What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-06 compared with 2020-03-31 · 178 added, 310 removed, 136 unchanged (78% of the section changed)

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the risks that the Pinnacle acquisition and related integration will create disruption to the Company and its management and impede the achievement of business plans;

the risk that the Pinnacle acquisition will negatively impact the ability to retain and hire key personnel and maintain relationships with customers, suppliers, and other third parties;

risks related to our ability to successfully address Pinnacle's business challenges;

risks related to our ability to achieve the intended benefits of other recent acquisitions and divestitures;

risks associated with general economic and industry conditions;

risks associated with our ability to successfully execute our long-term value creation strategies, including those in place for specific brands at Pinnacle before the Pinnacle acquisition;

risks associated with our ability to successfully execute our long-term value creation strategies;

risks related to our ability to deleverage on currently anticipated timelines, and to continue to access capital on acceptable terms or at all;

risks related to our ability to execute operating and restructuring plans and achieve targeted operating efficiencies from cost-saving initiatives, related to the Pinnacle acquisition and otherwise, and to benefit from trade optimization programs, related to the Pinnacle acquisition and otherwise;

risks related to our ability to execute operating and restructuring plans and achieve targeted operating efficiencies from cost-saving initiatives and to benefit from trade optimization programs;

risks related to the effectiveness of our hedging activities and ability to respond to volatility in commodities;

risks related to the Company's competitive environment and related market conditions;

risks related to our ability to respond to changing consumer preferences and the success of its innovation and marketing investments;

risks related to our ability to respond to changing consumer preferences and the success of our innovation and marketing investments;

risks related to the ultimate impact of any product recalls and litigation, including litigation related to the lead paint and pigment matters, as well as any securities litigation, including securities class action lawsuits;

risk associated with actions of governments and regulatory bodies that affect our businesses, including the ultimate impact of new or revised regulations or interpretations;

risks related to the impact of the recent coronavirus (COVID-19) outbreak on our business, suppliers, consumers, customers and employees;

risks related to the impact of the recent coronavirus (COVID-19) pandemic on our business, suppliers, consumers, customers and employees;

risks related to the availability and prices of raw materials, including any negative effects caused by inflation, weather conditions, or health pandemics;

disruptions or inefficiencies in our supply chain and/or operations, including from the recent COVID-19 outbreak;

risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges, related to the Pinnacle acquisition or otherwise;

the costs, disruption, and diversion of management's attention due to the integration of the Pinnacle acquisition;

and other risks described in our reports filed from time to time with the Securities and Exchange Commission (the "SEC").

disruptions or inefficiencies in our supply chain and/or operations, including from the recent COVID-19 pandemic;

risks associated with actions by our customers, including changes in distribution and purchasing terms;

risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges;

and other risks described in our reports filed from time to time with the Securities and Exchange Commission.

We caution readers not to place undue reliance on any forward-looking statements included in this report, which speak only as of the date of this report.

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The discussion that follows should be read together with the unaudited Condensed Consolidated Financial Statements and related notes contained in this report and with the financial statements, related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended May 31, 2020 and subsequent filings with the SEC.

Results for the third quarter of fiscal 2020 are not necessarily indicative of results that may be attained in the future.

Results for the first quarter of fiscal 2021 are not necessarily indicative of results that may be attained in the future.

EXECUTIVE OVERVIEW

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Its iconic brands such as Birds Eye ® , Marie Callender's ® , Banquet ® , Healthy Choice ® , Slim Jim ® , Reddi-wip ® , and Vlasic ® , as well as emerging brands, including Angie's ® BOOMCHICKAPOP ® , Duke's ® , Earth Balance ® , Gardein ® , and Frontera ® , offer choices for every occasion.

Fiscal 2019 Pinnacle Acquisition

On October 26, 2018, we completed our acquisition of Pinnacle Foods Inc ("Pinnacle"), a branded packaged foods company specializing in shelf-stable and frozen foods.

The total amount of consideration paid in connection with the acquisition was approximately $8.03 billion, consisting of cash and shares of our stock, as described in more detail in the section entitled " Acquisitions " below.

In connection with the Pinnacle acquisition, we issued approximately $8.33 billion of long-term debt and received cash proceeds of $575.0 million ($555.7 million net of related fees) from the issuance of common stock in an underwritten public offering.

We used such proceeds for the payment of the cash portion of the Merger Consideration (as defined below), the repayment of Pinnacle debt acquired, the refinancing of certain Conagra Brands debt, and the payment of related fees and expenses.

The integration of Pinnacle is continuing and on-track.

We expect to achieve cost synergies of $305 million per year when the integration is concluded.

In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle operations into our legacy reporting segments in order to better reflect how the business is now being managed.

Prior periods have been reclassified to conform to the revised segment presentation.

Fiscal 2020 Third Quarter Results

In the third quarter of fiscal 2020, results reflected a decrease in net sales, including the impact of recent acquisitions, with organic (excludes the impacts of foreign exchange and divested businesses, as well as acquisitions until the anniversary date of the acquisition) decreases in each of our operating segments with the exception of a slight increase in our Refrigerated & Frozen segment, in each case compared to the third quarter of fiscal 2019.

Overall gross profit decreased due to higher input costs, higher brand building investments with retailers, lower sales volumes, higher inventory write-offs, and lost profits due to divested businesses, which were partially offset by supply chain realized productivity and cost synergies.

Overall segment operating profit decreased in each operating segment with the exception of our Refrigerated & Frozen segment.

Corporate expenses were higher primarily due to items impacting comparability, as discussed below.

There were decreased selling, general and administrative ("SG&A") expenses as a result of cost synergies and removal of costs associated with the divested businesses, offset by increased stock compensation expense.

We recognized lower equity method investment earnings, lower interest expense, and higher income tax expense, in each case compared to the third quarter of fiscal 2019.

Excluding items impacting comparability, our effective tax rate was slightly higher to the third quarter of fiscal 2019.

Diluted earnings per share in the third quarter of fiscal 2020 were $0.42.

Diluted earnings per share in the third quarter of fiscal 2019 were $0.50.

Diluted earnings per share were affected by lower net income, more shares outstanding in the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019, as well as several significant items affecting the comparability of year-over-year results (see "Items Impacting Comparability" below).

The integration of Pinnacle Foods Inc.

("Pinnacle") is continuing and on-track.

We still expect to achieve cost synergies of $305 million per year when the integration is concluded.

Fiscal 2021 First Quarter Results

In the first quarter of fiscal 2021, results reflected an increase in net sales, with organic (excludes the impacts of foreign exchange and divested businesses) increases in each of our operating segments with the exception of a decrease in our Foodservice segment, in each case compared to the first quarter of fiscal 2020.

Organic net sales for our retail segments (inclusive of Grocery & Snacks, Refrigerated & Frozen, and International) were positively impacted by the increase in at-home food consumption as a result of the COVID-19 pandemic, with sales declines in our Foodservice segment due to lower traffic in away-from-home food outlets.

Overall gross profit increased due to supply chain realized productivity, favorable margin mix including lower promotional trade activity, cost synergies associated with the Pinnacle acquisition, and fixed cost leverage, which were partially offset by higher input costs, COVID-19 related expenses, the impact of foreign exchange, and lost profits from divested businesses.

Overall segment operating profit increased in each operating segment with the exception of our Foodservice segment.

Corporate expenses were lower primarily due to items impacting comparability, as discussed below.

There were decreased selling, general and administrative ("SG&A") expenses as a result of cost synergies associated with the Pinnacle acquisition and lower travel costs, offset by increased stock compensation and deferred compensation expense.

We recognized lower equity method investment earnings, lower interest expense, and higher income tax expense, in each case compared to the first quarter of fiscal 2020.

Excluding items impacting comparability, our effective tax rate was slightly higher compared to the first quarter of fiscal 2020.

Diluted earnings per share in the first quarter of fiscal 2021 were $0.67.

Diluted earnings per share in the first quarter of fiscal 2020 were $0.36.

Diluted earnings per share were affected by higher net income in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 as well as several significant items affecting the comparability of year-over-year results (see "Items Impacting Comparability" below).

Items Impacting Comparability

Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and economic hedging of foreign currency exchange rate risks of anticipated transactions is discussed in the segment review below.

Items of note impacting comparability for the third quarter of fiscal 2020 included the following:

charges totaling $31.8 million ($23.9 million after-tax) in connection with our restructuring plans.

Items of note impacting comparability for the third quarter of fiscal 2019 included the following:

charges totaling $38.4 million ($28.7 million after-tax) in connection with our restructuring plans,

incremental cost of goods sold of $26.9 million ($20.0 million after-tax) due to the fair value adjustment to inventory resulting from acquisition accounting for Pinnacle,

a gain of $27.3 million ($27.3 million after-tax) related to the novation of a legacy guarantee,

a gain of $18.6 million ($17.5 million after-tax) related to the fair value adjustment of cash settleable equity awards issued in connection with, and included in the acquisition consideration of the Pinnacle acquisition, and

an income tax charge of $2.5 million primarily associated with the reduction of the deemed repatriation liability.

