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Item 7. Management’s Discussion and Analysis

2021-07-23 compared with 2020-07-24 · 241 added, 507 removed, 242 unchanged (76% 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) 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;

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").

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

risks related to our forecasts of consumer eat-at-home habits as the impacts of the COVID-19 pandemic abate;

risks related to the availability and prices of supply chain resources, including raw materials, packaging and transportation, including any negative effects caused by changes in inflation rates, weather conditions, or health pandemics;

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;

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

risks related to a material failure in or breach of our or our vendors' information technology systems;

the amount and timing of future dividends, which remain subject to Board approval and depend on market and other conditions;

and other risks described in our reports filed from time to time with the SEC.

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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EXECUTIVE OVERVIEW

Conagra Brands, Inc.

(the "Company", "Conagra Brands", "we", "us", or "our"), headquartered in Chicago, is one of North America's leading branded food companies.

Conagra Brands, headquartered in Chicago, is one of North America's leading branded food companies.

Guided by an entrepreneurial spirit, the Company combines a rich heritage of making great food with a sharpened focus on innovation.

The Company's portfolio is evolving to satisfy people's changing food preferences.

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.

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

Fiscal 2021 Results

Fiscal 2020 performance compared to fiscal 2019 reflected an increase in net sales, including the impact of recent acquisitions, with organic (excludes the impacts of foreign exchange, divested businesses and acquisitions, including the Pinnacle acquisition (until the anniversary date of the acquisitions), as well as the impact of the 53 rd week of our fiscal year) increases in all of our operating segments with the exception of our Foodservice segment, in each case compared to fiscal 2019.

Fiscal 2021 performance compared to fiscal 2020 reflected an increase in net sales, with organic (excludes the impacts of foreign exchange, divested businesses, as well as the impact of the 53 rd week on fiscal 2020) increases in all of our operating segments with the exception of our Foodservice segment, in each case compared to 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 margin increased with the addition of Pinnacle's gross profit, organic net sales growth, supply chain realized productivity, cost synergies, and the inclusion of the 53rd week of our fiscal year.

These benefits were partially offset by higher input and transportation costs, lost profits due to divested businesses, pandemic-related costs, and the impact of foreign exchange rates.

Overall gross margin increased due to increased net sales, supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, favorable margin mix, and fixed cost leverage.

These benefits were partially offset by higher input cost inflation, higher transportation costs, lost profits due to divested businesses, COVID-19 related expenses, and the exclusion of the 53 rd week in fiscal 2020.

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

Corporate expenses decreased due to items impacting comparability, as discussed below.

We experienced a slight decrease in equity method investment earnings, a decrease in income tax expense, and an increase in interest expense, in each case compared to fiscal 2019.

Corporate expenses were relatively flat year-over-year, but included various items impacting comparability as discussed below.

We experienced an increase in equity method investment earnings, a decrease in interest expense, and a decrease in income tax expense, in each case compared to fiscal 2020.

Diluted earnings per share in fiscal 2021 were $2.66.

Diluted earnings per share in fiscal 2019 were $1.52, including earnings of $1.53 per diluted share from continuing operations and a loss of $0.01 per diluted share from discontinued operations.

Diluted earnings per share were affected by higher net income, partially offset by an increase in the number of shares as well as several significant items affecting the comparability of year-over-year results of continuing operations (see "Items Impacting Comparability" below).

Diluted earnings per share in fiscal 2020 were $1.72.

Diluted earnings per share were affected by higher net income as well as several significant items affecting the comparability of year-over-year results of continuing operations (see "Items Impacting Comparability" below).

In the fourth quarter fiscal 2021, we experienced higher than expected input cost inflation, including higher transportation and supply chain costs, that negatively impacted gross margins.

We expect input cost inflation to be materially higher in fiscal 2022.

Supply chain realized productivity and pricing actions will mitigate some of the inflationary pressures, but we do not expect such benefits to occur in time to fully offset the incremental costs in fiscal 2022.

As our estimates of inflation for fiscal 2022 continue to change, it is impractical to quantify the impact at this time.

Items Impacting Comparability

Items of note impacting comparability of results for continuing operations for fiscal 2021 included the following:

a non-cash income tax benefit of $115.6 million associated with a restructuring of our ownership interest in the Ardent Mills joint venture, which primarily relates to a release of a valuation allowance due to the generation of capital gains,

charges totaling $90.9 million ($69.9 million after-tax) related to the impairment of intangible assets,

charges totaling $77.9 million ($58.3 million after-tax) in connection with our restructuring plans,

charges totaling $68.7 million ($51.5 million after-tax) related to the early extinguishment of debt,

a gain of $65.5 million ($34.5 million after-tax) associated with the divestiture of certain businesses,

an income tax benefit of $37.0 million related to a release of valuation allowance associated with the divestiture of certain businesses,

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

consulting expenses totaling $7.2 million ($5.4 million after-tax) primarily associated with securing tax benefits for a new production facility (the associated tax benefits will be recognized in future periods),

a loss of $7.1 million ($5.3 million after-tax) related to the early exit of an unfavorable contract associated with a recent divestiture, and

charges totaling $5.7 million ($4.3 million after-tax) associated with costs incurred for acquisitions and divestitures.

Items of note impacting comparability of results from continuing operations for fiscal 2020 included the following:

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charges totaling $5.3 million ($3.9 million after-tax) associated with costs incurred for acquisitions and divestitures.

Items of note impacting comparability of results from continuing operations for fiscal 2019 included the following:

charges totaling $180.8 million ($138.9 million after-tax) in connection with our restructuring plans,

charges totaling $118.1 million ($94.8 million after-tax) associated with costs incurred for acquisitions and divestitures,

charges totaling $89.6 million ($66.9 million after-tax and net of non-controlling interest) related to the impairment of other intangible assets,

gains of $69.4 million ($35.1 million after-tax) from the sales of the Del Monte ® Canada business, the Wesson ® oil business, and the Gelit pasta business,

incremental cost of goods sold of $53.0 million ($39.5 million after-tax) due to the fair value adjustment to inventory resulting from acquisition accounting for the Pinnacle acquisition,

a gain of $39.1 million ($29.1 million after-tax) related to legal matters,

an income tax benefit of $32.4 million associated with a change in a valuation allowance on a deferred tax asset due to the divestitures of the Wesson ® oil business and the Gelit pasta business,

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 ($12.2 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,

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

an income tax charge of $10.4 million associated with unusual tax items primarily related to legal entity restructuring activity,

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

charges totaling $4.3 million ($3.2 million after-tax) related to pension plan lump-sum settlements and a remeasurement of our salaried and non-qualified pension plan liability.

In addition, fiscal 2020 earnings per share benefited by approximately $0.05 as a result of the fiscal year including 53 weeks.

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 are discussed in the segment review below.

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 was allocated to goodwill and approximately $3.52 billion was 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.

In February 2018, we acquired the Sandwich Bros.

of Wisconsin ® business, maker of frozen breakfast and entree flatbread pocket sandwiches, for a cash purchase price of $87.3 million, net of cash acquired.

Approximately $57.8 million has been classified as goodwill, and $9.7 million and $7.1 million have been classified as non-amortizing and amortizing intangible assets, respectively.

The amount of goodwill allocated is deductible for tax purposes.

The business is included in the Refrigerated & Frozen segment.

In October 2017, we acquired Angie's Artisan Treats, LLC, maker of Angie's ® BOOMCHICKAPOP ® ready-to-eat popcorn, for a cash purchase price of $249.8 million, net of cash acquired.

Approximately $156.7 million has been classified as goodwill, of which $95.4 million is deductible for income tax purposes.

Approximately $73.8 million and $10.3 million of the purchase price have been allocated to non-amortizing and amortizing intangible assets, respectively.

The business is primarily included in the Grocery & Snacks segment, and to a lesser extent in the International segment.

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 fourth quarter of fiscal 2021, we completed the sale of our Egg Beaters ® business for net proceeds of $50.6 million, subject to final working capital adjustments.

The results of operations of the divested Egg Beaters ® business were primarily included in our Refrigerated & Frozen segment, and to a lesser extent within our International and Foodservice segments, for the periods preceding the completion of the transaction.

During the third quarter of fiscal 2021, we completed the sale of our Peter Pan ® peanut butter business for net proceeds of $101.5 million, including working capital adjustments but subject to final adjustments for certain tax benefits.

