Notes to Consolidated Financial Statements
(unaudited)
(currency in millions, except per share amounts)
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1.
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Basis of Presentation and Significant Accounting Policies
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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. See Note 3 for a discussion of Discontinued Operations. 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 29, 2018, except as described below and 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, which is July 28, 2019.
Revenue Recognition
- Our revenues primarily consist of the sale of food and beverage products through our own sales force and/or third-party brokers and distribution partners. Revenues are recognized when our performance obligation has been satisfied and control of the product passes to our customers, which typically occurs when products are delivered or accepted by customers in accordance with terms of agreements. We make shipments promptly after acceptance of orders. Shipping and handling costs incurred to deliver the product are recorded within Cost of products sold. Amounts billed and due from our customers are classified as Accounts receivable in the Consolidated Balance Sheets and require payment on a short-term basis. Revenues are recognized net of provisions for returns, discounts and certain sales promotion expenses, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees and coupon redemption costs. These forms of variable consideration are recognized upon sale. The recognition of costs for promotion programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors, including expected volume. Historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial statements. Differences between estimates and actual costs are recognized as a change in estimate in a subsequent period. Revenues are presented on a net basis for arrangements under which suppliers perform certain additional services. See Note 7 for additional information on disaggregation of revenue. In 2019, we adopted revised guidance on the recognition of revenue from contracts with customers. See Note 2 for additional information.
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2.
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Recent Accounting Pronouncements
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Recently Adopted
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 were 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 completed the review of our arrangements with customers across our businesses, including our practices of offering rebates, refunds, discounts and other price allowances, and trade and consumer promotion programs. As we evaluated our methods of estimating the amount and timing of these various forms of variable consideration, we determined we will accelerate the expense recognition of certain trade and consumer promotion programs under the new guidance. Based on our assessment, the impact is not expected to be material on an annual basis, but will impact quarterly results. We adopted the guidance in the first quarter of 2019 using the modified retrospective method and recorded a cumulative effect adjustment of
$8
, net of tax, to decrease the opening balance of Earnings retained in the business, an increase of
$10
to Accrued liabilities, an increase of
$1
to Accounts payable, a decrease of
$2
to Deferred taxes and an increase of
$1
to Other assets.
The impacts of the changes to our Consolidated Balance Sheet as of
April 28, 2019
, as a result of adoption are as follows:
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As Reported
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Balances Without Adoption
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Increase/(Decrease) Due to Adoption
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Accounts receivable, net
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$
|
753
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$
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752
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$
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1
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Total current assets
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2,161
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2,160
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1
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Total assets
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13,768
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13,767
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1
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Payable to suppliers and others
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$
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841
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$
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840
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$
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1
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Accrued liabilities
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672
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661
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11
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Accrued income taxes
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18
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21
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(3
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)
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Total current liabilities
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3,511
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3,502
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9
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Total liabilities
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12,531
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12,522
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9
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Campbell Soup Company shareholders' equity
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Earnings retained in the business
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$
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2,107
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$
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2,115
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$
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(8
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)
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Total Campbell Soup Company shareholders' equity
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1,228
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1,236
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(8
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)
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Total equity
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1,237
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1,245
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(8
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)
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Total liabilities and equity
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13,768
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13,767
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1
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The impacts of the changes to our Consolidated Statement of Earnings as a result of adoption are as follows:
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Three Months Ended
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Nine Months Ended
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April 28, 2019
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April 28, 2019
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As Reported
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Balances Without Adoption
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Increase/(Decrease) Due to Adoption
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As Reported
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Balances Without Adoption
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Increase/(Decrease) Due to Adoption
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Net sales
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$
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2,178
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$
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2,172
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$
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6
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$
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7,129
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$
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7,128
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$
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1
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Cost of products sold
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$
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1,455
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$
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1,454
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$
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1
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$
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4,781
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$
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4,780
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$
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1
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Total costs and expenses
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$
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1,912
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$
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1,911
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$
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1
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$
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6,119
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$
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6,118
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$
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1
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Earnings before interest and taxes
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$
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266
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$
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261
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$
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5
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$
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1,010
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$
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1,010
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$
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—
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Earnings before taxes
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$
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175
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$
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170
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$
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5
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$
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734
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$
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734
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$
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—
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Taxes on earnings
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44
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43
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1
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184
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|
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184
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—
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Earnings from continuing operations attributable to Campbell Soup Company
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$
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131
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$
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127
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$
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4
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$
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550
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$
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550
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$
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—
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Per Share — Basic
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Earnings from continuing operations attributable to Campbell Soup Company
(1)
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$
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.44
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$
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.42
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$
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.01
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$
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1.83
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$
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1.83
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$
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—
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Per Share — Assuming Dilution
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Earnings from continuing operations attributable to Campbell Soup Company
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$
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.43
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$
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.42
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$
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.01
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$
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1.82
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$
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1.82
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$
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—
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_______________________________________
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(1)
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The sum of individual per share amounts may not add due to rounding.
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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. In 2019, we adopted the guidance. The adoption did not have an impact on our consolidated financial statements.
In August 2016, the FASB issued guidance on the classification of certain cash receipts and payments in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The guidance must be applied retrospectively to all periods presented but may be applied prospectively if retrospective application would be impracticable. In 2019, we adopted the guidance. The adoption did not have a material impact on our consolidated financial statements.
In October 2016, the FASB issued guidance on tax accounting for intra-entity asset transfers. Under 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 approach is required upon adoption, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. In 2019, we adopted the guidance. The adoption did not have an impact on our consolidated financial statements.
In January 2017, the FASB issued guidance that revises the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If it is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. Beginning in 2019, we will prospectively apply the guidance to applicable transactions.
In May 2017, the FASB issued guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the new guidance, modification accounting is required only if the value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for fiscal years beginning after December 15, 2017. Early adoption is permitted. We will apply the guidance in evaluating future changes to terms or conditions of share-based payment awards.
In February 2018, the FASB issued guidance that provides entities an option to reclassify the stranded tax effects of the Tax Cuts and Jobs Act of 2017 on items within accumulated other comprehensive income to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Entities are able to early adopt the guidance in any interim or annual period for which financial statements have not yet been issued and apply it either in the period of adoption or retrospectively to each period in which the tax effects of the Tax Cuts and Jobs Act of 2017 related to items in accumulated other comprehensive income are recognized. We adopted the guidance in the first quarter of 2019, effective on July 30, 2018, and elected not to reclassify prior periods. The adoption resulted in a cumulative effect adjustment of
$9
to decrease the opening balance of Earnings retained in the business and a corresponding net decrease to the components of Accumulated other comprehensive income (loss). See Note 5 for additional information.
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued guidance that amends accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities for most leases but will recognize expenses similar to current lease accounting. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. In July 2018, the FASB issued an adoption approach that allows entities to apply the new guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. We are currently compiling an inventory of our lease arrangements in order to determine the impact that the new guidance will have on our consolidated financial statements. We have selected a lease software solution to facilitate the adoption of the new guidance.
In August 2017, the FASB issued guidance that amends hedge accounting. Under the new guidance, more hedging strategies will be eligible for hedge accounting and the application of hedge accounting is simplified. The new guidance amends presentation and disclosure requirements, and how effectiveness is assessed. In October 2018, the FASB issued guidance which permits an entity to designate the overnight index swap rate based on the Secured Overnight Financing Rate Fed Funds as a benchmark interest rate in a hedge accounting relationship. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In August 2018, the FASB issued guidance that changes the disclosure requirements related to defined benefit pension and postretirement plans. The guidance is effective for fiscal years beginning after December 15, 2020. The guidance is to be applied on a retrospective basis. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our disclosures.
In August 2018, the FASB issued guidance that eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted. Certain disclosures in the guidance must be applied on a retrospective basis, while others must be applied on a prospective basis. We are currently evaluating the impact that the new guidance will have on our disclosures.
In August 2018, the FASB issued guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2019. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
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3.
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Discontinued Operations
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On August 30, 2018, we announced plans to pursue the divestiture of businesses within two operating segments: our international biscuits and snacks operating segment, which includes Arnott’s, Kelsen and our operations in Indonesia, Malaysia, Hong Kong and Japan; and the Campbell Fresh operating segment, which includes Bolthouse Farms, Garden Fresh Gourmet and the U.S. refrigerated soup business.
