What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-01-07 compared with 2020-10-06 · 233 added, 158 removed, 156 unchanged (71% of the section changed)

12 unchanged sentences

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

including the pending divestitures of the Peter Pan ® peanut butter business;

risks related to the timing to complete a potential divestiture of the Peter Pan ® peanut butter business;

risks related to the ability and timing to obtain required regulatory approvals and satisfy other closing conditions for the divestiture of the Peter Pan ® peanut butter business;

risks associated with general economic and industry conditions;

7 unchanged sentences

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) pandemic on our business, suppliers, consumers, customers and employees;

risks related to the impact of the 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 pandemic;

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

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

4 unchanged sentences

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

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

EXECUTIVE OVERVIEW

7 unchanged sentences

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.

Fiscal 2021 Second Quarter Results

In the second 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 second 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 gross profit increased due to increased net sales, supply chain realized productivity, favorable margin mix, cost synergies associated with the Pinnacle acquisition, and fixed cost leverage, which were partially offset by higher input and transportation 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).

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

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

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

Diluted earnings per share in the second quarter of fiscal 2021 were $0.77.

Diluted earnings per share in the second quarter of fiscal 2020 were $0.53.

Diluted earnings per share were affected by higher net income in the second quarter of fiscal 2021 compared to the second 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 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:

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

charges totaling $44.3 million ($33.2 million after-tax) related to early extinguishment of debt,

charges totaling $20.7 million ($15.4 million after-tax) in connection with our restructuring plans,

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

a gain of $5.3 million ($3.5 million after-tax) associated with the divestiture of a business, and

an income tax benefit of $25.3 million related to a release of valuation allowance associated with the planned divestiture of the Peter Pan ® peanut butter business.

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

charges totaling $35.2 million ($27.5 million after-tax) in connection with our restructuring plans,

a charge of $27.6 million ($25.4 million after-tax) due to the impairment of our Lender's ® bagel business,

a gain of $12.0 million ($9.0 million after-tax) related to a contract settlement,

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

an income tax benefit of $2.6 million primarily related to a deduction for a prior year federal income tax matter.

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

charges totaling $46.6 million ($34.9 million after-tax) in connection with our restructuring plans,

charges totaling $44.3 million ($33.2 million after-tax) related to early extinguishment of debt,

a gain of $5.3 million ($3.5 million after-tax) associated with the divestiture of a business,

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

an income tax benefit of $25.3 million related to a release of valuation allowance associated with the planned divestiture of the Peter Pan ® peanut butter business.

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

charges totaling $85.3 million ($66.1 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,

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

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

a gain of $12.0 million ($9.0 million after-tax) related to a contract settlement,

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

an income tax benefit of $53.6 million primarily related to the reorganization of various legacy Pinnacle legal entities and state tax planning strategies.

On December 7, 2020, subsequent to the end of the second quarter of fiscal 2021, we entered into a definitive agreement to sell our Peter Pan ® peanut butter business, which is reflected primarily within our Grocery & Snacks segment, and to a lesser extent within our International and Foodservice segments.

The transaction is subject to customary closing conditions and is expected to be completed in the third quarter of fiscal 2021.

We expect to realize net proceeds from the sale of $102.0 million, subject to final adjustments for working capital and certain tax benefits.

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.

3 unchanged sentences

Restructuring Plans

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 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.

We expect to incur approximately $360.0 million of charges ($281.2 million of cash charges and $78.8 million of non-cash charges) for actions identified to date under the Pinnacle Integration 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.

In the second quarter and first half of fiscal 2021, we recognized charges of $10.2 million and $18.8 million, respectively, in connection with the Pinnacle Integration Restructuring Plan.

In the second quarter and first half of fiscal 2020, we recognized charges of $16.2 million and $43.9 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.

In fiscal 2019, management initiated a restructuring plan (the "Conagra Restructuring Plan") for costs incurred 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 second 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 November 29, 2020, we have approved the incurrence of $171.0 million ($44.2 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 $156.2 million of charges ($36.8 million of cash charges and $119.4 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan.

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.

