10-K 1 cpb-7282019x10xk.htm 10-K Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
_________________________________________________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
 
 
 
Commission File Number
July 28, 2019
 
 
 
1-3822
campbelllogoa05.jpg
CAMPBELL SOUP COMPANY 
New Jersey
21-0419870
State of Incorporation
I.R.S. Employer Identification No.
1 Campbell Place
Camden, New Jersey 08103-1799
Principal Executive Offices
Telephone Number: (856) 342-4800
Securities registered pursuant to Section 12(b) of the Act: 
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Capital Stock, par value $.0375
 
CPB
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes þ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes þ No
Based on the closing price on the New York Stock Exchange on January 25, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of capital stock held by non-affiliates of the registrant was approximately $6,542,735,608. There were 301,186,638 shares of capital stock outstanding as of September 18, 2019.
Portions of the Registrant’s Proxy Statement for the 2019 Annual Meeting of Shareholders are incorporated by reference into Part III.







TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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

Item 1. Business
The Company
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
We are a manufacturer and marketer of high-quality, branded food and beverage products. We organized as a business corporation under the laws of New Jersey on November 23, 1922; however, through predecessor organizations, we trace our heritage in the food business back to 1869. Our principal executive offices are in Camden, New Jersey 08103-1799.
In 2015, we acquired the assets of Garden Fresh Gourmet. In 2018, we acquired Pacific Foods of Oregon, LLC and Snyder's-Lance, Inc. (Snyder's-Lance). See Note 4 to the Consolidated Financial Statements for additional information on our recent acquisitions.
In 2019, we announced our plan to divest our Campbell Fresh operating segment and our international biscuits and snacks operating segment. Within our Campbell Fresh operating segment, we:
sold our U.S. refrigerated soup business on February 25, 2019;
sold our Garden Fresh Gourmet business on April 25, 2019; and
sold our Bolthouse Farms business on June 16, 2019.
Within our international biscuits and snacks operating segment, we:
signed a definitive agreement for the sale of our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019;
signed a definitive agreement on August 1, 2019, for the sale of our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific (the Arnott’s and international operations); and
signed a definitive agreement on September 18, 2019, for the sale of our European chips business.
We expect to complete the sales of our pending divestitures in the first half of 2020 and use the net proceeds from the sales to reduce debt. See Note 3 to the Consolidated Financial Statements for additional information on our recently completed and pending divestitures. To support our more focused portfolio, we are pursuing multi-year cost savings initiatives with targeted annualized cost savings of $850 million from continuing operations by the end of 2022, which includes $295 million in synergies and run-rate cost savings from our acquisition of Snyder's-Lance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding our cost savings initiatives.
Our U.S. refrigerated soup business, our Garden Fresh Gourmet business and our Bolthouse Farms business were historically included in the Campbell Fresh segment. Beginning in the third quarter of 2019, we have reflected the results of operations of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of July 29, 2018. A portion of the U.S refrigerated soup business historically included in Campbell Fresh was retained, and is now reported in Meals & Beverages.
Beginning in the fourth quarter of 2019, we have reflected the results of operations of our Kelsen business and Arnott’s and international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of July 28, 2019, and July 29, 2018.
Segment results in prior periods have been adjusted to conform to the current presentation.

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Reportable Segments
The segments are aggregated based on similar economic characteristics, products, production processes, types or classes of customers, distribution methods, and regulatory environment. Our reportable segments are:
Meals & Beverages, which includes the retail and foodservice businesses in the U.S. and Canada. The segment includes the following products: Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Pacific Foods broth, soups, non-dairy beverages and other simple meals; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Swanson canned poultry; Plum baby food and snacks; V8 juices and beverages; and Campbell’s tomato juice. The segment also includes the simple meals and shelf-stable beverages business in Latin America; and
Snacks, which consists of Pepperidge Farm cookies, crackers, fresh bakery and frozen products in U.S. retail, including Milano cookies and Goldfish crackers; and Snyder’s of Hanover pretzels, Lance sandwich crackers, Cape Cod and Kettle Brand potato chips, Late July snacks, Snack Factory Pretzel Crisps, Pop Secret popcorn, Emerald nuts, and other snacking products in the U.S. and Canada. The segment also includes our European chips business.
In 2020, our business in Latin America is managed as part of the Snacks segment. See Note 7 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding our reportable segments.
Ingredients and Packaging
The ingredients and packaging materials required for the manufacture of our food and beverage products are purchased from various suppliers. These items are subject to price fluctuations from a number of factors, including changes in crop size, cattle cycles, crop disease, crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, government-sponsored agricultural programs and other government policy, import and export requirements (including tariffs), drought and excessive rain, temperature extremes and other adverse weather events, water scarcity, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be beyond our control during the growing and harvesting seasons. To help reduce some of this price volatility, we use a combination of purchase orders, short- and long-term contracts, inventory management practices and various commodity risk management tools for most of our ingredients and packaging. Ingredient inventories are generally at a peak during the late fall and decline during the winter and spring. Since many ingredients of suitable quality are available in sufficient quantities only during certain seasons, we make commitments for the purchase of such ingredients in their respective seasons. In addition, certain of the materials required for the manufacture of our products, including steel, have been or may be impacted by tariffs. At this time, we do not anticipate any material restrictions on the availability of ingredients or packaging that would have a significant impact on our businesses. For information on the impact of inflation, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Customers
In most of our markets, sales and merchandising activities are conducted through our own sales force and/or third-party brokers and distribution partners. In the U.S., Canada and Latin America, our products are generally resold to consumers through retail food chains, mass discounters, mass merchandisers, club stores, convenience stores, drug stores, dollar stores, e-commerce and other retail, commercial and non-commercial establishments. Each of Pepperidge Farm and Snyder's-Lance also has a direct-store-delivery distribution model that uses independent contractor distributors. We make shipments promptly after acceptance of orders.
Our five largest customers accounted for approximately 43% of our consolidated net sales from continuing operations in 2019, 46% in 2018 and 47% in 2017. Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 20% of our consolidated net sales from continuing operations in 2019, 22% in 2018 and 24% 2017. The Kroger Co. and its affiliates accounted for approximately 9% of our consolidated net sales from continuing operations in 2019 and 10% in 2018 and 2017. Both of our reportable segments sold products to Wal-Mart Stores, Inc. or its affiliates and The Kroger Co. or its affiliates. No other customer accounted for 10% or more of our consolidated net sales.
Trademarks and Technology
As of September 18, 2019, we owned over 3,600 trademark registrations and applications in over 160 countries. We believe our trademarks are of material importance to our business. Although the laws vary by jurisdiction, trademarks generally are valid as long as they are in use and/or their registrations are properly maintained and have not been found to have become generic. Trademark registrations generally can be renewed indefinitely as long as the trademarks are in use. We believe that our principal brands, including Campbell's, Cape Cod, Chunky, Emerald, Goldfish, Kettle Brand, Lance, Late July, Milano, Pace, Pacific Foods, Pepperidge Farm, Plum, Pop Secret, Prego, Snack Factory Pretzel Crisps, Snyder's of Hanover, Swanson, and V8, are protected by trademark law in the major markets where they are used.
Although we own a number of valuable patents, we do not regard any segment of our business as being dependent upon any single patent or group of related patents. In addition, we own copyrights, both registered and unregistered, proprietary trade secrets, technology, know-how, processes and other intellectual property rights that are not registered.

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Competition
We operate in a highly competitive industry and experience competition in all of our categories. This competition arises from numerous competitors of varying sizes across multiple food and beverage categories, and includes producers of private label products, as well as other branded food and beverage manufacturers. Private label products are generally sold at lower prices than branded products. Competitors market and sell their products through traditional retailers and e-commerce. All of these competitors vie for trade merchandising support and consumer dollars. The number of competitors cannot be reliably estimated. Our principal areas of competition are brand recognition, taste, nutritional value, price, promotion, innovation, shelf space and customer service.
Working Capital
For information relating to our cash flows from operations and working capital items, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Capital Expenditures
During 2019, our aggregate capital expenditures were $384 million. We expect to spend approximately $350 million for capital projects in 2020, which includes capital projects for Campbell International for the anticipated period of ownership. Major capital projects based on planned spend in 2020 include implementation of an SAP enterprise-resource planning system for Snyder's-Lance and a new manufacturing line for our snacks business.
Regulation
The manufacture and sale of consumer food products is highly regulated. In the U.S., our activities are subject to regulation by various federal government agencies, including the Food and Drug Administration, Department of Agriculture, Federal Trade Commission, Department of Labor, Department of Commerce and Environmental Protection Agency, as well as various state and local agencies. Our business is also regulated by similar agencies outside of the U.S. In addition, the current U.S. administration has implemented and is considering tariffs on certain imported commodities, including steel. In response, other countries have adopted and/or are considering countervailing tariffs on imported food and agriculture products. 
Environmental Matters
We have requirements for the operation and design of our facilities that meet or exceed applicable environmental rules and regulations. Of our $384 million in capital expenditures made during 2019, approximately $29 million were for compliance with environmental laws and regulations in the U.S. We further estimate that approximately $13 million of the capital expenditures anticipated during 2020 will be for compliance with U.S. environmental laws and regulations. We believe that continued compliance with existing environmental laws and regulations (both within the U.S. and elsewhere) will not have a material effect on capital expenditures, earnings or our competitive position. In addition, we continue to monitor existing and pending environmental laws and regulations within the U.S. and elsewhere relating to climate change and greenhouse gas emissions. While the impact of these laws and regulations cannot be predicted with certainty, we do not believe that compliance with these laws and regulations will have a material effect on capital expenditures, earnings or our competitive position.
Seasonality
Demand for soup products is seasonal, with the fall and winter months usually accounting for the highest sales volume. Demand for our other products is generally evenly distributed throughout the year.
Employees
On July 28, 2019, we had approximately 19,000 employees, which included approximately 4,200 employees of Campbell International.
Websites
Our primary corporate website can be found at www.campbellsoupcompany.com. We make available free of charge at this website (under the "Investor Center — Financial Information — SEC Filings" caption) all of our reports (including amendments) filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. These reports are made available on the website as soon as reasonably practicable after their filing with, or furnishing to, the Securities and Exchange Commission.
All websites appearing in this Annual Report on Form 10-K are inactive textual references only, and the information in, or accessible through, such websites is not incorporated into this Annual Report on Form 10-K, or into any of our other filings with the Securities and Exchange Commission.

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Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this Report, the following risks and uncertainties could materially adversely affect our business, financial condition and results of operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition.
Operational Risk Factors
We face significant competition in all our product categories, which may result in lower sales and margins
We operate in the highly competitive food and beverage industry mainly in the North American market and experience competition in all of our categories. The principal areas of competition are brand recognition, taste, nutritional value, price, promotion, innovation, shelf space and customer service. A number of our primary competitors are larger than us and have substantial financial, marketing and other resources, and some of our competitors may spend more aggressively on advertising and promotional activities than we do. In addition, reduced barriers to entry and easier access to funding are creating new competition. A strong competitive response from one or more of these competitors to our marketplace efforts, or a continued shift towards private label offerings, could result in us reducing prices, increasing marketing or other expenditures, and/or losing market share, each of which may result in lower sales and margins.
Our ability to compete also depends upon our ability to predict, identify, and interpret the tastes and dietary habits of consumers and to offer products that appeal to those preferences. There are inherent marketplace risks associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance. If we do not succeed in offering products that consumers want to buy, our sales and market share will decrease, resulting in reduced profitability. If we are unable to accurately predict which shifts in consumer preferences will be long-lasting, or are unable to introduce new and improved products to satisfy those preferences, our sales will decline. In addition, given the variety of backgrounds and identities of consumers in our consumer base, we must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. As such, we must be successful in developing innovative products across a multitude of product categories. Finally, if we fail to rapidly develop products in faster-growing and more profitable categories, we could experience reduced demand for our products, or fail to expand margins.
Our results may be adversely affected by our inability to complete or realize the projected benefits of divestitures
During the first half of 2020, we expect to complete the sale of our Arnott’s and international operations and use the net proceeds from this divestiture to reduce debt. Our ability to successfully divest this business depends upon, among other things, receiving all necessary regulatory approvals on the terms expected. In addition, any other businesses we decide to divest may depend in part on our ability to identify suitable buyers, negotiate favorable financial and other contractual terms and obtain all necessary regulatory approvals on the terms expected. Potential risks of divestitures may also include diversion of management's attention from other business concerns, loss of key suppliers and/or customers of divested businesses, the inability to separate divested businesses or business units effectively and efficiently from our existing business operations and the inability to reduce or eliminate associated overhead costs. If we are unable to complete or realize the projected benefits of planned and/or future divestitures, we may not be able to reduce our debt as planned and our business or financial results may be adversely impacted.
We may be adversely impacted by our substantial indebtedness
We used the net proceeds from the businesses we sold in 2019 to reduce our debt and expect to use the net proceeds from the sale of Campbell International to further reduce debt. However, as of July 28, 2019, we maintained approximately $8.7 billion of indebtedness, and this level of indebtedness may have important consequences to our business, including but not limited to:
increasing the possibility of a downgrade in our credit rating;
increasing our exposure to fluctuations in interest rates;
subjecting us to new financial and other covenants;
increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, including undertaking significant capital projects;
placing us at a competitive disadvantage as compared to our competitors, to the extent that they are not as highly leveraged; and
restricting us from pursuing certain business opportunities, including other acquisitions.
In addition, we regularly access the commercial paper markets for working capital needs and other general corporate purposes. If our credit ratings are downgraded, we may have difficulty selling additional debt securities or borrowing money in the amounts and on the terms that might be available if our credit ratings were maintained. See "Management's Discussion and Analysis of

