CAMPBELL SOUP COMPANY 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, the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements in "Part I - Item 1. Financial Statements," and our Form 10-K for the year endedAugust 2, 2020 , including but not limited to "Part I - Item 1A. Risk Factors" and "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Executive Summary Unless otherwise stated, the terms "we," "us," "our" and the "company" refer toCampbell Soup Company and its consolidated subsidiaries. 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. We completed the sale of our Kelsen business onSeptember 23, 2019 . OnDecember 23, 2019 , we completed the sale of our Arnott's business and certain other international operations, including the simple meals and shelf-stable beverages businesses inAustralia andAsia Pacific (the Arnott's and other international operations). We have reflected the results of operations of the Kelsen business and the Arnott's and other international operations (collectively referred to asCampbell International ) as discontinued operations in the Consolidated Statements of Earnings. These businesses were historically included in the Snacks reportable segment. In addition, onOctober 11, 2019 , we completed the sale of our European chips business. The results of the European chips business through the date of sale were reflected in continuing operations within the Snacks reportable segment. See Notes 3 and 6 to the Consolidated Financial Statements for additional information on these divestitures and reportable segments. Business Trends We have been actively monitoring the impact of COVID-19 on all aspects of our business. During the second quarter of 2021, we continued to experience higher sales for our retail products in both our Meals & Beverages and Snacks segments, especially in retail chains and large grocery supermarkets. This result is attributable to a shift in retail demand, as consumers have significantly increased their current food purchases for at-home consumption, which has more than offset the declines in our foodservice products. We expect that these trends will continue through our third quarter of 2021 in response to the continued spread of COVID-19; although in the third quarter of 2021, we will be lapping the initial COVID-19-related elevated demand of the year-ago period, and therefore, we expect sales to decline compared to the year-ago period. The recent higher sales trends of our retail products may lessen or reverse in the coming months if customers or consumers alter their purchasing habits. With the increased demand for our retail products, we have made changes in our supply chain network to increase overall production, including modifying production schedules and temporarily adjusting product mix. In addition, we have also adjusted the timing of some of our promotional spending. In the quarter, we continued to experience higher costs in certain areas such as employee compensation costs, as well as costs associated with health screenings, temperature checks and enhanced cleaning and sanitation protocols to protect our employees and product quality standards, which may continue or increase. Despite COVID-19 related absenteeism and labor-related restrictions in early 2021 due to worsening COVID-19 infection levels in certain localities, none of our production operations have experienced significant disruptions or labor reductions related to COVID-19. We continue to benefit overall from increased product demand as we leverage our supply chain assets. There has been limited disruption to our supply chain network to date, as we have overcome periodic shortages of ingredient and packaging materials. However, we continue to monitor the potential impact of the COVID-19 pandemic, and we cannot predict the ultimate impact on our suppliers, distributors or manufacturers. In addition, we were, and may continue to be, unable to fulfill all orders we receive from our customers. The impact of COVID-19 remains uncertain and ultimately will be dictated by the length and severity of the pandemic; the federal, state and local government actions taken in response; the macroeconomic environment; and the availability and widespread distribution and use of a safe and effective vaccine. Although there are vaccines for COVID-19 that have been approved for use, the number of individuals who have completed a full vaccination regimen is limited at this time. Accordingly, there remains significant uncertainty about the duration and extent of the impact from COVID-19. We will continue to evaluate the extent to which COVID-19 will impact our business, consolidated results of operations and financial condition. InFebruary 2021 , there was significant winter weather across most ofthe United States affecting both inbound and outbound supply and distribution. We experienced operational disruptions at several of our manufacturing plants and distribution centers in areas of the country that were adversely impacted. Although we currently do not expect the weather-related issues to have a material impact on our results of operations for the third quarter endingMay 2, 2021 , we are continuing to assess the full impact. 