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

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 were 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.

The assets and liabilities of this business have been reclassified as assets and liabilities held for sale within our Consolidated Balance Sheets for all periods presented prior to the divestiture.

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 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 were included in our Grocery & Snacks segment for the periods preceding the completion of the transaction.

The assets and liabilities of this business have been reclassified as assets and liabilities held for sale within our Consolidated Balance Sheets for all periods presented prior to the divestiture.

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 final working capital adjustments.

The results of operations of the divested Gelit business were 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 final working capital adjustments.

The results of operations of the divested Wesson ® oil business were 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 were 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 (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.

In December 2018, our 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 ("U.S.

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 fiscal 20 20 , 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 $ 360.2 million of charges ($2 77.2 million of cash charges and $ 83.0 million of non-cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan.

W e recognized charges of $ 73.8 million and $168.2 million in connection with the Pinnacle Integration Restructuring Plan in fiscal 2020 and 2019, respectively.

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 selling, general and administrative ("SG&A") expense effectiveness and efficiencies and to optimize our supply chain network.

We expect to incur approximately $358.0 million of charges ($283.5 million of cash charges and $74.5 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.

We recognized charges of $31.7 million, $73.8 million, and $168.2 million in connection with the Pinnacle Integration Restructuring Plan in fiscal 2021, 2020, and 2019, respectively.

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

In fiscal 2019, senior management initiated a restructuring plan (the "Conagra Restructuring Plan") for costs incurred in connection with actions taken to improve selling, general and administrative ("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 fiscal 2021, 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.

As of May 31, 2020, we have approved the incurrence of $131.1 million ($38.2 million of cash charges and $92.9 million of non-cash charges) for several projects associated with the Conagra Restructuring Plan.

We have incurred or expect to incur $129.5 million of charges ($40.1 million of cash charges and $89.4 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan.

We recognized charges of $64.4 million and $2.2 million in connection with the Conagra Restructuring Plan in fiscal 2020 and 2019, respectively.

We are closely monitoring the impact of the outbreak of the novel coronavirus (COVID-19) on all aspects of our business.

We experienced significantly higher sales during the fourth quarter of fiscal 2020 for our products in both of our Grocery & Snacks and Refrigerated & Frozen segments due to the COVID-19 pandemic, as consumers increased their at-home consumption.

We continue to see increased orders from retail customers in North America subsequent to the end of fiscal 2020 in response to increased consumer demand for food at home and expect that trend to 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 as consumer purchasing behavior changes as a result of the economic downturn.

During the fourth quarter of fiscal 2020, we experienced reduced demand for our foodservice products across all of our major markets as consumer traffic in away-from-home food outlets 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.

While we generally expect retail and foodservice demand levels to return to historical norms as we progress through fiscal 2021, given the inherent uncertainty of the situation surrounding the COVID-19 pandemic, we are unable to predict the nature and timing of when such normalization may occur.

During the fourth quarter of fiscal 2020, our operating margins saw improvement largely due to favorable overhead absorption at our manufacturing facilities, lower advertising and promotion costs, and reduced travel expenses.

That benefit was largely 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 $40 million of incremental costs in the fourth 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, which we expect to continue to incur throughout fiscal 2021 to continue to address employee safety.

The implementation of such safety measures has not resulted in any meaningful change to our control environment.

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, 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 are continuing 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.

As of May 30, 2021, we had approved the incurrence of $172.2 million ($45.4 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 $ 1 57.

3 million of charges ($ 36.9 million of cash charges and $ 120.4 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan.

W e recognized charges of $ 46.2 million , $ 64.4 million , and $2.2 million in connection with the Conagra Restructuring Plan in fiscal 202 1 , 2020, and 20 19 , respectively.

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

COVID-19 Pandemic

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

Throughout fiscal 2021, we experienced higher net sales for our products in both of our Grocery & Snacks and Refrigerated & Frozen segments until the fourth quarter of fiscal 2021, as we began to lap the initial surge in demand at the beginning of the pandemic.

We have also experienced reduced demand for our foodservice products across all of our major markets as consumer traffic in away-from-home food outlets decreased as a result of the COVID-19 pandemic.

However, as states have reopened their economies during 2021, our foodservice net sales have improved compared to the initial months of the pandemic.

As we progress through fiscal 2022, we generally expect retail demand levels to remain elevated versus pre-pandemic levels and we expect foodservice demand levels to return to more historical norms.

However, there still remains uncertainty with the pandemic and such trends ultimately depend on the length and severity of the pandemic, inclusive of the introduction of new strains of the virus;

the federal, state, and local government actions taken in response;

continued vaccine availability and effectiveness;

and the macroeconomic environment.

In fiscal 2022, we also expect to see inflationary headwinds but anticipate that they will be partially mitigated by supply chain realized productivity and price increases that began to be introduced at the end of fiscal 2021.

We also expect a decrease in costs related to the COVID-19 pandemic and a decrease in supply chain costs as we continue to recover our supply and service levels.

We will continue to evaluate the extent to which the COVID-19 pandemic will impact our business, consolidated results of operations, and financial condition.

During fiscal 2021, our operating margins benefitted from 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 combined accounted for an estimated $143 million of additional incremental costs in fiscal 2021.

Similar incremental costs starting in the fourth quarter of fiscal 2020 were estimated to be approximately $40 million.

While we expect these incremental costs to decrease in fiscal 2022, the timing and amount of such decrease is dependent upon the ultimate length and severity of the pandemic as outlined above.

Beginning in February 2020 and over the course of the COVID-19 pandemic, we created COVID-19 pandemic, Return to Office, and Vaccine Preparedness teams, 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, these teams have recommended and implemented various measures, including the installation of physical barriers between employees in production facilities, cleaning and sanitation protocols for both production and office spaces, execution of a phased return to office approach to enable in-person work for corporate personnel, implementation of work-from-home initiatives for certain office personnel, and increased access to vaccines for production facilities and corporate locations.

The implementation of such safety measures has not resulted in any meaningful change to our financial control environment.

All of our production facilities remain open and there has been minimal disruption to our supply chain network to date, including with respect to the supply of our ingredients, packaging, or other sourced materials.

However, we cannot predict the ultimate COVID-19 impact on our suppliers, distributors, and manufacturers.

SEGMENT REVIEW

During 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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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:

($ in millions)

Net derivative losses incurred

Net derivative losses allocated to reporting segments

Net derivative gains (losses) recognized in general corporate expenses

Net derivative gains (losses) allocated to Grocery & Snacks

Net derivative losses allocated to Refrigerated & Frozen

Net derivative gains (losses) allocated to International

Net derivative losses allocated to Foodservice

Net derivative losses included in segment operating profit

As of May 31, 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 $4.1 million.

This amount reflected net losses of $4.5 million incurred during the fiscal year ended May 31, 2020, as well as net gains of $0.4 million incurred prior to fiscal 2020.

Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results net losses of $2.1 million in fiscal 2021 and $2.0 million in fiscal 2022 and thereafter.

See Note 20 "Business Segments and Related Information" , to the Consolidated Financial Statements contained in this report for further discussion.

Presentation of Information

Below is a detailed discussion and comparison of our results of operations for the fiscal years ended May 30, 2021 and May 31, 2020.

For a discussion of changes from the fiscal year ended May 26, 2019 to the fiscal year ended May 31, 2020, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended May 31, 2020 (filed July 24, 2020).

Fiscal 2021 compared to Fiscal 2020

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International

Overall, our net sales were $11.05 billion in fiscal 2020, an increase of 16% compared to fiscal 2019.

Grocery & Snacks net sales for fiscal 2020 were $4.62 billion, an increase of $693.5 million, or 18%, compared to fiscal 2019.

Volume, excluding the impact of acquisitions and divestitures, increased 10% in fiscal 2020 compared to the prior-year period.

This result reflected an increase across multiple categories, primarily in the fourth quarter of fiscal 2020, as consumers increased their at-home food consumption in connection with the COVID-19 pandemic.

Price/mix decreased 1% compared to the prior year due to incremental trade and strategic investments with certain customers and brands.

The inclusion of an additional week of results in fiscal 2020 accounted for 2% of the increase in net sales.

