of raw materials. Commodity futures, options, and swap contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge a portion of commodity requirements for periods typically up to 18 months. There were no commodity contracts accounted for as cash-flow hedges as of April 29, 2018, or July 30, 2017. The notional amount of commodity contracts not designated as accounting hedges was $95 at April 29, 2018, and $90 at July 30, 2017.
In 2017, we entered into a supply contract under which prices for certain raw materials are established based on anticipated volume requirements over a twelve-month period. Certain prices under the contract are based in part on certain component parts of the raw materials that are in excess of our needs or not required for our operations, thereby creating an embedded derivative requiring bifurcation. We net settle amounts due under the contract with our counterparty. The notional value was approximately $53 at April 29, 2018, and $35 at July 30, 2017. The fair value was not material as of April 29, 2018, and July 30, 2017. Unrealized gains (losses) and settlements are included in Cost of products sold in our Consolidated Statements of Earnings.
Equity Price Risk
We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of our capital stock, the total return of the Vanguard Institutional Index, and the total return of the Vanguard Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty either the total return on our capital stock; the total return of the Standard & Poor's 500 Index, which is expected to approximate the total return of the Vanguard Institutional Index; or the total return of the iShares MSCI EAFE Index, which is expected to approximate the total return of the Vanguard Total International Stock Index. These contracts were not designated as hedges for accounting purposes. We enter into these contracts for periods typically not exceeding 12 months. The notional amounts of the contracts as of April 29, 2018, and July 30, 2017, were $41 and $43, respectively.

20






The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of April 29, 2018, and July 30, 2017:
 
Balance Sheet Classification
 
April 29,
2018
 
July 30,
2017
Asset Derivatives