On February 25, 2019, we sold our U.S refrigerated soup business and on April 25, 2019, we sold our Garden Fresh Gourmet business. Proceeds were approximately
$55
, subject to customary purchase price adjustments. On April 12, 2019, we signed a definitive agreement for the sale of Bolthouse Farms to an affiliate of Butterfly Equity for
$510
, subject to customary purchase price adjustments. We expect to complete the sale in the fourth quarter of 2019. Beginning in the third quarter of 2019, we have reflected the results of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented.
Results of discontinued operations were as follows:
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Three Months Ended
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Nine Months Ended
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April 28, 2019
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April 29, 2018
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April 28, 2019
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April 29, 2018
|
Net sales
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$
|
210
|
|
|
$
|
247
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$
|
666
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$
|
723
|
|
|
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Impairment charges
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$
|
—
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|
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$
|
619
|
|
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$
|
360
|
|
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$
|
694
|
|
|
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|
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Earnings (loss) before taxes from operations
|
$
|
7
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|
|
$
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(633
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)
|
|
$
|
(361
|
)
|
|
$
|
(720
|
)
|
Taxes on earnings from operations
|
7
|
|
|
(167
|
)
|
|
(82
|
)
|
|
(197
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)
|
Loss on sale of businesses / costs associated with selling the businesses
|
(24
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)
|
|
—
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|
|
(31
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)
|
|
—
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Tax impact of loss on sale / costs associated with selling the businesses
|
23
|
|
|
—
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|
|
21
|
|
|
—
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|
Loss from discontinued operations
|
$
|
(47
|
)
|
|
$
|
(466
|
)
|
|
$
|
(331
|
)
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|
$
|
(523
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)
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In the second quarter of 2019, we performed interim impairment assessments on the intangible and tangible assets of the businesses. We revised our future outlook for earnings and cash flows for each of these businesses as the divestiture process progressed and we received initial indications of value. Within Bolthouse Farms carrot and carrot ingredients, we recorded impairment charges of
$18
on the trademark,
$40
on customer relationships,
$15
on technology and
$104
on plant assets. Within Bolthouse Farms refrigerated beverages and salad dressings, we recorded impairment charges of
$74
on the trademark,
$22
on customer relationships, and
$9
on plant assets. On Garden Fresh Gourmet, we recorded impairment charges of
$23
on the trademark,
$39
on customer relationships, and
$2
on plant assets. In the first quarter of 2019, we recorded an impairment charge of
$14
on the U.S refrigerated soup plant assets.
In the third quarter of 2019, we incurred pre-tax expenses of
$24
associated with the sale process of the businesses in Campbell Fresh, including losses on the sale of the U.S. refrigerated soup business and Garden Fresh Gourmet of
$15
. Year-to-date in 2019, we incurred pre-tax expenses of
$31
associated with the sale process of the businesses, including losses on the sale of the U.S. refrigerated soup business and Garden Fresh Gourmet of
$18
. In addition, due to the pending sale of Bolthouse Farms, we recorded tax expense of
$29
in the three- and nine-month periods ended April 28, 2019, as deferred tax assets are not realizable.
The assets and liabilities of Bolthouse Farms have been reflected as assets and liabilities of discontinued operations as of April 28, 2019, and July 29, 2018. In addition, the assets and liabilities of the Garden Fresh Gourmet business and our U.S refrigerated soup business, which were sold in the current-year quarter, have been reflected as assets and liabilities of discontinued operations as of July 29, 2018.
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|
|
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|
April 28,
2019
|
|
July 29,
2018
|
Cash
|
$
|
4
|
|
|
$
|
8
|
|
Accounts receivable, net
|
77
|
|
|
84
|
|
Inventories
|
137
|
|
|
161
|
|
Other current assets
|
2
|
|
|
3
|
|
Current assets
|
$
|
220
|
|
|
$
|
256
|
|
|
|
|
|
Plant assets, net of depreciation
|
$
|
199
|
|
|
$
|
413
|
|
Other intangible assets, net of amortization
|
143
|
|
|
381
|
|
Other assets
|
4
|
|
|
4
|
|
Total assets
|
$
|
566
|
|
|
$
|
1,054
|
|
|
|
|
|
Payable to suppliers and others
|
$
|
57
|
|
|
$
|
79
|
|
Accrued liabilities
|
43
|
|
|
39
|
|
Current liabilities
|
$
|
100
|
|
|
$
|
118
|
|
|
|
|
|
Deferred taxes
|
$
|
—
|
|
|
$
|
(1
|
)
|
Other liabilities
|
4
|
|
|
5
|
|
Total liabilities
|
$
|
104
|
|
|
$
|
122
|
|
The depreciation and amortization, capital expenditures, sale proceeds and significant operating noncash items of discontinued operations were as follows:
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|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
April 28,
2019
|
|
April 29,
2018
|
Cash flows from discontinued operating activities:
|
|
|
|
|
Impairment charges
|
|
$
|
360
|
|
|
$
|
694
|
|
Depreciation and amortization
|
|
44
|
|
|
55
|
|
Loss on sale of businesses
|
|
18
|
|
|
—
|
|
|
|
|
|
|
Cash flows from discontinued investing activities:
|
|
|
|
|
Capital expenditures
|
|
$
|
20
|
|
|
$
|
28
|
|
Sale of businesses, net of cash divested
|
|
54
|
|
|
—
|
|
We will provide certain transition services to support the divested businesses.
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. 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, Cape Cod
,
Snack Factory
Pretzel Crisps
,
Pop Secret, Emerald
and
Late July
.
The excess of the purchase price over the estimated fair values of identifiable net assets was recorded as
$3,006
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). The purchase price was
$688
. 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 Meals and Beverages segment.
The table below presents the fair value that was allocated to acquired assets and assumed liabilities of Snyder's-Lance. In the first quarter ended October 28, 2018, we made measurement period adjustments to reflect facts and circumstances in existence as of the date of acquisition. These adjustments included a
$134
decrease to indefinite-lived trademarks, a
$52
decrease to customer relationships, a
$43
decrease to Deferred taxes and a
$140
increase to Goodwill.
|
|
|
|
|
|
|
|
Snyder's-Lance
|
Cash
|
|
$
|
21
|
|
Accounts receivable
|
|
220
|
|
Inventories
|
|
219
|
|
Other current assets
|
|
32
|
|
Plant assets
|
|
696
|
|
Goodwill
|
|
3,006
|
|
Other intangible assets
|
|
2,761
|
|
Other assets
|
|
65
|
|
Short-term debt
|
|
(1
|
)
|
Accounts payable
|
|
(124
|
)
|
Accrued liabilities
|
|
(115
|
)
|
Deferred taxes
|
|
(597
|
)
|
Other liabilities
|
|
(24
|
)
|
Noncontrolling interest
|
|
(47
|
)
|
Total assets acquired and liabilities assumed
|
|
$
|
6,112
|
|
The identifiable intangible assets of Snyder's-Lance consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
Life in Years
|
|
Value
|
Trademarks
|
|
Non-amortizable
|
|
Indefinite
|
|
$
|
1,997
|
|
Customer relationships
|
|
Amortizable
|
|
15
|
to
|
22
|
|
756
|
|
Other
|
|
Amortizable
|
|
1.5
|
|
8
|
|
Total identifiable intangible assets
|
|
|
|
|
|
|
|
$
|
2,761
|
|
For the three- and
nine-month
periods ended
April 28, 2019
, the acquisition of Snyder's-Lance contributed
$532
and
$1,615
to Net sales. The contribution to Net earnings (loss) from continuing operations were losses of
$9
and
$26
for the three- and
nine-month
periods ended
April 28, 2019
, including expenses associated with restructuring charges and cost savings initiatives, as well as interest expense on the debt to finance the acquisition.
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
|
|
|
•
|
$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.
For the three- and
nine-month
periods ended
April 28, 2019
, the acquisition of Pacific Foods contributed
$55
and
$182
to Net sales. The contribution to Net earnings (loss) from continuing operations were losses of
$4
and
$7
for the three- and
nine-month
periods ended
April 28, 2019
, including interest expense on the debt to finance the acquisition. For the nine-month period ended
April 29, 2018
, the contribution of the Pacific Foods acquisition to Net sales was
$83
. The contribution to Net earnings was not material.