The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $406.3 million, or 10%, to Grocery & Snacks net sales during fiscal 2020, through the one-year anniversary of the acquisition.

Fiscal 2020 and 2019 included $23.1 million and $39.5 million, respectively, of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020.

Fiscal 2020 and 2019 included $46.1 million and $59.6 million, respectively, of net sales related to our DSD snacks business, which was sold in the second quarter of fiscal 2020.

Fiscal 2019 results included $115.9 million of net sales related to our Wesson ® oil business, which was sold in the fourth quarter of fiscal 2019.

Refrigerated & Frozen net sales for fiscal 2020 were $4.56 billion, an increase of $824.2 million, or 22%, compared to fiscal 2019.

Results for fiscal 2020 reflected a 5% increase in volume compared to fiscal 2019, excluding the impact of acquisitions and divestitures.

The increase in sales volumes was a result of consumers increasing their at-home food consumption in the fourth quarter of fiscal 2020 in connection with the COVID-19 pandemic and new innovation during the current fiscal year.

Price/mix increased 1% compared to fiscal 2019.

The inclusion of an additional week of results in fiscal 2020 accounted for 2% of the increase in net sales.

The acquisition of Pinnacle contributed $567.6 million, or 15%, to Refrigerated & Frozen net sales for fiscal 2020, through the one-year anniversary of the acquisition.

Fiscal 2020 included $23.2 million of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020.

Fiscal 2019 included $24.0 million of net sales related to this business.

Fiscal 2019 also included $56.7 million 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 fiscal 2020 were $925.3 million, an increase of $60.9 million, or 7%, compared to fiscal 2019.

Results for fiscal 2020 reflected a 4% increase in volume, excluding the impact of acquisitions and divestitures, a 2% decrease due to foreign exchange rates, a 2% increase due to the inclusion of an additional week of results, and a 1% increase in price/mix, in each case compared to fiscal 2019.

The volume increases for fiscal 2020 were driven by elevated demand related to the impacts of the COVID-19 pandemic, partially offset by lower volumes in India due to the country-wide closure of manufacturing plants and stores during the fourth quarter.

The acquisition of Pinnacle contributed $46.0 million, or 5%, to International net sales for fiscal 2020, through the one-year anniversary of the acquisition.

Fiscal 2019 included $17.1 million of net sales related to our divested Wesson ® oil business.

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 fiscal 2020 were $952.4 million, a decrease of $62.6 million, or 6%, compared to fiscal 2019.

Results for fiscal 2020 reflected a 13% decrease in volume, excluding the impact of acquisitions and divestitures.

The decline in volume reflected lower restaurant traffic as a result of the COVID-19 pandemic and continued execution of the segment's value-over-volume strategy.

Price/mix increased 3% in fiscal 2020 compared to fiscal 2019, reflecting inflation-related pricing and the value-over-volume strategy.

The decrease in net sales was offset by a 1% increase attributable to an additional week of results in fiscal 2020.

The acquisition of Pinnacle contributed $57.7 million, or 6%, for fiscal 2020, through the one-year anniversary of the acquisition.

Fiscal 2020 and 2019 included $6.6 million and $6.2 million, respectively, of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020.

Grocery & Snacks net sales for fiscal 2021 included an increase in volumes of 4%, excluding the impact of divestitures and the 53 rd week in fiscal 2020, compared to the prior-year period.

This result reflected an increase across multiple categories due to increased at-home eating and some replenishment of customer inventory levels that had been depleted in connection with the COVID-19 pandemic.

Price/mix increased 2%, excluding the impact of divestitures, 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 inclusion of an additional week of results in fiscal 2020 accounted for an incremental 2% of net sales in the prior-year period.

Fiscal 2021 and 2020 included $34.7 million and $113.9 million, respectively, of net sales related to our Peter Pan ® peanut butter business, which was sold in the third quarter of fiscal 2021.

Fiscal 2021 and 2020 included $3.6 million and $8.0 million, respectively, of net sales related to our H.K.

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

Fiscal 2020 included $23.1 million of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020.

Fiscal 2019 included $8.8 million of net sales related to this business.

Fiscal 2019 included $34.2 million of net sales related to our Wesson ® oil business, which was sold in the fourth quarter of fiscal 2019.

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.

Fiscal 2020 also included $46.1 million of net sales related to our DSD snacks business, which was sold in the second quarter of fiscal 2020.

Refrigerated & Frozen net sales for fiscal 2021 included an increase in volumes of 4%, excluding the impact of divestitures and the 53 rd week in fiscal 2020, compared to fiscal 2020.

The increase in sales volumes was a result of increased at-home eating

and some replenishment of customer inventory levels that had been depleted in connection with the COVID-19 pandemic .

Price/ mix increased 4 % for fiscal 2021, excluding the impact of divestitures, compared to fiscal 2020 due to favorable mix, lower promotional trade activity, favorable pricing, and the favorable impact of a $7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual .

The inclusion of an additional week of results in fiscal 2020 accounted for an incremental 2% of net sales in the prior-year period .

Fiscal 2021 and 2020 included $40.8 million and $41.0 million, respectively, of net sales related to our Egg Beaters ® business, which was sold in the fourth quarter of fiscal 2021.

Fiscal 2020 included $23.2 million of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020.

International net sales for fiscal 2021 included an increase in price/mix of 4% compared to fiscal 2020 due to lower promotional trade activity, inflation-justified pricing, favorable mix, and the favorable impact of a $2.8 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual.

Volumes, excluding the impact of divestitures and the 53 rd week in fiscal 2020, were flat when compared to the prior-year period.

The inclusion of an additional week of results in fiscal 2020 accounted for an incremental 2% of net sales in the prior-year period.

Fiscal 2021 and 2020 included $1.4 million and $5.2 million, respectively, of net sales related to our Peter Pan ® peanut butter business.

Foodservice net sales for fiscal 2021 included a decrease in volumes of 13%, excluding the impact of divestitures and the 53 rd week in fiscal 2020, 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 3% in fiscal 2021 compared to fiscal 2020, reflecting inflation-related pricing and lower trade activity.

The inclusion of an additional week of results in fiscal 2020 accounted for an incremental 1% of net sales in the prior-year period.

Fiscal 2021 and 2020 included $1.0 million and $3.4 million, respectively, of net sales related to our Peter Pan ® peanut butter business.

Fiscal 2021 and 2020 included $0.6 million and $2.4 million, respectively, of net sales related to our H.K.

Anderson ® business.

Fiscal 2020 included $6.6 million and $4.6 million of net sales related to our Lender's ® bagel and private label peanut butter businesses, respectively.

SG&A Expenses (Includes general corporate expenses)

SG&A expenses totaled $1.62 billion for fiscal 2020, an increase of $149.1 million compared to fiscal 2019.

SG&A expenses totaled $1.40 billion for fiscal 2021, a decrease of $219.5 million compared to fiscal 2020.

SG&A expenses for fiscal 2021 reflected the following:

Items impacting comparability of earnings

expenses of $165.5 million related to the impairment of intangible assets,

expenses of $90.9 million related to the impairment of certain brand intangible assets,

expenses of $68.7 million associated with the early extinguishment of debt,

gains totaling $65.5 million related to divestitures of certain businesses,

expenses of $40.8 million in connection with our restructuring plans,

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

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

charges totaling $10.1 million related to legal and environmental matters,

consulting expenses of $7.2 million primarily associated with securing tax benefits for a new production facility (the associated tax benefits will be recognized in future periods),

a loss of $7.1 million related to the early exit of an unfavorable contract associated with a recent divestiture,

expenses of $5.7 million associated with costs incurred for acquisitions and divestitures, and

a net loss of $1.7 million related to divestitures of businesses.

a net expense of $2.6 million related to a previous legal matter.