In the second quarter and first half of fiscal 2021, we recognized charges of $10.5 million and $27.8 million, respectively, in connection with the Conagra Restructuring Plan.

In the second quarter and first half of fiscal 2020, we recognized charges of $19.6 million and $40.7 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.

During the second 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 trend s will continue through the third quarter of fiscal 2021 as work-from-home arrangements are extended in response to the continued spread of COVID-19.

During the second quarter of fiscal 202 1 , 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 through the third quarter of fiscal 2021, which will continue to negatively impact our net sales to customers in our Foodservice segment.

During the second quarter of fiscal 2021, we continued to see improvement in our operating margins 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, employee safety and sanitation costs, and employee compensation costs, which accounted for an estimated $28 million of additional incremental costs in the second quarter.

In February 2020, 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.

We have experienced some challenges in connection with the COVID-19 pandemic, including temporary closings of production facilities and reduced demand in our Foodservice segment.

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.

17 unchanged sentences

The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings.

In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results, immediately.

The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:

Thirteen weeks ended

($ in millions)

Gross derivative losses incurred

Net derivative losses allocated to reporting segments

Net derivative losses recognized in general corporate expenses

Net derivative losses allocated to Grocery & Snacks

Net derivative losses allocated to Refrigerated & Frozen

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.

and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results, immediately.

See Note 15 "Business Segments and Related Information" , to the Condensed Consolidated Financial Statements contained in this report for further discussion .

($ in millions)

Thirteen weeks ended

Twenty-six weeks ended

Reporting Segment

2 unchanged sentences

International

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.

Net sales for the second quarter of fiscal 2021 in our Grocery & Snacks segment included an increase in volumes of 14%, 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 increased by 1% for the second quarter of fiscal 2021, excluding the impact of divestitures, when compared to the prior-year period due in part to favorable product mix.

The second quarter of fiscal 2021 and 2020 included $1.6 million and $2.3 million, respectively, of net sales related to our H.K.

Anderson ® business, which was sold in the second quarter of fiscal 2021.

The second quarter of fiscal 2020 included $16.9 million of net sales related to our DSD Snacks business, which was sold in the second quarter of fiscal 2020.

The second quarter of fiscal 2020 also included $9.8 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 half of fiscal 2021 in our Grocery & Snacks segment included an increase in volumes of 15%, 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 increased by 3% for the first half of fiscal 2021, excluding the impact of divestitures, when compared to the prior-year period due to favorable product mix, lower promotional trade activity, and the favorable impact of a $7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual.

The first half of fiscal 2021 and 2020 included $3.6 million and $4.3 million, respectively, of net sales related to our H.K.

Anderson ® business, which was sold in the second quarter of fiscal 2021.

The first half 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 first half of fiscal 2020 also included $18.4 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 second quarter of fiscal 2021 in our Refrigerated & Frozen segment reflected an increase in volumes of 6%, excluding the impact of divestitures, compared to the prior-year period, due to increased at-home eating in connection with the COVID-19 pandemic.

Price/mix increased by 2% for the second quarter of fiscal 2021, excluding the impact of divestitures, when compared to the prior-year period, due in part to favorable pricing and lower promotional trade activity.

The second quarter of fiscal 2020 included $10.3 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 half of fiscal 2021 in our Refrigerated & Frozen segment reflected an increase in volumes of 9%, 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 4% for the first half of fiscal 2021, excluding the impact of divestitures, when compared to the prior-year period due to the drivers discussed above and the favorable impact of a $7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual.

The first half of fiscal 2020 included $19.4 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 second quarter of fiscal 2021 in our International segment reflected a 6% increase in volume, a 2% 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 and strong growth in our Canada and Mexico businesses excluding the impact of foreign exchange rates.

The increase in price/mix was driven by lower promotional trade activity.

Net sales for the first half of fiscal 2021 in our International segment reflected an 8% increase in volume, a 4% 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 and strong growth in our Canada and Mexico businesses excluding the impact of foreign exchange rates .

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

Net sales for the second quarter of fiscal 2021 in our Foodservice segment reflected a 25% 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.

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

The second quarter of fiscal 2020 included $3.3 million of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020.

