Notes to Consolidated Financial Statements
(currency in millions, except per share amounts)
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1.
|
Summary of Significant Accounting Policies
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In this Form 10-K, unless otherwise stated, the terms “we,” “us,” “our” and the “company” refer to Campbell Soup Company and its consolidated subsidiaries.
We are a manufacturer and marketer of high-quality, branded food and beverage products.
Basis of Presentation
— The consolidated financial statements include our accounts and entities in which we maintain a controlling financial interest and a variable interest entity (VIE) for which we are the primary beneficiary. Intercompany transactions are eliminated in consolidation. Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation. Our fiscal year ends on the Sunday nearest July 31. There were
52
weeks in 2016 and 2015, and
53
weeks in 2014.
Out-of-Period Adjustment
— In the fourth quarter of 2016, an out-of-period adjustment of
$13
(
$.04
per share) to increase taxes on earnings was recorded. The adjustment related to deferred tax expense that should have been provided on certain cross-currency swap contracts associated with intercompany debt. Most of the adjustment related to the third quarter of 2016. Management does not believe the adjustment is material to the consolidated financial statements for any period.
Use of Estimates
— Generally accepted accounting principles require management to make estimates and assumptions that affect assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
Revenue Recognition
— Revenues are recognized when the earnings process is complete. This occurs when products are shipped in accordance with terms of agreements, title and risk of loss transfer to customers, collection is probable and pricing is fixed or determinable. Revenues are recognized net of provisions for returns, discounts and allowances. Certain sales promotion expenses, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees and coupon redemption costs, are classified as a reduction of sales. The recognition of costs for promotion programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors. Costs are recognized either upon sale or when the incentive is offered, based on the program. Revenues are presented on a net basis for arrangements under which suppliers perform certain additional services.
Cash and Cash Equivalents
— All highly liquid debt instruments purchased with a maturity of three months or less are classified as cash equivalents.
Inventories
— All inventories are valued at the lower of average cost or market.
Property, Plant and Equipment
— Property, plant and equipment are recorded at historical cost and are depreciated over estimated useful lives using the straight-line method. Buildings and machinery and equipment are depreciated over periods not exceeding
45
years and
20
years, respectively. Assets are evaluated for impairment when conditions indicate that the carrying value may not be recoverable. Such conditions include significant adverse changes in business climate or a plan of disposal. Repairs and maintenance are charged to expense as incurred.
Goodwill and Intangible Assets
— Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for impairment, or when circumstances indicate that the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a two-step quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill and the “implied” fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination.
Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair value is determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average cost of capital, and assumed royalty rates. If the fair value is less than the carrying value, the asset is reduced to fair value.
See Note 6 for information on intangible assets and impairment charges.
Derivative Financial Instruments
— We use derivative financial instruments primarily for purposes of hedging exposures to fluctuations in foreign currency exchange rates, interest rates, commodities and equity-linked employee benefit obligations. We
enter into these derivative contracts for periods consistent with the related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments. Our derivative programs include strategies that qualify and strategies that do not qualify for hedge accounting treatment. To qualify for hedge accounting, the hedging relationship, both at inception of the hedge and on an ongoing basis, is expected to be highly effective in achieving offsetting changes in the fair value of the hedged risk during the period that the hedge is designated.
All derivatives are recognized on the balance sheet at fair value. For derivatives that qualify for hedge accounting, on the date the derivative contract is entered into, we designate the derivative as a hedge of the fair value of a recognized asset or liability or a firm commitment (fair-value hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash-flow hedge), or a hedge of a net investment in a foreign operation. Some derivatives may also be considered natural hedging instruments (changes in fair value act as economic offsets to changes in fair value of the underlying hedged item) and are not designated for hedge accounting.
Changes in the fair value of a fair-value hedge, along with the gain or loss on the underlying hedged asset or liability (including losses or gains on firm commitments), are recorded in current-period earnings. The effective portion of gains and losses on cash-flow hedges are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows. If the hedge is no longer effective, all changes in the fair value of the derivative are included in earnings each period until the instrument matures. If a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in other comprehensive income (loss). Any ineffective portion of designated hedges is recognized in current-period earnings. Changes in the fair value of derivatives that are not designated for hedge accounting are recognized in current-period earnings.
Cash flows from derivative contracts are included in Net cash provided by operating activities.
Advertising Production Costs
— Advertising production costs are expensed in the period that the advertisement first takes place or when a decision is made not to use an advertisement.
Research and Development Costs
— The costs of research and development are expensed as incurred. Costs include expenditures for new product and manufacturing process innovation, and improvements to existing products and processes. Costs primarily consist of salaries, wages, consulting, and depreciation and maintenance of research facilities and equipment.
Income Taxes
— Deferred tax assets and liabilities are recognized for the future impact of differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
Changes in Accounting
Policy
— In the first quarter of 2016, we elected to change our method of accounting for the recognition of actuarial gains and losses for defined benefit pension and postretirement plans and the calculation of expected return on pension plan assets. Historically, actuarial gains and losses associated with benefit obligations were recognized in Accumulated other comprehensive loss in the Consolidated Balance Sheets and were amortized into earnings over the remaining service life of participants to the extent that the amounts were in excess of a corridor. Under the new policy, actuarial gains and losses will be recognized immediately in our Consolidated Statements of Earnings as of the measurement date, which is our fiscal year end, or more frequently if an interim remeasurement is required. In addition, we no longer use a market-related value of plan assets, which is an average value, to determine the expected return on assets but rather will use the fair value of plan assets. We believe the new policies will provide greater transparency to ongoing operating results and better reflect the impact of current market conditions on the obligations and assets. Results have been adjusted retrospectively to reflect these revisions.
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2.
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Recent Accounting Pronouncements
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In February 2013, the Financial Accounting Standards Board (FASB) issued guidance for the recognition, measurement, and disclosure of certain obligations resulting from joint and several liability arrangements for which the total amount is fixed. Such obligations may include debt arrangements, legal settlements, and other contractual arrangements. The guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted the guidance in 2015. The adoption did not have an impact on our consolidated financial statements.
In March 2013, the FASB issued guidance on the accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The guidance was effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted the guidance in 2015. The adoption did not have an impact on our consolidated financial statements.
In July 2013, the FASB issued guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance requires the netting of unrecognized tax benefits
(UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of uncertain tax positions. Under the new standard, UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized,
rather than only against carryforwards that are created by the UTBs. The guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted the guidance in 2015. The adoption did not have a material impact on our consolidated financial statements.
In April 2014, the FASB issued revised guidance that modifies the criteria for determining which disposals can be presented as discontinued operations and requires additional disclosures. The guidance is effective for fiscal years beginning on or after December 15, 2014, and interim periods within those years. We will prospectively apply the guidance to applicable transactions.
In May 2014, the FASB issued revised guidance on the recognition of revenue from contracts with customers. The guidance is designed to create greater comparability for financial statement users across industries and jurisdictions. The guidance also requires enhanced disclosures. The guidance was originally effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. In July 2015, the FASB decided to delay the effective date of the new revenue guidance by one year to fiscal years, and interim periods within those years, beginning after December 15, 2017. Entities will be permitted to adopt the new revenue standard early, but not before the original effective date. The guidance permits the use of either a full retrospective or modified retrospective transition method. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements, as well as which transition method we will use.
In April 2015, the FASB issued guidance that requires debt issuance costs to be presented in the balance sheet as a reduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The guidance must be applied on a retrospective basis and is effective for fiscal years beginning after December 15, 2015, and interim periods within those years. Early adoption is permitted. We adopted the guidance in 2016. As a result, we have retrospectively adjusted Other assets and Long-term debt as of August 2, 2015. The adoption did not have a material impact on our consolidated financial statements.
In April 2015, the FASB issued guidance intended to provide a practical expedient for the measurement date of defined benefit plan assets and obligations. The practical expedient allows employers with fiscal year-end dates that do not fall on a calendar month-end to measure pension and postretirement benefit plan assets and obligations as of the calendar month-end date closest to the fiscal year-end.The guidance is effective for fiscal years beginning on or after December 15, 2015, and interim periods within those years. Early adoption is permitted. We adopted the guidance in connection with our 2015 measurement. The adoption did not have a material impact on our consolidated financial statements.
In April 2015, the FASB issued guidance to clarify the accounting for fees paid by a customer in a cloud computing arrangement. The guidance is effective for fiscal years beginning on or after December 15, 2015, and interim periods within those years. Early adoption is permitted. The new guidance should be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We will adopt the guidance prospectively. We do not expect the adoption to have a material impact on our consolidated financial statements.