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Financial Condition and Results of Operations - Liquidity and Capital Resources" for additional information regarding our indebtedness.
Disruptions in the commercial paper market or other effects of volatile economic conditions on the credit markets may also reduce the amount of commercial paper that we can issue and raise our borrowing costs for both short- and long-term debt offerings. There can be no assurance that we will have access to the capital markets on terms we find acceptable. Limitations on our ability to access the capital markets, a reduction in our liquidity or an increase in our borrowing costs may adversely affect our business and financial results.
We may not achieve our targeted cost savings, which may adversely affect our ability to grow margins
We are pursuing multi-year cost savings initiatives with targeted annualized cost savings of $850 million for continuing operations by the end of 2022, which includes $295 million in synergies and run-rate cost savings from our acquisition of Snyder's-Lance. These initiatives require a substantial amount of management and operational resources. Our management team must successfully execute the administrative and operational changes necessary to achieve the anticipated benefits of these initiatives, including the integration of Snyder's-Lance in an efficient and effective manner. In some respects, our plans to achieve these cost savings continue to be refined. See "Management's Discussion and Analysis of Financial Condition and Results of Operation - Restructuring Charges and Cost Savings Initiatives" for additional information on these initiatives. These and related demands on our resources may divert the organization's attention from other business issues, have adverse effects on existing business relationships with suppliers and customers and impact employee morale. Our success is partly dependent upon properly executing, and realizing cost savings or other benefits from, these often complex initiatives. Any failure to implement our initiatives could adversely affect our ability to grow margins.
We may not be able to increase prices to fully offset increases in the cost of transportation and logistics and prices of raw and packaging materials
The cost of distribution has increased recently due to a rise in transportation and logistics costs, driven by excess demand, reduced availability and higher fuel costs. In addition, certain of the materials required for the manufacture of our products, including steel, have been or may be impacted by tariffs.
As a manufacturer of food and beverage products, the raw and packaging materials used in our business include tomato paste, grains, beef, poultry, dairy, potatoes and other vegetables, steel, glass, paper and resin. Many of these materials are subject to price fluctuations from a number of factors, including but not limited to changes in crop size, cattle cycles, crop disease, crop pests, product scarcity, demand for raw materials, commodity market speculation, energy costs, currency fluctuations, government-sponsored agricultural programs and other government policy, import and export requirements (including tariffs), drought and excessive rain, temperature extremes and other adverse weather events, water scarcity, scarcity of suitable agricultural land, scarcity of organic ingredients and other factors that may be beyond our control. We may not be able to offset any price increases through productivity or price increases or through our commodity hedging activity.
We try to pass along to customers some or all cost increases through increases in the selling prices of, or decreases in the packaging sizes of, some of our products. Higher product prices or smaller packaging sizes may result in reductions in sales volume. To the extent that price increases or packaging size decreases are not sufficient to offset these increased costs, and/or if they result in significant decreases in sales volume, our business results and financial condition may be adversely affected.
We may be adversely impacted by a changing customer landscape and the increased significance of some of our customers
Our businesses are largely concentrated in the traditional retail grocery trade, which has experienced slower growth than other retail channels, such as dollar stores, drug stores, club stores and e-commerce retailers. We expect this trend away from traditional retail grocery to alternate channels to continue in the future. These alternative retail channels may also create consumer price deflation, affecting our retail customer relationships and presenting additional challenges to increasing prices in response to commodity or other cost increases. In addition, retailers with increased buying power and negotiating strength are seeking more favorable terms, including increased promotional programs funded by their suppliers. These customers may also use more of their shelf space for their private label products, which are generally sold at lower prices than branded products. If we are unable to use our scale, marketing, product innovation and category leadership positions to respond to these customer dynamics, our business or financial results could be adversely impacted.
In 2019, our five largest customers accounted for approximately 43% of our consolidated net sales from continuing operations, with the largest customer, Wal-Mart Stores, Inc. and its affiliates, accounting for approximately 20% of our consolidated net sales from continuing operations. In addition, The Kroger Co. and its affiliates accounted for approximately 9% of our consolidated net sales from continuing operations in 2019. There can be no assurance that our largest customers will continue to purchase our products in the same mix or quantities, or on the same terms as in the past. Disruption of sales to any of these customers, or to any of our other large customers, for an extended period of time could adversely affect our business or financial results.

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Our results may be adversely impacted if consumers do not maintain their favorable perception of our brands
We have a number of iconic brands with significant value. Maintaining and continually enhancing the value of these brands is critical to the success of our business. Brand value is primarily based on consumer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products. Brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products, packaging or ingredients (whether or not valid), our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers. The growing use of social and digital media by consumers increases the speed and extent that information and opinions can be shared. Negative posts or comments about us, our brands, products or packaging on social or digital media could seriously damage our brands and reputation. If we do not maintain the favorable perception of our brands, our results could be adversely impacted.
Disruption to our supply chain could adversely affect our business
Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing, warehousing or distribution capabilities, or to the capabilities of our suppliers, contract manufacturers, logistics service providers or independent distributors. This damage or disruption could result from execution issues, as well as factors that are hard to predict or beyond our control, such as product or raw material scarcity, adverse weather conditions, natural disasters, fire, terrorism, pandemics, strikes, cybersecurity breaches, government shutdowns, disruptions in logistics, supplier capacity constraints or other events. Production of the agricultural commodities used in our business may also be adversely affected by drought and excessive rain, temperature extremes and other adverse weather events, water scarcity, scarcity of suitable agricultural land, scarcity of organic ingredients, crop size, cattle cycles, crop disease and crop pests. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, may adversely affect our business or financial results, particularly in circumstances when a product is sourced from a single supplier or location. Disputes with significant suppliers, contract manufacturers, logistics service providers or independent distributors, including disputes regarding pricing or performance, may also adversely affect our ability to manufacture and/or sell our products, as well as our business or financial results.
If our food products become adulterated or are mislabeled, we might need to recall those items, and we may experience product liability claims and damage to our reputation
We have in the past and we may, in the future, need to recall some of our products if they become adulterated or if they are mislabeled, and we may also be liable if the consumption of any of our products causes sickness or injury to consumers. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the unavailability of product for a period of time. We could also suffer losses from a significant adverse product liability judgment. A significant product recall or product liability claim could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in the safety and/or quality of our products, ingredients or packaging. In addition, if another company recalls or experiences negative publicity related to a product in a category in which we compete, consumers might reduce their overall consumption of products in that category.
An impairment of the carrying value of goodwill or other indefinite-lived intangible assets could adversely affect our financial results and net worth
As of July 28, 2019, we had goodwill of $4.678 billion and other indefinite-lived intangible assets of $2.753 billion, of which a total of $785 million relates to Campbell International and has been included in Noncurrent assets of discontinued operations. Goodwill and indefinite-lived intangible assets are initially recorded at fair value and not amortized, but are tested for impairment at least annually or more frequently if impairment indicators arise. We test goodwill at the reporting unit level by comparing the carrying value of the net assets of the reporting unit, including goodwill, to the unit's fair value. Similarly, we test indefinite-lived intangible assets by comparing the fair value of the assets to their carrying values. Fair value for both goodwill and other indefinite-lived intangible assets is determined based on a discounted cash flow analysis. If the carrying values of the reporting unit or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets are considered impaired and reduced to fair value. Factors that could result in an impairment include a change in revenue growth rates, operating margins, weighted average cost of capital, future economic and market conditions or assumed royalty rates. We have, in the most recently completed and prior years, experienced impairment charges. See "Significant Accounting Estimates" and Notes 3 and 6 to the Consolidated Financial Statements for additional information on recent impairments. We may be required in the future to record additional impairment of the carrying value of goodwill or other indefinite-lived intangible assets, which could adversely affect our financial results and net worth.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands
We consider our intellectual property rights, particularly our trademarks, to be a significant and valuable aspect of our business. We protect our intellectual property rights through a combination of trademark, patent, copyright and trade secret protection, contractual agreements and policing of third-party misuses of our intellectual property. Our failure to obtain or adequately protect

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our intellectual property or any change in law that lessens or removes the current legal protections of our intellectual property may diminish our competitiveness and adversely affect our business and financial results.
Competing intellectual property claims that impact our brands or products may arise unexpectedly. Any litigation or disputes regarding intellectual property may be costly and time-consuming and may divert the attention of our management and key personnel from our business operations. We also may be subject to significant damages or injunctions against development, launch and sale of certain products. Any of these occurrences may harm our business and financial results.
We may be adversely impacted by increased liabilities and costs related to our defined benefit pension plans
We sponsor a number of defined benefit pension plans for certain employees in the U.S. and certain non-U.S. locations. The major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of securities and other investments. Changes in regulatory requirements or the market value of plan assets, investment returns, interest rates and mortality rates may affect the funded status of our defined benefit pension plans and cause volatility in the net periodic benefit cost, future funding requirements of the plans and the funded status as recorded on the balance sheet. A significant increase in our obligations or future funding requirements could have a material adverse effect on our financial results.
We may be adversely impacted by a failure or security breach of our information technology systems
Our information technology systems are critically important to our operations. We rely on our information technology systems (some of which are outsourced to third parties) to manage our data, communications and business processes, including our marketing, sales, manufacturing, procurement, logistics, customer service, accounting and administrative functions. If we do not allocate and effectively manage the resources necessary to build, sustain and protect appropriate information technology systems, our business or financial results could be adversely impacted. Furthermore, our information technology systems may be vulnerable to attack or other security breaches (including the access to or acquisition of customer, consumer or other confidential information), service disruptions or other system failures. If we are unable to prevent or adequately respond to and resolve these breaches, disruptions or failures, our operations may be impacted, and we may suffer other adverse consequences such as reputational damage, litigation, remediation costs and/or penalties under various data protection laws and regulations.
To address the risks to our information technology systems and the associated costs, we maintain an information security program that includes updating technology and security policies, cyber insurance, employee training, and monitoring and routine testing of our information technology systems. We believe that these preventative actions provide adequate measures of protection against security breaches and generally reduce our cybersecurity risks. Although we have not experienced a material incident to date, there can be no assurance that these measures will prevent or limit the impact of a future incident. The cost to remediate damages to our information technology systems suffered as a result of a cyber attack could be significant.
In addition, in the event our suppliers or customers experience a breach or system failure, their businesses could be disrupted or otherwise negatively affected, which may result in a disruption in our supply chain or reduced customer orders, which would adversely affect our business and financial results. We have also outsourced several information technology support services and administrative functions to third-party service providers, and may outsource other functions in the future to achieve cost savings and efficiencies. If these service providers do not perform effectively due to breach or system failure, we may not be able to achieve the expected benefits and our business may be disrupted.
We may not be able to attract and retain the highly skilled people we need to support our business 
We depend on the skills and continued service of key personnel, including our experienced management team. In addition, our ability to achieve our strategic and operating goals depends on our ability to identify, hire, train and retain qualified individuals. We also compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure may adversely affect our business or financial results. In addition, activities related to identifying, recruiting, hiring and integrating qualified individuals may require significant time and expense. We may not be able to locate suitable replacements for any key employees who leave, or offer employment to potential replacements on reasonable terms, each of which may adversely affect our business and financial results. We also recently streamlined our business into a two-division operating model, which could lead to operational challenges and higher employee turnover.
Our results may be adversely affected by our inability to complete or realize the projected benefits of acquisitions and other strategic transactions
We may undertake additional acquisitions or other strategic transactions. Our ability to meet our objectives with respect to acquisitions and other strategic transactions may depend in part on our ability to identify suitable counterparties, negotiate favorable financial and other contractual terms, obtain all necessary regulatory approvals on the terms expected and complete those transactions. Potential risks also include:
the inability to integrate acquired businesses into our existing operations in a timely and cost-efficient manner;
diversion of management's attention from other business concerns;

9






potential loss of key employees, suppliers and/or customers of acquired businesses;
assumption of unknown risks and liabilities;
the inability to achieve anticipated benefits, including revenues or other operating results;
operating costs of acquired businesses may be greater than expected;
the inability to promptly implement an effective control environment; and
the risks inherent in entering markets or lines of business with which we have limited or no prior experience.
Market Conditions and Other General Risk Factors
Actions of activist shareholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business
We were the target of activist shareholder activities in 2019. If these activities continue, our business could be adversely affected because responding to proxy contests and reacting to other actions by activist shareholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees. In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist shareholder initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, employees, suppliers and other strategic partners, and cause our share price to experience periods of volatility or stagnation.
We face risks related to recession, financial and credit market disruptions and other economic conditions
Customer and consumer demand for our products may be impacted by weak economic conditions, recession, equity market volatility or other negative economic factors in the U.S. or other nations. Similarly, disruptions in financial and/or credit markets may impact our ability to manage normal commercial relationships with our customers, suppliers and creditors. In addition, changes in tax or interest rates in the U.S. or other nations, whether due to recession, economic disruptions or other reasons, may adversely impact us.
The administering regulatory authority announced it intends to phase out London Interbank Offered Rate (LIBOR) by the end of 2021. Our variable rate debt and revolving credit facility use LIBOR as a benchmark for establishing interest rates. While we expect to have paid off our variable-rate debt and replaced or renegotiated our revolving credit facility by the end of 2021, we plan to incur additional indebtedness and/or negotiate new terms that will rely on an alternative method to LIBOR. Any legal or regulatory changes made in response to LIBOR’s future discontinuance may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, or changes in the rules or methodologies in LIBOR. In addition, alternative methods to LIBOR may be impossible or impracticable to determine. While we do not expect that the transition from LIBOR and risks related thereto will have a material adverse effect on our financing costs, it is still uncertain at this time.
Legal and Regulatory Risk Factors
We may be adversely impacted by legal and regulatory proceedings or claims
We are a party to a variety of legal and regulatory proceedings and claims arising out of the normal course of business. See Note 19 to the Consolidated Financial Statements for information regarding reportable legal proceedings. Since these actions are inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such proceedings or claims, or that our assessment of the materiality or immateriality of these matters, including any reserves taken in connection with such matters, will be consistent with the ultimate outcome of such proceedings or claims. In particular, the marketing of food products has come under increased scrutiny in recent years, and the food industry has been subject to an increasing number of proceedings and claims relating to alleged false or deceptive marketing under federal, state and foreign laws or regulations. Additionally, the independent contractor distribution model, which is used by Pepperidge Farm and Snyder’s-Lance, has also come under increased regulatory scrutiny. Our independent contractor distribution model has also been the subject of various class and individual lawsuits in recent years. In the event we are unable to successfully defend ourselves against these proceedings or claims, or if our assessment of the materiality of these proceedings or claims proves inaccurate, our business or financial results may be adversely affected. In addition, our reputation could be damaged by allegations made in proceedings or claims (even if untrue).
Increased regulation or changes in law could adversely affect our business or financial results
The manufacture and marketing of food products is extensively regulated. Various laws and regulations govern the processing, packaging, storage, distribution, marketing, advertising, labeling, quality and safety of our food products, as well as the health and safety of our employees and the protection of the environment. In the U.S., we are subject to regulation by various federal government agencies, including but not limited to the Food and Drug Administration, the Department of Agriculture, the Federal Trade Commission, the Occupational Safety and Health Administration and the Environmental Protection Agency, as well as various state and local agencies. We are also regulated by similar agencies outside the U.S.

10






Governmental and administrative bodies within the U.S. are considering a variety of tax, trade and other regulatory reforms. Trade reforms include tariffs on certain materials used in the manufacture of our products and tariffs on certain finished products. Changes in legal or regulatory requirements (such as new food safety requirements and revised regulatory requirements for the labeling of nutrition facts, serving sizes and genetically modified ingredients), or evolving interpretations of existing legal or regulatory requirements, may result in increased compliance cost, capital expenditures and other financial obligations that could adversely affect our business and financial results.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive offices are company-owned and located in Camden, New Jersey. The following table sets forth our principal manufacturing facilities and the business segment that primarily uses each of the facilities:
Inside the U.S.
Arizona
 
Indiana
 
Pennsylvania
Goodyear (S)
 
Jeffersonville (S)
 
Denver (S)
California
 
Massachusetts
 
Downingtown (S)
Dixon (MB)
 
Hyannis (S)
 
Hanover (S)
Stockton (MB)
 
North Carolina
 
Texas
Connecticut
 
Charlotte (S)
 
Paris (MB)
Bloomfield (S)
 
Maxton (MB)
 
Utah
Florida
 
Ohio
 
Richmond (S)
Lakeland (S)
 
Ashland (S)
 
Wisconsin
Georgia
 
Napoleon (MB)
 
Beloit (S)
Columbus (S)
 
Willard (S)
 
Franklin (S)
Illinois
 
Oregon
 
Milwaukee (MB)
Downers Grove (S)
 
Salem (S)
 
 
 
 
Tualatin (MB)
 
 

Outside the U.S.
Australia
 
England
 
Indonesia
Huntingwood*
 
   Norwich (S)*
 
Bekasi*
Marleston*
 
   Wednesbury (S)*
 
  Malaysia
Shepparton*
 
 
 
  Selangor Darul Ehsan*
Virginia*
 
 
 
 
______________________________ 
MB - Meals & Beverages
S - Snacks
* - Property part of pending divestitures
Each of the foregoing manufacturing facilities is company-owned, except the Tualatin, Oregon and Selangor Darul Ehsan, Malaysia facilities, which are leased. We also maintain principal business unit offices in Charlotte, North Carolina; Doral, Florida; Hanover, Pennsylvania; Norwalk, Connecticut; Tualatin, Oregon; North Strathfield, Australia; and Toronto, Canada. The principal business unit office in North Strathfield, Australia is included in the pending sale of the Arnott’s and international operations.
We also own and lease distribution centers across the U.S. We believe that our manufacturing and processing plants and distribution centers are well maintained and, together with facilities operated by our contract manufacturers, are generally adequate to support the current operations of the businesses.
Item 3. Legal Proceedings
Information regarding reportable legal proceedings is contained in Note 19 to the Consolidated Financial Statements and incorporated herein by reference.