Items of note impacting comparability for the first three quarter s of fiscal 20 20 included the following:

Items of note impacting comparability for the first quarter of fiscal 2021 included the following:

charges totaling $25.9 million ($19.5 million after-tax) in connection with our restructuring plans and

an income tax benefit of $7.6 million related to certain final tax regulations on prior year federal tax matters.

Items of note impacting comparability for the first quarter of fiscal 2020 included the following:

charges totaling $50.1 million ($38.6 million after-tax) in connection with our restructuring plans,

charges totaling $59.0 million ($55.0 million after-tax) related to the impairment of businesses held for sale,

a charge of $31.4 million ($29.6 million after-tax) due to the impairment of a business held for sale,

charges totaling $19.3 million ($14.8 million after-tax) related to the impairment of certain brand intangible assets,

a gain of $11.9 million ($8.9 million after-tax) related to a contract settlement,

charges totaling $6.6 million ($5.0 million after-tax) related to a legacy environmental matter, and

a gain of $5.4 million ($4.1 million after-tax) related to the sale of an asset within the Ardent Mills joint venture, and

an income tax benefit of $51.0 million primarily related to the reorganization of various legacy Pinnacle legal entities and state tax planning strategies.

Items of note impacting comparability for the first three quarters of fiscal 2019 included the following:

charges totaling $149.9 million ($115.7 million after-tax) in connection with our restructuring plans,

charges totaling $115.8 million ($92.9 million after-tax) associated with costs incurred for acquisitions and planned divestitures,

incremental cost of goods sold of $51.3 million ($38.2 million after-tax) due to the fair value adjustment to inventory resulting from acquisition accounting for Pinnacle,

charges totaling $8.9 million ($6.6 million after-tax) associated with costs incurred for integration activities related to the acquisition of Pinnacle,

a gain of $27.3 million ($27.3 million after-tax) related to the novation of a legacy guarantee,

a gain of $15.1 million ($11.6 million after-tax) related to the gain on the sale of an asset within the Ardent Mills joint venture,

a gain of $13.2 million ($9.6 million after-tax) from the sale of the Del Monte ® Canada business,

an income tax benefit of $24.3 million related to a tax adjustment of valuation allowance associated with the planned divestiture of the Wesson ® oil business.

On October 26, 2018, we completed the Pinnacle acquisition.

Pursuant to the Agreement and Plan of Merger, dated as of June 26, 2018 (the "Merger Agreement"), among the Company, Pinnacle, and Patriot Merger Sub Inc., a wholly-owned subsidiary of the Company that ceased to exist at the effective time of the merger, each outstanding share of Pinnacle common stock was converted into the right to receive $43.11 per share in cash and 0.6494 shares of common stock, par value $5.00 per share, of the Company ("Company Shares") (together, the "Merger Consideration"), with cash payable in lieu of fractional shares of Company Shares.

The total amount of consideration paid in connection with the acquisition was approximately $8.03 billion and consisted of:

(1) cash of $5.17 billion ($5.12 billion, net of cash acquired);

(2) 77.5 million Company Shares, with an approximate value of $2.82 billion, issued out of the Company's treasury to former holders of Pinnacle stock;

and (3) replacement awards issued to former Pinnacle employees representing the fair value attributable to pre-combination service of $51.1 million.

Approximately $7.03 billion of the purchase price has been allocated to goodwill and approximately $3.52 billion has been allocated to brands, trademarks and other intangibles.

Of the total goodwill, $236.7 million is deductible for tax purposes.

Amortizable brands, trademarks and other intangibles totaled $668.7 million.

Indefinite lived brands, trademarks and other intangibles totaled $2.85 billion.

During the third quarter of fiscal 2020, we completed the sale of our Lender's ® bagel business for net proceeds of $33.2 million, subject to final working capital adjustments.

During the third quarter of fiscal 2020, we completed the sale of our Lender's ® bagel business for net proceeds of $33.3 million, including working capital adjustments.

The results of operations of the divested Lender's ® bagel business are primarily included in our Refrigerated & Frozen segment, and to a lesser extent within our Foodservice segment, for the periods preceding the completion of the transaction.

During the second quarter of fiscal 2020, we completed the sale of our D irect S tore D elivery (" DSD ") S nacks business for net proceeds of $139.0 million, subject to final working capital adjustments.

During the second quarter of fiscal 2020, we completed the sale of our Direct Store Delivery ("DSD") Snacks business for net proceeds of $137.5 million, including working capital adjustments.

The results of operations of the divested DSD Snacks business are included in our Grocery & Snacks segment for the periods preceding the completion of the transaction.

During the fourth quarter of fiscal 2019, we completed the sale of our Italian-based frozen pasta business, Gelit, for proceeds net of cash divested of $80.1 million, including working capital adjustments.

The results of operations of the divested Gelit business are primarily included in our Refrigerated & Frozen segment for the periods preceding the completion of the transaction.

During the fourth quarter of fiscal 2019, we also completed the sale of our Wesson ® oil business for net proceeds of $168.3 million, including working capital adjustments.

The results of operations of the divested Wesson ® oil business are primarily included in our Grocery & Snacks segment, and to a lesser extent within the Foodservice and International segments, for the periods preceding the completion of the transaction.

During the first quarter of fiscal 2019, we completed the sale of our Del Monte ® processed fruit and vegetable business in Canada for combined proceeds of $32.2 million.

The results of operations of the divested Del Monte ® business are included in our International segment for the periods preceding the completion of the transaction.

Restructuring Plans

In December 2018, our Board of Directors (the "Board") approved a restructuring and integration plan related to the ongoing integration of the recently acquired operations of Pinnacle for the purpose of achieving significant cost synergies between the companies (the "Pinnacle Integration Restructuring Plan"), as a result of which we expect to incur material charges for exit and disposal activities under U.S.

In December 2018, our Board of Directors (the "Board") approved a restructuring and integration plan related to the ongoing integration of the operations of Pinnacle, which we acquired in October 2018 (the "Pinnacle Integration Restructuring Plan"), for the purpose of achieving significant cost synergies between the companies, as a result of which we expect to incur material charges for

exit and disposal activities under U.S.

generally accepted accounting principles .

We have approved the incurrence of up to $360.0 million ($255.0 million of cash charges and $105.0 million of non-cash charges) in connection with operational expenditures under the Pinnacle Integration Restructuring Plan.

Although we remain unable to make good faith estimates relating to the entire Pinnacle Integration Restructuring Plan, we are reporting on actions initiated through the end of the third quarter of fiscal 2020, including the estimated amounts or range of amounts for each major type of cost expected to be incurred, and the charges that have resulted or will result in cash outflows.

We have incurred or expect to incur approximately $ 36 2.3 million of charges ($ 2 78.9 million of cash charges and $ 83.4 million of non-cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan.

In the third quarter and first three quarters of fiscal 2020, we recognized charges of $19.6 million and $63.5 million, respectively, in association with the Pinnacle Integration Restructuring Plan.

In the third quarter and first three quarters of fiscal 2019, we recognized charges of $36.9 million and $139.5 million, respectively, in association with the Pinnacle Integration Restructuring Plan.

In the third quarter of fiscal 2019, we initiated a new restructuring plan for costs in connection with actions taken to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network (the "Conagra Restructuring Plan").

Although we remain unable to make good faith estimates relating to the entire Conagra Restructuring Plan, we are reporting on actions initiated through the end of the third quarter of fiscal 2020, including the estimated amounts or range of amounts for each major type of costs expected to be incurred, and the charges that have resulted or will result in cash outflows.

As of February 23, 2020, we have approved the incurrence of $129.8 million ($36.9 million of cash charges and $92.9 million of non-cash charges) for several projects associated with the Conagra Restructuring Plan.

The Board and/or our senior management have authorized incurrence of these charges .

In the first quarter of fiscal 2021 and 2020 , we recognized charges of $ 8 .6 million and $ 27.7 million , respectively , in connection with the Pinnacle Integration Restructuring Plan.

We expect to incur costs related to the Pinnacle Integration Restructuring Plan through fiscal 2022.

In fiscal 2019, management initiated a restructuring plan (the "Conagra Restructuring Plan") for costs in connection with actions taken to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network.

Although we remain unable to make good faith estimates relating to the entire Conagra Restructuring Plan, we are reporting on actions initiated through the end of the first quarter of fiscal 2021, including the estimated amounts or range of amounts for each major type of costs expected to be incurred, and the charges that have resulted or will result in cash outflows.