Other changes in expenses compared to fiscal 2020

an increase in incentive compensation expense of $44.8 million, due to exceeding certain performance targets,

an increase in advertising and promotion expense of $27.3 million driven by higher eCommerce investments,

a decrease in salary, wage, and fringe benefit expense of $17.3 million, largely due to achieved synergies from the Pinnacle acquisition and lower employer-related 401(k) costs,

a decrease in incentive compensation expense of $15.3 million, due to further exceeding certain performance targets in the prior year period,

a decrease in travel and entertainment expense of $14.4 million, in part due to reduced travel from the COVID-19 pandemic,

an increase in share-based payment and deferred compensation expense of $12.7 million, due to an increase in stock price and exceeding certain performance targets,

a decrease in advertising and promotion expense of $22.7 million, largely as spending was reduced in the fourth quarter with elevated sales demand,

an increase of $11.5 million in information technology-related expenses,

a decrease in self-insured workers' compensation and product liability expense of $10.9 million,

an increase of $10.7 million of amortization of definite lived intangible assets, attributable to the Pinnacle acquisition,

an increase in charitable contributions of $7.3 million, in part due to the recent COVID-19 pandemic,

a decrease in professional fees of $7.2 million,

a decrease in royalty expense of $7.2 million, in part due to the expiration of a royalty agreement,

a n in crease of $9.9 million in foreign currency transaction gains, primarily due to the strengthening of the Canadian dollar,

a decrease in depreciation expense of $5.4 million,

a decrease in travel and entertainment expense of $4.4 million, in part due to reduced travel from the COVID-19 pandemic,

a decrease in commission expense of $3.8 million, and

an increase in transaction services agreement income of $3.4 million.

a decrease in royalty expense of $5.3 million, in part due to the expiration of a royalty agreement, and

a decrease in lease expense of $4.0 million.

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

expenses of $165.5 million related to the impairment of certain brand intangible assets,

expenses of $105.7 million in connection with our restructuring plans,

expenses of $106.2 million associated with costs incurred for acquisitions and divestitures,

expenses of $89.6 million related to intangible impairments,

gains of $69.4 million related to the divestitures of businesses,

a benefit of $39.1 million related to legal matters,

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

a benefit of $15.1 million related to the fair value adjustment of cash settleable equity awards issued in connection with, and included in the consideration for the Pinnacle acquisition, and

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

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

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

charges totaling $10.1 million related to legal and environmental matters,

expenses of $5.3 million associated with costs incurred for acquisitions and divestitures, and

a net loss of $1.7 million related to divestitures of businesses.

Segment 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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International

Grocery & Snacks operating profit for fiscal 2020 was $915.2 million, an increase of $152.6 million, or 20%, compared to fiscal 2019.

Gross profits were $229.0 million higher in fiscal 2020 than in fiscal 2019.

The higher gross profit was driven by the increase in at-home food consumption in connection with the COVID-19 pandemic, the addition of Pinnacle, the impact of the 53 rd week of our fiscal year, 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, the exit of our private label peanut butter business, and pandemic-related costs.

Grocery & Snacks operating profit for fiscal 2021 reflected an increase in gross profits of $34.3 million compared to fiscal 2020.

The higher gross profit was driven by the net sales growth discussed above, the benefits of supply chain realized productivity, favorable margin mix, fixed cost leverage, and cost synergies associated with the Pinnacle acquisition, partially offset by the impact of the 53 rd week of our prior fiscal year, the impacts of input cost inflation, higher transportation costs, a reduction in profit associated with the divestiture of our HK Anderson ® and Peter Pan ® peanut butter 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 $27.8 million and $58.4 million related to our restructuring plans in fiscal 2021 and 2020, respectively.

Fiscal 2020 and 2019 included brand intangible impairment charges of $46.4 million and $76.5 million, respectively.

Fiscal 2021 and 2020 included certain brand intangible impairment charges of $13.0 million and $46.4 million, respectively.

Fiscal 2021 included gains totaling $55.1 million related to the divestitures of certain businesses.

Fiscal 2020 also included a charge 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, and costs of $3.0 million related to divestitures.

Fiscal 2019 included a gain of $33.1 million related to the sale of our Wesson ® oil business and $30.2 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 fiscal 2020 was $702.2 million, an increase of $57.1 million, or 9%, compared to fiscal 2019.

Gross profits were $227.1 million higher in fiscal 2020 than in fiscal 2019, due to the increase in at-home food consumption resulting from the COVID-19 pandemic, the addition of Pinnacle, the impact of the 53 rd week of our fiscal year, and supply chain realized productivity, partially offset by higher input costs, lost profit from the divestiture of our Lender's ® bagel and Italian-based frozen pasta businesses, and pandemic-related costs.

Operating profit of the Refrigerated & Frozen segment was impacted by charges of $110.8 million related to the impairment of certain brand intangible assets during fiscal 2020.

Refrigerated & Frozen operating profit for fiscal 2021 reflected an increase in gross profits of $61.9 million compared to fiscal 2020 due to the net sales growth discussed above, the benefits of supply chain realized productivity, favorable margin mix, cost synergies associated with the Pinnacle acquisition, and fixed cost leverage, partially offset by the impact of the 53 rd week of our prior fiscal year, the impacts of input cost inflation, 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 charges of $76.9 million and $110.8 million related to the impairment of certain brand intangible assets during fiscal 2021 and 2020, respectively.

Fiscal 2021 and 2020 included $26.8 million and $15.8 million, respectively, of charges related to our restructuring plans.

Fiscal 2021 also included a gain of $10.4 million related to the divestiture of our Egg Beater's ® business, reduced by a loss of $7.1 million related to the early exit of an unfavorable contract associated with the divestiture.

In addition, operating profit of the Refrigerated & Frozen segment included $27.6 million related to the impairment of a business held for sale in fiscal 2020.

Fiscal 2019 included a gain of $23.1 million related to the sale of our Italian-based frozen pasta business, and $21.9 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.

Advertising and promotion expenses for fiscal 2020 decreased by $13.7 million compared to fiscal 2019.

International operating profit for fiscal 2020 was $100.6 million, an increase of $0.8 million, or 1%, compared to fiscal 2019.

Gross profits were $6.4 million lower in fiscal 2020 compared to fiscal 2019, due to higher input costs, increased retailer investments, the sales of our Del Monte ® Canadian and Wesson ® oil businesses, and pandemic-related costs, partially offset by the increased demand related to the COVID-19 pandemic, the addition of Pinnacle, the impact of the 53 rd week of our fiscal year, and realized productivity.

Advertising and promotion expenses for fiscal 2021 increased by $23.8 million compared to fiscal 2020.

International operating profit for fiscal 2021 reflected an increase in g ross profits of $18.3 million compared to fiscal 2020 due to the net sales growth discussed above, the benefits of supply chain realized productivity, fixed cost leverage, and favorable product mix, partially offset by the impact of the 53 rd week of our prior fiscal year, the impacts of input cost inflation, higher transportation costs , and a reduction in profit associated with the divestiture of our Peter Pan ® peanut butter business .

International gross profits also reflected a decrease of $ 5.8 million due to foreign exchange rates compared to the prior-year period.

Operating profit of the International segment was impacted by charges of $1.0 million and $8.3 million related to the impairment of certain brand intangible assets during fiscal 202 1 and 20 20 , respectively.

Fiscal 2020 and 2019 included expense of $1.6 million and $4.9 million, respectively, related to our restructuring plans.

In addition, 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 divestitures.

Foodservice operating profit for fiscal 2020 was $97.6 million, a decrease of $36.7 million, or 27%, compared to fiscal 2019.

Gross profits were $29.4 million lower in fiscal 2020 than in fiscal 2019, reflecting lower restaurant traffic due to the COVID-19 pandemic, higher inventory write-offs, higher input costs, the sales of our Wesson ® oil and Lender's ® bagel businesses, the exit of our private label peanut butter business, and the sale of our Trenton, Missouri facility.

These were slightly offset by the addition of Pinnacle, the impact of the 53 rd week of our fiscal year, and supply chain realized productivity.

Foodservice operating profit for fiscal 2021 reflected a decrease in gross profits of $26.0 million compared to fiscal 2020, reflecting lower traffic in away-from-home food outlets due to the COVID-19 pandemic, input cost inflation, the impact of the 53 rd week of our prior fiscal year, pandemic-related costs, and a reduction in profit associated with the divestitures of our Lender's ® bagel, H.K.

Anderson ® , and Peter Pan ® peanut butter businesses and the exit of our private label peanut butter business, partially offset by supply chain realized productivity and fixed cost leverage.

Pension and Postretirement Non-service Income

In fiscal 2020, pension and postretirement non-service income was $9.9 million, a decrease of $25.2 million compared to fiscal 2019.