11






Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Company
The following is a list of our executive officers as of September 18, 2019:
Name, Present Title & Business Experience
Age
Year First
Appointed
Executive
Officer
Carlos A. Abrams-Rivera, Senior Vice President and President, Campbell Snacks. President, Campbell Snacks (2018-2019). President of Pepperidge Farm (2015-2018). President, Gum & Candy - Latin America of Mondelez International (2015). President, Mondelez Mexico of Mondelez International (2013-2015).
52
2019
Xavier F. Boza, Senior Vice President and Chief Human Resources Officer. Vice President, Human Resources of Campbell Soup Company (2015 - 2018). Regional Vice President, Human Resources of Kellogg Company (2013 - 2015).
55
2018
Mark A. Clouse, President and Chief Executive Officer. Chief Executive Officer of Pinnacle Foods, Inc. (2016 - 2018). Chief Commercial Officer (2016) and Executive Vice President and Chief Growth Officer (2014-2016) of Mondelez International, Inc.
51
2019
Adam G. Ciongoli, Senior Vice President and General Counsel. Executive Vice President and General Counsel of Lincoln Financial Group (2012 - 2015).
51
2015
Anthony P. DiSilvestro, Senior Vice President and Chief Financial Officer. We have employed Mr. DiSilvestro in an executive or managerial capacity for at least five years.
60
2004
Christopher D. Foley, Senior Vice President and President, Campbell Meals & Beverages. We have employed Mr. Foley in an executive or managerial capacity for at least five years.
47
2019
Robert J. Furbee, Senior Vice President, Global Supply Chain. We have employed Mr. Furbee in an executive or managerial capacity for at least five years.
57
2017
Craig S. Slavtcheff, Senior Vice President, Global R&D. We have employed Mr. Slavtcheff in an executive or managerial capacity for at least five years.
52
2019
PART II
Item 5.
Market for Registrant’s Capital Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market for Registrant’s Capital Stock
Our capital stock is traded on the New York Stock Exchange under the symbol "CPB." On September 18, 2019, there were 17,529 holders of record of our capital stock.
Return to Shareholders* Performance Graph
The information contained in this Return to Shareholders Performance Graph section shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent we specifically incorporate it by reference into a document filed under the Securities Exchange Act of 1933, as amended, or the Exchange Act.
The following graph compares the cumulative total shareholder return (TSR) on our stock with the cumulative total return of the Standard & Poor’s 500 Stock Index (the S&P 500) and the Standard & Poor’s Packaged Foods Index (the S&P Packaged Foods Group). The graph assumes that $100 was invested on August 1, 2014, in each of our stock, the S&P 500 and the S&P Packaged Foods Group, and that all dividends were reinvested. The total cumulative dollar returns shown on the graph represent the value that such investments would have had on July 28, 2019.


12






chart-deb0aaf618045fa480ca01.jpg

* Stock appreciation plus dividend reinvestment.
 
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019
Campbell
 
100
 
121
 
156
 
136
 
108
 
113
S&P 500
 
100
 
112
 
118
 
137
 
159
 
174
S&P Packaged Foods Group
 
100
 
125
 
147
 
138
 
129
 
141
Issuer Purchases of Equity Securities
None.


13






Item 6. Selected Financial Data
Fiscal Year
2019(1)
 
2018(2)
 
2017(3)
 
2016(4)
 
2015(5)
(Millions, except per share amounts)
 
Summary of Operations
 
 
 
 
 
 
 
 
 
Net sales
$
8,107

 
$
6,615

 
$
5,837

 
$
5,868

 
$
5,945

Earnings before interest and taxes
979

 
1,010

 
1,431

 
865

 
812

Earnings before taxes
625

 
830

 
1,316

 
751

 
705

Earnings from continuing operations
474

 
724

 
924

 
509

 
491

Earnings (loss) from discontinued operations
(263
)
 
(463
)
 
(37
)
 
54

 
175

Net earnings
211

 
261

 
887

 
563

 
666

Net earnings attributable to Campbell Soup Company
211

 
261

 
887

 
563

 
666

Financial Position
 
 
 
 
 
 
 
 
 
Total assets
$
13,148

 
$
14,529

 
$
7,726

 
$
7,837

 
$
8,077

Total debt(6)
8,712

 
9,894

 
3,536

 
3,533

 
4,082

Total equity
1,112

 
1,373

 
1,645

 
1,533

 
1,377

Per Share Data
 
 
 
 
 
 
 
 
 
Earnings from continuing operations attributable to Campbell Soup Company - basic
$
1.57

 
$
2.41

 
$
3.03

 
$
1.65

 
$
1.57

Earnings from continuing operations attributable to Campbell Soup Company - assuming dilution
1.57

 
2.40

 
3.01

 
1.64

 
1.57

Net earnings attributable to Campbell Soup Company - basic
.70

 
.87

 
2.91

 
1.82

 
2.13

Net earnings attributable to Campbell Soup Company - assuming dilution
.70

 
.86

 
2.89

 
1.81

 
2.13

Dividends declared
1.40

 
1.40

 
1.40

 
1.248

 
1.248

Other Statistics
 
 
 
 
 
 
 
 
 
Capital expenditures
$
384

 
$
407

 
$
338

 
$
341

 
$
380

Weighted average shares outstanding - basic
301

 
301

 
305

 
309

 
312

Weighted average shares outstanding - assuming dilution
302

 
302

 
307

 
311

 
313

____________________________________ 
(All per share amounts below are on a diluted basis)
On February 25, 2019, we sold our U.S. refrigerated soup business, and on April 25, 2019, we sold our Garden Fresh Gourmet business. On June 16, 2019, we sold our Bolthouse Farms business. We have reflected the results of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations as of July 29, 2018. Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of our Kelsen business on July 12, 2019. We also signed a definitive agreement on August 1, 2019, for the sale of our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific. We have reflected the results of operations of the Kelsen business and the Arnott’s and international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of July 28, 2019, and July 29, 2018.
In May 2014, the Financial Accounting Standards Board (FASB) issued revised guidance on the recognition of revenue from contracts with customers. We adopted the guidance in the first quarter of 2019 using the modified retrospective method.
In March 2017, the FASB issued guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. The guidance also allows only the service cost component to be eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory). We adopted the guidance in the first quarter of 2018 and retrospectively adjusted prior periods.
In March 2016, the FASB issued guidance that amends accounting for share-based payments, including the accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classification in the statement of cash flows. We adopted the guidance in 2017 and retrospectively adjusted prior periods.

14






In April 2015, the FASB issued guidance that requires debt issuance costs to be presented in the balance sheet as a reduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. We adopted the guidance in 2016 and retrospectively adjusted prior periods.
In November 2015, the FASB issued guidance that requires deferred tax liabilities and assets to be classified as noncurrent in the balance sheet. We adopted the guidance in 2016 on a prospective basis and modified the presentation of deferred taxes in the Consolidated Balance Sheet as of July 31, 2016.
All fiscal years consisted of 52 weeks.
(1) 
The 2019 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and costs of $92 million ($.30 per share) associated with restructuring and cost savings initiatives; impairment charges of $13 million ($.04 per share) related to the European chips business; a pension settlement charge of $22 million ($.07 per share); losses of $93 million ($.31 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; and a tax charge of $2 million ($.01 per share) due to the enactment of the Tax Cuts and Jobs Act that was signed into law in December 2017 (the Act). Loss from discontinued operations was impacted by the following: impairment charges of $275 million ($.91 per share) related to Campbell Fresh; expenses of $51 million ($.17 per share) associated with the sale process of the businesses in Campbell Fresh, including losses on the sale of the businesses, and on deferred tax assets that were not realizable; impairment charges of $12 million ($.04 per share) related to Kelsen; costs of $10 million ($.03 per share) associated with the planned divestiture of Campbell International; and losses of $9 million ($.03 per share) associated with mark-to-market adjustments for defined benefit pension plans.
(2) 
The 2018 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and costs of $132 million ($.44 per share) associated with restructuring and cost savings initiatives; gains of $100 million ($.33 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; impairment charges of $41 million ($.14 per share) related to the Plum trademark; transaction and integration costs of $73 million ($.24 per share) associated with the acquisition of Snyder's-Lance; a net tax benefit of $126 million ($.42 per share) due to the enactment of the Act; and a loss of $15 million ($.05 per share) related to the settlement of a legal claim. Loss from discontinued operations was impacted by the following: a restructuring charge and costs of $4 million ($.01 per share) associated with restructuring and cost savings initiatives; impairment charges of $571 million ($1.89 per share) related to the Bolthouse Farms refrigerated beverages and salad dressings reporting unit, the deli reporting unit, and the Bolthouse Farms carrot and carrot ingredients reporting unit; and gains of $3 million ($.01 per share) associated with mark-to-market and curtailment adjustments for defined benefit pension plans.
(3) 
The 2017 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and costs of $30 million ($.10 per share) associated with restructuring and cost savings initiatives; gains of $100 million ($.33 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans; and a tax benefit of $52 million ($.17 per share) primarily associated with the sale of intercompany notes receivable to a financial institution. Loss from discontinued operations were impacted by the following: a restructuring charge and costs of $7 million ($.02 per share) associated with restructuring and cost savings initiatives; impairment charges of $180 million ($.59 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit; a reduction to interest expense of $4 million ($.01 per share) primarily associated with the sale of intercompany notes receivable to a financial institution; and gains of $16 million ($.05 per share) associated with mark-to-market adjustments for defined benefit pension plans.
(4) 
The 2016 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and costs of $49 million ($.16 per share) associated with restructuring and cost savings initiatives; and losses of $187 million ($.60 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans. Earnings from discontinued operations were impacted by the following: impairment charges of $127 million ($.41 per share) related to the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit; losses of $13 million ($.04 per share) associated with mark-to-market adjustments for defined benefit pension plans; and a gain of $25 million ($.08 per share) associated with a settlement of a claim related to the Kelsen acquisition.
(5) 
The 2015 earnings from continuing operations attributable to Campbell Soup Company were impacted by the following: a restructuring charge and costs of $76 million ($.24 per share) associated with restructuring and cost savings initiatives and losses of $86 million ($.27 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans. Earnings from discontinued operations were impacted by the following: a restructuring charge of $2 million ($.01 per share) associated with restructuring and cost savings initiatives and losses of $1 million associated with mark-to-market adjustments for defined benefit pension plans.
(6) 
Total debt includes debt related to discontinued operations. In 2019 and 2018, debt related to discontinued operations was $238 million and $378 million, respectively.

Selected Financial Data should be read in conjunction with the Notes to Consolidated Financial Statements.

15






Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements presented in "Financial Statements and Supplementary Data," as well as the information contained in "Risk Factors."  
Unless otherwise stated, the terms "we," "us," "our" and the "company" refer to Campbell Soup Company and its consolidated subsidiaries.
Executive Summary
We are a manufacturer and marketer of high-quality, branded food and beverage products. We operate in a highly competitive industry and experience competition in all of our categories.
In 2019, we announced our plan to divest our Campbell Fresh operating segment and international biscuits and snacks operating segment. Within our Campbell Fresh operating segment, 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 million, subject to customary purchase price adjustments. On June 16, 2019, we also sold our Bolthouse Farms business for approximately $500 million, subject to customary purchase price adjustments. Beginning in the third quarter of 2019, we have reflected the results of operations of these businesses as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of July 29, 2018. A portion of the U.S. refrigerated soup business historically included in Campbell Fresh was retained, and is now reported in Meals & Beverages.
Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019, for approximately $300 million, subject to customary purchase price adjustments. We also signed a definitive agreement on August 1, 2019, for the sale of our Arnott’s business and certain other international operations, including the simple meals and shelf-stable beverages businesses in Australia and Asia Pacific (the Arnott's and international operations), for $2.2 billion, subject to customary purchase price adjustments. We expect to complete the sale in the first half of 2020. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and international operations (collectively referred to as Campbell International) as discontinued operations in the Consolidated Statements of Earnings for all periods presented. The assets and liabilities of these businesses have been reflected in assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of July 28, 2019, and July 29, 2018. These businesses were historically included in the Global Biscuits and Snacks reportable segment. See Notes 3 and 7 to the Consolidated Financial Statements for additional information on these recently completed and pending divestitures and reportable segments.
In addition, on September 18, 2019, we signed a definitive agreement for the sale of our European chips business for £66 million, or approximately $80 million. The sale is subject to customary closing conditions including receiving the relevant regulatory approvals, and we expect to complete the sale in the first quarter of 2020.
We used the net proceeds from the businesses we sold in 2019 to reduce our debt and expect to use the net proceeds from the businesses sold in 2020 to further reduce debt.
Our simple meals and shelf-stable beverages business in Latin America was managed as part of the Snacks segment in 2018 and the Meals & Beverages segment in 2019. Segment results have been adjusted to conform to the current presentation. In 2020, our Latin America business is managed as part of the Snacks segment. See "Business - Reportable Segments" for a description of the products included in each segment.
Strategy
Our strategy is to deliver long-term sustainable growth by focusing on our core brands in two divisions within North America while delivering on the promise of our purpose - Real food that matters for life’s moments.
We plan to revise our consumer and customer engagement models through the development of more defined consumer-oriented portfolio roles for our products and increase prioritizing of retailers, which we believe will create a more profitable growth model. In addition, we expect to increase focus on the growth of our snacks business. We also intend to dedicate additional investment in U.S. soup and support our core brands through a revised marketing and innovation model tailored to specific categories and targeted customers and consumers.
We will continue pursuing our multi-year cost savings initiatives with targeted annualized cost savings of $850 million for continuing operations by the end of 2022 , which includes $295 million in synergies and run-rate cost savings from our acquisition of Snyder's-Lance, Inc. (Snyder's-Lance). We expect to achieve these additional savings with continued network optimization,