As of August 30, 2020, we have approved the incurrence of $170.6 million ($43.8 million of cash charges and $126.8 million of non-cash charges) for several projects associated with the Conagra Restructuring Plan.

We have incurred or expect to incur $161.5 million of charges ($38.9 million of cash charges and $122.6 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan.

In the third quarter and first three quarters of fiscal 2020, we recognized charges of $11.9 million and $52.6 million, respectively, in connection with the Conagra Restructuring Plan.

In the third quarter and first three quarters of fiscal 2019, we recognized charges of $1.0 million in connection with the Conagra Restructuring Plan.

As of February 23, 2020, we have substantially completed our restructuring activities related to the Supply Chain and Administrative Efficiency Plan (the "SCAE Plan").

In the third quarter and first three quarters of fiscal 2020, we recognized charges of $0.3 million and $1.0 million, respectively, in association with the SCAE Plan.

In the third quarter and first three quarters of 2019, we recognized charges of $3.5 million and $8.6 million, respectively, in association with the SCAE Plan.

Our total pre-tax expenses for the SCAE Plan related to our continuing operations are expected to be $471.2 million ($322.0 million of cash charges and $149.2 million of non-cash charges).

The impact that the recent novel coronavirus (COVID-19) pandemic will have on our consolidated results of operations is uncertain.

We expect a decrease in consumer traffic in away-from-home food outlets as a result of COVID-19 across all of our major

markets which will negatively impact our net sales to customers in our Foodservice segment for at least the remainder of fiscal 2020.

We have seen increased orders from retail customers in North America subsequent to the end of the third quarter of fiscal 2020 in response to increased consumer demand for food at home.

The increased consumer demand may reverse in the coming months as consumer purchasing behavior changes.

We are unable to predict the nature and timing of when that impact may occur.

In the first quarter of fiscal 2021 and 2020, we recognized charges of $17.3 million and $21.1 million, respectively, in connection with the Conagra Restructuring Plan.

We expect to incur costs related to the Conagra Restructuring Plan over a multi-year period.

We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business.

During the first quarter of fiscal 2021, we continued to experience higher sales for our products in the retail segments as a result of increased customer demand for food at home due to the COVID-19 pandemic.

We expect that these trends will continue for at least a portion of fiscal 2021 as work-from-home arrangements are extended in response to the continued spread of COVID-19.

However, the increased consumer demand may reverse in the coming months.

During the first quarter of fiscal 2021, we also continued to experience reduced demand for our foodservice products across all of our major markets as consumer traffic in away-from-home food outlets has decreased as a result of the COVID-19 pandemic.

We expect this trend to continue for at least a portion of fiscal 2021, which will continue to negatively impact our net sales to customers in our Foodservice segment.

During the first quarter of fiscal 2021, our operating margins saw improvement largely due to favorable fixed cost leverage, reduced travel expenses, and lower trade promotional activity on certain brands.

That benefit was partially offset by several factors including higher transportation and warehousing costs, temporary plant closures, employee safety and sanitation costs, and employee compensation costs, which accounted for an estimated $34 million of incremental costs in the first quarter.

We created an internal COVID-19 pandemic team in order to review and assess the evolving COVID-19 pandemic, and to recommend risk mitigation actions for the health and safety of our employees.

In order to enhance the safety of our employees during the COVID-19 pandemic, we have implemented various measures, including the installation of physical barriers between employees in production facilities, extensive cleaning and sanitation of both production and office spaces, and implementation of broad work-from-home initiatives for office personnel.

While all of these measures have been necessary and appropriate, they have resulted in additional costs, many of which we expect to continue to incur throughout fiscal 2021 as we continue to address employee safety.

As mentioned above, we have experienced some challenges in connection with the COVID-19 pandemic, including temporary closings of production facilities and reduced demand for certain of our products.

Despite these challenges, all of our production facilities remain open and there has been minimal disruption to our supply chain network to date, including the supply of our ingredients, packaging, or other sourced materials.

However, we continue to closely monitor the potential impacts of the COVID-19 pandemic, as we cannot predict its ultimate impact on our suppliers, distributors, and manufacturers.

At this time, we have not experienced a net negative impact on our liquidity or results of operations and we believe we have sufficient liquidity to satisfy our cash needs.

We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, financial condition, and liquidity.

SEGMENT REVIEW

In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business into our legacy reporting segments in order to better reflect how the business is now being managed.

We now reflect our results of operations in four reporting segments:

We reflect our results of operations in four reporting segments:

Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice.

Prior periods have been reclassified to conform to the revised segment presentation.

Grocery & Snacks

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The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States.

The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and a variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments in the United States.

The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces, and a variety of custom-manufactured culinary products that are packaged for sale to restaurants and other foodservice establishments primarily in the United States.

Presentation of Derivative Gains (Losses) from Economic Hedges of Forecasted Cash Flows in Segment Results

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Thirteen weeks ended

Thirty-nine weeks ended

($ in millions)

Gross derivative gains (losses) incurred

Net derivative gains (losses) allocated to reporting segments

Gross derivative losses incurred

Net derivative losses allocated to reporting segments

Net derivative losses recognized in general corporate expenses

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Net derivative losses allocated to Refrigerated & Frozen

Net derivative gains (losses) allocated to International

Net derivative losses allocated to Foodservice

Net derivative gains (losses) included in segment operating profit

As of February 23, 2020 , the cumulative amount of net derivative losses from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was $ 7.8 million.

This amount reflected net losses of $ 8.0 million incurred during the thirty-nine weeks ended February 23, 2020 and net gains of $ 0.

2 million incurred prior to fiscal 2020 .

Net derivative gains allocated to International

Net derivative gains (losses) allocated to Foodservice

Net derivative losses included in segment operating profit

As of August 30, 2020, the cumulative amount of net derivative losses from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was $6.6 million.

This amount reflected net losses of $3.5 million incurred during the thirteen weeks ended August 30, 2020 and net losses of $3.1 million incurred prior to fiscal 2021.

Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results losses of $3.9 million in fiscal 2021 and losses of $2.7 million in fiscal 2022 and thereafter.

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Thirty-nine weeks ended

Reporting Segment

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International

Net sales for the third quarter of fiscal 2020 were $2.56 billion, a decrease of $152.1 million, or 6%, from the third quarter of fiscal 2019.

Net sales for the first three quarters of fiscal 2020 were $7.77 billion, an increase of $841.3 million, or 12%, from the first three quarters of fiscal 2019.

The divestiture of certain businesses noted below contributed 4% to the decrease in sales during the third quarter of fiscal 2020 when compared to the prior-year period.

The increased net sales during the first three quarters are principally due to the acquisition of Pinnacle on October 26, 2018.

Grocery & Snacks net sales for the third quarter of fiscal 2020 were $1.02 billion, a decrease of $106.9 million, or 9%, compared to the third quarter of fiscal 2019.

Grocery & Snacks net sales for the first three quarters of fiscal 2020 were $3.14 billion, an increase of $242.0 million, or 8%, compared to the first three quarters of fiscal 2019.

Results for the third quarter and first three quarters of fiscal 2020 reflected a decrease in volumes of 2% and 1%, respectively, excluding the impact of acquisitions and divestitures, compared to the prior-year periods.

The decrease in volumes reflected lower in market performance in our Hunt's ® brand and lower consumption across multiple categories in the current quarter due to a warmer than normal winter compared to higher consumption in the prior-year period due to winter storms.

Price/mix decreased by 2% for the third quarter of fiscal 2020 and 1% for the first three quarters of fiscal 2020, excluding the impact of acquisitions and divestitures, when compared to the prior-year period due to incremental trade and strategic investments with certain customers and brands.

The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $406.3 million, or 14%, to Grocery & Snacks net sales during the first three quarters of fiscal 2020, through the one-year anniversary of the acquisition.

The third quarter and first three quarters of fiscal 2020 included $4.4 million and $22.8 million, respectively, of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020.

The third quarter and first three quarters of fiscal 2019 included $9.5 million and $28.4 million, respectively, of net sales related to this business.

The first three quarters of fiscal 2020 included $46.1 million of net sales related to our DSD Snacks business, which was sold in the second quarter of fiscal 2020.

The third quarter and first three quarters of fiscal 2019 included $26.2 million and $32.8 million, respectively, of net sales related to this business.

The third quarter and first three quarters of fiscal 2019 also included $37.9 million and $115.9 million, respectively, of net sales related to our divested Wesson ® oil business.

Refrigerated & Frozen net sales for the third quarter of fiscal 2020 were $1.08 billion, a decrease of $17.5 million, or 2%, compared to the third quarter of fiscal 2019.

Refrigerated & Frozen net sales for the first three quarters of fiscal 2020 were $3.20 billion, an increase of $568.0 million, or 22%, compared to the first three quarters of fiscal 2019.