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 29,
2018
|
Net sales
|
|
$
|
2,201
|
|
|
$
|
7,280
|
|
Earnings from continuing operations attributable to Campbell Soup Company
|
|
$
|
98
|
|
|
$
|
795
|
|
Earnings from continuing operations per share attributable to Campbell Soup Company - basic
|
|
$
|
.33
|
|
|
$
|
2.64
|
|
Earnings from continuing operations per share attributable to Campbell Soup Company - assuming dilution
|
|
$
|
.33
|
|
|
$
|
2.63
|
|
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 the three- and nine-month periods ended April 29, 2018 do not include certain transaction costs, amortization of the acquisition date fair value adjustment to inventories, or a gain on treasury rate lock contracts, as all of these would be reflected in the nine-month period ended April 30, 2017, had the acquisitions occurred on August 1, 2016.
With the acquisition of Snyder's-Lance, we acquired an investment in Yellow Chips Holdings B.V. (Yellow Chips), and accounted for the investment under the equity method of accounting. On October 30, 2018, we purchased the remaining ownership interest in Yellow Chips, and began consolidating the business. The purchase price was
$18
. The pro forma results for the nine-month period ended April 28, 2019 and the three- and nine-month periods ended April 29, 2018 were not material.
|
|
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 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
|
)
|
Balance at July 29, 2018
|
|
$
|
(154
|
)
|
|
$
|
(4
|
)
|
|
$
|
40
|
|
|
$
|
(118
|
)
|
Cumulative effect of a change in accounting principle
(4)
|
|
2
|
|
|
(3
|
)
|
|
10
|
|
|
9
|
|
Other comprehensive income (loss) before reclassifications
|
|
(49
|
)
|
|
1
|
|
|
—
|
|
|
(48
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
(17
|
)
|
Net current-period other comprehensive income (loss)
|
|
(49
|
)
|
|
1
|
|
|
(17
|
)
|
|
(65
|
)
|
Balance at April 29, 2019
|
|
$
|
(201
|
)
|
|
$
|
(6
|
)
|
|
$
|
33
|
|
|
$
|
(174
|
)
|
_____________________________________
|
|
(1)
|
Included a tax expense of
$4
as of
April 28, 2019
, and
$6
as of
July 29, 2018
,
April 29, 2018
, and
July 30, 2017
.
|
|
|
(2)
|
Included a tax benefit of
$1
as of
April 28, 2019
,
$4
as of
July 29, 2018
,
$5
as of
April 29, 2018
, and
$12
as of
July 30, 2017
.
|
|
|
(3)
|
Included a tax expense of
$10
as of
April 28, 2019
,
$25
as of
July 29, 2018
, $24 as of
April 29, 2018
, and
$30
as of
July 30, 2017
.
|
|
|
(4)
|
Reflects the adoption of the FASB guidance on stranded tax effects. See Note 2 for additional information.
|
Amounts related to noncontrolling interests were not material.
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 28, 2019
|
|
April 29, 2018
|
|
April 28, 2019
|
|
April 29, 2018
|
|
Location of (Gain) Loss Recognized in Earnings
|
(Gains) losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
Cost of products sold
|
Foreign exchange forward contracts
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
Other expenses / (income)
|
Forward starting interest rate swaps
|
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
Interest expense
|
Total before tax
|
|
(1
|
)
|
|
1
|
|
|
—
|
|
|
2
|
|
|
|
Tax expense (benefit)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
(Gain) loss, net of tax
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefit adjustments:
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
$
|
(8
|
)
|
|
$
|
(7
|
)
|
|
$
|
(22
|
)
|
|
$
|
(20
|
)
|
|
Other expenses / (income)
|
Tax expense (benefit)
|
|
2
|
|
|
2
|
|
|
5
|
|
|
6
|
|
|
|
(Gain) loss, net of tax
|
|
$
|
(6
|
)
|
|
$
|
(5
|
)
|
|
$
|
(17
|
)
|
|
$
|
(14
|
)
|
|
|
|
|
6.
|
Goodwill and Intangible Assets
|
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meals and Beverages
|
|
Global
Biscuits
and
Snacks
|
|
Total
|
Net balance at July 29, 2018
|
$
|
978
|
|
|
$
|
3,602
|
|
|
$
|
4,580
|
|
Changes in preliminary purchase price allocation
|
—
|
|
|
140
|
|
|
140
|
|
Acquisition
|
—
|
|
|
21
|
|
|
21
|
|
Foreign currency translation adjustment
|
(3
|
)
|
|
(36
|
)
|
|
(39
|
)
|
Net balance at April 28, 2019
|
$
|
975
|
|
|
$
|
3,727
|
|
|
$
|
4,702
|
|
During the three-month period ended October 28, 2018, we made changes in the preliminary allocation of the purchase price of the Snyder's-Lance acquisition which resulted in a change in goodwill of
$140
in the Global Biscuits and Snacks segment. On October 30, 2018, we acquired the remaining ownership interest in Yellow Chips and began consolidating the business, which resulted in goodwill of
$21
. See Note 4 for additional information.
Intangible Assets
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 28, 2019
|
|
July 29, 2018
|
Intangible Assets
|
|
Estimated Useful Lives
|
|
Cost
|
Accumulated Amortization
|
Net
|
|
Cost
|
Accumulated Amortization
|
Net
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
10
|
to
|
22
|
|
$
|
890
|
|
$
|
(67
|
)
|
$
|
823
|
|
|
$
|
936
|
|
$
|
(34
|
)
|
$
|
902
|
|
Other
|
|
1.5
|
to
|
20
|
|
17
|
|
(14
|
)
|
3
|
|
|
17
|
|
(6
|
)
|
11
|
|
Total amortizable intangible assets
|
|
|
|
|
|
$
|
907
|
|
$
|
(81
|
)
|
$
|
826
|
|
|
$
|
953
|
|
$
|
(40
|
)
|
$
|
913
|
|
Non-amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
|
|
|
2,761
|
|
|
|
|
2,902
|
|
Total net intangible assets
|
|
|
|
|
|
|
|
$
|
3,587
|
|
|
|
|
$
|
3,815
|
|
The intangible assets of Campbell Fresh are included in
Noncurrent assets of discontinued operations
on the Consolidated Balance Sheets. See also Note 3 See for additional information on discontinued operations.
Non-amortizable intangible assets consist of trademarks, which include
Snyder's of Hanover, Lance, Kettle Brand, Pace, Pacific Foods, Snack Factory, Cape Cod, Pop Secret
,
Kjeldsens, Plum,
and
Late July
. Other amortizable intangible assets consist of recipes, non-compete agreements, trademarks, and patents.
Amortization of intangible assets in Earnings from continuing operations was
$37
and
$9
for the
nine-month
periods ended
April 28, 2019
and
April 29, 2018
, respectively. Amortization expense for the next 5 years is estimated to be
$51
in 2019,
$47
in 2020 and
$45
in 2021 through 2023.
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. Through the second quarter of 2019, we had four operating segments based primarily on product type, and three reportable segments. The operating segments were Meals and Beverages; U.S. snacking; international biscuits and snacks; and Campbell Fresh. The U.S. snacking operating segment is aggregated with the international biscuits and snacks operating segment to form the Global Biscuits and Snacks reportable segment. The operating segments are aggregated based on similar economic characteristics, products, production processes, types or classes of customers, distribution methods, and regulatory environment.
On August 30, 2018, we announced plans to pursue the divestiture of our international biscuits and snacks operating segment, and the Campbell Fresh segment. The international biscuits and snacks operating segment and the Campbell Fresh segment combined represent approximately
$2,100
in net sales in 2018.