16






organization consolidation and integration, procurement savings and incremental savings opportunities across several cost categories. See "Restructuring Charges and Cost Savings Initiatives" for additional information on these initiatives.
In addition, we will pursue a more focused and diverse organization that supports our core brands in North America. In the fourth quarter of 2019, we made an organizational change that streamlined our business into a two-division operating model, with differentiated resources and capabilities that we believe will best support the brands within each division.
Business Trends
Our businesses are being influenced by a variety of trends that we anticipate will continue in the future, including: changing consumer preferences; a competitive and dynamic retail environment; and cost inflation.
Our strategy is designed, in part, to capture growing consumer preferences for snacking and convenience. For example, consumers are changing their eating habits by increasing the type and frequency of snacks they consume. We also expect consumers to continue to seek products that they associate with health and well-being, including naturally functional and organic foods.
Retailers continue to use their buying power and negotiating strength to seek increased promotional programs funded by their suppliers and more favorable terms. We expect consolidations among retailers will continue to create large and sophisticated customers that may further this trend. Retailers also continue to grow and promote store brands that compete with branded products, while other challenger brands drive innovation and engagement that threatens our market share. In addition, our businesses are largely concentrated in the traditional retail grocery trade, which has experienced slower growth than other retail channels, such as dollar stores, drug stores, club stores and e-commerce retailers. We anticipate that alternative retail channels, particularly e-commerce, will continue to grow rapidly.
The cost of distribution has increased due to a rise in transportation and logistics costs, driven by excess demand, reduced availability and higher fuel costs. In addition, certain ingredients and packaging required for the manufacture of our products, including steel, have been or may be impacted by tariffs and weather-related events. We expect these cost pressures to continue in 2020.
Summary of Results
As noted above, in 2019, we have reflected the results of operations of Campbell Fresh and Campbell International as discontinued operations in the Consolidated Statements of Earnings for all periods presented.
In 2018, we adopted new accounting guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost. Certain amounts in 2017 were reclassified. See Note 2 to the Consolidated Financial Statements for additional information.
This Summary of Results provides significant highlights from the discussion and analysis that follows.
Net sales increased 23% in 2019 to $8.107 billion, primarily due to a 23-point benefit from the acquisitions of Snyder's-Lance and Pacific Foods of Oregon, LLC (Pacific Foods).
Gross profit, as a percent of sales, decreased to 33.2% from 35.9% a year ago. The decrease was primarily due to cost inflation and higher supply chain costs, and the dilutive impact of acquisitions, partially offset by productivity improvements.
Interest expense increased to $356 million in 2019 from $183 million, primarily due to higher levels of debt associated with funding the acquisitions discussed above, higher average interest rates on the debt portfolio and an $18 million gain on treasury rate lock contracts in the prior year used to hedge the planned financing of the Snyder's-Lance acquisition.
The effective tax rate was 24.2% in 2019, compared to 12.8% in 2018. The prior year included a $126 million net tax benefit related to the remeasurement of deferred tax assets and liabilities and a transition tax on unremitted foreign earnings as a result of the enactment of the Tax Cuts and Jobs Act of 2017 (the Act). See Note 12 to the Consolidated Financial Statements for additional information. After adjusting for this item, the remaining decrease in the effective tax rate was primarily due to the ongoing lower U.S. federal tax rate as a result of the Act.
Earnings from continuing operations per share were $1.57 in 2019, compared to $2.40 a year ago. The current and prior year included expenses of $.74 and $.12 per share, respectively, from items impacting comparability as discussed below.
Loss from discontinued operations per share was $.87 in the 2019, compared to $1.53 a year ago. The current and prior year included expenses of $1.18 and $1.89 per share, respectively, from items impacting comparability as discussed below.
Cash flows from operations were $1.398 billion in 2019, compared to $1.305 billion in 2018. The increase was primarily due to improvements in working capital management efforts and higher cash earnings.

17






Net Earnings attributable to Campbell Soup Company - 2019 Compared with 2018
The following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations
In 2019, we recognized losses of $122 million in Other expenses / (income) ($93 million after tax, or $.31 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans. In 2018, we recognized gains of $131 million in Other expenses / (income) ($100 million after tax, or $.33 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans;
In 2019, we recognized a pre-tax pension settlement charge in Other expenses / (income) of $28 million ($22 million after tax, or $.07 per share) associated with a U.S. pension plan. The settlement resulted from the level of lump sum distributions from the plan's assets in 2019;
In 2015, we implemented initiatives to reduce costs and to streamline our organizational structure. In 2017, we expanded these cost savings initiatives by further optimizing our supply chain network, primarily in North America, continuing to evolve our operating model to drive efficiencies, and more fully integrating our recent acquisitions. In January 2018, as part of the expanded initiatives, we authorized additional 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. In 2019, we began to include costs associated with the Snyder's-Lance cost transformation program and integration with these initiatives. In 2019, we recorded a pre-tax restructuring charge of $31 million and implementation costs and other related costs of $62 million in Administrative expenses, $18 million in Cost of products sold, $7 million in Marketing and selling expenses, and $3 million in Research and development expenses (aggregate impact of $92 million after tax, or $.30 per share) related to these initiatives. In 2018, we recorded a pre-tax restructuring charge of $42 million and implementation costs and other related costs of $87 million in Administrative expenses, $45 million in Cost of products sold, and $3 million in Marketing and selling expenses (aggregate impact of $132 million after tax, or $.44 per share) related to these initiatives. See Note 8 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
In 2019 and 2018, we reflected the impact on taxes of the enactment of the Act that was signed into law in December 2017. In 2019, we recorded a tax charge of $2 million ($.01 per share) related to a transition tax on unremitted foreign earnings. In 2018, we recorded a tax benefit of $179 million due to the remeasurement of deferred tax assets and liabilities, and a tax charge of $53 million related to a transition tax on unremitted foreign earnings. The net impact was a tax benefit of $126 million ($.42 per share). See Note 12 to the Consolidated Financial Statements and "Taxes on Earnings" for additional information;
In the fourth quarter of 2019, we performed an assessment on the assets within the European chips business and recorded a non-cash impairment charge of $16 million ($13 million after tax, or $.04 per share) on intangible assets in Other expenses / (income). In the fourth quarter of 2018, we performed an impairment assessment on the Plum trademark. In 2018, sales and operating performance were well below expectations due in part to competitive pressure and reduced margins. In the fourth quarter of 2018, as part of a strategic review initiated by a new leadership team and based on recent performance, we lowered our long-term outlook for future sales. We recorded a non-cash impairment charge of $54 million ($41 million after tax, or $.14 per share) in Other expenses / (income). See Note 6 to the Consolidated Financial Statements for additional information;
In the second quarter of 2018, we announced our intent to acquire Snyder's-Lance and on March 26, 2018, the acquisition closed. In 2018, we incurred $120 million of transaction and integration costs, of which $13 million was recorded in Restructuring charges, $12 million in Administrative expenses, $53 million in Other expenses / (income), and $42 million in Cost of products sold associated with an acquisition date fair value adjustment for inventory. We also recorded a gain in Interest expense of $18 million on treasury rate lock contracts used to hedge the planned financing of the acquisition. The aggregate impact was $102 million, $73 million after tax, or $.24 per share; and
In 2018, we recorded expense of $22 million in Other expenses / (income) ($15 million after tax, or  $.05 per share) from a settlement of a legal claim.
Discontinued Operations
In 2019, we recognized losses of $12 million ($9 million after tax, or $.03 per share) associated with mark-to-market adjustments for defined benefit pension plans. In 2018, we recognized gains of $5 million ($3 million after tax, or $.01 per share) associated with mark-to-market and curtailment adjustments for defined benefit pension plans;

18






In 2018, we recorded a pre-tax restructuring charge of $7 million and implementation costs and other related costs of $1 million in Administrative expenses (aggregate impact of $4 million after tax, or $.01 per share) related to the cost savings initiatives discussed above. See Note 8 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
In the fourth quarter of 2019, as part of the company's annual review of intangible assets, we recognized a non-cash impairment charge of $7 million on a trademark and $10 million on goodwill in Kelsen due to a lower long-term outlook for sales and the pending sale of the business. The aggregate impact was $17 million ($12 million after tax, or $.04 per share).
In the second quarter of 2019, interim impairment assessments were performed on the intangible and tangible assets within Campbell Fresh, which included Garden Fresh Gourmet, Bolthouse Farms carrot and carrot ingredients and Bolthouse Farms refrigerated beverages and salad dressings, as we continued to pursue the divestiture of these businesses. We revised our future outlook for earnings and cash flows for each of these businesses as the divestiture process progressed. We recorded non-cash impairment charges of $104 million on the tangible assets and $73 million on the intangible assets of Bolthouse Farms carrot and carrot ingredients; $96 million on the intangible assets and $9 million on the tangible assets of Bolthouse Farms refrigerated beverages and salad dressings; and $62 million on the intangible assets and $2 million on the tangible assets of Garden Fresh Gourmet. The aggregate impact of the impairment charges was $346 million ($264 million after tax, or $.88 per share).
In the first quarter of 2019, we recorded a non-cash impairment charge of $14 million ($11 million after tax, or $.04 per share) on our U.S. refrigerated soup plant assets.
In 2019, total non-cash impairment charges recorded were $377 million ($287 million after tax, or $.95 per share).
In the third quarter of 2018, we performed interim impairment assessments within Campbell Fresh on the deli reporting unit, which includes Garden Fresh Gourmet and the U.S. refrigerated soup business, and the Bolthouse Farms refrigerated beverages and salad dressings reporting unit. Within the deli unit, we revised our long-term outlook due to the anticipated loss of refrigerated soup business with certain private label customers, as well as the performance of the business. In addition, the operating performance of the Bolthouse Farms refrigerated beverages and salad dressings reporting unit was below expectations. We revised our long-term outlook for future earnings and cash flows for each of these reporting units. We recorded a non-cash impairment charge of $11 million on the tangible assets and $94 million on the intangible assets ($80 million after tax, or $.27 per share) of the deli reporting unit, and a non-cash impairment charge of $514 million ($417 million after tax, or $1.39 per share) related to the intangible assets of the Bolthouse Farms refrigerated beverages and salad dressings reporting unit. The aggregate impact of the impairment charges was $619 million ($497 million after tax, or $1.65 per share).
In the second quarter of 2018, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit as operating performance was below expectations. We revised our outlook for future earnings and cash flows and recorded a non-cash impairment charge of $75 million ($74 million after tax, or $.25 per share).
In 2018, the total non-cash impairment charges recorded were $694 million ($571 million after tax, or $1.89 per share); and
In 2019, we incurred pre-tax expenses of $32 million associated with the sale process of the businesses in Campbell Fresh, including transaction costs. In addition, we recorded tax expense of $29 million as deferred tax assets on Bolthouse Farms were not realizable. The aggregate impact was $51 million after tax, or $.17 per share. In 2019, we also incurred costs of $12 million ($10 million after tax, or $.03 per share) associated with the planned divestiture of Campbell International. The total aggregate impact was $61 million after tax, or $.20 per share.

19






The items impacting comparability are summarized below:
 
2019
 
2018
(Millions, except per share amounts)
Earnings
Impact
 
EPS
Impact
 
Earnings
Impact
 
EPS
Impact
Earnings from continuing operations attributable to Campbell Soup Company
$
474

 
$
1.57

 
$
724

 
$
2.40

Loss from discontinued operations
$
(263
)
 
$
(.87
)
 
$
(463
)
 
$
(1.53
)
Net earnings attributable to Campbell Soup Company(1)
$
211

 
$
.70

 
$
261

 
$
.86

 
 
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
 
Pension and postretirement benefit mark-to-market adjustments
$
(93
)
 
$
(.31
)
 
$
100

 
$
.33

Pension settlement
(22
)
 
(.07
)
 

 

Restructuring charges, implementation costs and other related costs
(92
)
 
(.30
)
 
(132
)
 
(.44
)
Tax reform
(2
)
 
(.01
)
 
126

 
.42

Impairment charges
(13
)
 
(.04
)
 
(41
)
 
(.14
)
Transaction and integration costs

 

 
(73
)
 
(.24
)
Claim settlement

 

 
(15
)
 
(.05
)
Impact of items on Earnings from continuing operations(1)
$
(222
)
 
$
(.74
)
 
$
(35
)
 
$
(.12
)
 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Pension benefit mark-to-market and curtailment adjustments
$
(9
)
 
$
(.03
)
 
$
3

 
$
.01

Restructuring charges, implementation costs and other related costs

 

 
(4
)
 
(.01
)
Impairment charges
(287
)
 
(.95
)
 
(571
)
 
(1.89
)
Costs associated with divestitures
(61
)
 
(.20
)
 

 

Impact of items on Loss from discontinued operations
$
(357
)
 
$
(1.18
)
 
$
(572
)
 
$
(1.89
)
__________________________________________
(1) 
Sum of the individual amounts may not add due to rounding.
Earnings from continuing operations were $474 million ($1.57 per share) in 2019, compared to $724 million ($2.40 per share) in 2018. After adjusting for items impacting comparability, earnings decreased reflecting higher interest expense, partly offset by a lower adjusted tax rate as incremental earnings before interest and taxes (EBIT) from the Snyder’s-Lance acquisition were mostly offset by declines in EBIT in the base business.
See "Discontinued Operations" for additional information.
Net Earnings attributable to Campbell Soup Company - 2018 Compared with 2017
In addition to the 2018 items that impacted comparability of Net earnings discussed above, the following items impacted the comparability of net earnings and net earnings per share:
Continuing Operations
In 2017, we recognized gains of $156 million in Other expenses / (income) ($100 million after tax, or $.33 per share) associated with mark-to-market adjustments for defined benefit pension and postretirement plans;
In 2017, we recorded a pre-tax restructuring charge of $11 million and implementation costs and other related costs of $33 million in Administrative expenses and $4 million in Cost of products sold (aggregate impact of $30 million after tax, or $.10 per share) related to the cost savings initiatives discussed above. See Note 8 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information; and
In 2017, we recorded a tax benefit of $52 million ($.17 per share) in Taxes on earnings primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes. See Note 12 to the Consolidated Financial Statements for additional information.
Discontinued Operations
In 2017, we recognized gains of $22 million ($16 million after tax, or $.05 per share) associated with mark-to-market adjustments for defined benefit pension plans;

20






In 2017, we recorded a pre-tax restructuring charge of $7 million and implementation costs and other related costs of $3 million in Administrative expenses (aggregate impact of $7 million after tax, or $.02 per share) related to the cost savings initiatives discussed above. See Note 8 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information;
In the second quarter of 2017, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and the Garden Fresh Gourmet reporting unit as operating performance was well below expectations and a new leadership team of the Campbell Fresh division initiated a strategic review which led to a revised outlook for future sales, earnings, and cash flow. We recorded a non-cash impairment charge of $147 million ($139 million after tax, or $.45 per share) related to intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit and a non-cash impairment charge of $65 million ($41 million after tax, or $.13 per share) related to the intangible assets of the Garden Fresh Gourmet reporting unit (aggregate pre-tax impact of $212 million, $180 million after tax, or $.59 per share); and
In 2017, we recorded a $6 million reduction to interest expense ($4 million after tax, or $.01 per share) related to premiums and fees received on the sale of the intercompany notes receivable discussed above.
The items impacting comparability are summarized below:
 
2018
 
2017
(Millions, except per share amounts)
Earnings
Impact
 
EPS
Impact
 
Earnings
Impact
 
EPS
Impact
Earnings from continuing operations attributable to Campbell Soup Company
$
724

 
$
2.40

 
$
924

 
$
3.01

Loss from discontinued operations
$
(463
)
 
$
(1.53
)
 
$
(37
)
 
$
(.12
)
Net earnings attributable to Campbell Soup Company(1)
$
261

 
$
.86

 
$
887

 
$
2.89

 
 
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
 
Pension and postretirement benefit mark-to-market adjustments
$
100

 
$
.33

 
$
100

 
$
.33

Restructuring charges, implementation costs and other related costs
(132
)
 
(.44
)
 
(30
)
 
(.10
)
Tax reform
126

 
.42

 

 

Impairment charges
(41
)
 
(.14
)
 

 

Transaction and integration costs
(73
)
 
(.24
)
 

 

Claim settlement
(15
)
 
(.05
)
 

 

Sale of notes

 

 
52

 
.17

Impact of items on Earnings from continuing operations
$
(35
)
 
$
(.12
)
 
$
122

 
$
.40

 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Pension benefit mark-to-market and curtailment adjustments
$
3

 
$
.01

 
$
16

 
$
.05

Restructuring charges, implementation costs and other related costs
(4
)
 
(.01
)
 
(7
)
 
(.02
)
Impairment charges
(571
)
 
(1.89
)
 
(180
)
 
(.59
)
Sale of notes

 

 
4

 
.01

Impact of items on Loss from discontinued operations(1)
$
(572
)
 
$
(1.89
)
 
$
(167
)
 
$
(.54
)
__________________________________________
(1) 
Sum of the individual amounts may not add due to rounding.
Earnings from continuing operations were $724 million ($2.40 per share) in 2018, compared to $924 million ($3.01 per share) in 2017. After adjusting for items impacting comparability, earnings decreased primarily due to declines on the base business reflecting a lower gross profit performance, and the dilutive impact of acquisitions, partially offset by a lower effective tax rate. Earnings per share benefited from a reduction in the weighted average diluted shares outstanding, reflecting share repurchases. We suspended our share repurchases as of the second quarter of 2018.