The decrease was driven by a charge of $44.8 million in fiscal 2020 compared to a charge of $5.1 million in fiscal 2019 related to the year-end write-off of actuarial losses in excess of 10% of our pension liability.

The increase in losses outside of the 10% corridor was driven by a reduction of the discount rate used to remeasure the pension obligations to present value and a reduction in asset values for certain plan assets.

Excluding our year-end actuarial losses outside the corridor, our pension income increased due to lower interest costs as a result of declining interest rates.

In fiscal 2021, pension and postretirement non-service income was $54.5 million, an increase of $44.6 million compared to fiscal 2020.

The increase was driven by a charge of $44.8 million in fiscal 2020 compared to a charge of $0.8 million in fiscal 2021 related to the year-end write-off of actuarial losses in excess of 10% of our pension liability.

The increase in losses outside of the 10% corridor in the prior year was driven by a reduction of the discount rate used to remeasure the pension obligations to present value and a reduction in asset values for certain plan assets.

Interest Expense, Net

In fiscal 2020, net interest expense was $487.1 million, an increase of $95.7 million, or 25%, from fiscal 2019.

The increase reflected the issuance of $7.025 billion aggregate principal amount of unsecured senior notes and borrowings of $1.30 billion under our 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 May 31, 2020, we repaid all of our borrowings under the Term Loan Agreement.

In addition, 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 of $33.8 million within SG&A expenses.

In fiscal 2021, net interest expense was $420.4 million, a decrease of $66.7 million, or 14%, from fiscal 2020.

The decrease was driven by an overall reduction of our debt balances.

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

Our income tax expense was $193.8 million and $201.3 million in fiscal 2021 and 2020, respectively.

The effective tax rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment earnings) was approximately 13% and 19% for fiscal 2021 and 2020, respectively.

The effective tax rate in fiscal 2020 reflects the following:

the impact of a legal entity reorganization,

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

additional state income tax expense related to uncertain tax positions,

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 income tax purposes,

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

additional income 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 law changes,

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 fiscal 2019 reflects the following:

the impact of legal entity reorganization 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 certain foreign earnings,

an adjustment of valuation allowance associated with the expected capital gains from the divestiture of the Wesson ® oil and Gelit businesses,

additional tax expense on non-deductible facilitative costs associated with the Pinnacle acquisition,

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,

an increase to the deemed repatriation tax liability,

additional tax expense due to foreign and domestic restructuring, and

a state tax benefit from integration of the Pinnacle business.

See Note 14, "Pre-Tax Income and Income Taxes" , to the Consolidated Financial Statements contained in this report for a discussion on the change in effective tax rates.

In fiscal 2021, we completed a restructuring of our ownership interest in Ardent Mills that utilized a portion of our capital loss carryforward prior to its expiration.

Also in fiscal 2021, we completed several other transactions related to retained assets in conjunction with the divestitures of the Peter Pan ® peanut butter and Egg Beaters ® businesses that we believe will utilize a portion of the remaining capital loss carryforward.

These transactions are subject to certain elections and are currently under review by the Internal Revenue Service.

We believe they may result in increases to the tax basis in those assets and if successful would result in tax benefits being realized in future periods.

We expect our effective tax rate in fiscal 2022, exclusive of any unusual transactions or tax events, to be approximately 23%-24%.

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Our share of earnings from our equity method investment earnings were $84.4 million and $73.2 million for fiscal 2021 and 2020, respectively.

Results for fiscal 2020 and 2019 included a gain of $4.1 million and $15.1 million, respectively, from the sale of assets by the Ardent Mills joint venture.

Ardent Mills earnings for fiscal 2020 reflected increased retail demand in the fourth quarter, which more than offset reduced foodservice demand and unfavorable market conditions during the first three quarters of the year after adjusting for the items mentioned above.

Results for fiscal 2020 included a gain of $4.1 million from the sale of assets by the Ardent Mills joint venture.

Ardent Mills earnings for fiscal 2021 reflected favorable market conditions.

Earnings Per Share

Diluted earnings per share in fiscal 2020 were $1.72.

Diluted earnings per share in fiscal 2019 were $1.52, including earnings of $1.53 per diluted share from continuing operations and a loss of $0.01 per diluted share from discontinued operations.

The increase in diluted earnings per share reflected higher net income, partially offset by an increase in the number of shares.

Diluted earnings per share in fiscal 2021 and 2020 were $2.66 and $1.72, respectively.

The increase in diluted earnings per share reflected higher net income.

In addition, see "Items Impacting Comparability" above as several significant items affected the comparability of year-over-year results of operations.

Fiscal 2019 compared to Fiscal 2018

($ in millions)

Reporting Segment

Grocery & Snacks

Refrigerated & Frozen

International

Overall, our net sales were $9.54 billion in fiscal 2019, an increase of 20% compared to fiscal 2018.

Grocery & Snacks net sales for fiscal 2019 were $3.92 billion, an increase of $642.6 million, or 20%, compared to fiscal 2018.

Volume, excluding the impact of acquisitions and divestitures, was flat in fiscal 2019 compared to the prior-year period.

This result reflected merchandising changes and price elasticity-related declines in certain brands, as well as isolated production

challenges, partially offset by the continued benefit from momentum and innovation successes in the snacks businesses.

Price/mix was flat compared to the prior year as unfavorable mix, coupled with increases in brand building investments with retailers were offset by the impact of higher pricing.

The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $ 646.7 million, or 20 %, to Grocery & Snacks net sales during fiscal 2019.

The acquisition of Angie's Artisan Treats, LLC, which was completed in October 2017, contributed $41.3 million to Grocery & Snacks net sales during fiscal 2019, through the one-year anniversary of the acquisition.

Fiscal 2019 results included $115.9 million of net sales related to our Wesson ® oil business, which was sold in the fourth quarter of fiscal 2019.

Fiscal 2018 results included $156.4 million of net sales related to this divested business.

Refrigerated & Frozen net sales for fiscal 2019 were $3.74 billion, an increase of $982.4 million, or 36%, compared to fiscal 2018.

Results for fiscal 2019 reflected a 1% increase in volume compared to fiscal 2018, excluding the impact of acquisitions and divestitures.

The increase in sales volumes was a result of innovation across multiple brands, which was partially offset by the effects of reduced merchandising spend and the impact of a recall during the fourth quarter.

Price/mix was flat compared to fiscal 2018, as continued delivery of top-line accretive innovation in several brands was partially offset by brand building investments with retailers.

The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $931.4 million, or 34%, to Refrigerated & Frozen net sales during fiscal 2019.

The acquisition of the Sandwich Bros.

of Wisconsin ® business, which was completed in February 2018, contributed $25.7 million to Refrigerated & Frozen's net sales during fiscal 2019, through the one-year anniversary of the acquisition.

International net sales for fiscal 2019 were $864.4 million, an increase of $20.9 million, or 3%, compared to fiscal 2018.

Results for fiscal 2019 reflected a 2% increase in volume, excluding the impact of acquisitions and divestitures, a 4% decrease due to foreign exchange rates, and a 2% increase in price/mix, in each case compared to fiscal 2018.

The volume and price/mix increases for fiscal 2019 were driven by growth in the Canadian snacks and frozen businesses.

The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $70.9 million, or 8%, to International net sales during fiscal 2019.

The acquisition of Angie's Artisan Treats, LLC contributed $3.7 million to International net sales for fiscal 2019, through the one-year anniversary of the acquisition.

Fiscal 2019 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.

Fiscal 2018 results included $48.9 million of net sales related to this divested business.

In addition, fiscal 2019 and 2018 results included $17.1 million and $24.5 million, respectively, related to our divested Wesson ® oil business.

Foodservice net sales for fiscal 2019 were $1.02 billion, a decrease of $45.8 million, or 4%, compared to fiscal 2018.

Results for fiscal 2019 reflected a 7% decrease in volume, excluding divestitures.

The decline in volume reflected the continued execution of the segment's value-over-volume strategy and the sale of our Trenton, Missouri production facility in the first quarter of fiscal 2019.

Price/mix increased 4% in fiscal 2019 compared to fiscal 2018.

The increase in price/mix for fiscal 2019 reflected favorable product and customer mix, the impact of inflation-driven increases in pricing, and the execution of the segment's value-over-volume strategy.

The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $78.6 million, or 7%, to Foodservice net sales during fiscal 2019.