Volume and price/mix, excluding the impacts of acquisitions and divestitures, was flat and increased by 1%, respectively, in both the third quarter and first three quarters of fiscal 2020 compared to the prior-year periods, due to improved performance across multiple brands and new innovation during the current fiscal year.

The acquisition of Pinnacle contributed $567.6 million, or 22%, to Refrigerated & Frozen net sales for the first three quarters of fiscal 2020, through the one-year anniversary of the acquisition.

The third quarter and first three quarters of fiscal 2020 included $3.8 million and $23.2 million, respectively, of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020.

The third quarter and first three quarters of fiscal 2019 included $10.6 million and $14.3 million, respectively, of net sales related to this business.

The third quarter and first three quarters of fiscal 2019 also included $14.3 million and $43.0 million, respectively, of net sales related to our Italian-based frozen pasta business, Gelit, which was sold in the fourth quarter of fiscal 2019.

International net sales for the third quarter of fiscal 2020 were $220.9 million, a decrease of $7.4 million, or 3%, compared to the third quarter of fiscal 2019.

International net sales for the first three quarters of fiscal 2020 were $659.6 million, an increase of

$19.2 million , or 3% , compared to the first three quarters of fiscal 2019 .

Results for the third quarter of fiscal 2020 , excluding the impact of divest itures , reflected a 1 % de crease in volume , a 1 % in crease due to favorable foreign exchange rates, and a 1% decrease in price/mix, in each case compared to the prior-year period.

The de crease in volumes and price/mix was driven by economic challenges primarily in our Mexico operations, increased retailer investments , and planned value-over-volume action, which more than offset strong consumption in the Canadian snacks and frozen businesses and improvement in our Indian operations .

Results for the first three quarters of fiscal 2020 , excluding the impact of acquisitions and divestitures, reflected a 1 % de crease in volume and flat price/mix , both compared to the prior-year period.

The acquisition of Pinnacle contributed $46.0 million , or 7 %, to International net sales for the first three quarters of fiscal 2020 , through the one-year anniversary of the acquisition .

The third quarter and first three quarters of fiscal 2019 included $ 6.3 million and $ 17.1 million, respectively, of net sales related to our divested Wesson ® oil business.

The first three quarters of fiscal 2019 also included $ 4.1 million of net sales related to our Del Monte ® processed fruit and vegetable business in Canada, which was sold in the first quarter of fiscal 2019.

Foodservice net sales for the third quarter of fiscal 2020 were $234.4 million, a decrease of $20.3 million, or 8%, compared to the third quarter of fiscal 2019.

Foodservice net sales for the first three quarters of fiscal 2020 were $759.7 million, an increase of $12.1 million, or 2%, compared to the first three quarters of fiscal 2019.

Results for both the third quarter and first three quarters of fiscal 2020 reflected a 5% decrease in volume, excluding the impact of acquisitions and divestitures, compared to the prior-year periods.

The decline in volume reflected soft restaurant industry trends early in the current quarter and continued execution of the segment's value-over-volume strategy.

Price/mix, excluding the impact of acquisitions and divestitures, increased by 2% and 3% in the third quarter and first three quarters of fiscal 2020, respectively, compared to the prior-year periods, reflecting inflation-related pricing and the value-over-volume strategy.

The acquisition of Pinnacle contributed $57.7 million, or 8%, for the first three quarters of fiscal 2020, through the one-year anniversary of the acquisition.

The third quarter and first three quarters of fiscal 2020 included $0.9 million and $6.6 million, respectively, of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020.

The third quarter and first three quarters of fiscal 2019 included $2.7 million and $3.6 million, respectively, of net sales related to this business.

The first three quarters of fiscal 2020 included $4.6 million of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020.

The third quarter and first three quarters of fiscal 2019 included $2.0 million and $6.3 million, respectively, of net sales related to this business.

The third quarter and first three quarters of fiscal 2019 included $11.2 million and $34.2 million, respectively, of net sales related to our divested Wesson ® oil business.

The first three quarters of fiscal 2019 also included net sales of $2.0 million related to our Trenton, Missouri production facility, which was sold in the second quarter of fiscal 2019.

Net sales for the first quarter of fiscal 2021 in our Grocery & Snacks segment included an increase in volumes of 17%, excluding the impact of divestitures, compared to the prior-year period.

The increase in volumes reflected an increase across multiple

categories due to increased at-home eating and replenishment of customer inventory levels in connection with the COVID-19 pandemic .

Price/mix in creased by 4 % for the first quarter of fiscal 2021 , excluding the impact of divestitures, when compared to the prior-year period due in part to lower promotional trade activity in the current period and the favorable impact of a $7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual .

The first quarter of fiscal 2020 included $ 29.2 million of net sales related to our DSD Snacks business, which was sold in the second quarter of fiscal 2020 .

The first quarter of fiscal 2020 also included $8.6 million of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020 .

Net sales for the first quarter of fiscal 2021 in our Refrigerated & Frozen segment reflected an increase in volumes of 13%, excluding the impact of divestitures, compared to the prior-year period, due to increased at-home eating and replenishment of customer inventory levels in connection with the COVID-19 pandemic.

Price/mix increased by 6% for the first quarter of fiscal 2021, excluding the impact of divestitures, when compared to the prior-year period, due in part to lower promotional trade activity in the current period and the favorable impact of a $7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual.

The first quarter of fiscal 2020 included $9.1 million of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020.

Net sales for the first quarter of fiscal 2021 in our International segment reflected a 10% increase in volume, a 6% decrease due to unfavorable foreign exchange rates, and a 3% increase in price/mix, in each case compared to the prior-year period.

The increase in volumes was driven by elevated demand related to the impacts of the COVID-19 pandemic.

The increase in price/mix was driven by the favorable impact of a $2.8 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual.

Net sales for the first quarter of fiscal 2021 in our Foodservice segment reflected a 24% decrease in volume, excluding the impact of divestitures, compared to the prior-year period.

The decline in volume reflected lower traffic in away-from-home food outlets as a result of the COVID-19 pandemic.

Price/mix, excluding the impact of divestitures, increased by 4% in the first quarter of fiscal 2021 compared to the prior-year period, reflecting inflation-related pricing and the value-over-volume strategy.

The first quarter of fiscal 2020 included $2.4 million of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020.

The first quarter of fiscal 2020 also included $2.3 million of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020.

SG&A Expenses (includes general corporate expenses)

SG&A expenses totaled $319.9 million for the third quarter of fiscal 2020, a decrease of $14.2 million, as compared to the third quarter of fiscal 2019.

SG&A expenses for the third quarter of fiscal 2020 reflected the following:

SG&A expenses totaled $300.3 million for the first quarter of fiscal 2021, a decrease of $100.5 million, as compared to the first quarter of fiscal 2020.

SG&A expenses for the first quarter of fiscal 2021 reflected the following:

Items impacting comparability of earnings

expenses of $15.5 million in connection with our restructuring plans,

Other changes in expenses compared to the third quarter of fiscal 2019

expenses of $2.7 million associated with costs incurred for acquisitions and planned divestitures,

a benefit of $2.0 million related to a previous legal matter, and

expenses of $1.5 million associated with consulting fees for certain tax matters.

Other changes in expenses compared to the first quarter of fiscal 2020

a decrease in salary, wage, and fringe benefit expense of $15.6 million, largely due to achieved synergies from the Pinnacle acquisition,

a decrease of $6.5 million related to commission expense,

an increase in share-based payment and deferred compensation expense of $5.6 million due to higher share price,

a decrease of $4.8 million related to short-term incentives,

a decrease in royalty expense of $3.8 million,

an increase in share-based payment and deferred compensation expense of $10.7 million due to higher stock price and market increases,

a decrease of $4.9 million related to travel and entertainment expenses, in part due to reduced travel from the COVID-19 pandemic,

a decrease in royalty expense of $3.9 million, in part due to the expiration of a royalty agreement,

a decrease of $2.8 million related to unfavorable foreign exchange rates, and

a decrease in depreciation expense of $2.4 million.

a decrease in franchise tax expense of $2.0,

a decrease of $2.0 related to travel and entertainment expenses, and

a decrease in advertising and promotion spending of $1.9 million.

SG&A expenses for the third quarter of fiscal 2019 included the following items impacting the comparability of earnings:

expenses of $36.5 million in connection with our restructuring plans,

a benefit of $27.3 million related to the novation of a legacy guarantee,

a benefit of $18.6 million related to the fair value adjustment of cash settleable equity awards issued in connection with, and included in the acquisition consideration of the Pinnacle acquisition, and

expenses of $2.4 million associated with costs incurred for acquisitions and planned divestitures.

SG&A expenses totaled $1.09 billion for the first three quarters of fiscal 2020, an increase of $11.8 million, as compared to the first three quarters of fiscal 2019.