On February 25, 2019, we sold our U.S refrigerated soup business. On April 25, 2019, we sold our Garden Fresh Gourmet business. On April 12, 2019, we signed a definitive agreement for the sale of Bolthouse Farms to an affiliate of Butterfly Equity. These businesses were historically included in the Campbell Fresh segment. Beginning in the third quarter of 2019, the results of these businesses are reported as discontinued operations for the periods presented. A portion of the U.S. refrigerated soup business historically included in Campbell Fresh was retained, and is now reported in Meals and Beverages. Prior periods have been adjusted to conform to the current presentation. Our reportable segments are as follows:
|
|
•
|
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;
Campbell’s
tomato juice; and as of December 12, 2017,
Pacific
broth, soups, non-dairy beverages and other simple meals; and
|
|
|
•
|
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, Kelsen cookies globally, and the simple meals and shelf-stable beverages business in Australia and Asia Pacific.
|
Through the fourth quarter of 2018, our simple meals and shelf-stable beverage business in Latin America was managed as part of the Global Biscuits and Snacks segment. Beginning in 2019, our business in Latin America is managed as part of the 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 and impairment charges. Unrealized gains and losses on commodity hedging activities are excluded from segment operating earnings and are recorded in Corporate as these open positions represent hedges of future purchases. Upon closing of the contracts, the realized gain or loss is transferred to segment operating earnings, which allows the segments to reflect the economic effects of the hedge without exposure to quarterly volatility of unrealized gains and losses. Only the service cost component of pension and postretirement expense is allocated to segments. All other components of expense, including interest cost, expected return on assets, amortization of prior service credits and recognized actuarial gains and losses 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 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
Net sales
|
|
|
|
|
|
|
|
|
Meals and Beverages
|
|
$
|
1,024
|
|
|
$
|
1,033
|
|
|
$
|
3,513
|
|
|
$
|
3,501
|
|
Global Biscuits and Snacks
|
|
1,154
|
|
|
843
|
|
|
3,615
|
|
|
2,239
|
|
Corporate
|
|
—
|
|
|
2
|
|
|
1
|
|
|
3
|
|
Total
|
|
$
|
2,178
|
|
|
$
|
1,878
|
|
|
$
|
7,129
|
|
|
$
|
5,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
April 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
Earnings before interest and taxes
|
|
|
|
|
|
|
|
|
Meals and Beverages
|
|
$
|
207
|
|
|
$
|
218
|
|
|
$
|
753
|
|
|
$
|
832
|
|
Global Biscuits and Snacks
|
|
139
|
|
|
121
|
|
|
478
|
|
|
375
|
|
Corporate
(1)
|
|
(79
|
)
|
|
(157
|
)
|
|
(200
|
)
|
|
(249
|
)
|
Restructuring charges
(2)
|
|
(1
|
)
|
|
(24
|
)
|
|
(21
|
)
|
|
(58
|
)
|
Total
|
|
$
|
266
|
|
|
$
|
158
|
|
|
$
|
1,010
|
|
|
$
|
900
|
|
_______________________________________
|
|
(1)
|
Represents unallocated items. Pension and postretirement benefit settlement and mark-to-market adjustments are included in Corporate. There were settlement charges of
$28
in the three- and nine-month periods ended April 28, 2019, and mark-to-market gains of
$14
in the
nine-month
period ended
April 29, 2018
. Costs related to cost savings initiatives were
$19
and
$45
for the three-month periods and
$68
and
$89
in the
nine-month
periods ended
April 28, 2019
, and
April 29, 2018
, respectively. Costs of
$2
and
$7
associated with the planned divestiture of our international biscuits and snacks operating segment were in the three- and
nine-month
periods ended
April 28, 2019
, 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. 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 8 for additional information.
|
Our global net sales based on product categories are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
April 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
Net sales
|
|
|
|
|
|
|
|
|
Soup
|
|
$
|
560
|
|
|
$
|
564
|
|
|
$
|
2,108
|
|
|
$
|
2,113
|
|
Snacks
|
|
1,138
|
|
|
818
|
|
|
3,567
|
|
|
2,180
|
|
Other simple meals
|
|
286
|
|
|
293
|
|
|
879
|
|
|
903
|
|
Beverages
|
|
194
|
|
|
203
|
|
|
574
|
|
|
545
|
|
Other
|
|
—
|
|
|
—
|
|
|
1
|
|
|
2
|
|
Total
|
|
$
|
2,178
|
|
|
$
|
1,878
|
|
|
$
|
7,129
|
|
|
$
|
5,743
|
|
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 and Plum products.
|
|
8.
|
Restructuring Charges and Cost Savings Initiatives
|
2015 Initiatives and Snyder's-Lance Cost Transformation Program and Integration
In fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure. As part of these initiatives, we commenced a voluntary employee separation program available to certain U.S.-based salaried employees nearing retirement who met age, length-of-service and business unit/function criteria.
In February 2017, we announced that we were expanding these initiatives by further optimizing our supply chain network, primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent acquisitions. In January 2018, as part of the expanded initiatives, we authorized additional pre-tax costs to improve the operational efficiency of our thermal supply chain network in North America by closing our manufacturing facility in Toronto, Ontario, and to optimize our information technology infrastructure by migrating certain applications to the latest cloud technology platform. In August 2018, we announced that we will continue to streamline our organization, expand our zero-based budgeting efforts and optimize our manufacturing network.
On March 26, 2018, we completed the acquisition of Snyder's-Lance. Prior to the acquisition, in April 2017, Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We expect to continue to implement this program and to achieve a majority of the program's targeted savings. In addition, we have identified opportunities for additional cost synergies as we integrate Snyder's-Lance.
Cost estimates, as well as timing for certain activities, are continuing to be developed.
A summary of the pre-tax charges recorded in Earnings from continuing operations related to both programs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
April 28,
2019
|
|
April 29, 2018
(1)
|
|
April 28,
2019
|
|
April 29, 2018
(1)
|
|
Recognized as of April 28, 2019
(2)
|
Restructuring charges
|
$
|
1
|
|
|
$
|
24
|
|
|
$
|
21
|
|
|
$
|
58
|
|
|
$
|
235
|
|
Administrative expenses
|
12
|
|
|
35
|
|
|
35
|
|
|
73
|
|
|
236
|
|
Cost of products sold
|
4
|
|
|
14
|
|
|
25
|
|
|
20
|
|
|
74
|
|
Marketing and selling expenses
|
2
|
|
|
2
|
|
|
6
|
|
|
2
|
|
|
9
|
|
Research and development expenses
|
1
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Total pre-tax charges
|
$
|
20
|
|
|
$
|
75
|
|
|
$
|
89
|
|
|
$
|
153
|
|
|
$
|
556
|
|
_______________________________________
|
|
(1)
|
Includes
$10
of Restructuring charges and
$6
of Administrative expenses in the three- and nine-month periods ended
April 29, 2018
associated with the Snyder's-Lance cost transformation program and integration.
|
|
|
(2)
|
Includes
$13
of Restructuring charges and
$12
of Administrative expenses associated with the Snyder's-Lance cost transformation program and integration recognized in 2018.
|
A summary of the pre-tax charges recorded in Loss from discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
April 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
|
Recognized as of April 28, 2019
(1)
|
Total pre-tax charges
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
8
|
|
_______________________________________
(1)
Includes
$4
of Severance pay and benefits and
$4
of Implementation costs and other related costs.
As of
April 28, 2019
, we incurred all of the costs for actions associated with discontinued operations. All of the costs were cash expenditures.
A summary of the pre-tax costs in Earnings from continuing operations associated with both programs is as follows:
|
|
|
|
|
|
Recognized as of
April 28, 2019
|
Severance pay and benefits
(1)
|
$
|
211
|
|
Asset impairment/accelerated depreciation
|
69
|
|
Implementation costs and other related costs
(2)
|
276
|
|
Total
|
$
|
556
|
|
_______________________________________
|
|
(1)
|
Includes
$13
of charges associated with the Snyder's-Lance cost transformation program and integration recognized in 2018.
|
|
|
(2)
|
Includes
$12
of charges associated with the Snyder's-Lance cost transformation program and integration recognized in 2018.
|
The total estimated pre-tax costs associated with continuing operations for actions that have been identified under both programs are approximately
$610
to
$655
and we expect to incur substantially all of the costs through 2020. 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 associated with continuing operations under both programs to consist of the following: approximately
$210
to
$215
in severance pay and benefits; approximately
$70
in asset impairment and accelerated depreciation; and approximately
$330
to
$370
in implementation costs and other related costs.We expect these pre-tax costs to be associated with our segments as follows: Meals and Beverages - approximately
37%
; Global Biscuits and Snacks - approximately
40%
; and Corporate - approximately
23%
.