The second 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.

Net sales for the first half of fiscal 2021 in our Foodservice segment reflected a 25% 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 half of fiscal 2021 compared to the prior-year period, reflecting the drivers noted above.

The first half of fiscal 2020 included $5.7 million of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020.

The first half of fiscal 2020 also 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.

SG&A Expenses (includes general corporate expenses)

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:

SG&A expenses totaled $357.7 million for the second quarter of fiscal 2021, a decrease of $12.1 million, as compared to the second quarter of fiscal 2020.

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

Items impacting comparability of earnings

expenses of $44.3 million associated with the early extinguishment of debt,

expenses of $11.2 million in connection with our restructuring plans, and

a gain of $5.3 million related to the divestiture of a business.

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

a decrease in salary, wage, and fringe benefit expense of $12.5 million, largely due to achieved synergies from the Pinnacle acquisition and lower employer-related 401(k) costs,

an increase in short-term incentive expense of $9.7 million, due to the expectation of exceeding certain performance targets,

a decrease of $4.6 million related to travel and entertainment expenses, in part due to reduced travel from the COVID-19 pandemic,

an increase in share-based payment and deferred compensation expense of $3.4 million due to higher stock price, market increases, and expected payout increases, and

an increase in self-insurance expense of $2.7 million.

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

expenses of $27.6 million in connection with our restructuring plans,

expense of $27.6 million related to the impairment of our Lender's ® bagel business,

a benefit of $12.0 million related to a contract settlement gain,

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

a benefit of $1.5 million related to a legacy legal matter, and

expenses of $1.1 million associated with costs incurred for acquisitions and planned divestitures.

SG&A expenses totaled $658.0 million for the first half of fiscal 2021, a decrease of $112.6 million, as compared to the first half of fiscal 2020.

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

Items impacting comparability of earnings

expenses of $44.3 million associated with the early extinguishment of debt,

expenses of $26.7 million in connection with our restructuring plans,

a gain of $5.3 million related to the divestiture of a business

expenses of $3.2 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 $1.2 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,

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

a decrease in salary, wage, and fringe benefit expense of $27.9 million, largely due to achieved synergies from the Pinnacle acquisition and lower employer-related 401(k) costs,

an increase in share-based payment and deferred compensation expense of $14.0 million due to higher stock price and market increases,

a decrease of $9.5 million related to travel and entertainment expenses, in part due to reduced travel from the COVID-19 pandemic,

an increase in short-term incentive expense of $8.2 million, due to the expectation of exceeding certain performance targets,

a decrease in royalty expense of $5.0 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 lease and rent expense of $4.7 million,

a decrease in depreciation expense of $4.1 million,

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

a decrease of $3.5 million related to unfavorable foreign exchange rates, and

an increase in self-insurance expense of $3.2 million.

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

expenses of $72.6 million in connection with our restructuring plans,

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

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

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

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

a benefit of $12.0 million related to a contract settlement gain,

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

expenses of $3.0 million associated with costs incurred for acquisitions and planned divestitures,

a benefit of $1.5 million related to a legacy legal matter, and

a loss of $1.5 million related to the divestiture of a business.

3 unchanged sentences

Thirteen weeks ended

Twenty-six weeks ended

Reporting Segment

2 unchanged sentences

International

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.

Operating profit in our Grocery & Snacks segment for the second quarter of fiscal 2021 reflected an increase in gross profits of $50.1 million compared to the second 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, higher transportation costs, a reduction in profit associated with the divestitures of our DSD Snacks and H.K.

Anderson ® businesses 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.

Operating profit of the Grocery & Snacks segment was impacted by expense of $7.8 million and $19.2 million related to our restructuring plans in the second quarter of fiscal 2021 and 2020, respectively.

The second quarter of fiscal 2021 included a gain on the divestiture of our H.K.

Anderson ® business of $5.3 million.

The second quarter of fiscal 2020 included a benefit of $12.0 million related to a contract settlement and costs of $2.3 million related to planned divestitures.

Operating profit in our Grocery & Snacks segment for the first half of fiscal 2021 reflected an increase in gross profits of $127.3 million compared to the first half of fiscal 2020.