SG&A expenses for the first three quarters of fiscal 2020 reflected the following:

Items impacting comparability of earnings

SG&A expenses for the first quarter of fiscal 2020 included the following items impacting the comparability of earnings:

expenses of $45.0 million in connection with our restructuring plans,

expense of $59.0 million related to the impairment of businesses held for sale,

expense of $ 31.4 million related to the impairment of a business held for sale ,

charges totaling $19.3 million related to the impairment of certain brand intangible assets,

a benefit of $11.9 million related to a contract settlement gain,

charges totaling $6.6 million related to a legacy environmental matter,

expenses of $3.6 million associated with costs incurred for acquisitions and planned divestitures,

a net loss of $1.7 million related to divestitures of businesses, and

a benefit of $1.5 million related to a legacy legal matter.

Other changes in expenses compared to the first three quarters of fiscal 2019

The increases in SG&A expenses below include the addition of expenses attributable to the Pinnacle business, partially offset by integration synergies:

an increase in salary, wage, and fringe benefit expense of $21.5 million,

an increase in share-based payment and deferred compensation expense of $19.9 million due to higher share price and market increases,

an increase of $10.9 million of amortization of definite lived intangible assets,

a decrease in advertising and promotion spending of $8.0 million,

a decrease in self-insured workers' compensation and product liability expense of $7.9 million,

an increase of $7.8 million in computer-related expenses,

a decrease in royalty expense of $5.5 million,

an increase of $3.4 million related to transition services agreement income, and

a decrease of $3.3 million related to professional fees.

SG&A expenses for the first three quarters of fiscal 2019 included the following items impacting the comparability of earnings:

expenses of $140.7 million in connection with our restructuring plans,

expenses of $103.9 million associated with costs incurred for acquisitions and planned divestitures,

a benefit of $27.3 million related to the novation of a legacy guarantee,

a benefit of $18.6 million related to the fair value adjustment of cash settleable equity awards issued in connection with, and included in the acquisition consideration of the Pinnacle acquisition,

a gain of $13.2 million related to the sale of our Del Monte ® Canadian business, and

expenses of $8.9 million related to costs associated with the integration of Pinnacle.

expenses of $1.9 million associated with costs incurred for acquisitions and planned divestitures, and

a loss of $1.7 million related to the divestiture of a business.

Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings)

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Reporting Segment

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International

Grocery & Snacks operating profit for the third quarter of fiscal 2020 was $199.4 million, a decrease of $25.6 million, or 11%, compared to the third quarter of fiscal 2019.

Gross profits were $36.1 million lower in the third quarter of fiscal 2020 than in the third quarter of fiscal 2019.

The lower gross profit was driven by input cost inflation, a reduction in profit associated with the divestiture of our DSD Snacks and Wesson ® oil businesses, the exit of our private label peanut butter business, and lower volume, excluding the impact of divestitures, partially offset by the benefits of supply chain realized productivity.

Operating profit of the Grocery & Snacks segment was impacted by expense of $10.9 million and $3.0 million related to our restructuring plans in the third quarter of fiscal 2020 and 2019, respectively.

The third quarter of fiscal 2019 included $17.8 million of incremental cost of goods sold due to the impact of writing Pinnacle inventory to fair value as part of our acquisition accounting and the subsequent sale of that inventory.

Grocery & Snacks operating profit for the first three quarters of fiscal 2020 was $614.8 million, a decrease of $8.4 million, or 1%, compared to the first three quarters of fiscal 2019.

Gross profits were $62.8 million higher in the first three quarters of fiscal 2020 than in the first three quarters of fiscal 2019.

The higher gross profit was driven by the addition of Pinnacle and the benefits of supply chain realized productivity, partially offset by the impacts of higher input costs, a reduction in profit associated with the divestiture of our DSD Snacks and Wesson ® oil businesses, and the exit of our private label peanut butter business.

Operating profit of the Grocery & Snacks segment was impacted by expense of $49.2 million and $5.2 million related to our restructuring plans in the first three quarters of fiscal 2020 and 2019, respectively.

In addition, the first three quarters of fiscal 2020 included charges of $31.4 million related to the impairment of a business held for sale, a benefit of $11.9 million related to a contract settlement, charges of $3.5 million related to the impairment of certain brand intangible assets, and costs of $3.0 million related to acquisitions and planned divestitures.

The first three quarters of fiscal 2019 included $29.7 million of incremental cost of goods sold due to the impact of writing Pinnacle inventory to fair value as part of our acquisition accounting and the subsequent sale of that inventory.

Refrigerated & Frozen operating profit for the third quarter of fiscal 2020 was $190.7 million, an increase of $1.6 million, or 1%, compared to the third quarter of fiscal 2019.

Gross profits were $6.1 million lower in the third quarter of fiscal 2020 than in the third quarter of fiscal 2019, driven by increased input costs and lost profit associated with the divestitures of our Gelit and Lender's ® bagel business, partially offset by supply chain realized productivity.

Operating profit of the Refrigerated & Frozen segment was impacted by expense of $10.5 million related to our restructuring plans in the third quarter of fiscal 2020.

The third quarter of fiscal 2019 included $10.8 million of incremental cost of goods sold due to the impact of writing Pinnacle inventory to fair value as part of our acquisition accounting and the subsequent sale of that inventory and expense of $2.1 million related to our restructuring plans.

Refrigerated & Frozen operating profit for the first three quarters of fiscal 2020 was $533.7 million, an increase of $92.3 million, or 21%, compared to the first three quarters of fiscal 2019.

Gross profits were $152.2 million higher in the first three quarters of fiscal 2020 than in the first three quarters of fiscal 2019, due to the addition of Pinnacle and the drivers mentioned above.

Operating profit of the Refrigerated & Frozen segment was impacted by charges of $27.6 million related to the impairment of a business held for sale in the first three quarters of fiscal 2020.

In addition, operating profit of the Refrigerated & Frozen segment in the first three quarters of fiscal 2020 was impacted by charges of $15.8 million related to the impairment of certain brand intangible assets and expense of $12.3 million related to our restructuring plans.

The first three quarters of fiscal 2019 included $20.7 million of incremental cost of goods sold due to the impact of writing Pinnacle inventory to fair value as part of our acquisition accounting and the subsequent sale of that inventory and expense of $2.2 million related to our restructuring plans.

International operating profit for the third quarter of fiscal 2020 was $22.3 million, a decrease of $7.6 million, or 25%, compared to the third quarter of fiscal 2019.

Gross profits were $13.8 million lower in the third quarter of fiscal 2020 when compared to the third quarter of fiscal 2019, due to higher input costs, increased retailer investments, and the sale of our Wesson ® oil business, partially offset by realized productivity.

International operating profit for the first three quarters of fiscal 2020 was $73.5 million, a decrease of $16.2 million, or 18%, compared to the first three quarters of fiscal 2019.

Gross profits were $12.3 million lower in the first three quarters of fiscal 2020

when compared to the first three quarters of fiscal 2019 , due to higher input costs, increased retailer investments, and the sales of our Del Monte ® Canadian and Wesson ® oil businesses, partially offset by the addition of Pinnacle and realized productivity.

International gross profits also reflected a decrease of $4.5 million due to foreign exchange rates compared to the prior-year period.

Operating profit of the International segment was impacted by expense of $1.4 million and $ 3.9 million related to our restructuring plans in the first three quarters of fiscal 2020 and 2019 , respectively.

In addition, the first three quarters of fiscal 2019 included a gain of $13.

2 million related to the sale of our Del Monte ® Canadian business and expense of $ 2 .9 million related to costs incurred for acquisitions and planned divestitures.

Foodservice operating profit for the third quarter of fiscal 2020 was $27.2 million, a decrease of $9.6 million, or 26%, compared to the third quarter of fiscal 2019.

Gross profits were $8.3 million lower in the third quarter of fiscal 2020 than in the third quarter of fiscal 2019.

The lower gross profit primarily reflected higher input costs, the sale of our Wesson ® oil and Lender's ® bagel businesses, the exit of our private label peanut butter business, and lower volume, excluding the impact of divestitures, partially offset by supply chain realized productivity.

Foodservice operating profit for the first three quarters of fiscal 2020 was $96.6 million, a decrease of $2.2 million, or 2%, compared to the first three quarters of fiscal 2019.

Gross profits were $4.5 million higher in the first three quarters of fiscal 2020 than in the first three quarters of fiscal 2019.

The higher gross profit primarily reflected the addition of Pinnacle, improved price/mix, and supply chain realized productivity, partially offset by higher input costs and the sales of our Wesson ® oil and Lender's ® bagel businesses, the exit of our private label peanut butter business, and the sale or our and Trenton facility.

Operating profit in our Grocery & Snacks segment for the first quarter of fiscal 2021 reflected an increase in gross profits of $77.2 million compared to the first quarter of fiscal 2020.