In May 2015, the FASB issued guidance that eliminates the requirement to categorize investments measured using the net asset value (NAV) practical expedient in the fair value hierarchy table. Entities will be required to disclose the fair value of investments measured using the NAV practical expedient so that financial statement users can reconcile amounts reported in the fair value hierarchy table to amounts reported on the balance sheet. The new guidance will be applied retrospectively and is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. We adopted the guidance in 2015 and modified our disclosures in Note 11.
In September 2015, the FASB issued guidance that eliminates the requirement to restate prior period financial statements for measurement period adjustments for business combinations. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The guidance is effective for fiscal years beginning on or after December 15, 2015, and interim periods within those years and should be applied prospectively to measurement period adjustments that occur after the effective date. We will prospectively apply the guidance to applicable transactions.
In November 2015, the FASB issued guidance that amends the balance sheet classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be classified as noncurrent in the balance sheet. Previous guidance required deferred tax liabilities and assets to be separated into current and noncurrent amounts in the balance sheet. The guidance is effective for fiscal years beginning on or after December 15, 2016, and interim periods within those years. Early adoption is permitted as of the beginning of an interim or annual reporting period. We adopted the guidance in 2016 on a prospective basis and modified the presentation of deferred taxes in the Consolidated Balance Sheet as of July 31, 2016. As of August 2, 2015, the balance of current deferred taxes was
$114
.
In January 2016, the FASB issued guidance that amends the recognition and measurement of financial instruments. The changes primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments in unconsolidated entities that
are not accounted for under the equity method will generally be measured at fair value through earnings. When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The guidance is effective for fiscal years beginning on or after December 15, 2017, and interim periods within those years. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In February 2016, the FASB issued guidance that amends accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities for most leases but will recognize expenses similar to current lease accounting. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The new guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In March 2016, the FASB issued guidance that amends accounting for share-based payments, including the accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted. We 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.
On June 29, 2015, we completed the acquisition of the assets of Garden Fresh Gourmet for
$232
. Garden Fresh Gourmet is a provider of refrigerated salsa, hummus, dips and tortilla chips.
The excess of the purchase price over the estimated fair values of identifiable net assets was recorded as
$116
of goodwill. The goodwill is expected to be deductible for tax purposes. The goodwill was primarily attributable to future growth opportunities, anticipated synergies, and intangible assets that did not qualify for separate recognition. The goodwill is included in the Campbell Fresh segment.
The contribution of the Garden Fresh Gourmet acquisition to Net sales and Net earnings from June 29, 2015, through August 2, 2015 was not material.
On August 8, 2013, we completed the acquisition of Kelsen. The final all-cash purchase price was
$331
. Kelsen is a producer of quality baked snacks that are sold in approximately
85
countries around the world. Its primary brands include
Kjeldsens
and
Royal
Dansk
.
The excess of the purchase price over the estimated fair values of identifiable net assets was recorded as
$140
of goodwill. The goodwill is not expected to be deductible for tax purposes. The goodwill was primarily attributable to future growth opportunities and intangible assets that did not qualify for separate recognition. The goodwill is included in the Global Biscuits and Snacks segment.
The acquisition of Kelsen contributed
$193
to Net sales and
$8
to Net earnings from August 8, 2013, through August 3, 2014.
The acquired assets and assumed liabilities include the following:
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|
|
|
|
|
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Garden Fresh Gourmet
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|
Kelsen
|
Cash
|
|
$
|
—
|
|
|
$
|
2
|
|
Accounts receivable
|
|
10
|
|
|
20
|
|
Inventories
|
|
5
|
|
|
50
|
|
Other current assets
|
|
—
|
|
|
2
|
|
Plant assets
|
|
22
|
|
|
47
|
|
Goodwill
|
|
116
|
|
|
140
|
|
Other intangible assets
|
|
86
|
|
|
173
|
|
Short-term debt
|
|
—
|
|
|
(32
|
)
|
Accounts payable
|
|
(6
|
)
|
|
(13
|
)
|
Accrued liabilities
|
|
(1
|
)
|
|
(10
|
)
|
Long-term debt
|
|
—
|
|
|
(4
|
)
|
Deferred income taxes
|
|
—
|
|
|
(44
|
)
|
Total assets acquired and liabilities assumed
|
|
$
|
232
|
|
|
$
|
331
|
|
The identifiable intangible assets of Garden Fresh Gourmet consist of
$38
in non-amortizable trademarks, and
$48
in customer relationships to be amortized over
20 years
.
The identifiable intangible assets of Kelsen consist of
$147
in non-amortizable trademarks,
$4
in amortizable trademarks to be amortized over
10 years
and
$22
in customer relationships to be amortized over
10
to
15 years
.
The following unaudited summary information is presented on a consolidated pro forma basis as if the Garden Fresh Gourmet acquisition had occurred on July 29, 2013, and the Kelsen acquisition had occurred on July 30, 2012:
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|
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|
|
|
|
|
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|
2015
|
|
2014
|
Net sales
|
|
$
|
8,174
|
|
|
$
|
8,372
|
|
Earnings from continuing operations attributable to Campbell Soup Company
|
|
$
|
668
|
|
|
$
|
789
|
|
Earnings per share from continuing operations attributable to Campbell Soup Company - assuming dilution
|
|
$
|
2.13
|
|
|
$
|
2.50
|
|
The pro forma amounts include additional interest expense on the debt issued to finance the purchases, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and plant assets, and related tax effects. The pro forma results are not necessarily indicative of the combined results had the Garden Fresh Gourmet acquisition been completed on July 29, 2013, and the Kelsen acquisition been completed on July 30, 2012, nor are they indicative of future combined results.
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4.
|
Discontinued Operations
|
On October 28, 2013, we completed the sale of our European simple meals business to Soppa Investments S.à r.l., an affiliate of CVC Capital Partners. The all-cash preliminary sale price was
€400
, or
$548
, and was subject to certain post-closing adjustments, which resulted in a
$14
reduction of proceeds. We recognized a pre-tax gain of
$141
(
$72
after tax, or
$.23
per share) in 2014. The European business included
Erasco
and
Heisse Tasse
soups in Germany;
Liebig
and
Royco
soups in France;
Devos Lemmens
mayonnaise and cold sauces and
Royco
soups in Belgium; and
Blå Band
and
Isomitta
soups and sauces in Sweden. We used the proceeds from the sale to pay taxes on the sale, to reduce debt and for other general corporate purposes.
We have reflected the results of the European simple meals business as discontinued operations in the Consolidated Statements of Earnings.
Results of discontinued operations were as follows:
|
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|
|
|
|
|
|
2014
|
Net sales
|
|
$
|
137
|
|
|
|
|
Gain on sale of the European simple meals business
|
|
$
|
141
|
|
Earnings from operations, before taxes
|
|
14
|
|
Earnings before taxes
|
|
$
|
155
|
|
Taxes on earnings
|
|
(74
|
)
|
Earnings from discontinued operations
|
|
$
|
81
|
|
|
|
5.
|
Accumulated Other Comprehensive Income (Loss)
|
The components of Accumulated other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
(1)
|
|
Gains (Losses) on Cash Flow Hedges
(2)
|
|
Pension and Postretirement Benefit Plan Adjustments
(3)
|
|
Total Accumulated Comprehensive Income (Loss)
|
Balance at August 3, 2014
|
|
$
|
144
|
|
|
$
|
(3
|
)
|
|
$
|
4
|
|
|
$
|
145
|
|
Other comprehensive income (loss) before reclassifications
|
|
(310
|
)
|
|
(2
|
)
|
|
—
|
|
|
(312
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Net current-period other comprehensive income (loss)
|
|
(310
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(313
|
)
|
Balance at August 2, 2015
|
|
$
|
(166
|
)
|
|
$
|
(5
|
)
|
|
$
|
3
|
|
|
$
|
(168
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
42
|
|
|
(29
|
)
|
|
59
|
|
|
72
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
(7
|
)
|
|
(1
|
)
|
|
(8
|
)
|
Net current-period other comprehensive income (loss)
|
|
42
|
|
|
(36
|
)
|
|
58
|
|
|
64
|
|
Balance at July 31, 2016
|
|
$
|
(124
|
)
|
|
$
|
(41
|
)
|
|
$
|
61
|
|
|
$
|
(104
|
)
|
_____________________________________
|
|
(1)
|
Included a tax expense of
$6
as of
July 31, 2016
and as of
August 2, 2015
, and
$7
as of
August 3, 2014
.
|
|
|
(2)
|
Included a tax benefit of
$23
as of
July 31, 2016
,
$5
as of
August 2, 2015
, and
$1
as of
August 3, 2014
.
|
|
|
(3)
|
Included a tax expense of
$35
as of
July 31, 2016
,
$1
as of
August 2, 2015
, and
$2
as of
August 3, 2014
.
|
Amounts related to noncontrolling interests were not material.