Of the aggregate
$610
to
$655
of pre-tax costs identified to date associated with continuing operations, we expect approximately
$530
to
$575
will be cash expenditures. In addition, we expect to invest approximately
$340
in capital expenditures through 2021, of which we invested approximately
$226
as of
April 28, 2019
. The capital expenditures primarily related to the U.S. warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, transition of production of the Toronto manufacturing facility to our U.S. thermal plants, optimization of information technology infrastructure and applications, insourcing of manufacturing for certain simple meal products, and optimization of the Snyder’s-Lance warehouse and distribution network.
A summary of the restructuring activity and related reserves associated with continuing operations at
April 28, 2019
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Pay and Benefits
|
|
Implementation Costs and Other Related Costs
(3)
|
|
Asset Impairment/Accelerated Depreciation
|
|
Total Charges
|
Accrued balance at July 29, 2018
(1)
|
|
$
|
45
|
|
|
|
|
|
|
|
2019 charges
|
|
21
|
|
|
44
|
|
|
24
|
|
|
$
|
89
|
|
2019 cash payments
|
|
(26
|
)
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(1
|
)
|
|
|
|
|
|
|
Accrued balance at April 28, 2019
(2)
|
|
$
|
39
|
|
|
|
|
|
|
|
_______________________________________
|
|
(1)
|
Includes
$24
of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet,
$1
of which is associated with the Snyder's-Lance cost transformation program and integration. Of total accrued balance,
$9
is associated with the Snyder's-Lance cost transformation program and integration.
|
|
|
(2)
|
Includes
$11
of severance pay and benefits recorded in Other liabilities in the Consolidated Balance Sheet.
|
|
|
(3)
|
Includes other costs recognized as incurred that are not reflected in the restructuring reserve in the Consolidated Balance Sheets. The costs are included in Administrative expenses, Cost of products sold, Marketing and selling expenses, and Research and development expenses in the Consolidated Statements of Earnings.
|
Restructuring related reserves included in Current liabilities of discontinued operations were
$1
and
$0
at July 29, 2018 and
April 28, 2019
, respectively.
Segment operating results do not include restructuring charges, implementation costs and other related costs because we evaluate segment performance excluding such charges. A summary of the pre-tax costs in Earnings from continuing operations associated with segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 28, 2019
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Costs Incurred to Date
(1)
|
Meals and Beverages
|
$
|
7
|
|
|
$
|
42
|
|
|
$
|
220
|
|
Global Biscuits and Snacks
|
6
|
|
|
22
|
|
|
198
|
|
Corporate
|
7
|
|
|
25
|
|
|
138
|
|
Total
|
$
|
20
|
|
|
$
|
89
|
|
|
$
|
556
|
|
_______________________________________
|
|
(1)
|
Includes
$25
of pre-tax costs associated with the Global Biscuits and Snacks segment recognized in 2018 related to the Snyder's-Lance cost transformation program and integration.
|
|
|
9.
|
Earnings per Share (EPS)
|
For the periods presented in the Consolidated Statements of Earnings, the calculations of basic EPS and EPS assuming dilution vary in that the weighted average shares outstanding assuming dilution include the incremental effect of stock options and other share-based payment awards, except when such effect would be antidilutive. The earnings per share calculation for the three- and nine-month periods ended
April 28, 2019
, excludes approximately
2 million
stock options that would have been antidilutive. The earnings 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.
|
|
10.
|
Noncontrolling Interests
|
We own a
60%
controlling interest in a joint venture formed with Swire Pacific Limited to support our soup and broth business in China 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 13 for additional information.
On March 26, 2018, we acquired Snyder's-Lance, including an
80%
interest in one of its subsidiaries. In April 2018, we purchased the remaining
20%
interest for
$47
.
The noncontrolling interests' share in the net earnings (loss) was included in Net earnings (loss) attributable to noncontrolling interests in the Consolidated Statements of Earnings. The noncontrolling interests in these entities were included in Total equity in the Consolidated Balance Sheets and Consolidated Statements of Equity.
|
|
11.
|
Pension and Postretirement Benefits
|
Components of net benefit expense (income) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
Pension
|
|
Postretirement
|
|
Pension
|
|
Postretirement
|
|
|
April 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
Service cost
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
16
|
|
|
$
|
18
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
21
|
|
|
19
|
|
|
2
|
|
|
1
|
|
|
62
|
|
|
56
|
|
|
6
|
|
|
5
|
|
Expected return on plan assets
|
|
(36
|
)
|
|
(36
|
)
|
|
—
|
|
|
—
|
|
|
(107
|
)
|
|
(108
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service credit
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
(20
|
)
|
Special termination benefits
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Settlement charge
|
|
28
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit income
|
|
$
|
18
|
|
|
$
|
(11
|
)
|
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
|
$
|
(1
|
)
|
|
$
|
(32
|
)
|
|
$
|
(15
|
)
|
|
$
|
(14
|
)
|
The settlement charge of
$28
resulted from the level of lump sum distributions associated with a U.S. pension plan.
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 8.
The components of net periodic benefit expense (income) from continuing operations other than the service cost component are included in Other expenses / (income) in Earnings from continuing operations.
|
|
12.
|
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.
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 28, 2019
, or
July 29, 2018
.
We are also exposed to credit risk from our customers. During 2018, our largest customer accounted for approximately
18%
of consolidated net sales from continuing operations. Our five largest customers accounted for approximately
39%
of our consolidated net sales from continuing operations in 2018.
We closely monitor credit risk associated with counterparties and customers.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk related to our international operations, including non-functional currency intercompany debt and net investments in subsidiaries. We are also exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. Principal currencies hedged include the Canadian dollar, Australian dollar and U.S. dollar. We utilize foreign exchange forward purchase and sale contracts, as well as cross-currency swaps, to hedge these exposures. The contracts are either designated as cash-flow hedging instruments or are undesignated. We hedge portions of our forecasted foreign currency transaction exposure with foreign exchange forward contracts for periods typically up to
18
months. To hedge currency exposures related to intercompany debt, we enter into foreign exchange forward purchase and sale contracts, as well as cross-currency swap contracts, for periods consistent with the underlying debt. The notional amount of foreign exchange forward contracts accounted for as cash-flow hedges was
$98
at
April 28, 2019
, and
$104
at
July 29, 2018
. 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
$169
and
$140
at
April 28, 2019
, and
July 29, 2018
, respectively. There were no cross-currency swap contracts outstanding as of
April 28, 2019
, or
July 29, 2018
.
Interest Rate Risk
We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. Receive fixed rate/pay variable rate interest rate swaps are accounted for as fair-value hedges. We manage our exposure to interest rate volatility on future debt issuances by entering into forward starting interest rate swaps or treasury rate lock contracts to lock in the rate on the interest payments related to the anticipated debt issuances. 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. There were no forward starting interest rate swaps or treasury rate lock contracts outstanding as of
April 28, 2019
, or
July 29, 2018
.
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 diesel fuel, wheat, soybean oil, 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 28, 2019
, or
July 29, 2018
. The notional amount of commodity contracts not designated as accounting hedges was
$233
at
April 28, 2019
, and
$118
at
July 29, 2018
.
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
$43
as of
April 28, 2019
, and
$33
as of
July 29, 2018
. The fair value was not material as of
April 28, 2019
, and
July 29, 2018
. Unrealized gains (losses) and settlements are included in Cost of products sold in our Consolidated Statements of Earnings.
Equity Price Risk
We enter into swap contracts which hedge a portion of exposures relating to certain deferred compensation obligations linked to the total return of our capital stock, the total return of the Vanguard Institutional Index Institutional Plus Shares and the total return of the Vanguard Total International Stock Index. Under these contracts, we pay variable interest rates and receive from the counterparty 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 Institutional Plus Shares; or the total return of the iShares MSCI EAFE Index, which is expected to approximate the total return of the Vanguard Total International Stock Index. These contracts were not designated as hedges for accounting purposes. We enter into these contracts for periods typically not exceeding
12
months. The notional amounts of the contracts were
$31
as of
April 28, 2019
, and
$41
as of
July 29, 2018
.