Fiscal 2019 included $34.2 million of net sales related to our Wesson ® oil business, which was sold in the fourth quarter of fiscal 2019.

Fiscal 2018 results included $53.4 million of net sales related to this divested business.

Net sales declined by approximately 7% in fiscal 2019 due to the sale of our Trenton, Missouri production facility.

SG&A Expenses (Includes general corporate expenses)

SG&A expenses totaled $1.47 billion for fiscal 2019, a decrease of $75.0 million compared to fiscal 2018.

SG&A expenses for fiscal 2019 reflected the following:

Items impacting comparability of earnings

expenses of $170.3 million in connection with our restructuring plans,

expenses of $106.2 million associated with costs incurred for acquisitions and divestitures,

expenses of $89.6 million related to intangible impairments,

gains of $69.4 million related to the divestitures of businesses,

a benefit of $39.1 million related to legal matters,

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

a benefit of $15.1 million related to the fair value adjustment of cash settleable equity awards issued in connection with, and included in the consideration for the Pinnacle acquisition, and

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

Other changes in expenses compared to fiscal 2018

an increase of $81.9 million related to Pinnacle SG&A expenses not included in other items noted herein, representing such costs incurred from October 26, 2018 through May 26, 2019,

a decrease in advertising and promotion expense of $25.2 million, including $34.0 million of expense attributable to Pinnacle,

an increase in salary and wage expense of $61.6 million, including $60.2 million attributable to Pinnacle,

a decrease in share-based payment and deferred compensation expense of $13.1 million due to lower share price and market declines, including $1.0 million of expense attributable to Pinnacle,

a decrease in pension and postretirement service expense of $9.6 million,

an increase in defined contribution plan expense of $6.9 million, including $2.4 million attributable to Pinnacle,

a decrease in charitable contributions of $5.4 million,

a decrease in incentive compensation expense of $4.3 million, including $6.4 million attributable to Pinnacle,

an increase in self-insured workers' compensation and product liability expense of $3.3 million, and

a decrease in transaction services agreement income of $2.9 million.

SG&A expenses for fiscal 2018 included the following items impacting the comparability of earnings:

charges totaling $151.0 million related to certain litigation matters,

a charge of $34.9 million related to the early termination of an unfavorable lease contract,

expenses of $30.2 million in connection with our SCAE Plan,

expenses of $15.1 million associated with costs incurred for acquisitions and divestitures, and

charges totaling $4.8 million related to the impairment of other intangible assets.

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

($ in millions)

Reporting Segment

Grocery & Snacks

Refrigerated & Frozen

International

Grocery & Snacks operating profit for fiscal 2019 was $762.6 million, an increase of $40.1 million, or 6%, compared to fiscal 2018.

Gross profits were $70.6 million higher in fiscal 2019 than in fiscal 2018.

The higher gross profit was driven by profit contribution of acquisitions and supply chain realized productivity, partially offset by higher input costs, transportation inflation, and a reduction in profit associated with the divestiture of the Wesson ® oil business.

The acquisition of Pinnacle contributed $125.1 million to Grocery & Snacks gross profit in fiscal 2019.

The acquisition of Angie's Artisan Treats, LLC contributed $12.6 million to Grocery & Snacks gross profit in fiscal 2019, through the one-year anniversary of the acquisition.

Advertising and promotion expenses for fiscal 2019 decreased by $18.4 million compared to fiscal 2018.

Operating profit of the Grocery & Snacks segment was impacted by charges totaling $76.5 million in fiscal 2019 for the impairment of our Chef Boyardee ® and Red Fork ® brand assets and $4.0 million in fiscal 2018 for the impairment of our HK Anderson ® , Red Fork ® , and Salpica ® brand

Grocery & Snacks also recognized a $33.1 million gain on the sale of our Wesson ® oil business in fiscal 2019.

Operating profit of the Grocery & Snacks segment included $1.0 million and $11.4 million of expenses in fiscal 2019 and 2018, respectively, related to acquisitions and divestitures and charges of $ 6.1 million and $14.1 million in connection with our restructuring plans in fiscal 2019 and 2018, respectively.

Grocery & Snacks operating profit also included incremental cost of goods sold of $30.2 million due to the impact of writing inventory to fair value as part of our acquisition accounting for Pinnacle and the subsequent sale of that inventory.

Refrigerated & Frozen operating profit for fiscal 2019 was $645.1 million, an increase of $165.7 million, or 35%, compared to fiscal 2018.

Gross profits were $216.4 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle and supply chain realized productivity, partially offset by increased input costs and transportation inflation.

Advertising and promotion expenses for fiscal 2019 decreased by $5.5 million compared to fiscal 2018.

Operating profit of the Refrigerated & Frozen segment included a gain of $23.1 million in fiscal 2019 related to the sale of our Italian-based frozen pasta business, Gelit, and incremental cost of goods sold of $21.9 million due to the impact of writing inventory to fair value as part of our acquisition accounting for Pinnacle and the subsequent sale of that inventory.

International operating profit for fiscal 2019 was $99.8 million, an increase of $13.3 million, or 15%, compared to fiscal 2018.

Gross profits were $13.9 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle.

Included in the International segment fiscal 2019 operating profit was a gain of $13.2 million related to the sale of our Del Monte ® processed fruit and vegetable business in Canada, charges of $13.1 million for the impairment of our Aylmer ® and Sundrop ® brand assets, and charges of $2.9 million related to divestitures.

In addition, operating profit was impacted by charges of $4.9 million and $1.5 million in connection with our restructuring plans, in fiscal 2019 and 2018, respectively.

Foodservice operating profit for fiscal 2019 was $134.3 million, an increase of $10.2 million, or 8%, compared to fiscal 2018.

Gross profits were $8.6 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle and supply chain realized productivity, partially offset by lower volume (including the sale of our Trenton, Missouri production facility) and higher input costs.

Pension and Postretirement Non-service Income

In fiscal 2019, pension and postretirement non-service income was $35.1 million, a decrease of $45.3 million compared to fiscal 2018.

The decrease was primarily related to lower expected return on plan assets as we changed our investment strategy to more fixed income securities.

Interest Expense, Net

In fiscal 2019, net interest expense was $391.4 million, an increase of $232.7 million, or 147%, from fiscal 2018.

The increase reflected the following:

the issuance of $7.025 billion aggregate principal amount of unsecured senior notes and borrowings of $1.30 billion under our 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 Pinnacle acquisition,

the repayment of a total of $900.0 million of our borrowings under the Term Loan Agreement in the third and fourth quarters of fiscal 2019,

the borrowing of $300.0 million under our prior term loan agreement during the fourth quarter of fiscal 2018, which borrowing was subsequently repaid in connection with the Pinnacle acquisition,

the issuance of $500.0 million aggregate principal amount of floating rate notes due 2020 during the second quarter of fiscal 2018,

the repayment of $70.0 million aggregate principal amount of outstanding senior notes in the fourth quarter of fiscal 2018, and

the repayment of $119.6 million aggregate principal amount of outstanding notes in the third quarter of fiscal 2018.

In addition, fiscal 2019 included $11.9 million 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 of $33.8 million within SG&A expenses.

Our income tax expense was $218.8 million and $174.6 million in fiscal 2019 and 2018, respectively.

The effective tax rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment earnings) was approximately 24% and 18% for fiscal 2019 and 2018, respectively.

As a result of our off-calendar fiscal year end, the lower U.S.

statutory federal income tax rate resulted in a blended U.S.

federal statutory rate of 29.3% for the fiscal year ended May 27, 2018.

The effective tax rate in fiscal 2019 reflects the following:

the impact of legal entity reorganization 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 certain foreign earnings,

an adjustment of valuation allowance associated with the expected capital gains from the divestiture of the Wesson ® oil and Gelit businesses,

additional tax expense on non-deductible facilitative costs associated with the Pinnacle acquisition,

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

an increase to the deemed repatriation tax liability,

additional tax expense due to foreign and domestic restructuring, and

a state tax benefit from integration of the Pinnacle business.

The effective tax rate in fiscal 2018 reflects the following:

the impact of the Tax Act,

an adjustment of valuation allowance associated with the termination of the agreement for the proposed divestiture of our Wesson ® oil business,

an indirect cost of the pension contribution made on February 26, 2018,

additional expense related to the settlement of an audit of the impact of a law change in Mexico,

an income tax benefit allowed upon the vesting/exercise of employee stock compensation awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of grant, and

additional expense related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made.