The higher gross profit was driven by the net sales growth discussed above, the benefits of supply chain realized productivity, and cost synergies associated with the Pinnacle acquisition, partially offset by the impacts of higher input costs, a reduction in profit associated with the divestiture of our DSD Snacks business and the exit of our private label peanut butter business, and pandemic-related costs.

Pandemic-related costs included investments in employee safety protocols, bonuses paid to supply chain employees, and costs necessary to meet elevated levels of demand.

Operating profit of the Grocery & Snacks segment was impacted by expense of $13.9 million and $19.1 million related to our restructuring plans in the first quarter of fiscal 2021 and 2020, respectively.

The first quarter of fiscal 2020 also included charges of $31.4 million related to the impairment of a business held for sale, $3.5 million related to the impairment of certain brand intangible assets, and $1.7 million related to the divestiture of our Wesson ® oil business.

Operating profit in our Refrigerated & Frozen segment for the first quarter of fiscal 2021 reflected an increase in gross profits of $64.8 million compared to the first quarter of fiscal 2020.

The increase was driven by the net sales growth discussed above, the benefits of supply chain realized productivity, and cost synergies associated with the Pinnacle acquisition, partially offset by the impacts of higher input costs, a reduction in profit associated with the divestiture of our Lender's ® bagel business, and pandemic-related costs.

Operating profit of the Refrigerated & Frozen segment was impacted by expense of $5.7 million and $0.6 million related to our restructuring plans in the first quarter of fiscal 2021 and 2020, respectively.

The first quarter of fiscal 2020 also included charges of $15.8 million related to the impairment of certain brand intangible assets.

Operating profit in our International segment for the first quarter of fiscal 2021 reflected an increase in gross profits of $6.8 million when compared to the prior-year period, due to the net sales growth discussed above, the benefits of supply chain realized productivity, and cost synergies associated with the Pinnacle acquisition, partially offset by the impacts of higher input costs and unfavorable foreign exchange rates.

Operating profit of the International segment was impacted by income of $0.1 million and expense of $1.2 million related to our restructuring plans in the first quarter of fiscal 2021 and 2020, respectively.

Operating profit in our Foodservice segment for the first quarter of fiscal 2021 reflected a decrease in gross profits of $7.8 million compared to the first quarter of fiscal 2020.

The lower gross profit primarily reflected the lower restaurant traffic due to the COVID-19 pandemic, higher input costs, the sale of our Lender's ® bagel business, and the exit of our private label peanut butter business, partially offset by supply chain realized productivity and cost synergies associated with the Pinnacle acquisition.

Pension and Postretirement Non-service Income

In the first quarter of fiscal 2021, pension and postretirement non-service income was $13.8 million, an increase of $4.3 million compared to the first quarter of fiscal 2020.

The increase was driven by lower interest costs as a result of declining interest rates.

Interest Expense, Net

Net interest expense was $117.7 million and $130.9 million for the third quarter of fiscal 2020 and 2019, respectively.

Net interest expense was $361.8 million and $260.5 million for the first three quarters of fiscal 2020 and 2019, respectively.

The increase reflected the issuance of $7.025 billion aggregate principal amount of unsecured senior notes and borrowings of $1.30 billion under our new unsecured term loan agreement with a syndicate of financial institutions providing for a $650.0 million tranche of three-year term loans and a $650.0 million tranche of five-year term loans to the Company (the "Term Loan Agreement"), in each case in connection with the acquisition of Pinnacle in the second quarter of fiscal 2019.

As of February 23, 2020, we have repaid all of our borrowings under the Term Loan Agreement.

In addition, the first three quarters of fiscal 2019 included $11.9 million of interest expense related to the amortization of costs incurred to secure fully committed bridge financing in connection with the then-pending Pinnacle acquisition.

The bridge financing was subsequently terminated in connection with our incurrence of permanent financing to fund the Pinnacle acquisition, and we recognized the remaining unamortized financing costs within SG&A expenses.

In the third quarter of fiscal 2020 and 2019, we recognized income tax expense of $68.9 million and $67.2 million, respectively.

Income tax expense for the first three quarters of fiscal 2020 and 2019 was $141.5 million and $147.0 million, respectively.

The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was approximately 25.2% and 21.7% for the third quarter of fiscal 2020 and 2019, respectively.

The effective tax rate was approximately 18.1% and 20.9% for the first three quarters of fiscal 2020 and 2019, respectively.

The effective tax rate in the third quarter of fiscal 2020 reflected the following:

additional state income tax expense related to uncertain tax positions and

an adjustment of valuation allowance associated with the Wesson ® oil business.

The effective tax rate for the first three quarters of fiscal 2020 reflected the above-cited items, as well as the impact of benefits from the settlement of tax issues that were previously reserved, a change in deferred state tax rates due to the integration of Pinnacle activity for tax purposes, a tax planning strategy that will allow utilization of certain state attributes, state tax law changes, additional tax expense associated with non-deductible goodwill related to assets for which an impairment charge was recognized, a benefit from statute lapses on tax issues that were previously reserved, and an income tax benefit associated with a deduction of a prior year federal income tax matter.

The effective tax rate in the third quarter of fiscal 2019 reflected the following:

a benefit recognized due to the non-taxability of the novation of a legacy guarantee,

a benefit recognized due to a reduction in the fair value of equity awards subject to limitations on deductibility that were issued to Pinnacle executives as replacement awards at the time of the acquisition, and

an increase to the deemed repatriation tax liability.

The effective tax rate for the first three quarters of fiscal 2019 reflected the above-cited items, as well as the impact of foreign restructuring resulting in a benefit related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made, additional tax expense on the repatriation of foreign earnings, an adjustment of valuation allowance associated with the expected capital gains from the planned divestiture of the Wesson ® oil business, additional tax expense on non-deductible facilitative costs associated with the acquisition of Pinnacle, and additional income tax expense related to state taxes.

Net interest expense was $113.7 million and $122.7 million for the first quarter of fiscal 2021 and 2020, respectively.

The decrease reflected the redemption of $525.0 million aggregate principal amount of our floating rate notes due October 22, 2020 and repayment of $200.0 million in borrowings under our term loan agreement that financed a portion of our acquisition of Pinnacle.

In the first quarter of fiscal 2021 and 2020, we recognized income tax expense of $86.7 million and an income tax benefit of $11.5 million, respectively.

The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was approximately 20.8% and (7.0)% for the first quarter of fiscal 2021 and 2020, respectively.

The effective tax rate in the first quarter of fiscal 2021 reflected a benefit resulting from the regulations issued by the U.S.

Treasury and Internal Revenue Service on certain provisions of the 2017 Tax Cuts and Jobs Act.

The effective tax rate in the first quarter of fiscal 2020 reflected the following:

additional tax expense associated with non-deductible goodwill related to assets held for sale, for which an impairment charge was recognized,

a tax benefit resulting from state law changes,

a benefit from the settlement of tax issues that were previously reserved,

additional benefit due to a change in the deferred state tax rates relating to the integration of Pinnacle activity for tax purposes, and

an income tax benefit associated with a tax planning strategy that will allow us to utilize certain state tax attributes.

Equity Method Investment Earnings

Equity method investment earnings were $10.4 million and $12.7 million for the third quarter of fiscal 2020 and 2019, respectively.

Equity method investment earnings were $50.3 million and $66.6 million for the first three quarters of fiscal 2020 and 2019, respectively.

Results for the third quarter and first three quarters of fiscal 2020 included a charge of $0.6 million and a gain of $4.2 million, respectively, related to the sale of an asset by the Ardent Mills joint venture.

Results for the first three quarters of fiscal 2019 included a gain of $15.1 million from the sale of an asset by the Ardent Mills joint venture.

Ardent Mills earnings for the third quarter of fiscal 2020 reflected unfavorable market conditions after adjusting for the items mentioned above.

Equity method investment earnings were $6.5 million and $12.3 million for the first quarter of fiscal 2021 and 2020, respectively.

Results for the first quarter of fiscal 2020 included a gain of $5.4 million related to the sale of an asset by the Ardent Mills joint venture.

Earnings Per Share

Diluted earnings per share in the third quarter of fiscal 2020 and 2019 were $0.42 and $0.50, respectively.

Diluted earnings per share in the first three quarters of fiscal 2020 were $1.31.

Diluted earnings per share in the first three quarters of fiscal 2019 were $1.27, including earnings of $1.28 per diluted share from continuing operations and a loss of $0.01 per diluted share from discontinued operations.

Diluted earnings per share in the first quarter of fiscal 2021 and 2020 were $0.67 and $0.36, respectively.

See "Items Impacting Comparability" above as several significant items affected the comparability of year-over-year results of operations.