26 -------------------------------------------------------------------------------- Summary of Results This Summary of Results provides significant highlights from the discussion and analysis that follows. •Net sales increased 5% in 2021 to$2,279 million , due to gains in both Meals & Beverages and Snacks. As a result of COVID-19, net sales accelerated across our portfolio in the second quarter of 2021 with increased demand of food purchases for at-home consumption. The gains were partly offset by declines in foodservice and in partner brands within theSnyder's-Lance portfolio. •Interest expense decreased to$55 million in 2021 from$149 million in 2020. The prior year included a loss of$75 million related to the extinguishment of debt. After adjusting for this item, interest expense declined primarily due to lower levels of debt. •Earnings from continuing operations per share were$.80 in 2021, compared to$.56 a year ago. The current and prior year included expenses of$.04 and$.16 per share, respectively, from items impacting comparability as discussed below. Net Earnings attributable toCampbell Soup Company The following items impacted the comparability of net earnings and net earnings per share: Continuing Operations •We implemented several cost savings initiatives in recent years. In the second quarter of 2021, we recorded a pre-tax restructuring charge of$18 million and implementation costs and other related costs of$6 million in Administrative expenses and a reduction to Cost of products sold of$2 million (aggregate impact of$16 million after tax, or$.05 per share) related to these initiatives. Year-to-date in 2021, we recorded a pre-tax restructuring charge of$19 million and implementation costs and other related costs of$10 million in Administrative expenses and a reduction to Cost of products sold of$1 million (aggregate impact of$21 million after tax, or$.07 per share) related to these initiatives. In the second quarter of 2020, we recorded a pre-tax restructuring charge of$7 million and implementation costs and other related costs of$13 million in Administrative expenses,$2 million in Cost of products sold,$2 million in Marketing and selling expenses, and$1 million in Research and development expenses (aggregate impact of$19 million after tax, or$.06 per share) related to these initiatives. Year-to-date in 2020, we recorded a pre-tax restructuring charge of$10 million and implementation costs and other related costs of$21 million in Administrative expenses,$2 million in Cost of products sold,$2 million in Marketing and selling expenses, and$1 million in Research and development expenses (aggregate impact of$27 million after tax, or$.09 per share) related to these initiatives. See Note 7 to the Consolidated Financial Statements and "Restructuring Charges and Cost Savings Initiatives" for additional information; •In the second quarter of 2021, we recognized pre-tax pension settlement gains in Other expenses / (income) of$30 million ($23 million after tax, or$.08 per share). Year-to-date in 2021, we recognized pre-tax pension settlement gains in Other expenses / (income) of$34 million ($26 million after tax, or$.09 per share). In the second quarter of 2020, we recognized pre-tax pension settlement gains in Other expenses / (income) of$11 million ($8 million after tax, or$.03 per share). The settlements were associated withU.S. and Canadian pension plans and resulted from the level of lump sum distributions from the plans' assets; •In the second quarter of 2021, we recorded a$19 million ($.06 per share) deferred tax charge in connection with a legal entity reorganization as part of the continued integration ofSnyder's-Lance, Inc. (Snyder's-Lance ); •In the second quarter of 2020, we recorded a loss in Interest expense of$75 million ($57 million after tax, or$.19 per share) on the extinguishment of debt; and •In the second quarter of 2020, we recorded a tax benefit of$19 million ($.06 per share) on the sale of our European chips business. Year-to-date in 2020, we recorded a loss in Other expenses / (income) of$64 million ($41 million after tax, or$.14 per share) on the sale of our European chips business. Discontinued Operations •In the second quarter of 2020, we recognized pre-tax gains of$1,087 million associated with the sale of the Arnott's and other international operations. In addition, we recorded tax expense of$4 million associated with the sale of the Kelsen business. The aggregate impact was$1,025 million after tax, or$3.37 per share. Year-to-date in 2020, we recognized pre-tax net gains of$1,036 million ($998 million after tax, or$3.29 per share) associated with the sale ofCampbell International . 27 --------------------------------------------------------------------------------
The items impacting comparability are summarized below:
Three Months Ended
January 31, 2021 January 26, 2020
Earnings EPS Earnings EPS
(Millions, except per share amounts) Impact Impact Impact Impact
Earnings from continuing operations attributable to
$ 245 $ .80 $ 171 $ .56 Earnings from discontinued operations $ - $ -$ 1,037 $ 3.41 Net earnings attributable to Campbell Soup Company$ 245