21






DISCUSSION AND ANALYSIS
Sales
An analysis of net sales by reportable segment follows:
 
 
 
 
 
 
 
% Change
(Millions)
2019
 
2018
 
2017
 
2019/2018
 
2018/2017
Meals & Beverages
$
4,322

 
$
4,305

 
$
4,340

 
 
(1)
Snacks
3,784

 
2,307

 
1,497

 
64
 
54
Corporate
1

 
3

 

 
n/m
 
n/m
 
$
8,107

 
$
6,615

 
$
5,837

 
23
 
13
__________________________________________
n/m - Not meaningful.

An analysis of percent change of net sales by reportable segment follows:
2019 versus 2018
Meals & Beverages
 
Snacks(2)
 
Total
Volume and Mix
(1)%
 
3%
 
—%
(Increased)/Decreased Promotional Spending(1)
(1)
 
1
 
Acquisitions
2
 
61
 
23
 
—%
 
64%
 
23%

2018 versus 2017
Meals & Beverages
 
Snacks
 
Total
Volume and Mix
(3)%
 
3%
 
(2)%
Price and Sales Allowances
(1)
 
 
Increased Promotional Spending(1)
 
(1)
 
Acquisitions
3
 
52
 
15
 
(1)%
 
54%
 
13%
__________________________________________
(1)
Represents revenue reductions from trade promotion and consumer coupon redemption programs.
(2)
Sum of the individual amounts does not add due to rounding.
In 2019, Meals & Beverages sales were comparable with prior year reflecting a 2-point benefit from the acquisition of Pacific Foods, partially offset by declines in U.S. soup, the retail business in Canada driven by the negative impact of currency translation and Prego pasta sauces. Excluding Pacific Foods, sales of U.S. soup decreased 2% due to declines in condensed and ready-to-serve soups, partly offset by gains in broth. The decline in U.S. soup was driven primarily by continued competitive pressure across the market as well as increased promotional spending.
In 2018, Meals & Beverages sales decreased 1% primarily due to declines in U.S. soup and V8 beverages, partially offset by the benefit of the acquisition of Pacific Foods, and an increase in the retail business in Canada driven by the favorable impact of currency translation. Excluding Pacific Foods, sales of U.S. soup declined 8%, driven by declines in condensed soups, ready-to-serve soups and broth. The decline in U.S. soup was primarily due to a key customer’s different promotional approach for soup in 2018.
In 2019, Snacks sales increased 64% with a 61-point benefit from the acquisition of Snyder’s-Lance. Excluding the impact of the acquisition of Snyder’s-Lance, sales increased reflecting growth in Pepperidge Farm, with gains in Goldfish crackers, fresh bakery products and in cookies, as well as Kettle Brand potato chips, Late July snacks and Snack Factory Pretzel Crisps.
In 2018, Snacks sales increased 54% primarily due to the 52-point benefit of the acquisition of Snyder’s-Lance. Excluding Snyder’s-Lance, sales increased primarily due to gains in Pepperidge Farm, reflecting growth in Goldfish crackers and in cookies.
Gross Profit
Gross profit, defined as Net sales less Cost of products sold, increased by $319 million in 2019 from 2018 and decreased by $68 million in 2018 from 2017. As a percent of sales, gross profit was 33.2% in 2019, 35.9% in 2018 and 41.8% in 2017.

22






The 2.7 and 5.9 percentage-point decrease in gross profit percentage in 2019 and 2018, respectively, were due to the following factors:
 
Margin Impact
 
2019
 
2018
Cost inflation, supply chain costs and other factors(1)
(3.0)
 
(2.8)
Impact of acquisitions(2)
(1.5)
 
(2.8)
Higher level of promotional spending
(0.2)
 
(0.3)
Mix
 
(0.5)
Price and sales allowances
0.3
 
(0.3)
Restructuring-related costs
0.4
 
(0.7)
Productivity improvements
1.3
 
1.5
 
(2.7)%
 
(5.9)%
__________________________________________
(1) 
2019 includes a positive margin impact of 0.8 from cost savings initiatives, which was more than offset by cost inflation and other factors, including higher than expected distribution costs associated with the startup of a new distribution facility in Findlay, Ohio, operated by a third-party logistics provider. 2018 includes a positive margin impact of 0.5 from cost savings initiatives, which was more than offset by cost inflation and other factors, including higher transportation and logistics costs.
(2) 
2019 includes a positive margin impact of 0.6 from lapping the 2018 negative margin impact of 0.7 from a Snyder's-Lance acquisition date fair value adjustment for inventory.
Marketing and Selling Expenses
Marketing and selling expenses as a percent of sales were 10.4% in 2019, 11.0% in 2018 and 11.6% in 2017. Marketing and selling expenses increased 16% in 2019 from 2018. The increase was primarily due to the impact of acquisitions (approximately 19 percentage points); higher incentive compensation (approximately 2 percentage points) and higher costs related to costs savings initiatives (approximately 1 percentage point), partially offset by increased benefits from cost savings initiatives (approximately 3 percentage points) and lower advertising and consumer promotion expenses (approximately 3 percentage points). The reduction in advertising and consumer promotion expenses was primarily in Meals & Beverages, reflecting a reallocation from advertising to promotional spending classified as revenue reductions, reduced support levels in light of distribution challenges faced in the first quarter and a later start to our U.S. soup campaign relative to the prior year.
Marketing and selling expenses increased 8% in 2018 from 2017. The increase was primarily due to the impact of acquisitions (approximately 12 percentage points), partially offset by increased benefits from cost savings initiatives (approximately 3 percentage points) and lower advertising and consumer promotion expenses (approximately 1 percentage point).
Administrative Expenses
Administrative expenses as a percent of sales were 7.5% in 2019, 8.5% in 2018 and 7.7% in 2017. Administrative expenses increased 8% in 2019 from 2018. The increase was primarily due to the impact of acquisitions (approximately 10 percentage points); higher incentive compensation (approximately 7 percentage points); and costs associated with the proxy contest (approximately 1 percentage point), partially offset by lower costs associated with cost savings initiatives inclusive of acquisition integration costs (approximately 7 percentage points) and increased benefits from cost savings initiatives (approximately 3 percentage points).
Administrative expenses increased 26% in 2018 from 2017. The increase was primarily due to higher costs related to cost savings initiatives (approximately 12 percentage points); the impact of acquisitions (approximately 9 percentage points); acquisition integration costs (approximately 3 percentage points); consulting costs incurred in connection with the strategic review (approximately 2 percentage points); investments in long-term innovation (approximately 1 percentage point); and inflation and other factors (approximately 4 percentage points), partially offset by lower incentive compensation (approximately 5 percentage points).
Research and Development Expenses
Research and development expenses were $91 million in 2019 and 2018 as higher incentive compensation costs (approximately 8 percentage points) were mostly offset by increased benefits from cost savings initiatives (approximately 7 percentage points).
Research and development expenses decreased $2 million, or 2%, in 2018 from 2017. The decrease was primarily due to lower investments in long-term innovation (approximately 3 percentage points); and lower incentive compensation costs (approximately 2 percentage points), partially offset by the impact of acquisitions (approximately 3 percentage points).

23






Other Expenses / (Income)
Other expenses in 2019 included the following:
$71 million of net periodic benefit expense, including losses of $122 million on pension and postretirement benefit mark-to-market adjustments and a pension settlement charge of $28 million associated with a U.S. pension plan;
$48 million of amortization of intangible assets; and
non-cash impairment charge of $16 million related to the European chips business.
Other income in 2018 included the following:
$225 million of net periodic benefit income, including gains of $131 million on pension and postretirement benefit mark-to-market adjustments;
$20 million of amortization of intangible assets;
$22 million of expense related to the settlement of a legal claim;
$53 million of transaction costs associated with the acquisition of Snyder's-Lance; and
non-cash impairment charge of $54 million related to the Plum trademark.
Other income in 2017 included the following:
$224 million of net periodic benefit income, including gains of $156 million on pension and postretirement benefit mark-to-market adjustments; and
$1 million of amortization of intangible assets.
For additional information on the impairment charges, see "Significant Accounting Estimates."
Operating Earnings
Segment operating earnings increased 3% in 2019 from 2018 and decreased 4% in 2018 from 2017.
An analysis of operating earnings by segment follows:
 
 
 
 
 
 
 
 
% Change
(Millions)
 
2019
 
2018
 
2017
 
2019/2018
 
2018/2017
Meals & Beverages
 
$
903

 
$
988

 
$
1,118

 
(9)
 
(12
)
Snacks
 
514

 
383

 
310

 
34
 
24

 
 
1,417

 
1,371

 
1,428

 
3
 
(4
)
Corporate (expense) income
 
(407
)
 
(306
)
 
14

 
 
 
 
Restructuring charges(1)
 
(31
)
 
(55
)
 
(11
)
 
 
 
 
Earnings before interest and taxes
 
$
979

 
$
1,010

 
$
1,431

 
 
 
 
__________________________________________
(1)
See Note 8 to the Consolidated Financial Statements for additional information on restructuring charges.
Operating earnings from Meals & Beverages decreased 9% in 2019 versus 2018. The decrease was primarily due to higher levels of cost inflation and higher warehousing and transportation costs, as well as higher promotional spending and higher incentive compensation expenses, partly offset by supply chain productivity improvements, lower marketing and selling expenses and the benefits of cost savings initiatives.
Operating earnings from Meals & Beverages decreased 12% in 2018 versus 2017. The decrease was primarily due to a lower gross profit percentage and lower sales volume, partly offset by lower marketing and selling expenses. Gross profit performance was impacted by cost inflation, including higher transportation and logistics costs, and the dilutive impact from the acquisition of Pacific Foods.
Operating earnings from Snacks increased 34% in 2019 versus 2018. The increase reflects a 32-point benefit from the acquisition of Snyder’s-Lance. The remaining increase was primarily due to higher sales, supply chain productivity improvements and lower promotional spending, partly offset by higher marketing and selling expenses, higher levels of cost inflation and higher incentive compensation expenses. Operating earnings benefited from lapping the costs associated with the voluntary product recall of Flavor Blasted Goldfish crackers in July 2018.
Operating earnings from Snacks increased 24% in 2018 versus 2017. The increase was primarily due to the benefit of the acquisition of Snyder’s-Lance, higher organic sales volume and lower marketing and selling expenses, partly offset by a lower

24






gross profit percentage. Gross profit performance was impacted by higher levels of cost inflation, higher transportation and logistics costs and costs associated with the voluntary product recall of Flavor Blasted Goldfish crackers in July 2018.
Corporate in 2019 included the following:
$122 million of losses on pension and postretirement benefit mark-to-market adjustments;
costs of $90 million related to the cost savings initiatives;
a pension settlement charge of $28 million associated with a U.S. pension plan; and
non-cash impairment charge of $16 million related to the European chips business.
Corporate in 2018 included the following:
costs of $135 million related to the cost savings initiatives;
transaction and integration costs of $107 million associated with the acquisition of Snyder's-Lance;
non-cash impairment charge of $54 million related to the Plum trademark;
$22 million of expense related to the settlement of a legal claim; and
$131 million of gains on pension and postretirement benefit mark-to-market adjustments.
Excluding these amounts, the remaining increase was primarily due to higher incentive compensation expenses.
Corporate in 2017 included costs of $37 million related to cost savings initiatives and $156 million of gains associated with pension and postretirement benefit mark-to-market adjustments. Excluding these amounts, the remaining increase in costs in 2018 was primarily due to higher administrative expenses and losses on open commodity contracts in 2018, partially offset by higher pension and postretirement benefit income in 2018.
Interest Expense
Interest expense increased to $356 million in 2019 from $183 million in 2018. The increase in interest expense was due to higher levels of debt associated with funding the acquisitions, higher average interest rates on the debt portfolio and a gain of $18 million on treasury rate lock contracts in the prior year used to hedge the planned financing of the Snyder's-Lance acquisition.
Interest expense increased to $183 million in 2018 from $115 million in 2017. The increase in interest expense was due to higher levels of debt associated with funding the acquisitions and higher average interest rates on the debt portfolio, partially offset by a gain of $18 million on treasury rate lock contracts used to hedge the planned financing of the Snyder's-Lance acquisition.
Taxes on Earnings
The effective tax rate was 24.2% in 2019, 12.8% in 2018 and 29.8% in 2017.
On December 22, 2017, the Act was enacted into law and made significant changes to corporate taxation. As a result, the following items are reflected in 2018:
The corporate rate reduction as of January 1, 2018, resulted in a blended U.S. statutory tax rate of approximately 27%;
Remeasurement of deferred tax assets and liabilities resulted in a tax benefit of $179 million; and
Imposition of a transition tax on unremitted foreign earnings resulted in a tax charge of $53 million.
See Note 12 to the Consolidated Financial Statements for additional information.
Tax expense increased from $106 million in 2018 to $151 million in 2019.
The following items impacted 2019 and 2018:
In 2019, we recognized a tax benefit of $29 million on $122 million of pension and postretirement benefit mark-to-market losses. In 2018, we recognized tax expense of $31 million on $131 million of pension and postretirement benefit mark-to-market gains;
In 2019, we recognized a $6 million tax benefit on $28 million of a pension settlement charge;
In 2019, we recognized a $29 million tax benefit on $121 million of restructuring charges, implementation costs and other related costs. In 2018, we recognized a $45 million tax benefit on $177 million of restructuring charges, implementation costs and other related costs;
In 2019, we recognized a transition tax on unremitted foreign earnings of $2 million related to the enactment of the Act. In 2018, we recognized a net tax benefit of $126 million related to the enactment of the Act on the remeasurement of deferred tax assets and liabilities and transition tax on unremitted foreign earnings described above;

25






In 2019, we recognized a $3 million tax benefit on a $16 million impairment charge on the European chips business. In 2018, we recognized a $13 million tax benefit on a $54 million impairment charge on the Plum trademark;
In 2018, we recognized a $29 million tax benefit on $102 million of transaction and integration costs associated with the acquisition of Snyder's-Lance; and
In 2018, we recognized a $7 million tax benefit on the $22 million of expense related to the settlement of a legal claim.
After adjusting for the items above, the remaining decrease in the effective rate was primarily due to the ongoing benefit of the lower U.S. federal tax rate resulting from the enactment of the Act in December 2017.
Tax expense decreased from $392 million in 2017 to $106 million in 2018.
The following items impacted the tax rate in 2017:
In 2017, we recognized a tax expense of $56 million on $156 million of pension and postretirement benefit mark-to-market gains;
In 2017, we recognized an $18 million tax benefit on $48 million of restructuring charges, implementation costs and other related costs; and
In 2017, we recognized a tax benefit of $52 million primarily related to the sale of intercompany notes receivable to a financial institution, which resulted in the recognition of foreign exchange losses on the notes for tax purposes.
After adjusting for the items above, the remaining decrease in the effective tax rate was primarily due to the ongoing benefit of the lower U.S. federal tax rate as a result of the Act.
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 pre-tax charges recorded in Earnings from continuing operations related to both programs is as follows:
 (Millions, except per share amounts)
2019
 
2018(1)
 
2017
 
Recognized as of July 28, 2019(1)
Restructuring charges
$
31

 
$
55

 
$
11

 
$
229

Administrative expenses
62

 
99

 
33

 
263

Cost of products sold
18

 
45

 
4

 
67

Marketing and selling expenses
7

 
3

 

 
10

Research and development expenses
3

 

 

 
3

Total pre-tax charges
$
121

 
$
202

 
$
48

 
$
572

 
 
 
 
 
 
 
 
Aggregate after-tax impact
$
92

 
$
150

 
$
30

 
 
Per share impact
$
.30

 
$
.50

 
$
.10

 
 
_______________________________________

26






(1) 
Includes $13 million of Restructuring charges and $12 million 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 Earnings (loss) from discontinued operations is as follows:
(Millions)
2019
 
2018
 
2017
 
Recognized as of July 28, 2019(1)
Total pre-tax charges
$

 
$
8

 
$
10

 
$
23

_______________________________________
(1)     Includes $19 million of severance pay and benefits and $4 million of implementation costs and other related costs.
As of April 28, 2019, we incurred substantially 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:
(Millions)
Recognized as of July 28, 2019
Severance pay and benefits(1)
$
205

Asset impairment/accelerated depreciation
63

Implementation costs and other related costs(2)
304

Total
$
572

_______________________________________
(1)  
Includes $13 million of charges associated with the Snyder's-Lance cost transformation program and integration recognized in 2018.
(2) 
Includes $12 million of charges associated with the Snyder's-Lance cost transformation program and integration recognized in 2018.
The total estimated pre-tax costs for actions associated with continuing operations that have been identified under both programs are approximately $615 million to $665 million. This estimate will be updated as costs for the expanded initiatives are developed.
We expect the costs for actions associated with continuing operations that have been identified to date under both programs to consist of the following: approximately $205 million to $210 million in severance pay and benefits; approximately $65 million in asset impairment and accelerated depreciation; and approximately $345 million to $390 million in implementation costs and other related costs. We expect these pre-tax costs to be associated with our segments as follows: Meals & Beverages - approximately 35%; Snacks - approximately 40%; and Corporate - approximately 25%.
Of the aggregate $615 million to $665 million of pre-tax costs associated with continuing operations identified to date under both programs, we expect approximately $540 million to $590 million will be cash expenditures. In addition, we expect to invest approximately $395 million in capital expenditures through 2021, of which we invested approximately $250 million as of July 28, 2019. The capital expenditures primarily relate to the U.S. warehouse optimization project, improvement of quality, safety and cost structure across the Snyder’s-Lance manufacturing network, implementation of an SAP enterprise-resource planning system for Snyder's-Lance, 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.
We expect to incur substantially all of the costs for the actions associated with continuing operations that have been identified to date through 2020 and to fund the costs through cash flows from operations and short-term borrowings.
We expect the initiatives for actions associated with continuing operations that have been identified to date under both programs to generate pre-tax savings of $710 million in 2020, and once all phases are implemented, to generate annual ongoing savings of approximately $850 million by the end of 2022. The annual pre-tax savings associated with continuing operations generated by both programs were as follows:
(Millions)
2019
 
2018
 
2017
 
2016
 
2015
Total pre-tax savings
$
560

 
$
395

 
$
325

 
$
215

 
$
85

The initiatives for actions associated with discontinued operations generated pre-tax savings of over $90 million in 2019 and $60 million in 2018.

27






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:
(Millions)
2019
 
Costs Incurred to Date(1)
Meals & Beverages
$
34

 
$
212

Snacks
40

 
200

Corporate
47

 
160

Total
$
121

 
$
572

_______________________________________
(1)  
Includes $25 million of pre-tax costs associated with the Snacks segment recognized in 2018 related to the Snyder's-Lance cost transformation program and integration.
See Note 8 to the Consolidated Financial Statements for additional information.
Discontinued Operations
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 million, subject to customary purchase price adjustments. On June 16, 2019, we sold our Bolthouse Farms business. Proceeds were approximately $500 million, subject to customary purchase price adjustments. 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.
Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019, for approximately $300 million, subject to customary purchase price adjustments. We also signed a definitive agreement on August 1, 2019, for the sale of the Arnott’s and international operations, for $2.2 billion, subject to customary purchase price adjustments. We expect to complete the sale in the first half of 2020. Beginning in the fourth quarter of 2019, we have reflected the results of operations of the Kelsen business and the Arnott’s and international operations, or Campbell International, as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Global Biscuits and Snacks reportable segment.
Results of discontinued operations were as follows:
 
Campbell Fresh
 
Campbell International
(Millions)
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Net sales
$
756

 
$
950

 
$
947

 
$
1,046

 
$
1,120

 
$
1,106

 
 
 
 
 
 
 
 
 
 
 
 
Impairment charges
$
360

 
$
694

 
$
212

 
$
17

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) before taxes from operations
$
(359
)
 
$
(721
)
 
$
(221
)
 
$
120

 
$
163

 
$
198

Taxes on earnings (loss) from operations
(78
)
 
(142
)
 
(34
)
 
41

 
47

 
48

Loss on sales of businesses / costs associated with selling the businesses
(32
)
 

 

 
(12
)
 

 

Tax expense (benefit) of loss on sales / costs associated with selling the businesses
19

 

 

 
(2
)
 

 

Earnings (loss) from discontinued operations
$
(332
)
 
$
(579
)
 
$
(187
)
 
$
69

 
$
116

 
$
150

In 2019, Campbell Fresh sales decreased primarily due to the sale of the businesses, as well as declines in refrigerated soup, Bolthouse Farms refrigerated beverages and Garden Fresh Gourmet.
In 2018, Campbell Fresh sales were comparable to the prior year as gains in carrot ingredients and Garden Fresh Gourmet were offset by declines in Bolthouse Farms refrigerated beverages.

28






In 2019, 2018, and 2017, we recorded impairment charges on the reporting units in Campbell Fresh. See "Significant Accounting Estimates" for additional information. In 2019, we recorded non-cash impairment charges of $360 million ($275 million after tax, or $.91 per share). In 2018 and 2017, the total non-cash impairment charges were $694 million ($571 million after tax, or $1.89 per share) and $212 million ($180 million after tax, or $.59 per share), respectively. In 2019, we incurred pre-tax expenses of $32 million associated with the sale process of the businesses, including transaction costs. In addition, we recorded tax expense of $29 million in the third quarter as deferred tax assets associated with Bolthouse Farms were not realizable. In 2018, loss from operations included a benefit from the favorable resolution of a tax matter.
In 2019, Campbell International sales decreased reflecting the negative impact of currency translation and declines in Kelsen cookies in the U.S.
In 2018, Campbell International sales increased due to the favorable impact from currency translation. Excluding the impact from currency translation, sales decreased with declines in Arnott’s biscuits in Indonesia, partly offset by gains in Kelsen cookies in China.
In 2019, excluding items impacting comparability, earnings from Campbell International declined primarily due to a lower gross profit percentage, reflecting higher supply chain costs and higher promotional spending, as well as the negative impact of currency translation.
In 2018, earnings from Campbell International declined primarily due to higher interest expense.
LIQUIDITY AND CAPITAL RESOURCES
We expect foreseeable liquidity and capital resource requirements to be met through anticipated cash flows from operations; long-term borrowings; short-term borrowings, including commercial paper; credit facilities; and cash and cash equivalents. We believe that our sources of financing will be adequate to meet our future requirements.
In August 2018, we announced the results of our comprehensive Board of Directors-led strategy and portfolio review, which included plans to pursue the divestiture of our international biscuits and snacks operating segment and our Campbell Fresh operating segment. We sold Campbell Fresh in 2019 as further described below. Within our international biscuits and snacks operating segment, we signed a definitive agreement for the sale of our Kelsen business on July 12, 2019, and completed the sale on September 23, 2019, for approximately $300 million, subject to customary purchase price adjustments. We also signed a definitive agreement on August 1, 2019, for the sale of the Arnott’s and international operations for $2.2 billion, subject to customary purchase price adjustments, and expect to complete the sale in the first half of 2020. In addition, on September 18, 2019, we signed a definitive agreement for the sale of our European chips business for £66 million, or approximately $80 million. The sale is subject to customary closing conditions including receiving the relevant regulatory approvals, and we expect to complete the sale in the first quarter of 2020.
We used the net proceeds from the businesses we sold in 2019 to reduce our debt and expect to use the net proceeds from the businesses sold in 2020 to further reduce debt.
In addition, we plan to continue driving improved asset efficiency in working capital and capital expenditures to generate cash. We expect to maintain disciplined cash flow and capital allocation priorities in 2020, including for capital investments, our dividend and debt reduction.
We generated cash flows from operations of $1.398 billion in 2019, compared to $1.305 billion in 2018. The increase in 2019 was primarily due to improvements in working capital management efforts and higher cash earnings.
We generated cash flows from operations of $1.305 billion in 2018, compared to $1.288 billion in 2017. The increase in 2018 was primarily due to lower working capital requirements, partially offset by lower cash earnings.
Current assets are less than current liabilities as a result of our level of current maturities of long-term debt and short-term borrowings and our focus to lower core working capital requirements while extending payment terms for accounts payables. We had negative working capital of $1.418 billion as of July 28, 2019, and $1.298 billion as of July 29, 2018. Total debt maturing within one year was $1.603 billion as of July 28, 2019, and $1.896 billion as of July 29, 2018.
Capital expenditures were $384 million in 2019, $407 million in 2018 and $338 million in 2017. Capital expenditures are expected to total approximately $350 million in 2020. Capital expenditures in 2019 included a U.S. warehouse optimization project, replacement of a Pepperidge Farm refrigeration system, transition of production of the Toronto manufacturing facility to our U.S. thermal plants, a Snyder's-Lance regional distribution center, a Milano cookie capacity expansion project, and a Goldfish cracker capacity expansion project. Capital expenditures in 2018 included a U.S. warehouse optimization project; transition of production of the Toronto manufacturing facility to our U.S. thermal plants; insourcing manufacturing for certain simple meal products; replacement of a Pepperidge Farm refrigeration system; and an Australian multi-pack biscuit capacity expansion project. Capital expenditures in 2017 included projects to expand: Australian multi-pack biscuit capacity; beverage and salad dressing capacity at Bolthouse Farms; and capacity at Garden Fresh; as well as the continued enhancement of our corporate headquarters; replacement of a Pepperidge Farm refrigeration system; and a U.S. warehouse optimization project.

29






Pepperidge Farm and Snyder’s-Lance have a direct-store-delivery distribution model that uses independent contractor distributors. In order to maintain and expand this model, we routinely purchase and sell routes. The purchase and sale proceeds of the routes are reflected in investing activities.
On December 12, 2017, we completed the acquisition of Pacific Foods. The purchase price was $688 million and was funded through the issuance of commercial paper.
On March 26, 2018, we completed the acquisition of Snyder’s-Lance. Total consideration was $6.112 billion, which included the payoff of approximately $1.1 billion of Snyder's-Lance indebtedness. We borrowed $900 million under a single draw 3-year senior unsecured term loan facility on March 26, 2018, and issued $5.3 billion senior notes on March 16, 2018, to finance the acquisition. The interest rate on the senior unsecured term loan facility resets in one, two, three, or six-month periods dependent upon our election. Interest on the senior unsecured term loan facility is due upon the earlier of an interest reset or quarterly. The senior unsecured term loan facility contains customary covenants and events of default for credit facilities of this type and a maximum leverage ratio covenant. During the fourth quarter of 2019, we prepaid $401 million of the facility. As a result of such prepayment, the maximum leverage ratio covenant in the senior unsecured term loan facility no longer applies and is no longer incorporated into our U.S. credit facility. The remaining debt outstanding under the senior unsecured term loan facility may be prepaid at par at any time.
The $5.3 billion senior notes were issued in various tenors in both fixed and floating rate formats. We issued 2 and 3-year floating rate senior notes in the amount of $500 million and $400 million, respectively. We issued 3, 5, 7, 10, and 30-year fixed rate senior notes in the amount of $650 million$1.2 billion$850 million$1 billion, and $700 million, respectively. Interest on the 2-year floating rate senior notes is due quarterly on March 16, June 16, September 16, and December 16, commencing on June 16, 2018. Interest on the 3-year floating rate senior notes is due quarterly on March 15, June 15, September 15, and December 15, commencing on June 15, 2018. Interest on the fixed rate senior notes is due semi-annually on March 15 and September 15, commencing on September 15, 2018. The fixed rate senior notes may be redeemed, in whole or in part, at our option at any time at the applicable redemption price. If change of control triggering events occur, we will be required to offer to purchase the senior notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the purchase date. The senior notes were issued under a shelf registration statement that we filed with the Securities and Exchange Commission in July 2017. We registered an indeterminate amount of debt securities. Under the registration statement, we may issue debt securities from time to time, depending on market conditions.
On October 30, 2018, we purchased the remaining ownership interest in Yellow Chips Holdings B.V., and began consolidating the business. The purchase price was $18 million.
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 million, subject to customary purchase price adjustments. On June 16, 2019, we sold Bolthouse Farms. Proceeds were approximately $500 million, subject to customary purchase price adjustments.
In June 2017, we sold intercompany notes to a financial institution, including an AUD $280 million, or $224 million, note with an interest rate of 4.88% due on September 18, 2018, and an AUD $190 million, or $152 million, note with an interest rate of 6.98% due on March 29, 2021, but payable upon demand. Interest on both notes was due semi-annually on January 23 and July 23. The net proceeds were used for general corporate purposes. On September 18, 2018, we repaid a portion of both Australian notes and refinanced the remainder with a new AUD $400 million, or $296 million, single-draw syndicated facility that matured on September 11, 2019. As of July 28, 2019, the balance outstanding under this facility was AUD $335 million, or $232 million. The syndicated facility was repaid in August 2019 and was terminated.
Dividend payments were $423 million in 2019, $426 million in 2018 and $420 million in 2017. Annual dividends declared were $1.40 per share in 2019, 2018, and 2017. The 2019 fourth quarter dividend was $.35 per share.
We repurchased approximately 2 million shares at a cost of $86 million in 2018, and approximately 8 million shares at a cost of $437 million in 2017. As a result of the acquisition of Snyder's-Lance, we suspended our share repurchases as of the second quarter of 2018. See Note 17 to the Consolidated Financial Statements for additional information.
As of July 28, 2019, we had $1.603 billion of short-term borrowings due within one year, of which $853 million was comprised of commercial paper borrowings and $232 million was outstanding under the Australian syndicated facility. As of July 28, 2019, we issued $46 million of standby letters of credit. We have a committed revolving credit facility totaling $1.85 billion that matures in December 2021. This U.S. facility remained unused at July 28, 2019, except for $1 million of standby letters of credit that we issued under it. The U.S. facility supports our commercial paper programs and other general corporate purposes. We expect to continue to access the commercial paper markets, bank credit lines and utilize cash flows from operations to support our short-term liquidity requirements.
We are in compliance with the covenants contained in our credit facilities and debt securities.