The higher gross profit was a result of the same drivers noted above.

Operating profit of the Grocery & Snacks segment was impacted by expense of $21.7 million and $38.3 million related to our restructuring plans in the first half of fiscal 2021 and 2020, respectively.

In addition, the first half of fiscal 2021 included the $5.3 million gain on divestiture mentioned above.

The first half of fiscal 2020 included charges of $31.4 million related to the impairment of a business held for sale, a benefit of $12.0 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 planned divestitures.

Operating profit in our Refrigerated & Frozen segment for the second quarter of fiscal 2021 reflected an increase in gross profits of $49.3 million compared to the second 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, higher transportation 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 $7.2 million and $1.2 million related to our restructuring plans in the second quarter of fiscal 2021 and 2020, respectively.

The second quarter of fiscal 2020 also included charges of $27.6 million related to the impairment of a business held for sale.

Operating profit in our Refrigerated & Frozen segment for the first half of fiscal 2021 reflected an increase in gross profits of $114.1 million compared to the first half of fiscal 2020.

The increase in gross profits was a result of the drivers discussed above.

Operating profit of the Refrigerated & Frozen segment was impacted by expense of $12.9 million and $1.8 million related to our restructuring plans in the first half of fiscal 2021 and 2020, respectively.

In addition to charges of $27.6 million related to the impairment of a business held for sale, operating profit in the first half of fiscal 2020 was also impacted by charges of $15.8 million related to the impairment of certain brand intangible assets.

Operating profit in our International segment for the second quarter of fiscal 2021 reflected an increase in gross profits of $8.5 million when compared to the prior-year period, due to the net sales growth discussed above and the benefits of supply chain realized productivity, partially offset by the impacts of higher input costs and unfavorable foreign exchange rates.

Operating profit in our International segment for the first half of fiscal 2021 reflected an increase in gross profits of $15.3 million when compared to the prior-year period, due to the drivers noted above.

Operating profit of the International segment was impacted by income of $0.1 million and expense of $1.4 million related to our restructuring plans in the first half of fiscal 2021 and 2020, respectively.

Operating profit in our Foodservice segment for the second quarter of fiscal 2021 reflected a decrease in gross profits of $18.4 million compared to the second 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.

Operating profit in our Foodservice segment for the first half of fiscal 2021 reflected a decrease in gross profits of $26.2 million compared to the first half of fiscal 2020 .

The lower gross profit primarily reflected the items discussed above .

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.

In the second quarter of fiscal 2021, pension and postretirement non-service income was $13.7 million, an increase of $2.4 million compared to the second quarter of fiscal 2020.

In the first half of fiscal 2021, pension and postretirement non-service income was $27.5 million, an increase of $6.7 million compared to the first half 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 $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.

Net interest expense was $107.7 million and $121.4 million for the second quarter of fiscal 2021 and 2020, respectively.

Net interest expense was $221.4 million and $244.1 million for the first half of fiscal 2021 and 2020, respectively.

The decrease was driven by the redemption of $525.0 million aggregate principal amount of our floating rate notes due October 22, 2020, repayment of $200.0 million in borrowings under our term loan agreement that financed a portion of our acquisition of Pinnacle, and repayment of our outstanding $1.20 billion aggregate principal amount of our 3.800% senior notes prior to their maturity date of October 22, 2021, slightly offset by the issuance of $1.0 billion aggregate principal amount of 1.375% senior notes due November 1, 2027.

See Note 4 "Long-Term Debt and Revolving Credit Facility" , to the Condensed Consolidated Financial Statements contained in this report for further discussion.

In the second quarter and first half of fiscal 2021, we recognized income tax expense of $80.7 million and $167.4 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 17.6% and 19.1% for the second quarter and first half of fiscal 2021, respectively.

In the second quarter and first half of fiscal 2020, we recognized income tax expense of $84.1 million and $72.6 million, respectively.

The effective tax rate was approximately 24.3% and 14.3% for the second quarter and first half of fiscal 2020, respectively.