Continuing operations: Restructuring charges, implementation costs and other related costs$ (16) $ (.05) $ (19) $ (.06) Pension settlement gains 23 .08 8 .03 Deferred tax charge (19) (.06) - - Loss on debt extinguishment - - (57) (.19) Tax benefit associated with divestiture - - 19 .06 Impact of items on Earnings from continuing operations(1)$ (12)
Discontinued operations: Gains associated with divestitures $ -
$ -
Impact of items on Earnings from discontinued operations $ - $ -$ 1,025 $ 3.37 Six Months Ended January 31, 2021 January 26, 2020 Earnings EPS Earnings EPS (Millions, except per share amounts) Impact Impact Impact Impact
Earnings from continuing operations attributable to
$ 554 $ 1.82 $ 340 $ 1.12 Earnings from discontinued operations $ - $ -$ 1,034 $ 3.41 Net earnings attributable to Campbell Soup Company$ 554
Continuing operations: Restructuring charges, implementation costs and other related costs$ (21) $ (.07) $ (27) $ (.09) Pension settlement gains 26 .09 8 .03 Deferred tax charge (19) (.06) - - Loss on debt extinguishment - - (57) (.19) Charges associated with divestiture - - (41) (.14) Impact of items on Earnings from continuing operations(1)$ (14)
Discontinued operations: Gains associated with divestitures $ -
$ -
Impact of items on Earnings from discontinued operations $ -
$ -
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(1)Sum of the individual amounts may not add due to rounding. Earnings from continuing operations were$245 million ($.80 per share) in the current quarter, compared to$171 million ($.56 per share) in the year-ago quarter. After adjusting for items impacting comparability, earnings from continuing operations increased reflecting sales volume gains and lower interest expense, partially offset by increased administrative expenses. Earnings from continuing operations were$554 million ($1.82 per share) in the six-month period this year, compared to$340 million ($1.12 per share) in the year-ago period. After adjusting for items impacting comparability, earnings from continuing operations increased reflecting sales volume gains, lower interest expense, an improved gross profit performance and higher other income, partially offset by increased administrative expenses. 28 -------------------------------------------------------------------------------- See "Discontinued Operations" for additional information. SECOND-QUARTER DISCUSSION AND ANALYSIS Sales An analysis of net sales by reportable segment follows: Three Months Ended January 31, January 26, (Millions) 2021 2020 % Change Meals & Beverages$ 1,300 $ 1,224 6 Snacks 979 938 4$ 2,279 $ 2,162 5
An analysis of percent change of net sales by reportable segment follows:
Meals & Beverages Snacks(2) Total
Volume and mix 5% 3% 4%
Price and sales allowances (1) - (1)
(Increased) / decreased promotional spending(1) 2 2 2
6% 4% 5%
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(1)Represents revenue reductions from trade and consumer coupon redemption programs. (2)Sum of the individual amounts does not add due to rounding. In Meals & Beverages, sales increased 6% primarily due to gains acrossU.S. retail products, including gains inU.S. soup, V8 beverages, Prego pasta sauces and Campbell's pasta, partially offset by declines in foodservice. Volume increased inU.S. retail driven by COVID-19, with increased demand of food purchases for at-home consumption. Foodservice sales were negatively impacted by an increase in COVID-19 related restrictions. Sales ofU.S. soup increased 10% due to volume gains in condensed soups and ready-to-serve soups. Promotional activity was moderated this quarter in part due to supply chain constraints, particularly on broth. In Snacks, sales increased 4% due to volume gains fueled by the majority of our power brands and lower levels of promotional spending on supply constrained brands. The sales increase reflects gains in salty snacks, including Kettle Brand potato chips, Late July snacks,Cape Cod potato chips and Pop Secret popcorn, as well as fresh bakery, including Pepperidge Farm Farmhouse products. These gains were partially offset by declines in partner brands within theSnyder's-Lance portfolio and Lance sandwich crackers, which faced supply constraints this quarter. Partner brands consist of third-party branded products that we sell. Gross Profit Gross profit, defined as Net sales less Cost of products sold, increased by$41 million in 2021 from 2020. As a percent of sales, gross profit was 34.4% in 2021 and 34.3% in 2020. The 0.1 percentage-point increase in gross profit percentage was due to the following factors: Margin
Impact
Productivity improvements 1.4
Lower level of promotional spending 1.2
Lower restructuring-related costs 0.2
Mix (0.1)
Price and sales allowances (0.3)
Cost inflation, supply chain costs and other factors(1) (2.3)
0.1%
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(1)Includes an estimated positive margin impact of 1.0 from the benefit of cost
savings initiatives and operating leverage, which was more than offset by cost
inflation and other factors, including the impact of COVID-19.