Equity Method Investment Earnings

We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates.

Our most significant affiliate is the Ardent Mills joint venture.

Our share of earnings from our equity method investment earnings were $75.8 million and $97.3 million for fiscal 2019 and 2018, respectively.

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

In addition, Ardent Mills earnings for fiscal 2019 reflected lower commodity margins and the timing of certain customer contracts that negatively impacted performance.

A benefit of $4.3 million was included in the earnings of fiscal 2018 in connection with a gain on the substantial liquidation of an international joint venture.

Results of Discontinued Operations

Our discontinued operations generated an after-tax loss of $1.9 million and a gain of $14.3 million in fiscal 2019 and 2018, respectively.

During fiscal 2018, a $14.5 million income tax benefit was recorded due to an adjustment of the estimated deductibility of the costs incurred associated with effecting the Spinoff of Lamb Weston.

Earnings Per Share

Diluted earnings per share in fiscal 2019 were $1.52, including earnings of $1.53 per diluted share from continuing operations and a loss of $0.01 per diluted share from discontinued operations.

Diluted earnings per share in fiscal 2018 were $1.98, including earnings of $1.95 per diluted share from continuing operations and $0.03 per diluted share from discontinued operations.

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

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

The primary objective of our financing strategy is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives.

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 a solid investment grade credit rating.

We use a combination of equity and short and long-term debt.

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).

We are committed to maintaining solid investment grade credit ratings.

Management believes that existing cash balances, cash flows from operations, existing credit facilities, our commercial paper program, and access to capital markets will provide sufficient liquidity to meet our debt obligations, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months.

Borrowing Facilities and Long-Term Debt

At May 30, 2021, 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).

The Revolving Credit Facility matures on July 11, 2024 and is unsecured.

The term of the Revolving Credit Facility may be extended for additional one-year or two-year periods from the then-applicable maturity date on an annual basis.

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

As of May 30, 2021, there were no outstanding borrowings under the Revolving Credit Facility.

We had no amounts outstanding under our commercial paper program as of May 31, 2020 and May 26, 2019.

The highest level of borrowings during fiscal 2020 was $145.0 million.

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).

The Credit Agreement matures on May 21, 2023.

As of May 31, 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 and may be voluntarily prepaid, in whole or in part, without penalty, subject to certain conditions.

During fiscal 2020 we repaid 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 on our three-year tranche loans and our five-year tranche loans, respectively.

The Term Loan Agreement was terminated after these repayments.

During fiscal 2020 we also redeemed the entire outstanding $525.0 million aggregate principal amount of our floating rate notes due October 22, 2020 in two separate redemptions totaling $250.0 million and $275.0 million in the third and fourth quarter of fiscal 2020, respectively.

We have $844.8 million of long-term debt maturing in the next 12 months.

We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt upon maturity, as market conditions warrant, from operating cash flows, our undrawn Credit Agreement, our commercial paper program, access to the capital markets, and our Revolving Credit Facility.

However, the disruption in the capital markets caused by the COVID-19 pandemic could make any refinancing more challenging and there can be no assurance that we will be able to successfully refinance any debt on commercially reasonable terms or at all.

We had $705.7 million outstanding under our commercial paper program as of May 30, 2021, and no amounts outstanding as of May 31, 2020.

The highest level of borrowings during fiscal 2021 was $1.05 billion.

During the fourth quarter of fiscal 2021, we repaid the remaining outstanding $195.9 million aggregate principal amount of our 9.75% subordinated notes on their maturity date of March 1, 2021.

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

A summary of our long-term debt balances as of May 30, 2021 can be found in Note 4, "Long-Term Debt" , to the Consolidated Financial Statements contained in this report.

The weighted-average coupon interest rate of the long-term debt obligations outstanding as of May 30, 2021, was approximately 4.6%.

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 fiscal 2021, our senior long-term debt ratings were all investment grade.

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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 covenants (the Revolving Credit Facility) generally require our ratio of EBITDA (earnings before interest, taxes, depreciation, and amortization) to interest expense not be less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not 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.

Our most restrictive debt agreement (the Revolving Credit Facility) generally requires our ratio of EBITDA to interest expense not be 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.

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

As of May 30, 2021, we were in compliance with all financial covenants.

On July 13, 2021, subsequent to our fiscal year end, we entered into an amendment to the Revolving Credit Facility .

The amendment modifies the ra tio of funded debt to EBITDA financial covenant to require a ratio of not greater than 4.50 on a rolling four-quarter basis.

Equity and Dividends

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.

Our total remaining share repurchase authorization as of May 31, 2020, was $1.41 billion.

On April 16, 2020, we announced that our Board had authorized a quarterly dividend payment of $0.2125 per share, which was paid on June 3, 2020, to shareholders of record as of the close of business on April 30, 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 2021.

In fiscal 2020, we generated $316.7 million of cash, which was the net result of $1.84 billion generated from operating activities, $153.8 million used in investing activities, $1.37 billion used in financing activities, and a decrease of $1.7 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities of continuing operations totaled $1.84 billion in fiscal 2020, as compared to $1.11 billion generated in fiscal 2019.

Operating cash flows for fiscal 2020 reflected additional operating results from the acquisition of Pinnacle and the impact of increased sales from COVID-19 pandemic-related demand.

The timing of the increased demand in the fourth quarter also created working capital favorability for fiscal 2020 driven primarily by the combination of decreased inventory levels and increased accounts payable balances resulting from longer supplier payment terms.

We expect that a significant portion of this working capital favorability will reverse in fiscal 2021 as demand returns to more historic levels.

In the fourth quarter of fiscal 2020, we also improved working capital due to approximately $47 million in tax payments that were deferred until the first quarter of fiscal 2021 as a result of recent tax legislation.

Despite the deferral of such tax payments, we still had $44.2 million of additional tax payments in the current year.

The above working capital favorability was further offset by a $119.0 million increase in interest payments and the comparative impact of cash proceeds from the settlement of interest rate swaps in fiscal 2019 totaling $47.5 million.

Lastly, we extended payment terms with certain Foodservice customers (ranging from 15-30 days) as a result of the COVID-19 pandemic which partly gave rise to an increase in our accounts receivable at year-end.

Cash used in investing activities totaled $153.8 million in fiscal 2020 compared to $5.17 billion in fiscal 2019.

Investing activities in fiscal 2020 consisted primarily of capital expenditures totaling $369.5 million and the net proceeds from divestitures totaling $194.6 million, including the sales of our DSD snacks and Lender's ® bagel businesses.

Investing activities in fiscal 2019 consisted primarily of the purchase of Pinnacle for $5.12 billion, net of cash acquired, capital expenditures of $353.1 million, and proceeds from the divestiture of our Del Monte ® processed fruit and vegetable business, our Wesson ® oil business, and our Italian-based frozen pasta business, Gelit, for combined proceeds of $281.5 million, net of cash divested.

Cash used in financing activities totaled $1.37 billion in fiscal 2020, compared to cash provided by financing activities of $4.15 billion in fiscal 2019.

During fiscal 2021, we repurchased 8.8 million shares of our common stock under this authorization for an aggregate of $298.1 million.

The Company’s total remaining share repurchase authorization as of May 30, 2021, was $1.12 billion.

On April 16, 2021, we announced that our Board had authorized a quarterly dividend payment of $0.275 per share, which was paid on June 2, 2021, to stockholders of record as of the close of business on April 30, 2021.

Subsequent to our fiscal year end, our Board approved a 14% increase to our annualized dividend rate.

The Board approved a quarterly dividend of $0.3125 per share to be paid on September 2, 2021 to stockholders of record as of the close of business on August 3, 2021.

Contractual Obligations

As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments.

These obligations impact our liquidity and capital resource needs.

In addition to principal and interest payments on our outstanding long-term debt and notes payable balances, discussed above, our contractual obligations primarily consist of leases payments, income taxes, pension and postretirement benefits, and unconditional purchase obligations.

A summary of our operating and finance lease obligations as of May 30, 2021 can be found in Note 15, "Leases" , to the Consolidated Financial Statements contained in this report.