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If necessary, we use short-term debt principally to finance ongoing operations, including our seasonal requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts payable, accrued payroll, and other accrued liabilities), and a combination of equity and long-term debt to finance both our base working capital needs and our non-current assets.

We are committed to maintaining an investment grade credit rating.

At February 23, 2020, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial institutions providing for a maximum aggregate principal amount outstanding at any one time of $1.6 billion (subject to increase to a maximum aggregate principal amount of $2.1 billion with the consent of the lenders).

We are committed to maintaining solid investment grade credit ratings.

At August 30, 2020, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial institutions providing for a maximum aggregate principal amount outstanding at any one time of $1.6 billion (subject to increase to a maximum aggregate principal amount of $2.1 billion with the consent of the lenders).

We have historically used a credit facility principally as a back-up for our commercial paper program.

As of February 23, 2020, there were no outstanding borrowings under the Revolving Credit Facility.

The Revolving Credit Facility generally requires that our ratio of earnings before interest, taxes, depreciation, and amortization ("EBITDA") to interest expense be not less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to exceed certain decreasing specified levels, ranging from 5.25 through the first quarter of fiscal 2021 to 3.75 from the second quarter of fiscal 2023 and thereafter.

Each ratio is to be calculated on a rolling four-quarter basis.

As of February 23, 2020, we were in compliance with these financial covenants.

We had no amounts outstanding under our commercial paper program as of February 23, 2020 and May 26, 2019 .

The highest level of borrowings during the first three quarters of fiscal 2020 was $145.0 million.

During fiscal 2020 we prepaid the remaining $400.0 million outstanding principal balance of our borrowings under our $1.30 billion Term Loan Agreement.

Payments totaling $200.0 million each were made in the first and third quarters of fiscal 2020.

The Term Loan Agreement was terminated after these repayments.

During the third quarter of fiscal 2020, we also redeemed $250.0 million in aggregate principal amount of our floating rate notes due October 22, 2020.

As of the end of the third quarter of fiscal 2020 , our senior long-term debt ratings were all investment grade.

As of August 30, 2020, there were no outstanding borrowings under the Revolving Credit Facility.

We had no amounts outstanding under our commercial paper program as of August 30, 2020, and May 31, 2020 .

We did not borrow under the commercial paper program during the first quarter of fiscal 2021.

During the first quarter of fiscal 2021, we repaid the remaining outstanding $126.6 million aggregate principal amount of our 4.95% senior notes on their maturity date of August 15, 2020.

During the fourth quarter of fiscal 2020, we entered into an unsecured term loan agreement (the "Credit Agreement") with a financial institution.

The Credit Agreement provides for delayed draw term loans to the Company in an aggregate principal amount not in excess of $600 million (subject to increase to a maximum aggregate principal amount of $750 million).

Borrowings under the Credit Agreement can be drawn, in full or in part, through October 9, 2020.

The Credit Agreement matures on May 21, 2023.

As of August 30, 2020, there were no outstanding borrowings under the Credit Agreement.

Borrowings under the Credit Agreement will bear interest at, at the Company's election, either (a) LIBOR plus a percentage spread (ranging from 1.125% to 1.75%) based on the Company's senior unsecured long-term indebtedness ratings or (b) the alternate base rate, described in the Credit Agreement as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month LIBOR plus 1.00%, plus a percentage spread (ranging from 0% to 0.625%) based on the Company's senior unsecured long-term indebtedness ratings .

The Company may voluntarily prepay term loans under the Credit Agreement , in whole or in part, without penalty, subject to certain conditions.

We have $718.7 million of long-term debt maturing in the next 12 months.

We are committed to continuing our de-leveraging efforts during fiscal 2021 and we expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt upon maturity, from operating cash flows, our undrawn Credit Agreement, our commercial paper program, access to the capital markets, and our Revolving Credit Facility.

We continuously evaluate opportunities to refinance our debt, however, any refinancing is subject to market conditions and other factors, including financing options that may be available to us from time to time, and there can be no assurance that we will be able to successfully refinance any debt on commercially acceptable terms at all.

As of the end of the first quarter of fiscal 2021, our senior long-term debt ratings were all investment grade.

A significant downgrade in our credit ratings would not affect our ability to borrow amounts under the Revolving Credit Facility, although borrowing costs would increase.

A downgrade of our short-term credit ratings would impact our ability to borrow under our commercial paper program by negatively impacting borrowing costs and causing shorter durations, as well as making access to commercial paper more difficult, or impossible.

Our most restrictive debt agreement (the Revolving Credit Facility) generally requires our ratio of earnings before interest, taxes, depreciation, and amortization ("EBITDA") to interest expense be not less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to exceed certain decreasing specified levels, ranging from 5.25 through the first quarter of fiscal 2021 to 3.75 from the second quarter of fiscal 2023 and thereafter, with each ratio to be calculated on a rolling four-quarter basis.

As of August 30, 2020, we were in compliance with these financial covenants.

We repurchase shares of our common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board.

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We plan to repurchase shares under our authorized program only at times and in amounts as are consistent with the prioritization of achieving our leverage targets.

The Company's total remaining share repurchase authorization as of February 23, 2020 was $1.41 billion.

On December 10, 2019, the Board announced a quarterly dividend payment of $0.2125 per share, to be paid on March 3, 2020, to stockholders of record as of the close of business on January 31, 2020.

Subject to market and other conditions and the approval of our Board, we intend to maintain our quarterly dividend at the current annual rate of $0.85 per share during fiscal 2020.

During the third quarter of fiscal 2020, we completed the sale of our Lender's ® bagel business for net proceeds of $33.2 million, subject to final working capital adjustments.

During the second quarter of fiscal 2020, we completed the sale of our DSD Snacks business for net proceeds of $139.0 million, subject to final working capital adjustments.

In addition to our cash flow from operations, which have been sufficient to fund our short-term liquidity needs thus far in the fourth quarter of fiscal 2020, we have access to our undrawn Revolving Credit Facility, our commercial paper program, and the capital markets.

Although we have not attempted or needed to access the commercial paper market in recent weeks, we are aware that the impacts of the COVID-19 outbreak have reduced the availability and attractiveness of commercial paper borrowings.

We expect that until commercial paper market conditions improve, accessing this source of short-term financing could be challenging or at elevated costs.

We have approximately $900 million of debt maturing in the next 12 months.

We expect to pay this debt, in part, from operating cash flows, and to maintain or have access to sufficient liquidity to retire or refinance the remainder of the debt upon maturity, as market conditions warrant, from our commercial paper program, proceeds from any divestitures and other disposition transactions, access to capital markets, and our Revolving Credit Facility.

During the first three quarters of fiscal 2020, we used $137.6 million of cash, which was the net result of $906.5 million generated from operating activities, $59.9 million used in investing activities, $984.6 million used in financing activities, and an increase of $0.4 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities of continuing operations totaled $906.5 million in the first three quarters of fiscal 2020, as compared to $745.1 million generated in the first three quarters of fiscal 2019.

The increase in operating cash flows for the first three quarters of fiscal 2020 compared to the first three quarters of fiscal 2019 was largely due to the inclusion of the additional operating results from the acquisition of Pinnacle.

This was partially offset by increased interest and tax payments and the comparative impact of cash proceeds of $47.5 million received upon the settlement of interest rate swaps in the first three quarters of fiscal 2019.

Increased seasonal inventory builds in the first three quarters of fiscal 2020 reflect incremental amounts resulting from the Pinnacle acquisition and the launch of new innovation items.

This was more than offset by a corresponding increase in accounts payable, including the effects of extended payment terms with certain large suppliers, and the timing of accounts receivable cash collections.

Cash used in investing activities totaled $59.9 million and $5.30 billion in the first three quarters of fiscal 2020 and 2019, respectively.

Investing activities in the first three quarters of fiscal 2020 consisted primarily of capital expenditures totaling $265.3 million and the net proceeds from divestitures totaling $191.4 million, including the sales of our DSD Snacks and Lender's ® bagel businesses.

Investing activities in the first three quarters of fiscal 2019 consisted mainly of the purchase of Pinnacle for $5.12 billion, net of cash acquired, capital expenditures totaling $236.1 million, and the proceeds from the sale of our Del Monte ® processed fruit and vegetable business in Canada totaling $32.2 million.

Cash used in financing activities totaled $984.6 million in the first three quarters of fiscal 2020, compared to cash provided by financing activities of $4.71 billion in the first three quarters of fiscal 2019 .

Financing activities in the first three quarters of fiscal 2020 consisted principally of the repayment of long-term debt totaling $ 665.9 million and cash dividends paid of $310.1 million .

I n the first three quarters of fiscal 2019 , in connection with the Pinnacle acquisition, we issued long-term debt that generated $8.31 billion in gross proceeds and issued common stock for net proceeds of $555.