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Marketing and Selling Expenses
Marketing and selling expenses as a percent of sales were 10.2% in 2021 compared
to 11.0% in 2020. Marketing and selling expenses decreased 2% in 2021 from 2020.
The decrease was primarily due to increased benefits from cost savings
initiatives (approximately 3 percentage points); lower costs related to
marketing overhead (approximately 1 percentage point) and lower costs associated
with cost savings initiatives (approximately 1 percentage point), partially
offset by higher advertising and consumer promotion expenses (approximately 4
percentage points). The increase in advertising and consumer promotion expenses
was primarily in Snacks due to increased support of Snyder's of Hanover
pretzels, Snack Factory Pretzel Crisps and Kettle Brand potato chips, as well as
in Meals & Beverages due to increased support of U.S. soup.
Administrative Expenses
Administrative expenses as a percent of sales were 6.9% in 2021 compared to 6.8%
in 2020. Administrative expenses increased 7% in 2021 from 2020. The increase
was primarily due to higher benefit-related costs (approximately 8 percentage
points) and higher general administrative costs (approximately 5 percentage
points), partially offset by lower costs associated with cost savings
initiatives (approximately 5 percentage points) and increased benefits from cost
savings initiatives (approximately 2 percentage points).
Other Expenses / (Income)
Other income was $45 million in 2021 compared to $22 million in 2020. Other
income included pension settlement gains of $30 million in 2021 and $11 million
in 2020. Excluding these amounts, the remaining increase in other income was
primarily due to transition services fees, partially offset by lower net
periodic benefit income.
Operating Earnings
Segment operating earnings increased 6% in 2021 from 2020.
An analysis of operating earnings by segment follows:
Three Months Ended
January 31, January 26,
(Millions) 2021 2020 % Change
Meals & Beverages $ 258 $ 242 7
Snacks 144 136 6
402 378 6
Corporate 17 (21)
Restructuring charges(1) (18) (7)
Earnings before interest and taxes $ 401 $ 350
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(1)See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges. Operating earnings from Meals & Beverages increased 7%. The increase was primarily due to sales volume gains, partially offset by lower gross profit performance and higher administrative expenses. Operating earnings from Snacks increased 6%. The increase was primarily due to sales volume gains and lower selling expenses, partially offset by higher marketing investment, increased administrative expenses and lower gross profit performance. Corporate in 2021 included pension settlement gains of$30 million and costs of$4 million related to costs savings initiatives. Corporate in 2020 included costs of$18 million related to cost savings initiatives and pension settlement gains of$11 million . Excluding these amounts, the remaining decrease in expenses primarily reflects mark-to-market gains on outstanding commodity hedges. Interest Expense Interest expense decreased to$55 million in 2021 from$149 million in 2020. The decrease in interest expense was due to a loss on extinguishment of debt of$75 million in the prior year and lower levels of debt. Taxes on Earnings The effective tax rate was 29.4% in 2021 and 16.2% in 2020. The increase in the effective tax rate was primarily due to a$19 million deferred tax charge recognized in the second quarter of 2021 in connection with a legal entity reorganization as part of the continued integration ofSnyder's-Lance and a tax benefit of$19 million we recognized in the second quarter in 2020 on the$64 million loss on the sale of the European chips business recorded in the first quarter of 2020. We were able to use the capital loss on the sale of the European chips business to offset a portion of the capital gain from the sale of the Arnott's and other international operations. 30 -------------------------------------------------------------------------------- SIX-MONTH DISCUSSION AND ANALYSIS Sales An analysis of net sales by reportable segment follows: Six Months Ended January 31, January 26, (Millions) 2021 2020 % Change Meals & Beverages$ 2,642 $ 2,418 9 Snacks 1,977 1,927 3$ 4,619 $ 4,345 6