30






CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
Contractual Obligations
The following table summarizes our obligations and commitments to make future payments under certain contractual obligations as of July 28, 2019. For additional information on debt, see Note 13 to the Consolidated Financial Statements. Operating leases are primarily entered into for warehouse and office facilities and certain equipment. Purchase commitments represent purchase orders and long-term purchase arrangements related to the procurement of ingredients, supplies, machinery, equipment and services. These commitments are not expected to have a material impact on liquidity. Other long-term liabilities primarily represent payments related to deferred compensation obligations. For additional information on other long-term liabilities, see Note 20 to the Consolidated Financial Statements.
 
Contractual Payments Due by Fiscal Year
(Millions)
Total
 
2020
 
2021-2022
 
2023-2024
 
Thereafter
Debt obligations(1)
$
8,744

 
$
1,586

 
$
2,252

 
$
1,652

 
$
3,254

Interest payments(2)
2,271

 
290

 
439

 
296

 
1,246

Derivative payments(3)
10

 
10

 

 

 

Purchase commitments(4)
1,249

 
1,041

 
146

 
57

 
5

Operating leases(4)
300

 
68

 
94

 
50

 
88

Other long-term payments(4)(5)
145

 

 
62

 
34

 
49

Total long-term cash obligations
$
12,719

 
$
2,995

 
$
2,993

 
$
2,089

 
$
4,642

_______________________________________
(1) 
Excludes build-to-suit lease commitment, unamortized net discount/premium on debt issuances and debt issuance costs. Includes debt obligations of $238 million related to discontinued operations. For additional information on debt obligations, see Note 13 to the Consolidated Financial Statements.
(2) 
Interest payments for short- and long-term borrowings are based on principal amounts and coupons or contractual rates at fiscal year end. Includes interest payments of $3 million related to discontinued operations.
(3) 
Represents payments of foreign exchange forward contracts and commodity contracts.
(4) 
Includes purchase commitments of $243 million, operating leases of $21 million, and Other long-term payments of $6 million related to discontinued operations.
(5) 
Represents other long-term liabilities, excluding unrecognized tax benefits, postretirement benefits and payments related to pension plans. For additional information on pension and postretirement benefits, see Note 11 to the Consolidated Financial Statements. For additional information on unrecognized tax benefits, see Note 12 to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements and Other Commitments
We guarantee approximately 2,000 bank loans made to Pepperidge Farm independent contractor distributors by third-party financial institutions for the purchase of distribution routes. The maximum potential amount of the future payments under existing guarantees we could be required to make is $220 million. We guarantee approximately 2,400 bank loans made to Snyder's-Lance independent contract distributors by third-party financial institutions for the purchase of distribution routes. The outstanding aggregate balance on these loans was $194 million as of July 28, 2019. Our guarantees are indirectly secured by the distribution routes. We do not expect that we will be required to make material guarantee payments as a result of defaults on the bank loans guaranteed.
See also Note 19 to the Consolidated Financial Statements for information on off-balance sheet arrangements.
INFLATION
We are exposed to the impact of inflation on our cost of products sold. We use a number of strategies to mitigate the effects of cost inflation including increasing prices, commodity hedging and pursuing cost productivity initiatives.
MARKET RISK SENSITIVITY
The principal market risks to which we are exposed are changes in foreign currency exchange rates, interest rates and commodity prices. In addition, we are exposed to equity price changes related to certain deferred compensation obligations. We manage our exposure to changes in interest rates by optimizing the use of variable-rate and fixed-rate debt and by utilizing interest rate swaps in order to maintain our variable-to-total debt ratio within targeted guidelines. Net sales of continuing operations outside of the U.S. are concentrated principally in Canada and represent approximately 8% of 2019 net sales. Within discontinued operations, international sales are concentrated principally in Australia. We manage our foreign currency exposures by borrowing in various foreign currencies and utilizing cross-currency swaps and foreign exchange forward contracts. We enter into cross-currency swaps

31






and foreign exchange forward contracts for periods consistent with related underlying exposures, and the contracts do not constitute positions independent of those exposures. We do not enter into derivative contracts for speculative purposes and do not use leveraged instruments.
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 soybean oil, wheat, diesel fuel, aluminum, natural gas, soybean meal, corn, cocoa, butter, and cheese, which impact the cost of raw materials.
The information below summarizes our market risks associated with debt obligations and other significant financial instruments as of July 28, 2019. Fair values included herein have been determined based on quoted market prices or pricing models using current market rates. The information presented below should be read in conjunction with Notes 13, 14 and 16 to the Consolidated Financial Statements.
The following table presents principal cash flows and related interest rates by fiscal year of maturity for debt obligations. Interest rates disclosed on variable-rate debt represent the weighted-average rates at July 28, 2019.
 
Expected Fiscal Year of Maturity
 
 
 
Fair Value of Liabilities
(Millions)
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
Total
 
Debt(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed rate(2)
$
1

 
$
1,351

 
$
2

 
$
1,651

 
$
1

 
$
3,254

 
$
6,260

 
$
6,429

Weighted-average interest rate
4.75
%
 
4.48
%
 
3.22
%
 
3.34
%
 
4.75
%
 
4.12
%
 
3.99
%
 
 
Variable rate(3)
$
1,585

 
$
899

 
$

 
$

 
$

 
$

 
$
2,484

 
$
2,484

Weighted-average interest rate
2.81
%
 
3.31
%
 
%
 
%
 
%
 
%
 
2.99
%
 
 
_______________________________________
(1) 
Expected maturities exclude build-to-suit lease commitment, unamortized net discount/premium on debt issuances and debt issuance costs.
(2) 
Represents $6.253 billion of USD borrowings and $7 million equivalent of borrowings in other currencies.
(3) 
Represents $2.252 billion of USD borrowings and borrowings of discontinued operations of $232 million equivalent AUD.
As of July 29, 2018, fixed-rate debt of approximately $6.906 billion with an average interest rate of 4.10% and variable-rate debt of approximately $3.052 billion with an average interest rate of 2.86% were outstanding.
We are exposed to foreign exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries, including subsidiary debt. We utilize foreign exchange forward purchase and sale contracts to hedge these exposures. The following table summarizes the foreign exchange forward contracts outstanding and the related weighted-average contract exchange rates as of July 28, 2019.
(Millions)
Notional Value
 
Average Contractual Exchange Rate (currency paid/ currency received)
Foreign Exchange Forward Contracts
 
Receive USD/Pay CAD
$
206

 
1.3197

Receive AUD/Pay NZD
$
36

 
1.0585

Receive DKK/Pay USD
$
33

 
0.1572

Receive CAD/Pay USD
$
21

 
0.7622

Receive CHF/Pay USD
$
14

 
1.0409

Receive GBP/Pay AUD
$
12

 
1.8011

We had an additional number of smaller contracts to purchase or sell various other currencies with a notional value of $1.3 million as of July 28, 2019. The notional values of these smaller contracts, as well as Receive AUD/Pay NZD, Receive DKK/Pay USD and Receive GBP/Pay AUD, referenced in the table above, are associated with discontinued operations. The aggregate fair value of all contracts was a loss of $3 million as of July 28, 2019. The total notional value of foreign exchange forward contracts outstanding was $244 million, and the aggregate fair value was a gain of $2 million as of July 29, 2018.
We enter into commodity futures, options and swap contracts to reduce the volatility of price fluctuations for commodities. As of July 28, 2019, the notional value of these contracts was $183 million, and the aggregate fair value of these contracts was a loss of $3 million. As of July 29, 2018, the notional value of these contracts was $118 million, and the aggregate fair value of these contracts was a gain of $1 million.

32






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. The notional value of the contract that is linked to the total return on our capital stock was $7 million at July 28, 2019, and $8 million at July 29, 2018. The average forward interest rate applicable to this contract, which expires in April 2020, was 1.84% at July 28, 2019. The notional value of the contract that is linked to the return on the Standard & Poor's 500 Index was $17 million at July 28, 2019, and $23 million at July 29, 2018. The average forward interest rate applicable to this contract, which expires in March 2020, was 1.47% at July 28, 2019. The notional value of the contract that is linked to the total return of the iShares MSCI EAFE Index was $7 million at July 28, 2019, and $10 million at July 29, 2018. The average forward interest rate applicable to this contract, which expires in March 2020, was 1.44% at July 28, 2019. As of July 28, 2019 and July 29, 2018 the fair value of these contracts was a gain of $1 million.
Our utilization of financial instruments in managing market risk exposures described above is consistent with the prior year. Changes in the portfolio of financial instruments are a function of the results of operations, debt repayment and debt issuances, market effects on debt and foreign currency, and our acquisition and divestiture activities.
SIGNIFICANT ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. See Note 1 to the Consolidated Financial Statements for a discussion of significant accounting policies. The following areas all require the use of subjective or complex judgments, estimates and assumptions:
Trade and consumer promotion programs — We offer various sales incentive programs to customers and consumers, such as feature price discounts, in-store display incentives, cooperative advertising programs, new product introduction fees, and coupons. The mix between these forms of variable consideration, which are classified as reductions in revenue and recognized upon sale, and advertising or other marketing activities, which are classified as marketing and selling expenses, fluctuates between periods based on our overall marketing plans, and such fluctuations have an impact on revenues. The measurement and recognition of the costs for trade and consumer promotion programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors, including expected volume. Typically, programs that are offered have a very short duration. Historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual financial statements. Differences between estimates and actual costs are recognized as a change in estimate in a subsequent period. However, actual expenses may differ if the level of redemption rates and performance were to vary from estimates. We adopted revised guidance on the recognition of revenue in the first quarter of 2019. See Notes 1 and 2 to the Consolidated Financial Statements for additional information.
Valuation of long-lived assets — Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if impairment exists. If impairment is determined to exist, the loss is calculated based on estimated fair value.
Goodwill and intangible assets deemed to have indefinite lives are not amortized but rather are tested at least annually for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average costs of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. In January 2017, the FASB issued revised guidance that simplifies the test for goodwill impairment, effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We elected to early adopt the guidance in the fourth quarter of 2017. Under the revised guidance, if a reporting unit’s carrying value exceeds its fair value, an impairment charge will be recorded to reduce the reporting unit to fair value. Prior to the revised guidance, the amount of the impairment was the difference between the carrying value of the goodwill and the "implied" fair value, which was calculated as if the reporting unit had just been acquired and accounted for as a business combination.

33






Indefinite-lived intangible assets are tested for impairment by comparing the fair value of the asset to the carrying value. Fair value is determined based on discounted cash flow analyses that include significant management assumptions such as revenue growth rates, weighted average costs of capital, and assumed royalty rates. If the carrying value exceeds fair value, an impairment charge will be recorded to reduce the asset to fair value.
2017 Assessments
Discontinued Operations
During the second quarter of 2017, sales and operating profit performance for Bolthouse Farms carrot and carrot ingredients were well below our expectations due to difficulty with regaining market share lost during 2016 and higher carrot costs from the adverse impact of heavy rains on crop yields. During the quarter, we also lowered our forecast for sales and earnings for the reporting unit for the second half of 2017 based on revised market share recovery expectations and the continuing effect of unusual weather conditions on carrot costs. In addition, as part of a strategic review initiated by a new leadership team of Campbell Fresh during the second quarter, we decided to reduce emphasis on growing sales of carrot ingredients, which are a by-product of the manufacturing process, and to manage carrots sold at retail for modest sales growth consistent with the category while improving profitability. Accordingly, we reduced our expectations for recovery of retail carrot market share. As a consequence of the business performance and the strategic review, we lowered our sales outlook for future fiscal years.We also lowered our average margin expectations due in part to cost volatility, which has been higher than expected. Based upon the business performance in the second quarter of 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted cash flows, we performed an interim impairment assessment in the second quarter, which resulted in a $127 million impairment charge on goodwill and $20 million on a trademark in the reporting unit.
We acquired Garden Fresh Gourmet on June 29, 2015. During 2017, sales and operating profit performance for Garden Fresh Gourmet, a reporting unit within the Campbell Fresh segment, were well below expectations, and we lowered our outlook for the second half of 2017 due to customer losses and failure to meet product distribution goals. We expected to expand distribution of salsa beyond our concentration in the Midwest region, however this proved to be challenging as differentiated recipes are required to meet taste profiles in other parts of the country. In addition, as part of a strategic review initiated by a new leadership team of Campbell Fresh during the second quarter, we lowered our distribution and category growth expectations and, therefore, future sales outlook. Based upon the business performance in 2017, our reduced near-term outlook, and reduced expectations for sales, operating margins and discounted cash flows, we performed an interim impairment assessment in the second quarter, which resulted in a $64 million impairment charge on goodwill and $1 million on a trademark in the reporting unit.
2018 Assessments
Discontinued Operations
During the second quarter of 2018, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms carrot and carrot ingredients reporting unit as operating performance was below expectations. The business was impacted by adverse weather conditions and the implementation of enhanced quality protocols, which impacted crop yields and resulted in higher costs. This cost volatility continued to be higher than expected and caused us to reassess our short- and long-term margin expectations for this business. Based on this performance, we reduced our outlook for future operating margins and discounted cash flows, which resulted in a $75 million impairment charge, representing a write-down of the remaining goodwill in the reporting unit. The fair value of the trademark exceeded the carrying value, which was $48 million.
During the third quarter of 2018, we performed an interim impairment assessment on the intangible assets of the deli reporting unit, which includes Garden Fresh Gourmet and the U.S. refrigerated soup business within Campbell Fresh. During the third quarter of 2018, certain of our private label refrigerated soup customers, which represent a majority of the business, informed us of their intention to in-source production beginning in 2019, and the sales and operating profit outlook of the Garden Fresh Gourmet business was reduced. Due to the anticipated loss of refrigerated soup business with these customers, as well as the recent performance of the Garden Fresh Gourmet business, we revised the long-term outlook for future sales, operating margins and discounted cash flows for this reporting unit, which resulted in an $81 million impairment charge on goodwill, representing a write-down of the remaining goodwill in the reporting unit, $13 million on a trademark, and $11 million on plant assets in the reporting unit.
In addition, we performed an interim impairment assessment on the intangible assets of the Bolthouse Farms refrigerated beverages and salad dressings reporting unit within the Campbell Fresh segment as the operating performance in the third quarter was below expectations. We assessed sales performance of refrigerated beverages and key drivers impacting gross profit for the unit. We revised our long-term outlook for future earnings and discounted cash flows to reflect reduced sales expectations to modest growth and decreased our gross profit outlook to reflect the inflation and manufacturing efficiency pressures that remain with the unit. This revised outlook resulted in a $384 million impairment charge on goodwill, representing a write-down of the remaining goodwill in the reporting unit, and $130 million on a trademark in the reporting unit.