The following table summarizes the fair value of derivative instruments on a gross basis as recorded in the Consolidated Balance Sheets as of
April 28, 2019
, and
July 29, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
April 28,
2019
|
|
July 29,
2018
|
Asset Derivatives
|
|
|
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
Foreign exchange forward contracts
|
Other current assets
|
|
$
|
1
|
|
|
$
|
1
|
|
Total derivatives designated as hedges
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
Commodity derivative contracts
|
Other current assets
|
|
$
|
6
|
|
|
$
|
5
|
|
Deferred compensation derivative contracts
|
Other current assets
|
|
1
|
|
|
1
|
|
Foreign exchange forward contracts
|
Other current assets
|
|
3
|
|
|
3
|
|
Total derivatives not designated as hedges
|
|
|
$
|
10
|
|
|
$
|
9
|
|
Total asset derivatives
|
|
|
$
|
11
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
April 28,
2019
|
|
July 29,
2018
|
Liability Derivatives
|
|
|
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
Foreign exchange forward contracts
|
Accrued liabilities
|
|
$
|
2
|
|
|
$
|
2
|
|
Total derivatives designated as hedges
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
Commodity derivative contracts
|
Accrued liabilities
|
|
$
|
10
|
|
|
$
|
3
|
|
Commodity derivative contracts
|
Other liabilities
|
|
1
|
|
|
1
|
|
Total derivatives not designated as hedges
|
|
|
$
|
11
|
|
|
$
|
4
|
|
Total liability derivatives
|
|
|
$
|
13
|
|
|
$
|
6
|
|
We do not offset the fair values of derivative assets and liabilities executed with the same counterparty that are generally subject to enforceable netting agreements. However, if we were to offset and record the asset and liability balances of derivatives on a net basis, the amounts presented in the Consolidated Balance Sheets as of
April 28, 2019
, and
July 29, 2018
, would be adjusted as detailed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 28, 2019
|
|
July 29, 2018
|
Derivative Instrument
|
|
Gross Amounts Presented in the Consolidated Balance Sheet
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements
|
|
Net Amount
|
|
Gross Amounts Presented in the Consolidated Balance Sheet
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheet Subject to Netting Agreements
|
|
Net Amount
|
Total asset derivatives
|
|
$
|
11
|
|
|
$
|
(5
|
)
|
|
$
|
6
|
|
|
$
|
10
|
|
|
$
|
(3
|
)
|
|
$
|
7
|
|
Total liability derivatives
|
|
$
|
13
|
|
|
$
|
(5
|
)
|
|
$
|
8
|
|
|
$
|
6
|
|
|
$
|
(3
|
)
|
|
$
|
3
|
|
We are required to maintain cash margin accounts in connection with funding the settlement of open positions for exchange-traded commodity derivative instruments. At
April 28, 2019
, and
July 29, 2018
, a cash margin account balance of
$10
and
$2
, respectively, was included in Other current assets in the Consolidated Balance Sheets.
The following tables show the effect of our derivative instruments designated as cash-flow hedges for the three- and nine- month periods ended
April 28, 2019
, and
April 29, 2018
, in other comprehensive income (loss) (OCI) and the Consolidated Statements of Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash-Flow Hedge
OCI Activity
|
Derivatives Designated as Cash-Flow Hedges
|
|
|
April 28,
2019
|
|
April 29,
2018
|
Three Months Ended
|
|
|
|
|
|
OCI derivative gain (loss) at beginning of quarter
|
|
|
$
|
(8
|
)
|
|
$
|
(22
|
)
|
Effective portion of changes in fair value recognized in OCI:
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
2
|
|
|
6
|
|
Forward starting interest rate swaps
|
|
|
—
|
|
|
5
|
|
Amount of (gain) loss reclassified from OCI to earnings:
|
Location in Earnings
|
|
|
|
|
Foreign exchange forward contracts
|
Cost of products sold
|
|
(1
|
)
|
|
—
|
|
Foreign exchange forward contracts
|
Other expenses / (income)
|
|
(1
|
)
|
|
—
|
|
Forward starting interest rate swaps
|
Interest expense
|
|
1
|
|
|
1
|
|
OCI derivative gain (loss) at end of quarter
|
|
|
$
|
(7
|
)
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
OCI derivative gain (loss) at beginning of year
|
|
|
$
|
(8
|
)
|
|
$
|
(34
|
)
|
Effective portion of changes in fair value recognized in OCI:
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
|
1
|
|
|
7
|
|
Forward starting interest rate swaps
|
|
|
—
|
|
|
15
|
|
Amount of (gain) loss reclassified from OCI to earnings:
|
Location in Earnings
|
|
|
|
|
Foreign exchange forward contracts
|
Cost of products sold
|
|
(1
|
)
|
|
—
|
|
Foreign exchange forward contracts
|
Other expenses / (income)
|
|
(1
|
)
|
|
—
|
|
Forward starting interest rate swaps
|
Interest expense
|
|
2
|
|
|
2
|
|
OCI derivative gain (loss) at end of quarter
|
|
|
$
|
(7
|
)
|
|
$
|
(10
|
)
|
Based on current valuations, the amount expected to be reclassified from OCI into earnings within the next
12
months is a
gain
of
$1
.
The ineffective portion and amount excluded from effectiveness testing were not material.
The following table shows the effects of our derivative instruments not designated as hedges for the three- and nine-month periods ended
April 28, 2019
, and
April 29, 2018
, in Earnings from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain) Loss Recognized in Earnings on Derivatives
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
Derivatives not Designated as Hedges
|
|
Location of (Gain) Loss
Recognized in Earnings
|
|
April 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
Foreign exchange forward contracts
|
|
Other expenses / (income)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
Commodity derivative contracts
|
|
Cost of products sold
|
|
6
|
|
|
(3
|
)
|
|
7
|
|
|
(3
|
)
|
Deferred compensation derivative contracts
|
|
Administrative expenses
|
|
(4
|
)
|
|
4
|
|
|
(1
|
)
|
|
(1
|
)
|
Treasury rate lock contracts
|
|
Interest expense
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(18
|
)
|
Total (gain) loss at end of quarter
|
|
|
|
$
|
2
|
|
|
$
|
(16
|
)
|
|
$
|
6
|
|
|
$
|
(23
|
)
|
|
|
13.
|
Variable Interest Entity
|
In February 2016, we agreed to make a capital commitment subject to certain qualifications of up to
$125
to Acre, a limited partnership formed to make venture capital investments in innovative new companies in food and food-related industries. Acre is managed by its general partner, Acre Ventures GP, LLC, which is independent of us. We are the sole limited partner of Acre and own a
99.8%
interest. Our share of earnings (loss) is calculated according to the terms of the partnership agreement. Acre is a VIE. We have determined that we are the primary beneficiary. Therefore, we consolidate Acre and account for the third-party ownership as a noncontrolling interest. Through
April 28, 2019
, we funded
$83
of the capital commitment. On August 29, 2018,
we provided notice of termination of the investment period and have
no
obligation to make any further capital contributions to Acre for new investments, but are required to pay obligations made prior to the notice of termination, the management fee and permitted partnership expenses.
Acre elected the fair value option to account for qualifying investments to more appropriately reflect the value of the investments in the financial statements. The investments were
$78
as of
April 28, 2019
, and
$77
as of
July 29, 2018
, and are included in Other assets on the Consolidated Balance Sheets. Changes in the fair values of investments for which the fair value option was elected are included in Other expenses / (income) on the Consolidated Statements of Earnings. Current assets and liabilities of Acre were not material as of
April 28, 2019
, or
July 29, 2018
.
|
|
14.
|
Fair Value Measurements
|
We categorize financial assets and liabilities based on the following fair value hierarchy:
|
|
•
|
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data.
|
|
|
•
|
Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would use in pricing the asset or liability.
|
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. When available, we use unadjusted quoted market prices to measure the fair value and classify such items as Level 1. If quoted market prices are not available, we base fair value upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Included in the fair value of derivative instruments is an adjustment for credit and nonperformance risk.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our financial assets and liabilities that are measured at fair value on a recurring basis as of
April 28, 2019
, and
July 29, 2018
, consistent with the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
as of
April 28,
2019
|
|
Fair Value Measurements at
April 28, 2019 Using
Fair Value Hierarchy
|
|
Fair Value
as of
July 29,
2018
|
|
Fair Value Measurements at
July 29, 2018 Using
Fair Value Hierarchy
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
(1)
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
Commodity derivative contracts
(2)
|
6
|
|
|
4
|
|
|
2
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
|
Deferred compensation derivative contracts
(3)
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Deferred compensation investments
(4)
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
6
|
|
|
—
|
|
|
—
|
|
Fair value option investments
(5)
|
78
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
77
|
|
|
—
|
|
|
—
|
|
|
77
|
|
Total assets at fair value
|
$
|
93
|
|
|
$
|
8
|
|
|
$
|
7
|
|
|
$
|
78
|
|
|
$
|
93
|
|
|
$
|
11
|
|
|
$
|
5
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
as of
April 28,
2019
|
|
Fair Value Measurements at
April 28, 2019 Using
Fair Value Hierarchy
|
|
Fair Value
as of
July 29,
2018
|
|
Fair Value Measurements at
July 29, 2018 Using
Fair Value Hierarchy
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
(1)
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
Commodity derivative contracts
(2)
|
11
|
|
|
9
|
|
|
2
|
|
|
—
|
|
|
4
|
|
|
3
|
|
|
1
|
|
|
—
|
|
Deferred compensation obligation
(4)
|
93
|
|
|
93
|
|
|
—
|
|
|
—
|
|
|
108
|
|
|
108
|
|
|
—
|
|
|
—
|
|
Total liabilities at fair value
|
$
|
106
|
|
|
$
|
102
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
114
|
|
|
$
|
111
|
|
|
$
|
3
|
|
|
$
|
—
|
|
___________________________________
|
|
(1)
|
Based on observable market transactions of spot currency rates and forward rates.
|
|
|
(2)
|
Based on quoted futures exchanges and on observable prices of transactions in the marketplace.
|
|
|
(3)
|
Based on LIBOR and equity index swap rates.
|
|
|
(4)
|
Based on the fair value of the participants’ investments.
|
|
|
(5)
|
Primarily represents investments in equity securities that are not readily marketable and are accounted for under the fair value option. The investments were funded by Acre. See Note 13 for additional information. Fair value is based on analyzing recent transactions and transactions of comparable companies, and the discounted cash flow method. In addition, allocation methods, including the option pricing method, are used in distributing fair value among various equity holders according to rights and preferences.
|
The following table summarizes the changes in fair value of Level 3 investments for the nine-month periods ended
April 28, 2019
and April 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
April 28,
2019
|
|
April 29,
2018
|
Fair value at beginning of year
|
|
$
|
77
|
|
|
$
|
49
|
|
Gains
|
|
1
|
|
|
8
|
|
Purchases
|
|
—
|
|
|
12
|
|
Fair value at end of quarter
|
|
$
|
78
|
|
|
$
|
69
|
|
Items Measured at Fair Value on a Nonrecurring Basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, we are also required to measure certain items at fair value on a nonrecurring basis.
In 2019, we recognized impairment charges on trademarks, plant assets, customer relationships and technology in connection with interim assessments of fair value on intangible and tangible assets in Campbell Fresh. See also Note 3 for additional information on the impairment charges, which are included in Loss from discontinued operations.
In the fourth quarter of 2018, as part of our annual review of intangible assets, we recognized an impairment charge of
$54
on the
Plum
trademark, which reduced the carrying value to fair value of
$61
.
Fair value was determined based on unobservable Level 3 inputs. The fair value of plant assets was determined based on cash flows associated with the asset group that include significant management assumptions, including expected proceeds. The fair values of trademarks, customer relationships and technology were determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average cost of capital, assumed royalty rates and attrition.
The following table presents 2019 fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Charges
|
|
Fair Value
|
January 27, 2019
|
|
Plant Assets
|
|
Trademarks
|
|
Customer Relationships
|
|
Technology
|
|
Plant Assets
|
|
Trademarks
|
|
Customer Relationships
|
|
Technology
|
Bolthouse Farms carrot and carrot ingredients
|
|
$
|
104
|
|
|
$
|
18
|
|
|
$
|
40
|
|
|
$
|
15
|
|
|
$
|
102
|
|
|
$
|
30
|
|
|
$
|
15
|
|
|
$
|
10
|
|
Bolthouse Farms refrigerated beverages and salad dressings
|
|
$
|
9
|
|
|
$
|
74
|
|
|
$
|
22
|
|
|
|
|
$
|
100
|
|
|
$
|
76
|
|
|
$
|
12
|
|
|
|
Garden Fresh Gourmet
|
|
$
|
2
|
|
|
$
|
23
|
|
|
$
|
39
|
|
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
October 28, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refrigerated soup
|
|
$
|
14
|
|
|
|
|
|
|
|
|
$
|
38
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings, excluding the current portion of long-term debt, approximate fair value.
Cash equivalents of
$19
at
April 28, 2019
, and
$14
at
July 29, 2018
, represent fair value as these highly liquid investments have an original maturity of three months or less. Fair value of cash equivalents is based on Level 2 inputs.
The fair value of long-term debt, including the current portion of long-term debt in Short-term borrowings, was
$7,985
at
April 28, 2019
, and
$8,347
at
July 29, 2018
. The carrying value was
$8,028
at
April 28, 2019
, and
$8,595
at
July 29, 2018
. The fair value of long-term debt is principally estimated using Level 2 inputs based on quoted market prices or pricing models using current market rates.
In March 2017, the Board authorized a share repurchase program to purchase up to
$1,500
. The program has no expiration date, but it may be suspended or discontinued at any time. In addition to this publicly announced program, we have a separate Board authorization to purchase shares to offset the impact of dilution from shares issued under our stock compensation plans. We suspended our share repurchases as of the second quarter of 2018. Approximately
$1,296
remained available under the March 2017 program as of
April 28, 2019
. During the nine-month period ended
April 29, 2018
, we repurchased
2 million
shares at a cost of
$86
.
|
|
16.
|
Stock-based Compensation
|
We provide compensation benefits by issuing stock options, unrestricted stock and restricted stock units (including time-lapse restricted stock units, EPS performance restricted stock units, total shareholder return (TSR) performance restricted stock units, and free cash flow (FCF) performance restricted stock units). In 2019, we issued stock options, time-lapse restricted stock units, unrestricted stock, TSR performance restricted stock units and FCF performance restricted stock units. We have not issued EPS performance restricted stock units in 2019.
Total pre-tax stock-based compensation expense and tax-related benefits recognized in Earnings from continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
April 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
Total pre-tax stock-based compensation expense
|
$
|
13
|
|
|
$
|
16
|
|
|
$
|
43
|
|
|
$
|
46
|
|
Tax-related benefits
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
8
|
|
|
$
|
10
|
|
The pre-tax stock-based compensation expense recognized in Losses from discontinued operations was
$1
in the three-month period ended April 28, 2019, and
$2
in the nine-month periods ended April 28, 2019, and April 29, 2018. The pre-tax stock based compensation expense recognized in the three-month period ended April 29, 2018 was not material. Tax-related benefits recognized in Losses from discontinued operations in the three- and nine-month periods ended April 28, 2019 were
$1
and were not material in the three-and nine-month periods ended April 29, 2018.
The following table summarizes stock option activity as of
April 28, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
(Options in
thousands)
|
|
|
|
(In years)
|
|
|
Outstanding at July 29, 2018
|
1,537
|
|
|
$
|
50.36
|
|
|
|
|
|
Granted
|
596
|
|
|
$
|
35.74
|
|
|
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Terminated
|
(74
|
)
|
|
$
|
49.05
|
|
|
|
|
|
Outstanding at April 28, 2019
|
2,059
|
|
|
$
|
46.17
|
|
|
7.5
|
|
$
|
2
|
|
Exercisable at April 28, 2019
|
1,035
|
|
|
$
|
50.88
|
|
|
6.1
|
|
$
|
—
|
|
No options were exercised during the nine-month period ended
April 29, 2018
. We measure the fair value of stock options using the Black-Scholes option pricing model. The expected term of options granted was based on the weighted average time of vesting and the end of the contractual term. We utilized this simplified method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.
The weighted-average assumptions and grant-date fair values for grants in 2019 and 2018 were as follows:
|
|
|
|
|
|
2019
|
|
2018
|
Risk-free interest rate
|
2.79%
|
|
2.06%
|
Expected dividend yield
|
3.84%
|
|
2.95%
|
Expected volatility
|
25.28%
|
|
19.60%
|
Expected term
|
6.1 years
|
|
6 years
|
Grant-date fair value
|
$6.27
|
|
$6.67
|
We expense stock options on a straight-line basis over the vesting period, except for awards issued to retirement eligible participants, which we expense on an accelerated basis. As of
April 28, 2019
, total remaining unearned compensation related to nonvested stock options was
$2
, which will be amortized over the weighted-average remaining service period of
2.5 years
.
The following table summarizes time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted stock units as of
April 28, 2019
:
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
(Restricted stock
units in thousands)
|
|
|
Nonvested at July 29, 2018
|
1,652
|
|
|
$
|
47.01
|
|
Granted
|
1,331
|
|
|
$
|
36.50
|
|
Vested
|
(689
|
)
|
|
$
|
47.77
|
|
Forfeited
|
(254
|
)
|
|
$
|
40.99
|
|
Nonvested at April 28, 2019
|
2,040
|
|
|
$
|
40.64
|
|
We determine the fair value of time-lapse restricted stock units and EPS performance restricted stock units based on the quoted price of our stock at the date of grant. We expense time-lapse restricted stock units on a straight-line basis over the vesting period, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. We expense EPS performance restricted stock units on a graded-vesting basis, except for awards issued to retirement-eligible participants, which we expense on an accelerated basis. There were
66 thousand
EPS performance target grants outstanding at
April 28, 2019
, with a weighted-average grant-date fair value of
$49.10
. The actual number of EPS performance restricted stock units issued at the vesting date could range from
0%
to
100%
of the initial grant, depending on actual performance achieved. We estimate expense based on the number of awards expected to vest.
In 2019, we issued approximately
388 thousand
FCF performance restricted stock units for which vesting is contingent upon the achievement of free cash flow (defined as Net cash provided by operating activities less capital expenditures and certain investing and financing activities) compared to annual operating plan objectives over a three-year period. An annual objective will be established each fiscal year for three consecutive years. Performance against these objectives will be averaged at the end of the three-year period to determine the number of underlying units that will vest at the end of the three years. The actual number of FCF performance restricted stock units issued at the vesting date could range from
0%
to
200%
of the initial grant depending on actual performance achieved. The fair value of FCF performance restricted stock units will be based upon the quoted price of our stock at the date of grant. We will expense FCF performance restricted stock units over the requisite service period of each objective. In the nine-month period ended
April 28, 2019
, we granted
129 thousand
of the issued FCF performance restricted stock units, which are included in the table above. There were
118 thousand
FCF performance target grants outstanding at
April 28, 2019
, with a grant date fair value of
$37.62
.
As of
April 28, 2019
, total remaining unearned compensation related to nonvested time-lapse restricted stock units, EPS performance restricted stock units and FCF performance restricted stock units was
$45
, which will be amortized over the weighted-average remaining service period of
1.9 years
. The fair value of restricted stock units vested during the nine-month periods ended
April 28, 2019
, and
April 29, 2018
, was
$26
, and
$30
, respectively. The weighted-average grant-date fair value of the restricted stock units granted during the nine-month period ended
April 29, 2018
, was
$46.03
.
The following table summarizes TSR performance restricted stock units as of
April 28, 2019
:
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
(Restricted stock
units in thousands)
|
|
|
Nonvested at July 29, 2018
|
1,664
|
|
|
$
|
46.66
|
|
Granted
|
388
|
|
|
$
|
31.29
|
|
Vested
|
—
|
|
|
$
|
—
|
|
Forfeited
|
(710
|
)
|
|
$
|
55.98
|
|
Nonvested at April 28, 2019
|
1,342
|
|
|
$
|
37.30
|
|
We estimated the fair value of TSR performance restricted stock units at the grant date using a Monte Carlo simulation. Weighted-average assumptions used in the Monte Carlo simulations were as follows:
|
|
|
|
|
|
2019
|
|
2018
|
Risk-free interest rate
|
2.80%
|
|
1.58%
|
Expected dividend yield
|
3.79%
|
|
2.95%
|
Expected volatility
|
24.50%
|
|
19.07%
|
Expected term
|
3 years
|
|
3 years
|
We recognize compensation expense on a straight-line basis over the service period. As of
April 28, 2019
, total remaining unearned compensation related to TSR performance restricted stock units was
$18
, which will be amortized over the weighted-average remaining service period of
1.7
years. In the first quarter of 2019, recipients of TSR performance restricted stock units earned
0%
of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 27, 2018. In the first quarter of 2018, recipients of TSR performance restricted stock units earned
125%
of the initial grants based upon our TSR ranking in a performance peer group during a three-year period ended July 28, 2017. As a result, approximately
160 thousand
additional shares were awarded. The fair value of TSR performance restricted stock units vested during the nine-month period ended
April 29, 2018
, was
$38
. The grant-date fair value of the TSR performance restricted stock units granted during 2018 was
$39.39
.
The excess tax deficiencies of
$2
in the nine-month period ended
April 28, 2019
, and the excess tax benefits of
$4
in the nine-month period ended
April 29, 2018
, on vested restricted stock were presented as cash flows from operating activities.
|
|
17.
|
Commitments and Contingencies
|
We are involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with our actual experiences in litigating or
resolving through settlement numerous claims over an extended period of time, demonstrates to us that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.
On January 7, 2019, three purported shareholder class action lawsuits pending in the United States District Court for the District of New Jersey were consolidated under the caption,
In re Campbell Soup Company Securities Litigation
, Civ. No. 1:18-cv-14385-NLH-JS (the Action). Oklahoma Firefighters Pension and Retirement System was appointed lead plaintiff in the Action and, on March 1, 2019, filed an amended consolidated complaint. The company, Denise Morrison (the company's former President and Chief Executive Officer), and Anthony DiSilvestro (the company's Senior Vice President and Chief Financial Officer) are defendants in the Action. The consolidated complaint alleges that, in public statements between July 19, 2017 and May 17, 2018, the defendants made materially false and misleading statements and/or omitted material information about the company's business, operations, customer relationships, and prospects, specifically with regard to the Campbell Fresh segment. The consolidated complaint seeks unspecified monetary damages and other relief. On April 30, 2019, the defendants filed a motion to dismiss the consolidated complaint. We are vigorously defending against the Action.
We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be reasonably estimated as of
April 28, 2019
. While the potential future charges could be material in a particular quarter or annual period, based on information currently known by us, we do not believe any such charges are likely to have a material adverse effect on our consolidated results of operations or financial condition.
|
|
18.
|
Supplemental Financial Statement Data
|
Balance Sheets
|
|
|
|
|
|
|
|
|
|
April 28,
2019
|
|
July 29,
2018
|
Inventories
|
|
|
|
Raw materials, containers and supplies
|
$
|
322
|
|
|
$
|
365
|
|
Finished products
|
562
|
|
|
672
|
|
Total
|
$
|
884
|
|
|
$
|
1,037
|
|
Statements of Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
April 28,
2019
|
|
April 29,
2018
|
|
April 28,
2019
|
|
April 29,
2018
|
Other expenses / (income)
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
$
|
13
|
|
|
$
|
6
|
|
|
$
|
37
|
|
|
$
|
9
|
|
Net periodic benefit income other than the service cost
|
(21
|
)
|
|
(23
|
)
|
|
(61
|
)
|
|
(87
|
)
|
Pension settlement charge
|
28
|
|
|
—
|
|
|
28
|
|
|
—
|
|
Investment (gains) / losses
|
(8
|
)
|
|
1
|
|
|
(1
|
)
|
|
1
|
|
Transaction costs
(1)
|
—
|
|
|
29
|
|
|
—
|
|
|
53
|
|
Legal settlement
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
Other
|
8
|
|
|
—
|
|
|
10
|
|
|
(5
|
)
|
Total
|
$
|
20
|
|
|
$
|
35
|
|
|
$
|
13
|
|
|
$
|
(7
|
)
|
_________________________________
(1)
In the three- and nine-month periods ended April 29, 2018, we recognized transaction costs of
$29
and
$53
, respectively, related to the acquisition of Snyder's-Lance. See Note 4 for additional information.