An analysis of percent change of net sales by reportable segment follows:
Meals & Beverages Snacks Total
Volume and mix 8% 2% 5%
Price and sales allowances (1) - -
(Increased) / decreased promotional spending(1) 2 2 2
Divestiture - (1) (1)
9% 3% 6%
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(1)Represents revenue reductions from trade promotion and consumer coupon redemption programs. In Meals & Beverages, sales increased 9% primarily due to gains acrossU.S. retail products, including gains inU.S. soup, V8 beverages, Prego pasta sauces and Campbell's pasta, partially offset by declines in foodservice. Volume increased inU.S. retail driven by COVID-19, with increased demand of food purchases for at-home consumption this year. Foodservice sales were negatively impacted by shifts in consumer behavior and continued COVID-19 related restrictions. Sales ofU.S. soup increased 15% due to volume gains in condensed soups, ready-to-serve soups and broth and moderated promotional spending. In Snacks, sales increased 3% reflecting a 1-point negative impact from the sale of the European chips business. Excluding the divestiture, sales increased driven by volume gains in the majority of our power brands and lower levels of promotional spending on supply constrained brands. The sales increase reflects gains in fresh bakery products, Late July snacks, Pop Secret popcorn and Kettle Brand potato chips, partially offset by declines in Lance sandwich crackers. Gross Profit Gross profit, defined as Net sales less Cost of products sold, increased by$116 million in 2021 from 2020. As a percent of sales, gross profit was 34.6% in 2021 and 34.1% in 2020. The 0.5 percentage-point increase in gross profit percentage was due to the following factors: Margin
Impact
Productivity improvements 1.5
Lower level of promotional spending 1.2
Lower restructuring-related costs 0.1
Price and sales allowances (0.2)
Cost inflation, supply chain costs and other factors(1) (2.1)
0.5%
__________________________________________
(1)Includes an estimated positive margin impact of 0.9 from the benefit of
operating leverage and cost savings initiatives, which was more than offset by
cost inflation and other factors, including the impact of COVID-19.
Marketing and Selling Expenses
Marketing and selling expenses as a percent of sales were 9.5% in 2021 compared
to 10.2% in 2020. Marketing and selling expenses decreased 1% in 2021 from 2020.
The decrease was primarily due to increased benefits from cost savings
initiatives (approximately 3 percentage points); lower costs related to
marketing overhead (approximately 2 percentage points) and lower selling
expenses (approximately 1 percentage point), partially offset by higher
advertising and consumer promotion expenses
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(approximately 6 percentage points). The increase in advertising and consumer
promotion expenses was primarily in Meals & Beverages due to increased support
of U.S. soup.
Administrative Expenses
Administrative expenses as a percent of sales were 6.5% in 2021 and in 2020.
Administrative expenses increased 6% in 2021 from 2020. The increase was
primarily due to higher benefit-related costs (approximately 7 percentage
points) and higher general administrative costs (approximately 4 percentage
points), partially offset by lower costs associated with cost savings
initiatives (approximately 4 percentage points) and increased benefits from cost
savings initiatives (approximately 2 percentage points).
Other Expenses / (Income)
Other income was $63 million in 2021 compared to other expenses of $34 million
in 2020. Other expenses / (income) included pension settlement gains of $34
million in 2021 and $11 million in 2020. Other expenses in 2020 included a loss
of $64 million on the sale of the European chips business. Excluding these
amounts, the remaining increase in other income was primarily due to an increase
in transition services fees this year and investment losses in the prior year,
partially offset by lower net periodic benefit income.
Operating Earnings
Segment operating earnings increased 11% in 2021 from 2020.
An analysis of operating earnings by segment follows:
Six Months Ended
January 31, January 26,
(Millions) 2021 2020 % Change
Meals & Beverages $ 591 $ 524 13
Snacks 283 261 8
874 785 11
Corporate 7 (108)
Restructuring charges(1) (19) (10)
Earnings before interest and taxes $ 862 $ 667
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(1)See Note 7 to the Consolidated Financial Statements for additional information on restructuring charges. Operating earnings from Meals & Beverages increased 13%. The increase was primarily due to sales volume gains and improved gross profit performance, partially offset by increased marketing investment and higher administrative expenses. Operating earnings from Snacks increased 8%. The increase was primarily due to lower selling expenses and sales volume gains, partially offset by increased administrative expenses and lower gross profit performance. Corporate in 2021 included pension settlement gains of$34 million and costs of$9 million related to costs savings initiatives. Corporate in 2020 included a loss of$64 million from the sale of the European chips business, costs of$26 million related to cost savings initiatives and pension settlement gains of$11 million . Excluding these amounts, the remaining decrease in expenses primarily reflects mark-to-market gains on outstanding commodity hedges. Interest Expense Interest expense decreased to$110 million in 2021 from$229 million in 2020. The decrease in interest expense was due to a loss on extinguishment of debt of$75 million in the prior year and lower levels of debt. Taxes on Earnings The effective tax rate was 26.4% in 2021 and 22.9% in 2020. The increase in the effective tax rate was primarily due to a$19 million deferred tax charge recognized in the second quarter of 2021 in connection with a legal entity reorganization as part of the continued integration ofSnyder's-Lance and a$23 million tax benefit on the$64 million loss on the sale of the European chips business in the prior year. Restructuring Charges and Cost Savings Initiatives Multi-year Cost Savings Initiatives and Snyder's-Lance Cost Transformation Program and Integration Beginning in fiscal 2015, we implemented initiatives to reduce costs and to streamline our organizational structure. In recent years, we expanded these initiatives by further optimizing our supply chain and manufacturing networks, including closing our manufacturing facility inToronto, Ontario , as well as our information technology infrastructure. 32 -------------------------------------------------------------------------------- OnMarch 26, 2018 , we completed the acquisition ofSnyder's-Lance . Prior to the acquisition,Snyder's-Lance launched a cost transformation program following a comprehensive review of its operations with the goal of significantly improving its financial performance. We continue to implement this program. In addition, we have identified opportunities for additional cost synergies as we integrateSnyder's-Lance . Cost estimates, as well as timing for certain activities, are continuing to be developed. A summary of the pre-tax charges (gains) recorded in Earnings from continuing operations related to these initiatives is as follows: Three Months Ended Six Months Ended January 31, January 26, January 26, Recognized as of (Millions, except per share amounts) 2021 2020 January 31, 2021 2020 January 31, 2021 Restructuring charges$ 18 $ 7$ 19 $ 10 $ 257 Administrative expenses 6 13 10 21 321 Cost of products sold (2) 2 (1) 2 75 Marketing and selling expenses - 2 - 2 12 Research and development expenses - 1 - 1 4 Total pre-tax charges$ 22 $ 25$ 28 $ 36 $ 669 Aggregate after-tax impact$ 16 $ 19$ 21 $ 27 Per share impact$ .05 $ .06 $ .07 $ .09
A summary of the pre-tax costs in Earnings from discontinued operations associated with these initiatives is as follows: (Millions)
Recognized as of January 31, 2021
Severance pay and benefits $ 19
Implementation costs and other related costs 4 Total $ 23 As ofApril 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 these initiatives is as follows: (Millions) Recognized as of January 31, 2021 Severance pay and benefits $
219
Asset impairment/accelerated depreciation
80
Implementation costs and other related costs 370 Total $ 669 The total estimated pre-tax costs for actions associated with continuing operations that have been identified are approximately$695 million to$725 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 to consist of the following: approximately$220 million to$225 million in severance pay and benefits; approximately$85 million in asset impairment and accelerated depreciation; and approximately$390 million to$415 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 32%; Snacks - approximately 44%; and Corporate - approximately 24%. Of the aggregate$695 million to$725 million of pre-tax costs associated with continuing operations identified to date, we expect approximately$595 million to$625 million will be cash expenditures. In addition, we expect to invest approximately$455 million in capital expenditures through 2022, of which we invested$367 million as ofJanuary 31, 2021 . The capital expenditures primarily relate to aU.S. warehouse optimization project, improvement of quality, safety and cost structure across theSnyder's-Lance manufacturing network, implementation of an SAP enterprise-resource planning system forSnyder's-Lance , transition of production of theToronto manufacturing facility to ourU.S. thermal plants, optimization of information technology infrastructure and applications, insourcing of manufacturing for certain simple meal products, and optimization of theSnyder's-Lance warehouse and distribution network. We expect to incur the costs for the actions associated with continuing operations that have been identified to date through 2022 and to fund the costs through cash flows from operations and short-term borrowings. 