34






Continuing Operations
In the fourth quarter of 2018, as part of our annual review of intangible assets, we recognized an impairment charge of $54 million on the Plum trademark. In 2018, sales and operating performance were well below expectations due in part to competitive pressure and reduced margins. In the fourth quarter of 2018, as part of a strategic review initiated by a new leadership team and based on recent performance, we lowered our long-term outlook for future sales.
2019 Assessments
Discontinued Operations
On August 30, 2018, we announced plans to pursue the divestiture of our international biscuits and snacks operating segment and the Campbell Fresh operating segment. As we continued to pursue the divestiture of these businesses and as we received initial indications of value, in the second quarter of 2019, we performed interim impairment assessments on the intangible and tangible assets within Campbell Fresh, which includes Garden Fresh Gourmet, Bolthouse Farms carrot and carrot ingredients, and Bolthouse Farms refrigerated beverages and salad dressings. As a result, we revised our future outlook for earnings and cash flows for each of these businesses.
Within Bolthouse Farms carrot and carrot ingredients, we recorded impairment charges of $18 million on the trademark, and $159 million on the plant assets and amortizable intangible assets.Within Bolthouse Farms refrigerated beverages and salad dressings, we recorded impairment charges of $74 million on the trademark, and $31 million on the plant assets and amortizable intangible assets. On Garden Fresh Gourmet, we recorded impairment charges of $23 million on the trademark and $39 million on customer relationships, which eliminated the carrying value of these assets, and $2 million on plant assets. There is no goodwill in Campbell Fresh.
On February 25, 2019, we sold our U.S refrigerated soup business, and on April 25, 2019, we sold our Garden Fresh Gourmet business. On June 16, 2019, we sold Bolthouse Farms.
In the fourth quarter of 2019, as part of our annual review of intangible assets, we recognized an impairment charge of $7 million on a trademark and $10 million on goodwill in Kelsen due to a lower long-term outlook for sales and the pending sale of the business. On July 12, 2019, we signed a definitive agreement for the sale of our Kelsen business. We sold the business on September 23, 2019.
As of July 28, 2019, Noncurrent assets of discontinued operations included $124 million of trademarks and $661 million of goodwill.
See Note 3 to the Consolidated Financial Statements for additional information on discontinued operations.
Continuing Operations
In the fourth quarter of 2019, we performed an assessment on the assets within our European chips business and recorded an impairment charge of $16 million on intangible assets. This business is included in the Snacks segment and reporting unit. As a result of signing a definitive agreement to sell the European chips business on September 18, 2019, we expect to incur additional charges of approximately $65 million in the first quarter of 2020 as the carrying value of the disposal group will include allocated goodwill, as well as foreign currency translation adjustments.
As of July 28, 2019, the carrying value of goodwill related to continuing operations was $4.017 billion. Excluding potential charges related to the pending sale of the European chips business, holding all other assumptions used in the 2019 fair value measurement constant, a 1% increase in the weighted-average cost of capital assumption would not reduce fair value of any of the reporting units below carrying value and would not result any impairment charges. The fair value of each reporting unit exceeds net book value by at least 60%.
As of July 28, 2019, the carrying value of indefinite-lived trademarks related to continuing operations was $2.629 billion, of which $61 million related to the Plum trademark and $292 million related to the Pace trademark. Holding all other assumptions used in the 2019 Plum trademark fair value measurement constant, neither a 1% increase in the weighted-average cost of capital nor a 1% reduction in revenue growth would result in a fair value below carrying value. The estimated fair value of the Pace trademark exceeded the carrying value by less than 10%. Holding all other assumptions used in the 2019 Pace trademark fair value measurement constant, a 1% increase in the weighted-average cost of capital would result in an impairment charge of approximately $20 million and a 1% reduction in revenue growth would result in a fair value equal to carrying value.
For our recent acquisitions, the carrying value of trademarks of $280 million associated with the Pacific Foods acquisition and $1.996 billion associated with the Snyder's-Lance acquisition approximates fair value as of July 28, 2019. Holding all other assumptions constant, changes in the assumptions below would reduce fair value of the these trademarks and result in impairment charges of approximately:

35






(Millions)
 
Pacific Foods
 
Various Snyder's-Lance
1% increase in the weighted-average cost of capital
 
$
(40
)
 
$
(50
)
1% reduction in revenue growth
 
$
(20
)
 
$

The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions, and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance, and economic conditions.
If assumptions are not achieved or market conditions decline, potential additional impairment charges could result. We will continue to monitor the valuation of our long-lived assets.
See also Note 6 to the Consolidated Financial Statements for additional information on goodwill and intangible assets.
Pension and postretirement benefits — We provide certain pension and postretirement benefits to employees and retirees. Determining the cost associated with such benefits is dependent on various actuarial assumptions, including discount rates, expected return on plan assets, compensation increases, turnover rates and health care trend rates. Independent actuaries, in accordance with accounting principles generally accepted in the United States, perform the required calculations to determine expense.
The discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent actuaries apply high-quality bond yield curves to the expected benefit payments of the plans. Beginning in 2018, we changed the method we used to estimate the service and interest cost components of the net periodic benefit expense (income). We elected to use a full yield curve approach to estimate service cost and interest cost by applying the specific spot rates along the yield curve used to determine the benefit obligation of the relevant projected cash flows. Previously, we estimated service cost and interest cost using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We made this change to provide a more precise measurement of service cost and interest cost by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. This change did not affect the measurement of our benefit obligations. We accounted for this change prospectively in 2018 as a change in accounting estimate. As a result of this change, net periodic benefit income increased by approximately $17 million in 2018, compared to what the net periodic benefit income would have been under the previous method.
The expected return on plan assets is a long-term assumption based upon historical experience and expected future performance, considering our current and projected investment mix. This estimate is based on an estimate of future inflation, long-term projected real returns for each asset class, and a premium for active management. Within any given fiscal period, significant differences may arise between the actual return and the expected return on plan assets. Gains and losses resulting from differences between actual experience and the assumptions are determined at each measurement date.
Net periodic pension and postretirement expense (income) was $103 million in 2019, ($185) million in 2018 and ($258) million in 2017.
Significant weighted-average assumptions as of the end of the year were as follows:
 
2019
 
2018
 
2017
Pension
 
 
 
 
 
Discount rate for benefit obligations
3.46%
 
4.15%
 
3.74%
Expected return on plan assets
6.85%
 
6.86%
 
6.84%
Postretirement
 
 
 
 
 
Discount rate for obligations
3.28%
 
4.06%
 
3.45%
Initial health care trend rate
6.25%
 
6.75%
 
7.25%
Ultimate health care trend rate
4.50%
 
4.50%
 
4.50%
Estimated sensitivities to annual net periodic pension cost are as follows: a 50-basis-point decline in the discount rate would decrease expense by approximately $7 million and would result in an immediate loss recognition of approximately $107 million. A 50-basis-point reduction in the estimated return on assets assumption would increase expense by approximately $10 million. A one-percentage-point increase in assumed health care costs would have no impact on postretirement service and interest cost and would not result in an immediate loss.
No contributions were made to U.S. pension plans in 2019, 2018 and 2017. Contributions to non-U.S. plans were $5 million in 2019, 2018 and 2017. We do not expect to contribute to the U.S. pension plans in 2020. Contributions to non-U.S. plans are not expected to be material in 2020.

36






See also Note 11 to the Consolidated Financial Statements for additional information on pension and postretirement benefits.
Income taxes — The effective tax rate reflects statutory tax rates, tax planning opportunities available in the various jurisdictions in which we operate and management’s estimate of the ultimate outcome of various tax audits and issues. Significant judgment is required in determining the effective tax rate and in evaluating tax positions. Income taxes are recorded based on amounts refundable or payable in the current year and include the effect of deferred taxes. Deferred tax assets and liabilities are recognized for the future impact of differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. Valuation allowances are established for deferred tax assets when it is more likely than not that a tax benefit will not be realized.
On December 22, 2017, the Act was enacted into law and made significant changes to corporate taxation, including reducing the corporate tax rate from 35% to 21% effective January 1, 2018, and transitioning to a territorial system for taxation on foreign earnings along with the imposition of a transition tax in 2018 on the deemed repatriation of unremitted foreign earnings.
See also Notes 1 and 12 to the Consolidated Financial Statements for further discussion on income taxes.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for information on recent accounting pronouncements.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current expectations regarding our future results of operations, economic performance, financial condition and achievements. These forward-looking statements can be identified by words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "pursue," "strategy," "will" and similar expressions. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts, and may reflect anticipated cost savings or implementation of our strategic plan. These statements reflect our current plans and expectations and are based on information currently available to us. They rely on several assumptions regarding future events and estimates which could be inaccurate and which are inherently subject to risks and uncertainties.
We wish to caution the reader that the following important factors and those important factors described in Part 1, Item 1A and elsewhere in this Report, or in our other Securities and Exchange Commission filings, could affect our actual results and could cause such results to vary materially from those expressed in any forward-looking statements made by, or on behalf of, us:
our ability to execute on and realize the expected benefits from our strategy, including growing sales in snacks and maintaining our market share position in soup;
the impact of strong competitive responses to our efforts to leverage brand power with product innovation, promotional programs and new advertising;
the risks associated with trade and consumer acceptance of product improvements, shelving initiatives, new products and pricing and promotional strategies;
our ability to complete and to realize the projected benefits of planned divestitures and other business portfolio changes;
our indebtedness and ability to pay such indebtedness;
our ability to realize projected cost savings and benefits from cost savings initiatives and the integration of recent acquisitions;
disruptions to our supply chain, including fluctuations in the supply of and inflation in energy and raw and packaging materials cost;
our ability to manage changes to our organizational structure and/or business processes, including selling, distribution, manufacturing and information management systems or processes;
changes in consumer demand for our products and favorable perception of our brands;
changing inventory management practices by certain of our key customers;
a changing customer landscape, with value and e-commerce retailers expanding their market presence, while certain of our key customers maintain significance to our business;
product quality and safety issues, including recalls and product liabilities;
the costs, disruption and diversion of management’s attention associated with activist investors;
the uncertainties of litigation and regulatory actions against us;

37






the possible disruption to the independent contractor distribution models used by certain of our businesses, including as a result of litigation or regulatory actions affecting their independent contractor classification;
a material failure in or breach of our information technology systems;
impairment to goodwill or other intangible assets;
our ability to protect our intellectual property rights;
increased liabilities and costs related to our defined benefit pension plans;
our ability to attract and retain key talent;
changes in currency exchange rates, tax rates, interest rates, debt and equity markets, inflation rates, economic conditions, law, regulation and other external factors; and
unforeseen business disruptions in one or more of our markets due to political instability, civil disobedience, terrorism, armed hostilities, extreme weather conditions, natural disasters or other calamities.
This discussion of uncertainties is by no means exhaustive but is designed to highlight important factors that may impact our outlook. We disclaim any obligation or intent to update forward-looking statements made by us in order to reflect new information, events or circumstances after the date they are made.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The information presented in the section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Sensitivity" is incorporated herein by reference.

38






Item 8. Financial Statements and Supplementary Data

CAMPBELL SOUP COMPANY
Consolidated Statements of Earnings
(millions, except per share amounts)
 
 
2019
 
2018
 
2017
Net sales
$
8,107

 
$
6,615

 
$
5,837

Costs and expenses
 
 
 
 
 
Cost of products sold
5,414

 
4,241

 
3,395

Marketing and selling expenses
842

 
728

 
675

Administrative expenses
610

 
563

 
448

Research and development expenses
91

 
91

 
93

Other expenses / (income)
140

 
(73
)
 
(216
)
Restructuring charges
31

 
55

 
11

Total costs and expenses
7,128

 
5,605

 
4,406

Earnings before interest and taxes
979

 
1,010

 
1,431

Interest expense
356

 
183

 
115

Interest income
2

 
3

 

Earnings before taxes
625

 
830

 
1,316

Taxes on earnings
151

 
106

 
392

Earnings from continuing operations
474

 
724

 
924

Loss from discontinued operations
(263
)
 
(463
)
 
(37
)
Net earnings
211

 
261

 
887

Less: Net earnings (loss) attributable to noncontrolling interests

 

 

Net earnings attributable to Campbell Soup Company
$
211

 
$
261

 
$
887

Per Share — Basic
 
 
 
 
 
Earnings from continuing operations attributable to Campbell Soup Company
$
1.57

 
$
2.41

 
$
3.03

Loss from discontinued operations
(.87
)
 
(1.54
)
 
(.12
)
Net earnings attributable to Campbell Soup Company
$
.70

 
$
.87

 
$
2.91

Weighted average shares outstanding — basic
301

 
301

 
305

Per Share — Assuming Dilution
 
 
 
 
 
Earnings from continuing operations attributable to Campbell Soup Company
$
1.57

 
$
2.40

 
$
3.01

Loss from discontinued operations
(.87
)
 
(1.53
)
 
(.12
)
Net earnings attributable to Campbell Soup Company(1)
$
.70

 
$
.86

 
$
2.89

Weighted average shares outstanding — assuming dilution
302

 
302

 
307

(1) Sum of the individual amounts may not add due to rounding.
See accompanying Notes to Consolidated Financial Statements.



39






CAMPBELL SOUP COMPANY
Consolidated Statements of Comprehensive Income
(millions)
 
2019
 
2018
 
2017
 
Pre-tax amount
 
Tax (expense) benefit
 
After-tax amount
 
Pre-tax amount
 
Tax (expense) benefit
 
After-tax amount
 
Pre-tax amount
 
Tax (expense) benefit
 
After-tax amount
Net earnings
 
 
 
 
$
211

 
 
 
 
 
$
261

 
 
 
 
 
$
887

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(68
)
 
$

 
(68
)
 
$
(69
)
 
$

 
(69
)
 
$
40

 
$

 
40

Reclassification of currency translation adjustments realized upon disposal of business
2

 

 
2