See Note 10 "Income Taxes" , to the Condensed Consolidated Financial Statements contained in this report for a discussion on the change in effective tax rates.

Equity Method Investment Earnings

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.

Equity method investment earnings were $23.0 million and $27.6 million for the second quarter of fiscal 2021 and 2020, respectively.

Equity method investment earnings were $29.5 million and $39.9 million for the first half of fiscal 2021 and 2020, respectively.

Results for the second quarter and first half of fiscal 2020 included an expense of $0.6 million and a gain of $4.8 million, respectively, related to the sale of an asset by the Ardent Mills joint venture.

Earnings Per Share

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

Diluted earnings per share in the second quarter of fiscal 2021 and 2020 were $0.77 and $0.53, respectively.

Diluted earnings per share in the first half of fiscal 2021 and 2020 were $1.44 and $0.89, respectively.

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

4 unchanged sentences

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).

At November 29, 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 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.

As of November 29, 2020, there were no outstanding borrowings under the Revolving Credit Facility.

As of November 29, 2020 , we had $367.6 million outstanding under our commercial paper program .

The highest level of borrowings during the first half of fiscal 2021 was $518.6 million .

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

During the second quarter of fiscal 2021, we issued $1.0 billion aggregate principal amount of 1.375% senior notes due November 1, 2027 (the "2027 Senior Notes").

We also redeemed the entire outstanding $1.20 billion aggregate principal amount of our 3.800% senior notes prior to their maturity date of October 22, 2021, resulting in a net loss of $44.3 million as a cost of early extinguishment of debt.

This redemption was primarily funded using the net proceeds from the issuance of the 2027 Senior Notes, which extends our maturity to repay the principal amount and results in lower interest payments throughout the remaining term of the senior notes.

During the second quarter of fiscal 2021, we repaid the entire outstanding $500.0 million aggregate principal amount of our floating rate notes on their maturity date of October 9, 2020.

On December 23, 2020, subsequent to the end of the second quarter of fiscal 2021, we redeemed $400.0 million aggregate principal amount of our 3.200% senior notes due January 25, 2023.

In connection with this redemption, we expect to recognize a net loss in the third quarter of fiscal 2021 of approximately $24.4 million as a cost of early extinguishment of debt.

The repayment was primarily funded by the issuance of commercial paper.

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 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 second 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.

1 unchanged sentence

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 4.75 through the first quarter of fiscal 2022 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.

As of November 29, 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.

1 unchanged sentence

The share repurchase authorization has no expiration date.

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

The Company's total remaining share repurchase authorization as of November 29, 2020 was $1.41 billion.

On December 2, 2020, the Company paid a quarterly dividend payment of $0.275 per share to stockholders of record as of the close of business on November 2, 2020.

On December 11, 2020, our Board announced a quarterly dividend payment of $0.275 per share to be paid on March 3, 2021, to stockholders of record as of close of business on January 29, 2021.

In fiscal 2017, we began a program to offer certain suppliers access to a third-party service that allows them to view our scheduled payments online.

The third-party service also allows suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party.

We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third party, or any financial institutions concerning this service.

All balances remain as obligations to our suppliers as stated in our supplier agreements and are reflected in accounts payable within our Condensed Consolidated Balance Sheets.

The associated payments are included in net cash flows from operating activities within our Condensed Consolidated Statements of Cash Flows.

As of November 29, 2020 and May 31, 2020, $280.6 million and $258.7 million, respectively, of our total accounts payable is payable to suppliers who utilize this third-party service.

The program commenced at about the same time that we began an initiative to negotiate extended payment terms with our suppliers.

Although difficult to predict, we generally expect the incremental cash flow benefits associated with these extended payment terms to increase at a slower rate in the future.

A number of factors may impact our future payment terms , including our relative creditworthiness, overall market liquidity and changes in interest rates and other general economic conditions.

During the first half of fiscal 2021, we used $485.3 million of cash, which was the net result of $541.4 million generated from operating activities, $270.5 million used in investing activities, $760.0 million used in financing activities, and an increase of $3.8 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities totaled $541.4 million in the first half of fiscal 2021, as compared to $427.5 million generated in the first half of fiscal 2020.