This was reduced by debt issuance costs and bridge financing fees totaling $ 95.2 million.

We repaid $3.

52 billion of long-term debt, reduced our short-term borrowings under our commercial paper program by $27 8 .

3 million, and paid cash dividends of $253.0 million .

The Company had cash and cash equivalents of $99.0 million at February 23, 2020 and $236.6 million at May 26, 2019, of which $47.3 million at February 23, 2020 and $144.8 million at May 26, 2019 was held in foreign countries.

The Company's total remaining share repurchase authorization as of August 30, 2020 was $1.41 billion.

On September 3, 2020, the Company paid a quarterly dividend payment of $0.2125 per share to stockholders of record as of the close of business on August 4, 2020.

Subsequent to quarter-end, our Board approved a 29% increase to our quarterly dividend payment to $0.275 per share to be paid on December 2, 2020, to stockholders of record as of the close of business on November 2, 2020.

During the first quarter of fiscal 2021, we used $115.1 million of cash, which was the net result of $284.5 million generated from operating activities, $142.9 million used in investing activities, $259.6 million used in financing activities, and an increase of $2.9 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities totaled $284.5 million in the first quarter of fiscal 2021, as compared to $207.0 million generated in the first quarter of fiscal 2020.

The increase in operating cash flows for the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was largely due to the impact of increased sales in our retail segments from COVID-19 pandemic-related demand.

This was partially offset by increased tax payments for the first quarter fiscal 2021, compared to fiscal 2020.

The increase reflects approximately $47 million of fourth quarter fiscal 2020 tax payments, which were deferred due to the extension of the deadline for certain federal cash tax payments.

Comparative changes in working capital balances were also impacted by the timing of vendor payments made in the first quarter of fiscal 2021, related to expanded inventory purchases in the fourth quarter of fiscal 2020.

Operating cash flows benefited from the continued deferral of employer payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act by approximately $15 million, and payment of such amounts will occur in part in fiscal 2022 and 2023.

Cash used in investing activities totaled $142.9 million and $107.5 million in the first quarter of fiscal 2021 and 2020, respectively.

Net cash outflows from investing activities in the first quarter of fiscal 2021 and 2020 consisted primarily of capital expenditures totaling $145.5 million and $106.6 million, respectively.

Cash used in financing activities totaled $ 259.6 million and $ 270.8 million in the first quarter of fiscal 2021 and 2020, respectively.

Financing activities in the first quarter of fiscal 2021 consisted principally of the repayment of long-term debt totaling $ 133.4 million and cash dividends paid of $ 103.5 million .

Financing activities in the first quarter of fiscal 2020 consisted primarily of the repayment of long-term debt totaling $ 205.8 million and cash dividends paid of $103.3 million, partially offset by net short-term borrowings primarily under our commercial paper program of $55.0 million.

The Company had cash and cash equivalents of $438.2 million at August 30, 2020 and $553.3 million at May 31, 2020, of which $71.7 million at August 30, 2020 and $80.5 million at May 31, 2020 was held in foreign countries.

We believe that our foreign subsidiaries have invested or will invest any undistributed earnings indefinitely, or that any undistributed earnings will be remitted in a tax-neutral transaction, and, therefore, do not provide deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries.

We continue to make investments in our business and operating facilities.

Our estimate of capital expenditures for fiscal 2021 is approximately $505 million.

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The unconditional purchase obligation arrangements are entered into in our normal course of business in order to ensure adequate levels of sourced product are available.

Of these items, debt, notes payable, finance lease obligations, and operating lease obligations were recognized as liabilities in the Condensed Consolidated Balance Sheets contained in this report as of February 23, 2020.

A summary of our contractual obligations as of February 23, 2020 was as follows:

A summary of our contractual obligations as of August 30, 2020 was as follows:

Payments Due by Period

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Less than 1 Year

After 5 Years

More than 5 Years

Long-term debt

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Such agreements are generally settleable in the ordinary course of business in less than one year.

Purchase obligations and other contracts, which totaled $1.36 billion as of February 23, 2020, were not recognized as liabilities in the Condensed Consolidated Balance Sheets contained in this report, in accordance with generally accepted accounting principles.

Purchase obligations and other contracts, which totaled $1.47 billion as of August 30, 2020, were not recognized as liabilities in the Condensed Consolidated Balance Sheets contained in this report, in accordance with generally accepted accounting principles.

We are also contractually obligated to pay interest on our long-term debt and finance lease obligations.

The weighted average coupon interest rate of the long-term debt obligations outstanding as of February 23, 2020 was approximately 4.7%.

The weighted average coupon interest rate of the long-term debt obligations outstanding as of August 30, 2020 was approximately 4.7%.

The operating lease obligations noted in the table above have not been reduced by non-cancellable sublease rentals of $5.7 million.

As of May 26, 2019, we had aggregate unfunded pension and postretirement obligations totaling $131.7 million and $87.8 million, respectively.

As of February 23, 2020, primarily as a result of several interim pension remeasurements, we had aggregate unfunded pension and postretirement obligations totaling $31.1 million and $85.7 million, respectively.

As of May 31, 2020, we had aggregate unfunded pension and postretirement benefit obligations totaling $52.1 million and $86.4 million, respectively.

These amounts are not included in the table above as the unfunded obligations are remeasured each fiscal year, thereby resulting in our inability to accurately predict the ultimate amount and timing of any future required contributions to such plans.

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We estimate that we will make payments of approximately $32.2 million and $10.0 million over the next twelve months to fund our pension and postretirement plans, respectively.

See Note 14, Pension and Postretirement Benefits, to the Condensed Consolidated Financial Statements contained in this

report and Note 19, Pension and Postretirement Benefits, to the Consolidated Financial Statements and Critical Accounting Estimates – Employment - Related Benefits contained in the Company ' s Annual Report on Form 10-K for the year ended May 2 6 , 201 9 for further discussion of our pension obligations and factors that could affect estimates of this liability.

As part of our ongoing operations, we also enter into arrangements that obligate us to make future cash payments only upon the occurrence of a future event (e.g., guarantees of debt or lease payments of a third party should the third party be unable to perform).

In accordance with generally accepted accounting principles, such commercial commitments are not recognized as liabilities in our Condensed Consolidated Balance Sheets.

As of February 23, 2020, we had other commercial commitments totaling $1.7 million, which will expire in less than one year.

In addition to the other commercial commitments mentioned above, as of February 23, 2020, we had $52.0 million of standby letters of credit issued on our behalf.

See Note 12 "Pension and Postretirement Benefits" , to the Condensed Consolidated Financial Statements contained in this report and Note 18 "Pension and Postretirement Benefits" , to the Consolidated Financial Statements and "Critical Accounting Estimates – Employment-Related Benefits" contained in the Company's Annual Report on

Form 10-K for the year ended May 31, 2020 for furth er discussion of our pension obligations and factors that could affect estimates of this liability .

As part of our ongoing operations, we also enter into arrangements that obligated us to make future cash payments only upon the occurrence of a future event.

As of August 30, 2020, we had $54.6 million of standby letters of credit issued on our behalf.

These standby letters of credit are primarily related to our self-insured workers compensation programs and are not reflected in the Condensed Consolidated Balance Sheets contained in this report.

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We guarantee certain leases resulting from the divestiture of the JM Swank business completed in the first quarter of fiscal 2017.

As of February 23, 2020, the remaining terms of these arrangements did not exceed three years and the maximum amount of future payments we have guaranteed was $0.7 million.

As of August 30, 2020, the remaining terms of these arrangements did not exceed three years and the maximum amount of future payments we have guaranteed was $0.4 million.

In addition, we guarantee a certain lease resulting from an exited facility.

As of February 23, 2020, the remaining term of this arrangement did not exceed seven years and the maximum amount of future payments we have guaranteed was $17.1 million.

As of August 30, 2020, the remaining term of this arrangement did not exceed seven years and the maximum amount of future payments we have guaranteed was $15.8 million.

We also guarantee an obligation of the Lamb Weston business pursuant to a guarantee arrangement that existed prior to the spinoff of the Lamb Weston business (the "Spinoff") and remained in place following completion of the Spinoff until such guarantee obligation is substituted for guarantees issued by Lamb Weston.

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The obligations and commitments disclosed above do not include any reserves for uncertainties in income taxes, as we are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes.

The liability for gross unrecognized tax benefits at February 23, 2020 was $46.2 million.

The net amount of unrecognized tax benefits at February 23, 2020, that, if recognized, would impact our effective tax rate was $32.4 million.

The liability for gross unrecognized tax benefits at August 30, 2020 was $34.4 million.

The net amount of unrecognized tax benefits at August 30, 2020, that, if recognized, would impact our effective tax rate was $29.1 million.

Recognition of these tax benefits would have a favorable impact on our effective tax rate.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis