Basis of Presentation and Significant Accounting Policies

In this Form 10-Q, unless otherwise stated, the terms “we,” “us,” “our” and the “company” refer to Campbell Soup Company and its consolidated subsidiaries.

The consolidated financial statements include our accounts and entities in which we maintain a controlling financial interest and a variable interest entity (VIE) for which we are the primary beneficiary. Intercompany transactions are eliminated in consolidation.

The financial statements reflect all adjustments which are, in our opinion, necessary for a fair presentation 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 August 2, 2015, with the exception of the changes in accounting policy related to our method of accounting for the recognition of actuarial gains and losses for defined benefit pension and postretirement plans and the calculation of expected return on pension plan assets as described below. As of the beginning of 2016, we are managing our operations under a new structure and have modified our segment reporting accordingly. Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation. 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.

In 2016, we elected to change our method of accounting for the recognition of actuarial gains and losses for defined benefit pension and postretirement plans and the calculation of expected return on pension plan assets. Historically, actuarial gains and losses associated with benefit obligations were recognized in Accumulated other comprehensive loss in the Consolidated Balance Sheets and were amortized into earnings over the remaining service life of participants to the extent that the amounts were in excess of a corridor. Under the new policy, actuarial gains and losses will be recognized immediately in our Consolidated Statements of Earnings as of the measurement date, which is our fiscal year end, or more frequently if an interim remeasurement is required. In addition, we no longer use a market-related value of plan assets, which is an average value, to determine the expected return on assets but rather will use the fair value of plan assets. We believe the new policies will provide greater transparency to ongoing operating results and better reflect the impact of current market conditions on the obligations and assets.

The changes in policy were applied retrospectively to all periods presented. As of August 4, 2014, the cumulative effect of these changes on the opening balance sheet was a $715 decrease to Earnings retained in the business, a decrease of $2 to Inventories, a $714 reduction to Accumulated other comprehensive loss, and an increase of $1 to Other current assets.

In 2016 and 2015, we recognized mark-to-market losses as certain U.S. plans were remeasured. In 2016, the remeasurements were required due to a high level of lump sum payments to certain vested plan participants arising primarily out of a limited-time offer to accept a single lump sum in lieu of future annuity payments. In the third quarter of 2016, we recognized mark-to-market losses of $54 ($34 after tax, or $.11 per share). Year-to-date, we recognized mark-to-market losses of $175 ($110 after tax, or $.35 per share). In 2015, the remeasurements were required due to the impact of a voluntary employee separation program. In the third quarter and year-to-date period of 2015, we recognized losses of $26 ($16 after tax, or $.05 per share).

The impacts of the changes in policy to the consolidated financial statements are summarized below:



	Three months ended May 1, 2016							Three months ended May 3, 2015
Consolidated Statements of Earnings	Prior Accounting Principles		Effect of Accounting Change			As Reported		Previously Reported		Effect of Accounting Change			Recast
Cost of products sold	$	1,195	$	15		$	1,210	$	1,218	$	—		$	1,218
Marketing and selling expenses	223		5			228		213		—			213
Administrative expenses	151		3			154		141		1			142
Research and development expenses	30		1			31		29		1			30
Earnings before interest and taxes	292		(24		)	268		287		(2		)	285
Earnings before taxes	264		(24		)	240		259		(2		)	257
Taxes on earnings	63		(8		)	55		77		1			78
Net earnings	201		(16		)	185		182		(3		)	179
Net earnings attributable to Campbell Soup Company	$	201	$	(16	)	$	185	$	182	$	(3	)	$	179
Earnings per share — Basic	$	.65	$	(.05	)	$	.60	$	.59	$	(.01	)	$	.58
Earnings per share — Diluted ⁽¹⁾	$	.65	$	(.05	)	$	.59	$	.58	$	(.01	)	$	.57



	Nine months ended May 1, 2016							Nine months ended May 3, 2015
Consolidated Statements of Earnings	Prior Accounting Principles		Effect of Accounting Change			As Reported		Previously Reported		Effect of Accounting Change			Recast
Cost of products sold	$	4,011	$	29		$	4,040	$	4,196	$	(27	)	$	4,169
Marketing and selling expenses	672		5			677		702		(7		)	695
Administrative expenses	454		2			456		416		(8		)	408
Research and development expenses	85		1			86		85		(2		)	83
Earnings before interest and taxes	1,034		(37		)	997		967		44			1,011
Earnings before taxes	951		(37		)	914		889		44			933
Taxes on earnings	281		(11		)	270		266		18			284
Net earnings	670		(26		)	644		623		26			649
Net earnings attributable to Campbell Soup Company	$	670	$	(26	)	$	644	$	623	$	26		$	649
Earnings per share - Basic ⁽¹⁾	$	2.17	$	(.08	)	$	2.08	$	1.99	$	.08		$	2.07
Earnings per share - Diluted ⁽¹⁾	$	2.15	$	(.08	)	$	2.07	$	1.98	$	.08		$	2.07

^{________________________________________________________}

⁽¹⁾ The sum of the individual per share amounts may not add due to rounding.



	Three months ended May 1, 2016								Three months ended May 3, 2015
Consolidated Statements of Comprehensive Income	Prior Accounting Principles			Effect of Accounting Change			As Reported		Previously Reported			Effect of Accounting Change			Recast
Foreign currency translation:
Foreign currency translation adjustments	$	101		$	—		$	101	$	12		$	(3	)	$	9
Pension and other postretirement benefits:
Net actuarial gain (loss) arising during the period	(68		)	68			—		(4		)	4			—
Reclassification of net actuarial loss included in net earnings	35			(35		)	—		24			(24		)	—
Tax benefit / (expense)	$	12		$	(12	)	$	—	$	(7	)	$	7		$	—



	Nine months ended May 1, 2016								Nine months ended May 3, 2015
Consolidated Statements of Comprehensive Income	Prior Accounting Principles			Effect of Accounting Change			As Reported		Previously Reported			Effect of Accounting Change			Recast
Foreign currency translation:
Foreign currency translation adjustments	$	58		$	—		$	58	$	(238	)	$	9		$	(229	)
Pension and other postretirement benefits:
Net actuarial gain (loss) arising during the period	(181		)	181			—		13			(13		)	—
Reclassification of net actuarial loss included in net earnings	144			(144		)	—		72			(72		)	—
Tax benefit / (expense)	$	14		$	(14	)	$	—	$	(29	)	$	29		$	—



	May 1, 2016									August 2, 2015
Consolidated Balance Sheets	Prior Accounting Principles			Effect of Accounting Change			As Reported			Previously Reported			Effect of Accounting Change			Recast
Inventories	$	827		$	2		$	829		$	993		$	2		$	995
Other current assets	183			(1		)	182			199			(1		)	198
Accrued income taxes	51			3			54			29			—			29
Earnings retained in the business	2,871			(766		)	2,105			2,494			(740		)	1,754
Accumulated other comprehensive (loss) income	$	(908	)	$	764		$	(144	)	$	(909	)	$	741		$	(168	)



	Nine months ended May 1, 2016									Nine months ended May 3, 2015
Consolidated Statements of Cash Flows	Prior Accounting Principles			Effect of Accounting Change			As Reported			Previously Reported			Effect of Accounting Change			Recast
Cash flow from operating activities:
Net earnings	$	670		$	(26	)	$	644		$	623		$	26		$	649
Pension and postretirement benefit expense / (income)	—			167			167			—			9			9
Deferred income taxes	18			(14		)	4			12			16			28
Other, net	132			(130		)	2			69			(54		)	15
Inventories	172			—			172			108			1			109
Accounts payable and accrued liabilities	(90		)	3			(87		)	(112		)	2			(110		)
Net cash provided by operating activities	$	1,183		$	—		$	1,183		$	971		$	—		$	971