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

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

Tax payments for the first half of fiscal 2021 included approximately $47.0 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 half 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 which totaled $29.2 million for the first half of fiscal 2021.

Payment of such amounts will occur in fiscal 2022 and 2023.

Cash used in investing activities totaled $270.5 million and $40.2 million in the first half of fiscal 2021 and 2020, respectively.

Net cash outflows from investing activities in the first half of fiscal 2021 consisted primarily of capital expenditures totaling $282.0 million and proceeds totaling $8.5 million from the sale of our H.K.

Anderson ® business.

Investing activities in the first half of fiscal 2020 consisted mainly of capital expenditures of $183.7 million and net proceeds from the sale of our DSD Snacks business totaling $139.0 million.

Cash used in financing activities totaled $760.0 million and $431.5 million in the first half of fiscal 2021 and 2020, respectively.

Financing activities in the first half of fiscal 2021 principally reflects repayments of long-term debt of $1.88 billion, the issuance of long-term debt totaling $988.2 million, net short-term borrowings of $367.5 million, and cash dividends paid of $207.3 million.

Financing activities in the first half of fiscal 2020 consisted primarily of the repayment of long-term debt totaling $210.9 million and cash dividends paid of $206.7 million.

The Company had cash and cash equivalents of $68.0 million at November 29, 2020 and $553.3 million at May 31, 2020, of which $58.2 million at November 29, 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.

5 unchanged sentences

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 August 30, 2020.

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

A summary of our contractual obligations as of November 29, 2020 was as follows :

Payments Due by Period

8 unchanged sentences

Notes payable

1 Amounts reflect the contractual maturity dates, see “ Liquidity and Capital Resources ” for our discussion on the early extinguishment of certain long-term debt.

2 Amounts include open purchase orders and agreements, some of which are not legally binding and/or may be cancellable.

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

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.

Purchase obligations and other contracts, which totaled $2.13 billion as of November 29, 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 August 30, 2020 was approximately 4.7%.

The weighted average coupon interest rate of the long-term debt obligations outstanding as of November 29, 2020 was approximately 4.7%.

The operating lease obligations noted in the table above have not been reduced by non-cancellable sublease rentals of $5.4 million.

3 unchanged sentences

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.

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 .

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 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 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.

As of November 29, 2020, we had $54.2 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.

In certain limited situations, we will guarantee an obligation of an unconsolidated entity.

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

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 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.

Pursuant to the Separation and Distribution Agreement, dated as of November 8, 2016 (the "Separation Agreement"), between us and Lamb Weston, this guarantee arrangement is deemed a liability of Lamb Weston that was transferred to Lamb Weston as part of the Spinoff.

Accordingly, in the event that we are required to make any payments as a result of these guarantee arrangement, Lamb Weston is obligated to indemnify us for any such liability, reduced by any insurance proceeds received by us, in accordance with the terms of the indemnification provisions under the Separation Agreement.

Lamb Weston is a party to an agricultural sublease agreement with a third party for certain farmland through 2020 (subject, at Lamb Weston’s option, to extension for two additional five-year periods).

Under the terms of the sublease agreement, Lamb Weston is required to make certain rental payments to the sublessor.

We have guaranteed the sublessor Lamb Weston's performance and the payment of all amounts (including indemnification obligations) owed by Lamb Weston under the sublease agreement, up to a maximum of $75.0 million.

We believe the farmland associated with this sublease agreement is readily marketable for lease to other area farming operators.

As such, we believe that any financial exposure to the Company, in the event that we were required to perform under the guarantee, would be largely mitigated.

In certain limited situations, we will guarantee obligations of unconsolidated entities.

For further discussion on these guarantees, see "Guarantees and Other Contingencies" within Note 11 "Contingencies" , to the Condensed Consolidated Financial Statements contained in this report.

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 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.

The liability for gross unrecognized tax benefits at November 29, 2020 was $33.9 million.

The net amount of unrecognized tax benefits at November 29, 2020, that, if recognized, would impact our effective tax rate was $28.8 million.

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

2 unchanged sentences

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