The amounts reclassified from Accumulated other comprehensive income (loss) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
|
2016
|
|
2015
|
|
2014
|
|
Location of (Gain) Loss Recognized in Earnings
|
(Gains) losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(11
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
Cost of products sold
|
Foreign exchange forward contracts
|
|
(2
|
)
|
|
(1
|
)
|
|
1
|
|
|
Other expenses / (income)
|
Forward starting interest rate swaps
|
|
4
|
|
|
4
|
|
|
3
|
|
|
Interest expense
|
Total before tax
|
|
(9
|
)
|
|
(1
|
)
|
|
—
|
|
|
|
Tax expense (benefit)
|
|
2
|
|
|
1
|
|
|
—
|
|
|
|
(Gain) loss, net of tax
|
|
$
|
(7
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefit adjustments:
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
(1)
|
Tax expense (benefit)
|
|
—
|
|
|
1
|
|
|
1
|
|
|
|
(Gain) loss, net of tax
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
|
_____________________________________
|
|
(1)
|
This is included in the components of net periodic benefit costs (see Note 11 for additional details).
|
In 2014, a pre-tax loss of
$22
(
$19
after tax) on foreign currency translation adjustments was also reclassified from Accumulated other comprehensive income. The loss was related to the divestiture of the European simple meals business and was included in Earnings from discontinued operations.
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|
6.
|
Goodwill and Intangible Assets
|
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
Simple
Meals and Beverages
|
|
Global
Biscuits
and
Snacks
|
|
Campbell Fresh
|
|
Total
|
Balance at August 3, 2014
|
$
|
794
|
|
|
$
|
918
|
|
|
$
|
721
|
|
|
$
|
2,433
|
|
Acquisition
|
—
|
|
|
—
|
|
|
116
|
|
|
116
|
|
Foreign currency translation adjustment
|
(19
|
)
|
|
(186
|
)
|
|
—
|
|
|
(205
|
)
|
Balance at August 2, 2015
|
$
|
775
|
|
|
$
|
732
|
|
|
$
|
837
|
|
|
$
|
2,344
|
|
Impairment
|
—
|
|
|
—
|
|
|
(106
|
)
|
|
(106
|
)
|
Foreign currency translation adjustment
|
—
|
|
|
25
|
|
|
—
|
|
|
25
|
|
Balance at July 31, 2016
(1)
|
$
|
775
|
|
|
$
|
757
|
|
|
$
|
731
|
|
|
$
|
2,263
|
|
_______________________________________
|
|
(1)
|
The total carrying value of goodwill as of July 31, 2016 is reflected net of
$106
of accumulated impairment charges recorded in 2016.
|
In 2015, we acquired the assets of Garden Fresh Gourmet for
$232
. Goodwill related to the acquisition was
$116
. See Note 3.
In the fourth quarter of 2016, as part of our annual review of intangible assets, an impairment charge of
$106
was recorded on goodwill for the Bolthouse Farms carrot and carrot ingredients reporting unit within the Campbell Fresh segment. In 2016, carrot performance primarily reflected the adverse impact of weather conditions on crop yields, and execution issues in response to those conditions, which led to customer dissatisfaction, a loss of business, and higher carrot costs in the second half of the year. These factors resulted in a decline in profitability during the second half of the year which was below our expectations. Although we expect sales and margins to improve over time, after this weak performance we revised our 2017 outlook and long-term expectations in the fourth quarter. The impairment was attributable to this revised future outlook for the business, with reduced expectations for sales, margins, and discounted cash flows. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. The impairment charge was recorded in Other expenses / (income) in the Consolidated Statements of Earnings.
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
|
|
2016
|
|
2015
|
Amortizable intangible assets
|
|
|
|
|
Customer relationships
|
|
$
|
222
|
|
|
$
|
222
|
|
Technology
|
|
40
|
|
|
40
|
|
Other
|
|
35
|
|
|
35
|
|
Total gross amortizable intangible assets
|
|
$
|
297
|
|
|
$
|
297
|
|
Accumulated amortization
|
|
(72
|
)
|
|
(52
|
)
|
Total net amortizable intangible assets
|
|
$
|
225
|
|
|
$
|
245
|
|
Non-amortizable intangible assets
|
|
|
|
|
Trademarks
|
|
927
|
|
|
960
|
|
Total net intangible assets
|
|
$
|
1,152
|
|
|
$
|
1,205
|
|
Non-amortizable intangible assets consist of trademarks, which include
Bolthouse Farms, Pace
,
Plum, Kjeldsens, Garden Fresh Gourmet
and
Royal Dansk
. Other amortizable intangible assets consist of recipes, patents, trademarks and distributor relationships.
Amortization of intangible assets of continuing operations was
$20
for
2016
,
$17
for
2015
and
$18
for
2014
. Amortization expense for the next 5 years is estimated to be
$20
in 2017, and
$15
in 2018 through 2021. Asset useful lives range from
5
to
20
years.
In the fourth quarter of 2016, as part of our annual review of intangible assets, an impairment charge of
$35
was recognized on the Bolthouse Farms carrot and carrot ingredients reporting unit trademark. The impairment was attributable to the revised future outlook for the business, with reduced expectations for sales, margins, and discounted cash flows. As part of our annual review of intangible assets, an impairment charge of
$6
was recognized in the fourth quarter of 2015 related to minor trademarks used in the Global Biscuits and Snacks segment. The trademarks were determined to be impaired as a result of a decrease in the fair value of the brands, resulting from reduced expectations for future sales and discounted cash flows. The impairment charges were recorded in Other expenses / (income) in the Consolidated Statements of Earnings.
The discounted estimates of future cash flows used in determining the fair value of goodwill and intangible assets 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.
|
|
7.
|
Business and Geographic Segment Information
|
Beginning in 2016, we manage our businesses in three segments focused mainly on product categories. The segments are:
|
|
•
|
Americas Simple Meals and Beverages segment includes the retail and food service businesses in the U.S., Canada and Latin America. The segment includes the following products:
Campbell’s
condensed and ready-to-serve soups;
Swanson
broth and stocks;
Prego
pasta sauces;
Pace
Mexican sauces;
Campbell’s
gravies, pasta, beans and dinner sauces;
Swanson
canned poultry;
Plum
food and snacks;
V8
juices and beverages; and
Campbell’s
tomato juice;
|
|
|
•
|
Global Biscuits and Snacks segment includes Pepperidge Farm cookies, crackers, bakery and frozen products in U.S. retail; Arnott’s biscuits in Australia and Asia Pacific; and Kelsen cookies globally. The segment also includes the simple meals and shelf-stable beverages business in Australia and Asia Pacific; and
|
|
|
•
|
Campbell Fresh includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips, which was acquired in June 2015; and the U.S. refrigerated soup business.
|
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 will be reflected in Corporate and not included in segment operating results. Asset information by segment is not discretely maintained for internal reporting or used in evaluating performance. Therefore, only geographic segment asset information is included in the disclosure.
Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately
20%
of consolidated net sales in
2016
and
2015
, and
19%
in
2014
. All of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales
|
|
|
|
|
|
|
Americas Simple Meals and Beverages
|
|
$
|
4,380
|
|
|
$
|
4,483
|
|
|
$
|
4,588
|
|
Global Biscuits and Snacks
|
|
2,564
|
|
|
2,631
|
|
|
2,725
|
|
Campbell Fresh
|
|
1,017
|
|
|
968
|
|
|
955
|
|
Total
|
|
$
|
7,961
|
|
|
$
|
8,082
|
|
|
$
|
8,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Earnings before interest and taxes
|
|
|
|
|
|
|
Americas Simple Meals and Beverages
|
|
$
|
1,069
|
|
|
$
|
948
|
|
|
$
|
1,030
|
|
Global Biscuits and Snacks
|
|
422
|
|
|
383
|
|
|
366
|
|
Campbell Fresh
|
|
60
|
|
|
61
|
|
|
68
|
|
Corporate
(1)
|
|
(560
|
)
|
|
(236
|
)
|
|
(142
|
)
|
Restructuring charges
(2)
|
|
(31
|
)
|
|
(102
|
)
|
|
(55
|
)
|
Total
|
|
$
|
960
|
|
|
$
|
1,054
|
|
|
$
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Depreciation and amortization
|
|
|
|
|
|
|
Americas Simple Meals and Beverages
|
|
$
|
117
|
|
|
$
|
123
|
|
|
$
|
120
|
|
Global Biscuits and Snacks
|
|
96
|
|
|
94
|
|
|
101
|
|
Campbell Fresh
|
|
77
|
|
|
70
|
|
|
69
|
|
Corporate
(3)
|
|
18
|
|
|
16
|
|
|
15
|
|
Total
|
|
$
|
308
|
|
|
$
|
303
|
|
|
$
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Capital expenditures
|
|
|
|
|
|
|
Americas Simple Meals and Beverages
|
|
$
|
105
|
|
|
$
|
137
|
|
|
$
|
136
|
|
Global Biscuits and Snacks
|
|
122
|
|
|
137
|
|
|
127
|
|
Campbell Fresh
|
|
74
|
|
|
82
|
|
|
55
|
|
Corporate
(3)
|
|
40
|
|
|
24
|
|
|
28
|
|
Discontinued Operations
|
|
—
|
|
|
—
|
|
|
1
|
|
Total
|
|
$
|
341
|
|
|
$
|
380
|
|
|
$
|
347
|
|
_______________________________________
|
|
(1)
|
Represents unallocated items. Pension and postretirement benefit mark-to-market adjustments are included in Corporate. Losses were
$313
,
$138
and
$31
in
2016
,
2015
and
2014
, respectively. Costs of
$47
and
$22
related to the implementation of our new organizational structure and cost savings initiatives were included in
2016
and
2015
, respectively. A gain of
$25
from a settlement of a claim related to the Kelsen acquisition and an impairment charge of
$141
on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit were also included in 2016. In addition, a loss of
$9
on foreign exchange forward contracts related to the sale of the European simple meals business and restructuring-related costs of
$3
were included in 2014. See Note 6 for information on the impairment charge.
|
|
|
(2)
|
See Note 8 for additional information.
|
|
|
(3)
|
Represents primarily corporate offices.
|
Our global net sales based on product categories are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales
|
|
|
|
|
|
|
Soup
|
|
$
|
2,690
|
|
|
$
|
2,798
|
|
|
$
|
2,891
|
|
Baked snacks
|
|
2,479
|
|
|
2,502
|
|
|
2,571
|
|
Other simple meals
|
|
1,702
|
|
|
1,648
|
|
|
1,620
|
|
Beverages
|
|
1,090
|
|
|
1,134
|
|
|
1,186
|
|
Total
|
|
$
|
7,961
|
|
|
$
|
8,082
|
|
|
$
|
8,268
|
|
Soup includes various soup, broths and stock products. Baked Snacks include cookies, crackers, biscuits and other baked products. Other simple meals include sauces, carrot products, refrigerated salad dressings, refrigerated salsa, hummus, dips and Plum foods and snacks.
Geographic Area Information
Information about operations in different geographic areas is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales
|
|
|
|
|
|
|
United States
|
|
$
|
6,437
|
|
|
$
|
6,400
|
|
|
$
|
6,432
|
|
Australia
|
|
590
|
|
|
646
|
|
|
709
|
|
Other countries
|
|
934
|
|
|
1,036
|
|
|
1,127
|
|
Total
|
|
$
|
7,961
|
|
|
$
|
8,082
|
|
|
$
|
8,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Long-lived assets
|
|
|
|
|
|
|
United States
|
|
$
|
1,967
|
|
|
$
|
1,942
|
|
|
$
|
1,844
|
|
Australia
|
|
242
|
|
|
232
|
|
|
306
|
|
Other countries
|
|
198
|
|
|
173
|
|
|
168
|
|
Total
|
|
$
|
2,407
|
|
|
$
|
2,347
|
|
|
$
|
2,318
|
|
|
|
8.
|
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. We 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 July 31. We also implemented an initiative to reduce overhead across the organization by eliminating approximately
250
positions. In 2016, we recorded a restructuring charge of
$35
related to these initiatives. In 2015, we recorded a restructuring charge of
$102
related to these initiatives.
In 2016, we also incurred charges of
$47
recorded in Administrative expenses related to the implementation of the new organizational structure and cost savings initiatives. In 2015, we incurred charges of
$22
recorded in Administrative expenses related to these initiatives.
The aggregate after-tax impact of restructuring charges, implementation costs and other related costs recorded in 2016 was
$52
, or
$.17
per share. The aggregate after-tax impact of restructuring charges and implementation and other costs recorded in 2015 was
$78
, or
$.25
per share. A summary of the pre-tax costs associated with the 2015 initiatives is as follows:
|
|
|
|
|
|
Recognized
as of
July 31, 2016
|
Severance pay and benefits
|
$
|
128
|
|
Implementation costs and other related costs
|
78
|
|
Total
|
$
|
206
|
|
The total estimated pre-tax costs for the 2015 initiatives are approximately
$250
to
$300
. We expect to incur these costs through 2018.
We expect the costs to consist of approximately
$135
to
$145
in severance pay and benefits, and approximately
$115
to
$155
in implementation costs and other related costs.We expect the total pre-tax costs related to the 2015 initiatives will be associated with segments as follows: Americas Simple Meals and Beverages - approximately
30%
; Global Biscuits and Snacks - approximately
32%
; Campbell Fresh - approximately
3%
; and Corporate - approximately
35%
.
A summary of the restructuring activity and related reserves associated with the 2015 initiatives at
July 31, 2016
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Pay and Benefits
|
|
Other Restructuring Costs
|
|
Non-Cash Benefits
(3)
|
|
Implementation Costs and Other Related Costs
(4)
|
|
Total Charges
|
Accrued balance at August 3, 2014
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
2015 charges
|
|
87
|
|
|
8
|
|
|
7
|
|
|
22
|
|
|
$
|
124
|
|
2015 cash payments
|
|
(1
|
)
|
|
—
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(1
|
)
|
|
—
|
|
|
|
|
|
|
|
Accrued balance at August 2, 2015
(1)
|
|
$
|
85
|
|
|
$
|
8
|
|
|
|
|
|
|
|
2016 charges
|
|
34
|
|
|
1
|
|
|
—
|
|
|
47
|
|
|
$
|
82
|
|
2016 cash payments
|
|
(46
|
)
|
|
(9
|
)
|
|
|
|
|
|
|
Accrued balance at July 31, 2016
(2)
|
|
$
|
73
|
|
|
$
|
—
|
|
|
|
|
|
|
|
_______________________________________
|
|
(1)
|
Includes
$45
of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
|
|
|
(2)
|
Includes
$17
of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
|
|
|
(3)
|
Represents postretirement and pension curtailment costs. See Note 11.
|
|
|
(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 in the Consolidated Statements of Earnings.
|
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:
|
|
|
|
|
|
|
|
|
|
2016
|
|
Costs Incurred to Date
|
Americas Simple Meals and Beverages
|
$
|
17
|
|
|
$
|
71
|
|
Global Biscuits and Snacks
|
22
|
|
|
66
|
|
Campbell Fresh
|
1
|
|
|
2
|
|
Corporate
|
42
|
|
|
67
|
|
Total
|
$
|
82
|
|
|
$
|
206
|
|
2014 Initiatives
In 2014, we implemented initiatives to reduce overhead across the organization, restructure manufacturing and streamline operations for our soup and broth business in China and improve supply chain efficiency in Australia. Details of the 2014 initiatives include:
|
|
•
|
We streamlined our salaried workforce in North America and our workforce in the Asia Pacific region. Approximately
250
positions were eliminated.
|
|
|
•
|
Together with our joint venture partner Swire Pacific Limited, we restructured manufacturing and streamlined operations for our soup and broth business in China. As a result, certain assets were impaired, and approximately
100
positions were eliminated.
|
|
|
•
|
In Australia, we commenced an initiative to improve supply chain efficiency by relocating production from our biscuit plant in Marleston to Huntingwood. The relocation will continue through 2017 and will result in the elimination of approximately
45
positions.
|
|
|
•
|
We implemented an initiative to reduce overhead across the organization by eliminating approximately
85
positions. The actions were completed in 2015.
|
In 2016, we recorded a reduction to restructuring charges of
$4
(
$3
after tax, or
$.01
per share) related to the 2014 initiatives. In 2014, we recorded a restructuring charge of $
54
(
$33
after tax, or
$.10
per share, in earnings from continuing operations attributable to Campbell Soup Company) related to the 2014 initiatives. As of July 31, 2016, we incurred substantially all of the costs related to the 2014 initiatives. A summary of the pre-tax costs associated with the 2014 initiatives is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Program
(1)
|
|
Change in Estimate
|
|
Recognized as of July 31, 2016
|
Severance pay and benefits
|
$
|
41
|
|
|
$
|
(4
|
)
|
|
$
|
37
|
|
Asset impairment
|
12
|
|
|
—
|
|
|
12
|
|
Other exit costs
|
1
|
|
|
—
|
|
|
1
|
|
Total
|
$
|
54
|
|
|
$
|
(4
|
)
|
|
$
|
50
|
|
_______________________________________
|
|
(1)
|
Recognized as of August 2, 2015.
|
A summary of the restructuring activity and related reserves associated with the 2014 initiatives at
July 31, 2016
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Pay and Benefits
|
|
Asset Impairment
|
|
Other Exit Costs
(1)
|
|
Total Charges
|
Accrued balance at July 28, 2013
|
|
$
|
—
|
|
|
|
|
|
|
|
2014 charges
|
|
41
|
|
|
12
|
|
|
1
|
|
|
$
|
54
|
|
2014 cash payments
|
|
(13
|
)
|
|
|
|
|
|
|
Accrued balance at August 3, 2014
|
|
$
|
28
|
|
|
|
|
|
|
|
2015 cash payments
|
|
(16
|
)
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(2
|
)
|
|
|
|
|
|
|
Accrued balance at August 2, 2015
(2)
|
|
$
|
10
|
|
|
|
|
|
|
|
2016 reduction to charges
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
$
|
(4
|
)
|
2016 cash payments
|
|
(4
|
)
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(1
|
)
|
|
|
|
|
|
|
Accrued balance at July 31, 2016
|
|
$
|
1
|
|
|
|
|
|
|
|
_______________________________________
|
|
(1)
|
Includes non-cash costs that are not reflected in the restructuring reserve in the Consolidated Balance Sheet.
|
|
|
(2)
|
Includes
$4
of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
|
Segment operating results do not include restructuring charges because we evaluate segment performance excluding such charges. A summary of restructuring charges associated with segments is as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
Total Program
|
Americas Simple Meals and Beverages
|
$
|
(1
|
)
|
|
$
|
13
|
|
Global Biscuits and Snacks
|
(3
|
)
|
|
35
|
|
Campbell Fresh
|
—
|
|
|
1
|
|
Corporate
|
—
|
|
|
1
|
|
Total
|
$
|
(4
|
)
|
|
$
|
50
|
|
2013 Initiatives
In 2013, we implemented initiatives to improve supply chain efficiency, expand access to manufacturing and distribution capabilities and reduce costs.
In 2014, we recorded a restructuring charge of
$1
related to the 2013 initiatives. In addition, we recorded approximately
$3
of costs related to the 2013 initiatives in Cost of products sold, representing other exit costs. The aggregate after-tax impact of restructuring charges and related costs recorded in 2014 was
$3
, or
$.01
per share.
A summary of the pre-tax costs associated with the 2013 initiatives recognized is as follows:
|
|
|
|
|
|
Total Program
|
Severance pay and benefits
|
$
|
31
|
|
Accelerated depreciation/asset impairment
|
99
|
|
Other exit costs
|
12
|
|
Total
|
$
|
142
|
|
In 2015, we substantially completed the 2013 initiatives.
For the periods presented in the Consolidated Statements of Earnings, the calculations of basic EPS and EPS assuming dilution vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and other share-based payment awards, except when such effect would be antidilutive. The earnings per share calculation for
2016
excludes
355
thousand stock options that would have been antidilutive. There were no antidilutive stock options in
2015
or
2014
.
|
|
10.
|
Noncontrolling Interests
|
We own a
60%
controlling interest in a joint venture formed with Swire Pacific Limited to support the development of our soup and broth business in China. We contributed cash of
$14
and
$7
in 2015 and 2014, respectively, and the joint venture partner contributed cash of
$9
and
$5
in 2015 and 2014, respectively. In 2014, together with our joint venture partner, we restructured manufacturing and streamlined operations for our soup and broth business in China. The after-tax restructuring charge attributable to the noncontrolling interest was
$5
. See also Note 8.
We own a
70%
controlling interest in a Malaysian food products manufacturing company.
We also own a
99.8%
interest in Acre Venture Partners, L.P. (Acre), a limited partnership formed to make venture capital investments in innovative new companies in food and food-related industries. See also Note 15.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings. The noncontrolling interests in these entities were included in Total equity in the Consolidated Balance Sheets and Consolidated Statements of Equity.
|
|
11.
|
Pension and Postretirement Benefits
|
Pension Benefits —
We sponsor a number of noncontributory defined benefit pension plans to provide retirement benefits to all eligible U.S. and non-U.S. employees. The benefits provided under these plans are based primarily on years of service and compensation levels. Benefits are paid from funds previously provided to trustees and insurance companies or are paid directly by us from general funds. In 1999, we implemented significant amendments to certain U.S. pension plans. Under a new formula, retirement benefits are determined based on percentages of annual pay and age. To minimize the impact of converting to the new formula, service and earnings credit continued to accrue through the year 2014 for certain active employees participating in the plans under the old formula prior to the amendments. Employees will receive the benefit from either the new or old formula, whichever is higher. Benefits become vested upon the completion of three years of service. Effective as of January 1, 2011, our U.S. pension plans were amended so that employees hired or rehired on or after that date and who are not covered by collective bargaining agreements will not be eligible to participate in the plans.
Postretirement Benefits —
We provide postretirement benefits, including health care and life insurance, to substantially all retired U.S. employees and their dependents. We established retiree medical account benefits for eligible U.S. retirees. The accounts were intended to provide reimbursement for eligible health care expenses on a tax-favored basis. Effective as of January 1, 2011, the retirement medical program was amended to eliminate the retiree medical account benefit for employees not covered by collective bargaining agreements. To preserve the benefit for employees close to retirement age, the retiree medical account will be available to employees who were at least age 50 with at least 10 years of service as of December 31, 2010, and who satisfy the other eligibility requirements for the retiree medical program. In July 2016, the retirement medical program was amended and beginning on January 1, 2017, we will no longer sponsor our own medical coverage for certain Medicare-eligible retirees. Instead, we will offer these Medicare-eligible retirees access to health care coverage through a private exchange and offer a health reimbursement account to subsidize benefits for a select group of retirees.
We use the fiscal year end as the measurement date for the benefit plans.
Components of net benefit expense (income) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
2016
|
|
2015
|
|
2014
|
Service cost
|
$
|
26
|
|
|
$
|
28
|
|
|
$
|
42
|
|
Interest cost
|
98
|
|
|
105
|
|
|
115
|
|
Expected return on plan assets
|
(147
|
)
|
|
(173
|
)
|
|
(169
|
)
|
Amortization of prior service credit
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Recognized net actuarial loss
|
302
|
|
|
136
|
|
|
48
|
|
Curtailment loss
|
—
|
|
|
1
|
|
|
—
|
|
Net periodic benefit expense
|
$
|
279
|
|
|
$
|
96
|
|
|
$
|
35
|
|
The curtailment loss of
$1
in 2015 was related to a voluntary employee separation program and was included in Restructuring charges. See also Note 8.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
2016
|
|
2015
|
|
2014
|
Service cost
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Interest cost
|
15
|
|
|
15
|
|
|
17
|
|
Amortization of prior service credit
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Recognized net actuarial loss
|
23
|
|
|
7
|
|
|
5
|
|
Curtailment loss
|
—
|
|
|
6
|
|
|
—
|
|
Net periodic benefit expense
|
$
|
38
|
|
|
$
|
29
|
|
|
$
|
23
|
|
The curtailment loss of
$6
in 2015 was related to a voluntary employee separation program and was included in Restructuring charges. See also Note 8.
The estimated prior service credit that will be amortized from Accumulated other comprehensive loss into net periodic postretirement expense during 2017 is
$25
. The prior service credit is primarily related to the amendment in July 2016.
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Obligation at beginning of year
|
|
$
|
2,569
|
|
|
$
|
2,539
|
|
|
$
|
392
|
|
|
$
|
388
|
|
Service cost
|
|
26
|
|
|
28
|
|
|
1
|
|
|
2
|
|
Interest cost
|
|
98
|
|
|
105
|
|
|
15
|
|
|
15
|
|
Actuarial loss
|
|
210
|
|
|
106
|
|
|
23
|
|
|
7
|
|
Participant contributions
|
|
—
|
|
|
—
|
|
|
1
|
|
|
3
|
|
Plan amendments
|
|
—
|
|
|
—
|
|
|
(93
|
)
|
|
—
|
|
Benefits paid
|
|
(116
|
)
|
|
(151
|
)
|
|
(30
|
)
|
|
(33
|
)
|
Settlements
|
|
(160
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Medicare subsidies
|
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
Other
|
|
(6
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Curtailment
|
|
—
|
|
|
1
|
|
|
—
|
|
|
6
|
|
Foreign currency adjustment
|
|
5
|
|
|
(58
|
)
|
|
—
|
|
|
—
|
|
Benefit obligation at end of year
|
|
$
|
2,626
|
|
|
$
|
2,569
|
|
|
$
|
313
|
|
|
$
|
392
|
|
Change in the fair value of pension plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Fair value at beginning of year
|
|
$
|
2,316
|
|
|
$
|
2,364
|
|
Actual return on plan assets
|
|
54
|
|
|
143
|
|
Employer contributions
|
|
2
|
|
|
5
|
|
Benefits paid
|
|
(106
|
)
|
|
(141
|
)
|
Settlements
|
|
(160
|
)
|
|
—
|
|
Foreign currency adjustment
|
|
5
|
|
|
(55
|
)
|
Fair value at end of year
|
|
$
|
2,111
|
|
|
$
|
2,316
|
|
Amounts recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Accrued liabilities
|
|
$
|
14
|
|
|
$
|
20
|
|
|
$
|
28
|
|
|
$
|
30
|
|
Other liabilities
|
|
501
|
|
|
233
|
|
|
285
|
|
|
362
|
|
Amounts recognized
|
|
$
|
515
|
|
|
$
|
253
|
|
|
$
|
313
|
|
|
$
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income (loss) consist of:
|
|
Pension
|
|
Postretirement
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Prior service credit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96
|
|
|
$
|
4
|
|
The change in amounts recognized in accumulated other comprehensive income (loss) associated with postretirement benefits was due to the plan amendment in July 2016.
The following table provides information for pension plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Projected benefit obligation
|
|
$
|
2,434
|
|
|
$
|
1,926
|
|
Accumulated benefit obligation
|
|
$
|
2,385
|
|
|
$
|
1,906
|
|
Fair value of plan assets
|
|
$
|
1,933
|
|
|
$
|
1,684
|
|
The accumulated benefit obligation for all pension plans was
$2,557
at
July 31, 2016
, and
$2,516
at
August 2, 2015
.
Weighted-average assumptions used to determine benefit obligations at the end of the year:
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Discount rate
|
|
3.39%
|
|
4.19%
|
|
3.20%
|
|
4.00%
|
Rate of compensation increase
|
|
3.25%
|
|
3.29%
|
|
3.25%
|
|
3.25%
|
Weighted-average assumptions used to determine net periodic benefit cost for the years ended:
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
|
4.19%
|
|
4.33%
|
|
4.82%
|
Expected return on plan assets
|
|
7.35%
|
|
7.62%
|
|
7.62%
|
Rate of compensation increase
|
|
3.29%
|
|
3.30%
|
|
3.30%
|
The discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent actuaries apply high-quality bond yield curves to the expected benefit payments of the plans. The expected return on plan assets is a long-term assumption based upon historical experience and expected future performance, considering our current and projected investment mix. This estimate is based on an estimate of future inflation, long-term projected real returns for each asset class, and a premium for active management.
The discount rate used to determine net periodic postretirement expense was
4.00%
in
2016
and
2015
, and
4.50%
in
2014
.
Assumed health care cost trend rates at the end of the year:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Health care cost trend rate assumed for next year
|
|
7.25%
|
|
7.75%
|
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
|
|
4.50%
|
|
4.50%
|
Year that the rate reaches the ultimate trend rate
|
|
2022
|
|
2022
|
A one-percentage-point change in assumed health care costs would have the following effects on 2016 reported amounts:
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
Decrease
|
Effect on service and interest cost
|
|
$
|
—
|
|
|
$
|
—
|
|
Effect on the 2016 accumulated benefit obligation
|
|
$
|
12
|
|
|
$
|
(11
|
)
|
Pension Plan Assets
The fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent manner to meet the obligations of the plans as these obligations come due. The primary investment objectives include providing a total return which will promote the goal of benefit security by attaining an appropriate ratio of plan assets to plan obligations, to provide for real asset growth while also tracking plan obligations, to diversify investments across and within asset classes, to reduce the impact of losses in single investments, and to follow investment practices that comply with applicable laws and regulations.
The primary policy objectives will be met by investing assets to achieve a reasonable tradeoff between return and risk relative to plan obligations. This includes investing a portion of the assets in funds selected in part to hedge the interest rate sensitivity to plan obligations.
The portfolio includes investments in the following asset classes: fixed income, equity, real estate and alternatives. Fixed income will provide a moderate expected return and partially hedge the exposure to interest rate risk of the plans’ obligations. Equities are used for their high expected return. Additional asset classes are used to provide diversification.
Asset allocation is monitored on an ongoing basis relative to the established asset class targets. The interaction between plan assets and benefit obligations is periodically studied to assist in the establishment of strategic asset allocation targets. The investment policy permits variances from the targets within certain parameters. Asset rebalancing occurs when the underlying asset class allocations move outside these parameters, at which time the asset allocation is rebalanced back to the policy target weight.
Our year-end pension plan weighted-average asset allocations by category were:
|
|
|
|
|
|
|
|
Strategic Target
|
|
2016
|
|
2015
|
Equity securities
|
51%
|
|
51%
|
|
50%
|
Debt securities
|
35%
|
|
35%
|
|
34%
|
Real estate and other
|
14%
|
|
14%
|
|
16%
|
Net periodic benefit expense
|
100%
|
|
100%
|
|
100%
|
Pension plan assets are categorized based on the following fair value hierarchy:
|
|
•
|
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data.
|
|
|
•
|
Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would use in pricing the asset or liability.
|
The following table presents our pension plan assets by asset category at
July 31, 2016
, and
August 2, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
as of
July 31,
2016
|
|
Fair Value Measurements at
July 31, 2016 Using
Fair Value Hierarchy
|
|
Fair Value
as of
August 2,
2015
|
|
Fair Value Measurements at
August 2, 2015 Using
Fair Value Hierarchy
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Short-term investments
|
$
|
43
|
|
|
$
|
41
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
349
|
|
|
349
|
|
|
—
|
|
|
—
|
|
|
386
|
|
|
386
|
|
|
—
|
|
|
—
|
|
Non-U.S.
|
273
|
|
|
273
|
|
|
—
|
|
|
—
|
|
|
312
|
|
|
312
|
|
|
—
|
|
|
—
|
|
Corporate bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
469
|
|
|
—
|
|
|
469
|
|
|
—
|
|
|
494
|
|
|
—
|
|
|
494
|
|
|
—
|
|
Non-U.S.
|
98
|
|
|
—
|
|
|
98
|
|
|
—
|
|
|
102
|
|
|
—
|
|
|
102
|
|
|
—
|
|
Government and agency bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
49
|
|
|
—
|
|
|
49
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
42
|
|
|
—
|
|
Non-U.S.
|
29
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
36
|
|
|
—
|
|
|
36
|
|
|
—
|
|
Municipal bonds
|
67
|
|
|
—
|
|
|
67
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
68
|
|
|
—
|
|
Mortgage and asset backed securities
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|
—
|
|
Real estate
|
19
|
|
|
13
|
|
|
—
|
|
|
6
|
|
|
14
|
|
|
8
|
|
|
—
|
|
|
6
|
|
Hedge funds
|
45
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
39
|
|
Derivative assets
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
—
|
|
Derivative liabilities
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
Total assets at fair value
|
$
|
1,447
|
|
|
$
|
676
|
|
|
$
|
720
|
|
|
$
|
51
|
|
|
$
|
1,533
|
|
|
$
|
738
|
|
|
$
|
750
|
|
|
$
|
45
|
|
Investments measured at net asset value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
20
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
Commingled funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
309
|
|
|
|
|
|
|
|
|
375
|
|
|
|
|
|
|
|
Fixed income
|
31
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
Blended
|
79
|
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
Real estate
|
108
|
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
Hedge funds
|
144
|
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
Total investments measured at net asset value:
|
691
|
|
|
|
|
|
|
|
|
805
|
|
|
|
|
|
|
|
Other items to reconcile to fair value of plan assets
|
(27
|
)
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
Total pension assets at fair value
|
$
|
2,111
|
|
|
|
|
|
|
|
|
$
|
2,316
|
|
|
|
|
|
|
|
Short-term investments —
Investments include cash and cash equivalents, and various short-term debt instruments and short-term investment funds. Institutional short-term investment vehicles valued daily are classified as Level 1 at cost which approximates market value. Short-term debt instruments are classified at Level 2 and are valued based on bid quotations and recent trade data for identical or similar obligations. Other investments valued based upon net asset value are included as a reconciling item to the fair value table.