33 -------------------------------------------------------------------------------- We expect the initiatives for actions associated with continuing operations that have been identified to date to generate pre-tax savings of approximately$800 million to$810 million in 2021, and once all phases are implemented, to generate annual ongoing savings of approximately$850 million by the end of 2022. In the six-month period endedJanuary 31, 2021 , we generated an additional$35 million of pre-tax savings. The annual pre-tax savings associated with continuing operations generated were as follows: Year Ended August 2, (Millions) 2020 July 28, 2019 July 29, 2018 July 30, 2017 July 31, 2016 August 2, 2015 Total pre-tax savings$ 725 $ 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. 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: January 31, 2021 Six Months (Millions) Three Months Ended Ended Costs Incurred to Date Meals & Beverages $ 1 $ 1 $ 221 Snacks 21 26 277 Corporate - 1 171 Total $ 22$ 28 $ 669 Discontinued Operations We completed the sale of our Kelsen business onSeptember 23, 2019 , for$322 million . We also completed the Arnott's and other international operations onDecember 23, 2019 , for$2,286 million . The purchase price was subject to certain post-closing adjustments, which resulted in$4 million of additional proceeds in the third quarter 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 other international operations, orCampbell International , as discontinued operations in the Consolidated Statements of Earnings for all periods presented. These businesses were historically included in the Snacks reportable segment. Results ofCampbell International were as follows: January 26, 2020 (Millions) Three Months Ended Six Months Ended Net sales $ 136 $ 359 Earnings before taxes from operations $ 16 $ 53 Taxes on earnings from operations 4 17
Gain on sales of businesses / costs associated with selling the businesses
1,087 1,036
Tax expense on sales of businesses / costs associated with selling the businesses
62 38
Earnings from discontinued operations $ 1,037 $ 1,034
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, which may include commercial paper; credit facilities; and cash and
cash equivalents. We believe that our sources of financing will be adequate to
meet our future requirements.
We generated cash flows from operations of $611 million in 2021, compared to
$663 million in 2020. The decline in 2021 was primarily due to changes in
working capital which reflect a significant increase in accounts payable in the
prior year, partially offset by higher 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. We had negative working capital of $266
million as of January 31, 2021 , and $690 million as of August 2, 2020 . Total
debt maturing within one year was $1,025 million as of January 31, 2021 , and
$1,202 million as of August 2, 2020 .
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Capital expenditures were $132 million in 2021 and $167 million in 2020. The
decline was due to capital expenditures associated with discontinued operations
in 2020. Capital expenditures are expected to total approximately $315 million
in 2021. Capital expenditures in the first half of 2021 included the
implementation of an SAP enterprise-resource planning system for Snyder's-Lance ,
chip capacity expansion projects, a Goldfish cracker capacity expansion project,
and a Milano cookie capacity expansion project.
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.
We completed the sale of our Kelsen business on September 23, 2019 , for $322
million . On September 30, 2019 , we repaid $399 million of our senior unsecured
term loan facility using net proceeds from the Kelsen sale and the issuance of
commercial paper. In addition, on October 11, 2019 , we completed the sale of our
European chips business for £63 million, or $77 million .
We completed the sale of the Arnott's and other international operations on
December 23, 2019 , for $2,286 million . The purchase price was subject to certain
post-closing adjustments, which resulted in $4 million of additional proceeds in
the third quarter of 2020. We used the net proceeds from the sale to reduce our
debt through a series of actions. On December 31, 2019 , we repaid the $100
million outstanding balance on our senior unsecured term loan facility. On
January 22, 2020 , we completed the redemption of all $500 million outstanding
aggregate principal amount of our 4.25% Senior Notes due 2021. On January 24,
2020 , we settled tender offers to purchase $1,200 million in aggregate principal
amount of certain unsecured debt, comprising $329 million of 3.30% Senior Notes
due 2021, $634 million of 3.65% Senior Notes due 2023, and $237 million of 3.80%
Senior Notes due 2043. Except for the $237 million of 3.80% Senior Notes due
2043, the Senior Notes settled under the tender offer were issued in connection
with our acquisition of Snyder's-Lance . The consideration for the redemption and
the tender offers was $1,765 million , including $65 million of premium. We
recognized a loss of $75 million (including $65 million of premium, fees and
other costs paid with the tender offers and unamortized debt issuance costs),
which was recorded in Interest expense in the Consolidated Statement of
Earnings. In addition, we paid accrued and unpaid interest on the purchased
notes through the dates of settlement. The net divestiture proceeds remaining
after these debt reduction activities were used to reduce commercial paper
borrowings.