Equities —
Common stocks and preferred stocks are classified as Level 1 and are valued using quoted market prices in active markets.
Corporate bonds —
These investments are valued based on quoted market prices, yield curves and pricing models using current market rates.
Government and agency bonds —
These investments are generally valued based on bid quotations and recent trade data for identical or similar obligations.
Municipal bonds —
These investments are valued based on quoted market prices, yield curves and pricing models using current market rates.
Mortgage and asset backed securities —
These investments are valued based on prices obtained from third party pricing sources. The prices from third party pricing sources may be based on bid quotes from dealers and recent trade data. Mortgage backed securities are traded in the over-the-counter market.
Real estate —
Real estate investments consist of real estate investment trusts, property funds and limited partnerships. Real estate investment trusts are classified as Level 1 and are valued based on quoted market prices. Property funds are classified as either Level 2 or Level 3 depending upon whether liquidity is limited or there are few observable market participant transactions. Property funds are valued based on third party appraisals. Limited partnerships are valued based upon valuations provided by the general partners of the funds. The values of limited partnerships are based upon an assessment of each underlying investment, incorporating valuations that consider the evaluation of financing and sales transactions with third parties, expected cash flows, and market-based information, including comparable transactions and performance multiples among other factors. The investments are classified as Level 3 since the valuation is determined using unobservable inputs. Real estate investments valued at net asset value are included as a reconciling item to the fair value table.
Hedge funds —
Hedge fund investments include hedge funds valued based upon a net asset value derived from the fair value of underlying securities. Hedge fund investments that are subject to liquidity restrictions or that are based on unobservable inputs are classified as Level 3. Hedge fund investments may include long and short positions in equity and fixed income securities, derivative instruments such as futures and options, commodities and other types of securities. Hedge fund investments valued at net asset value are included as a reconciling item to the fair value table.
Derivatives —
Derivative financial instruments include forward currency contracts, futures contracts, options contracts, interest rate swaps and credit default swaps. Derivative financial instruments are classified as Level 2 and are valued based on observable market transactions or prices.
Commingled funds —
Investments in commingled funds are not traded in active markets. Blended commingled funds are invested in both equities and fixed income securities. Commingled funds are valued based on the net asset values of such funds and are included as a reconciling item to the fair value table.
Other items to reconcile to fair value of plan assets included amounts due for securities sold, amounts payable for securities purchased, and other payables.
The following table summarizes the changes in fair value of Level 3 investments for the years ended
July 31, 2016
, and
August 2, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
Hedge Funds
|
|
Total
|
Fair value at August 2, 2015
|
|
$
|
6
|
|
|
$
|
39
|
|
|
$
|
45
|
|
Actual return on plan assets
|
|
1
|
|
|
1
|
|
|
2
|
|
Purchases
|
|
—
|
|
|
5
|
|
|
5
|
|
Sales
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Settlements
|
|
—
|
|
|
—
|
|
|
—
|
|
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
Fair value at July 31, 2016
|
|
$
|
6
|
|
|
$
|
45
|
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
Hedge Funds
|
|
Total
|
Fair value at August 3, 2014
|
|
$
|
3
|
|
|
$
|
30
|
|
|
$
|
33
|
|
Actual return on plan assets
|
|
1
|
|
|
2
|
|
|
3
|
|
Purchases
|
|
2
|
|
|
7
|
|
|
9
|
|
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlements
|
|
—
|
|
|
—
|
|
|
—
|
|
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
Fair value at August 2, 2015
|
|
$
|
6
|
|
|
$
|
39
|
|
|
$
|
45
|
|
The following table presents additional information about the pension plan assets valued using net asset value as a practical expedient within the fair value hierarchy table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Unfunded Commitments
|
|
Fair Value
|
|
Unfunded Commitments
|
|
Redemption Frequency
|
|
Redemption Notice Period Range
|
Short-term investments
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
28
|
|
|
$
|
—
|
|
|
Daily
|
|
1 Day
|
Commingled funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
309
|
|
|
—
|
|
|
375
|
|
|
—
|
|
|
Daily,
|
Monthly
|
|
1
|
to
|
60 Days
|
Fixed income
|
|
31
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
Daily
|
|
1 Day
|
Blended
|
|
79
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
Primarily Daily
|
|
1 Day
|
Real estate funds
(1)
|
|
108
|
|
|
—
|
|
|
117
|
|
|
3
|
|
|
Primarily Quarterly
|
|
1
|
to
|
90 Days
|
Hedge funds
(2)
|
|
144
|
|
|
—
|
|
|
175
|
|
|
25
|
|
|
Monthly,
|
Quarterly
|
|
5
|
to
|
65 Days
|
Total
|
|
$
|
691
|
|
|
$
|
—
|
|
|
$
|
805
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
___________________________________
|
|
(1)
|
Includes real estate investments valued at
$34
for which a redemption queue has been imposed by the investment manager increasing the redemption receipt period to up to 9 months after notice.
|
|
|
(2)
|
Includes a fund valued at
$45
which is being liquidated. Distributions from the fund will be received as the underlying investments are liquidated which is estimated to occur by December 31, 2016.
|
No
contributions are expected to be made to U.S. pension plans in 2017. We expect contributions to non-U.S. pension plans to be approximately
$5
in 2017.
Estimated future benefit payments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
2017
|
|
$
|
176
|
|
|
$
|
28
|
|
2018
|
|
$
|
164
|
|
|
$
|
28
|
|
2019
|
|
$
|
168
|
|
|
$
|
27
|
|
2020
|
|
$
|
161
|
|
|
$
|
26
|
|
2021
|
|
$
|
161
|
|
|
$
|
24
|
|
2022-2026
|
|
$
|
808
|
|
|
$
|
99
|
|
The estimated future benefit payments include payments from funded and unfunded plans.
401(k) Retirement Plan —
We sponsor employee savings plans that cover substantially all U.S. employees. Effective January 1, 2011, we provide a matching contribution of
100%
of employee contributions up to
4%
of compensation for employees who are not covered by collective bargaining agreements. Employees hired or rehired on or after January 1, 2011, who will not be eligible to participate in the defined benefit plans and who are not covered by collective bargaining agreements receive a contribution equal to
3%
of compensation regardless of their participation in the 401(k) Retirement Plan. Prior to January 1, 2011, we provided a matching contribution of
60%
(
50%
at certain locations) of the employee contributions up to
5%
of compensation after one year of continued service. Amounts charged to Costs and expenses were
$33
in
2016
,
$31
in
2015
and
$29
in
2014
.
The provision for income taxes on earnings from continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Income taxes:
|
|
|
|
|
|
Currently payable:
|
|
|
|
|
|
Federal
|
$
|
235
|
|
|
$
|
246
|
|
|
$
|
252
|
|
State
|
34
|
|
|
31
|
|
|
30
|
|
Non-U.S.
|
47
|
|
|
55
|
|
|
42
|
|
|
316
|
|
|
332
|
|
|
324
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(17
|
)
|
|
(47
|
)
|
|
56
|
|
State
|
—
|
|
|
1
|
|
|
3
|
|
Non-U.S.
|
(13
|
)
|
|
(3
|
)
|
|
(9
|
)
|
|
(30
|
)
|
|
(49
|
)
|
|
50
|
|
|
$
|
286
|
|
|
$
|
283
|
|
|
$
|
374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Earnings from continuing operations before income taxes:
|
|
|
|
|
|
|
United States
|
|
$
|
705
|
|
|
$
|
803
|
|
|
$
|
1,064
|
|
Non-U.S.
|
|
144
|
|
|
146
|
|
|
84
|
|
|
|
$
|
849
|
|
|
$
|
949
|
|
|
$
|
1,148
|
|
The following is a reconciliation of the effective income tax rate on continuing operations to the U.S. federal statutory income tax rate:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Federal statutory income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes (net of federal tax benefit)
|
2.7
|
|
|
2.2
|
|
|
2.0
|
|
Tax effect of international items
|
(3.0
|
)
|
|
(2.5
|
)
|
|
(1.0
|
)
|
Settlement of tax contingencies
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
Federal manufacturing deduction
|
(3.2
|
)
|
|
(2.9
|
)
|
|
(2.2
|
)
|
Goodwill impairment
|
4.3
|
|
|
—
|
|
|
—
|
|
Claim settlement
|
(0.8
|
)
|
|
—
|
|
|
—
|
|
Other
|
(1.3
|
)
|
|
(1.2
|
)
|
|
(1.2
|
)
|
Effective income tax rate
|
33.7
|
%
|
|
29.8
|
%
|
|
32.6
|
%
|
Deferred tax liabilities and assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Depreciation
|
$
|
362
|
|
|
$
|
306
|
|
Amortization
|
541
|
|
|
541
|
|
Other
|
23
|
|
|
17
|
|
Deferred tax liabilities
|
926
|
|
|
864
|
|
Benefits and compensation
|
266
|
|
|
298
|
|
Pension benefits
|
185
|
|
|
92
|
|
Tax loss carryforwards
|
37
|
|
|
44
|
|
Capital loss carryforwards
|
88
|
|
|
85
|
|
Other
|
113
|
|
|
101
|
|
Gross deferred tax assets
|
689
|
|
|
620
|
|
Deferred tax asset valuation allowance
|
(118
|
)
|
|
(122
|
)
|
Net deferred tax assets
|
571
|
|
|
498
|
|
Net deferred tax liability
|
$
|
355
|
|
|
$
|
366
|
|
At
July 31, 2016
, our U.S. and non-U.S. subsidiaries had tax loss carryforwards of approximately
$173
. Of these carryforwards,
$157
expire between
2017
and
2036
, and
$16
may be carried forward indefinitely. At
July 31, 2016
, deferred tax asset valuation allowances have been established to offset
$143
of these tax loss carryforwards. Additionally, at
July 31, 2016
, our non-U.S. subsidiaries had capital loss carryforwards of approximately
$307
, which were fully offset by valuation allowances.
The net change in the deferred tax asset valuation allowance in 2016 was a decrease of
$4
. The decrease was primarily due to the expiration of tax losses, partially offset by the recognition of additional valuation allowance on tax loss carryforwards. The net change in the deferred tax asset valuation allowance in 2015 was a decrease of
$29
. The decrease was primarily due to the impact of currency and the expiration of tax losses, partially offset by the recognition of additional valuation allowances on other foreign loss carryforwards.
As of
July 31, 2016
, other deferred tax assets included
$2
of state tax credit carryforwards related to various states that expire between
2018
and
2025
. As of
August 2, 2015
, other deferred tax assets included
$2
of state tax credit carryforwards related to various states that expire between
2018
and
2024
. No valuation allowances have been established related to these deferred tax assets.
As of
July 31, 2016
, U.S. income taxes have not been provided on approximately
$638
of undistributed earnings of non-U.S. subsidiaries, which are deemed to be permanently reinvested. It is not practical to estimate the tax liability that might be incurred if such earnings were remitted to the U.S.
A reconciliation of the activity related to unrecognized tax benefits follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance at beginning of year
|
$
|
58
|
|
|
$
|
71
|
|
|
$
|
61
|
|
Increases related to prior-year tax positions
|
2
|
|
|
9
|
|
|
—
|
|
Decreases related to prior-year tax positions
|
—
|
|
|
—
|
|
|
(1
|
)
|
Increases related to current-year tax positions
|
3
|
|
|
5
|
|
|
11
|
|
Settlements
|
—
|
|
|
(27
|
)
|
|
—
|
|
Lapse of statute
|
—
|
|
|
—
|
|
|
—
|
|
Balance at end of year
|
$
|
63
|
|
|
$
|
58
|
|
|
$
|
71
|
|
The amount of unrecognized tax benefits that, if recognized, would impact the annual effective tax rate was
$42
as of
July 31, 2016
,
$39
as of
August 2, 2015
, and
$23
as of
August 3, 2014
. The total amount of unrecognized tax benefits can change due to audit settlements, tax examination activities, statute expirations and the recognition and measurement criteria under accounting for uncertainty in income taxes. We are unable to estimate what this change may be within the next 12 months, but do not believe that it will be material to the financial statements. Approximately
$5
of unrecognized tax benefits, including interest and penalties, were reported as accounts receivable in the Consolidated Balance Sheets as of
July 31, 2016
, and
August 2, 2015
.
Our accounting policy with respect to interest and penalties attributable to income taxes is to reflect any expense or benefit as a component of our income tax provision. The total amount of interest and penalties recognized in the Consolidated Statements
of Earnings was
$3
in
2016
, and
$1
in
2015
and
2014
. The total amount of interest and penalties recognized in the Consolidated Balance Sheets was
$6
as of
July 31, 2016
, and
$3
as of
August 2, 2015
.
We do business internationally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and non-U.S. jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S., Australia, Canada and Denmark. The 2016 tax year is currently under audit by the Internal Revenue Service. In addition, several state income tax examinations are in progress for the years 1999 to 2015.
With limited exceptions, we have been audited for income tax purposes in Australia and Denmark through 2010, and in Canada through 2009.
|
|
13.
|
Short-term Borrowings and Long-term Debt
|
Short-term borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Commercial paper
|
$
|
770
|
|
|
$
|
1,532
|
|
Current portion of long-term debt
|
400
|
|
|
—
|
|
Current portion of Canadian credit facility
|
42
|
|
|
—
|
|
Variable-rate bank borrowings
|
6
|
|
|
1
|
|
Fixed-rate bank borrowings
|
—
|
|
|
9
|
|
Capital leases
|
2
|
|
|
1
|
|
Other
(1)
|
(1
|
)
|
|
—
|
|
Total short-term borrowings
|
$
|
1,219
|
|
|
$
|
1,543
|
|
_______________________________________
|
|
(1)
|
Includes unamortized net discount/premium on debt issuances and debt issuance costs.
|
As of
July 31, 2016
, the weighted-average interest rate of commercial paper, which consisted of U.S. borrowings, was
0.74%
. As of
August 2, 2015
, the weighted-average interest rate of commercial paper, which consisted of U.S. borrowings, was
0.58%
.
At
July 31, 2016
, we had
$1,219
of short-term borrowings due within one year, of which
$770
was comprised of commercial paper borrowings. As of
July 31, 2016
, we issued
$47
of standby letters of credit. We have a committed revolving credit facility totaling
$2,200
that matures in December 2018. This U.S. facility remained unused at
July 31, 2016
, except for
$3
of standby letters of credit that we issued under it. The U.S. facility supports our commercial paper programs and other general corporate purposes. We may increase the commitment under the U.S. facility up to an additional
$500
, upon the agreement of either existing lenders or of additional banks not currently parties to the facility. In July 2016, we entered into a committed revolving credit facility totaling CAD
$280
, or
$215
, that matures in July 2019. The Canadian facility's commitment mandatorily reduces to CAD
$225
in July 2017 and to CAD
$185
in July 2018. The Canadian facility supports general corporate purposes. As of
July 31, 2016
, we borrowed CAD
$280
, or
$215
, at a rate of
1.78%
pursuant to this facility, of which CAD
$55
, or
$42
, is classified as short-term borrowings. In August 2016, we reduced the borrowings and commitment under the Canadian facility by CAD
$35
, or
$27
.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
Fiscal Year of Maturity
|
|
Rate
|
|
2016
|
|
2015
|
Notes
|
|
2017
|
|
3.05%
|
|
$
|
400
|
|
|
$
|
400
|
|
Notes
|
|
2019
|
|
4.50%
|
|
300
|
|
|
300
|
|
Notes
|
|
2021
|
|
4.25%
|
|
500
|
|
|
500
|
|
Debentures
|
|
2021
|
|
8.88%
|
|
200
|
|
|
200
|
|
Notes
|
|
2023
|
|
2.50%
|
|
450
|
|
|
450
|
|
Notes
|
|
2025
|
|
3.30%
|
|
300
|
|
|
300
|
|
Notes
|
|
2043
|
|
3.80%
|
|
400
|
|
|
400
|
|
Canadian credit facility
|
|
2019
|
|
Variable
|
|
215
|
|
|
—
|
|
Capital leases
|
|
|
|
|
|
8
|
|
|
10
|
|
Other
(1)
|
|
|
|
|
|
(18
|
)
|
|
(21
|
)
|
Total
|
|
|
|
|
|
$
|
2,755
|
|
|
$
|
2,539
|
|
Less current portion
(1)
|
|
|
|
|
|
441
|
|
|
—
|
|
Total long-term debt
|
|
|
|
|
|
$
|
2,314
|
|
|
$
|
2,539
|
|
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