Dividend payments were $215 million in 2021 and $213 million in 2020. The
regular quarterly dividends paid on our capital stock were $.35 per share in
each of 2021 and 2020. On December 9, 2020 , the Board of Directors approved an
increase in the regular quarterly dividend from $.35 per share to $.37 per
share, or 6%. They then declared a regular quarterly dividend of $.37 per share
payable on February 1, 2021 to shareholders of record at the close of business
on January 9, 2021 . On March 4, 2021 , the Board of Directors declared a regular
quarterly dividend of $.37 per share payable on May 3, 2021 to shareholders of
record at the close of business on April 8, 2021 .
We suspended our share repurchases as of the second quarter of 2018. See Note 13
to the Consolidated Financial Statements for additional information.
In August 2019 , we repaid and terminated the AUD $335 million , or $227 million ,
balance outstanding under our single-draw syndicated facility. The repayment was
funded through the issuance of commercial paper.
As of January 31, 2021 , we had $1,025 million of short-term borrowings due
within one year, of which $100 million was comprised of commercial paper
borrowings. As of January 31, 2021 , we issued $36 million of standby letters of
credit. On November 2, 2020 , we entered into a committed revolving credit
facility totaling $1,850 million that matures on November 2, 2023 . The facility
remained unused at January 31, 2021 , except for $1 million of standby letters of
credit that we issued under it. The facility contains customary covenants,
including a financial covenant with respect to a minimum consolidated interest
coverage ratio of consolidated adjusted EBITDA to consolidated interest expense
(as each is defined in the credit facility) of not less than 3.25:1.00, measured
quarterly, and customary events of default for credit facilities of this type.
Loans under this facility will bear interest at the rates specified in the
facility, which vary based on the type of loan and certain other customary
conditions. The facility supports our commercial paper program 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.
In September 2020 , we filed a registration statement with the Securities and
Exchange Commission that registered an indeterminate amount of debt securities.
Under the registration statement, we may issue debt securities from time to
time, depending on market conditions.
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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. Our significant accounting policies are described in Note 1 to the
Consolidated Financial Statements in the Annual Report on Form 10-K for the year
ended August 2, 2020 (2020 Annual Report on Form 10-K). The accounting policies
we used in preparing these financial statements are substantially consistent
with those we applied in our 2020 Annual Report on Form 10-K. Our significant
accounting estimates are described in Management's Discussion and Analysis
included in the 2020 Annual Report on Form 10K.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for information on recent
accounting pronouncements.
FORWARD LOOKING STATEMENTS
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,"
"target," "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 our other Securities and Exchange Commission
filings, or in our 2020 Annual Report on Form 10-K, 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:
•impacts of, and associated responses to the COVID-19 pandemic on our business,
suppliers, customers, consumers and employees;
•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 realize projected cost savings and benefits from cost savings
initiatives and the integration of recent acquisitions;
•disruptions in or inefficiencies to our supply chain and/or operations
including the impacts of the COVID-19 pandemic, as well as 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 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;
•the uncertainties of litigation and regulatory actions against us;
•the costs, disruption and diversion of management's attention associated with
activist investors;
•a material failure in or breach of our or our vendors' information technology
systems;
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•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; •negative changes and volatility in financial and credit markets, deteriorating economic conditions and other external factors, including changes in laws and regulations; 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, pandemics 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 3. Quantitative and Qualitative Disclosure About Market Risk For information regarding our exposure to certain market risk, see Item 7A, Quantitative and Qualitative Disclosure About Market Risk, in the 2020 Annual Report on Form 10-K. There have been no significant changes in our portfolio of financial instruments or market risk exposures from the 2020 year-end. Item 4. Controls and Procedures a.Evaluation of Disclosure Controls and Procedure We, under the supervision and with the participation of our management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as ofJanuary 31, 2021 (Evaluation Date). Based on such evaluation, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective. b.Changes in Internal Control There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that materially affected, or are likely to materially affect, such internal control over financial reporting during the quarter endedJanuary 31, 2021 .
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