The liability for gross unrecognized tax benefits related to uncertain tax positions was $33.0 million as of May 30, 2021.

See Note 14, "Pre-Tax Income and Income Taxes" , to the Consolidated Financial Statements contained in this report for information related to income taxes.

As of May 30, 2021, we had an aggregate funded pension asset of $109.6 million and an aggregate unfunded postretirement benefit obligation totaling $78.2 million.

We expect to make payments totaling approximately $12.3 million and $9.0 million in fiscal 2022 to fund our pension and postretirement plans, respectively.

See Note 18, "Pension and Postretirement Benefits" , to the Consolidated Financial Statements and "Critical Accounting Estimates – Employment-Related Benefits" contained in this report for further discussion of our pension obligation and factors that could affect estimates of these obligations.

As of May 30, 2021, our unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-pay" contracts) totaled approximately $2.51 billion.

Approximately $1.82 billion of this balance is due in fiscal 2022.

Included in this amount are open purchase orders and other supply agreements totaling approximately $1.53 billion, which are generally settleable in the ordinary course of business in less than one year.

Some are not legally binding and/or may be cancellable.

Warehousing service agreements totaling approximately $400 million and obligations for leases that have not yet commenced totaling $272.2 million as of May 30, 2021, make up a majority of our remaining unconditional purchase obligations with various terms of up to 20 years.

Capital Expenditures

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

Our preliminary estimate of capital expenditures for fiscal 2022 is approximately $475 million.

Supplier Arrangements

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 a ccounts payable within our Consolidated Balance Sheets.

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

As of May 30, 2021 and May 31, 2020, $ 279.3 million and $258.7 million, respectively, of our total accounts payable was 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.

In fiscal 2021, we used $474.1 million of cash, which was the net result of $1.47 billion generated from operating activities, $340.3 million used in investing activities, $1.61 billion used in financing activities, and an increase of $7.7 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities totaled $1.47 billion in fiscal 2021, as compared to $1.84 billion generated in fiscal 2020.

Operating cash flows for fiscal 2021 reflected increased net sales in our retail segments from COVID-19 pandemic-related demand as well as decreased interest payments.

This was partially offset by increased tax payments compared to fiscal 2020.

Tax payments for 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 most notably impacted by inventory rebuilding in fiscal 2021, as certain brands had previously been on allocation due to high demand through the pandemic.

Further, our inventory balances also have experienced recent input cost inflation which is giving rise to larger inventory amounts period over period.

Operating cash flows benefited from the continued deferral of employer payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act, which totaled $33.9 million for fiscal 2021.

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

Cash used in investing activities totaled $340.3 million in fiscal 2021 compared to $153.8 million in fiscal 2020.

Investing activities in fiscal 2021 consisted primarily of capital expenditures totaling $506.4 million, partially offset by net proceeds totaling $160.9 million from the sale of our Egg Beaters ® , Peter Pan ® peanut butter, and H.K.

Anderson ® businesses.

Investing activities in fiscal 2020 consisted mainly of capital expenditures of $369.5 million and the net proceeds from divestitures totaling $194.6 million, including the sales of our DSD snacks and Lender's ® bagel businesses.

Cash used in financing activities totaled $1.61 billion in fiscal 2021 compared to $1.37 billion in fiscal 2020.

Financing activities in fiscal 2021 principally reflect repayments of long-term debt of $2.51 billion, the issuance of long-term debt totaling $988.2 million, net short-term borrowings of $706.3 million, cash dividends paid of $474.6 million, and common stock repurchases of $298.1 million.

Financing activities in fiscal 2020 consisted principally of the repayment of long-term debt totaling $947.5 million and cash dividends paid of $413.6 million.

During 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 $555.7 million.

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

During fiscal 2019, we also repaid $3.97 billion of long-term debt, reduced our short-term borrowings mainly related to our commercial paper program by $277.3 million, and paid cash dividends of $356.2 million.

Cash Held by International Subsidiaries

The Company had cash and cash equivalents of $79.2 million at May 30, 2021, and $553.3 million at May 31, 2020, of which $72.4 million at May 30, 2021, 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.

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

Management believes that existing cash balances, cash flows from operations, existing credit facilities, and access to capital markets will provide sufficient liquidity to meet our repayment of debt, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months.

OBLIGATIONS AND COMMITMENTS

As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as lease agreements, debt agreements, and unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-pay" contracts).

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 our Consolidated Balance Sheets contained in this report as of May 31, 2020.

A summary of our contractual obligations as of May 31, 2020, was as follows:

Payments Due by Period

(in millions)

Contractual Obligations

Long-term debt

Finance lease obligations

Operating lease obligations

Purchase obligations 1 and other contracts

Notes payable

1 Amount includes 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 $1.38 billion as of May 31, 2020, were not recognized as liabilities in the Consolidated Balance Sheets contained in this report, in accordance with U.S.

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 May 31, 2020 was approximately 4.8%.

The operating lease obligations noted in the table above have not been reduced by non-cancellable sublease rentals of $5.9 million.

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

Our unfunded pension obligation decreased by $79.6 million in fiscal 2020 primarily due to lump-sum payments to plan participants and actual return on plan assets exceeding expected returns, principally on fixed income securities.

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.

Based on current statutory requirements, we are not obligated to fund any amount to our qualified pension plans during the next twelve months.

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 18 " Pension and Postretirement Benefits " to the consolidated financial statements and " Critical Accounting Estimates – Employment-Related Benefits " contained in this report 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 .

As of May 31, 2020 , we had $5 2 .

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 our Consolidated Balance Sheets.

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 May 31, 2020, the remaining terms of these arrangements did not exceed three years and the maximum amount of future payments we have guaranteed was $0.6 million.

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

As of May 31, 2020, the remaining term of this arrangement did not exceed seven years and the maximum amount of future payments we have guaranteed was $16.5 million.

We also guarantee an obligation of the Lamb Weston business pursuant to a guarantee arrangement that existed prior to 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 this 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 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 guaranty, would be largely mitigated.

The obligations and commitments tables 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 May 31, 2020 was $35.8 million.

The net amount of unrecognized tax benefits at May 31, 2020, that, if recognized, would favorably impact our effective tax rate was $30.3 million.

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

CRITICAL ACCOUNTING ESTIMATES

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Income Taxes —Our income tax expense is based on our income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which we operate.

Tax laws are complex and subject to different interpretations by the

taxpayer and respective governmental taxing authorities.

Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities.

Significant judgment is required in determining our income tax expense and in evaluating our tax positions, including evaluating uncertainties.

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The reserve for each site is determined based on an assessment of the most likely required remedy and a related estimate of the costs required to effect such remedy.

Employment-Related Benefits —We incur certain employment-related expenses associated with pensions, postretirement health care benefits, and workers' compensation.

In order to measure the annual expense associated with these employment-related benefits, management must make a variety of estimates including, but not limited to, discount rates used to measure the present value of certain liabilities, assumed rates of return on assets set aside to fund these expenses, compensation increases, employee turnover rates, anticipated mortality rates, anticipated health care costs, and employee accidents incurred but not yet reported to us.

Employment-Related Benefits —We incur certain employment-related expenses associated with pensions and postretirement health care benefits.

The estimates used by management are based on our historical experience as well as current facts and circumstances.

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Different estimates used by management could result in us recognizing different amounts of expense over different periods of time.

The Company uses a split discount rate (the "spot-rate approach") for the U.S.

T he Company use s a split discount rate (the "spot-rate approach") for the U.S.

plans and certain foreign plans.

The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost.

We have recognized a pension liability of $254.5 million and $192.9 million, a postretirement liability of $89.3 million and $90.6 million, and a workers' compensation liability of $55.5 million and $61.1 million, as of the end of fiscal 2020 and 2019, respectively.

We have recognized a pension liability of $135.4 million and $254.5 million and a postretirement liability of $81.2 million and $89.3 million as of the end of fiscal 2021 and 2020, respectively.

We also have recognized a pension asset of $245.0 million and $202.4 million as of the end of fiscal 2021 and 2020, respectively, as certain individual plans of the Company had a positive funded status.

We recognize cumulative changes in the fair value of pension plan assets and net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation ("the corridor") in current period expense annually as of our measurement date, which is our fiscal year-end, or when measurement is required otherwise under U.S.

generally accepted accounting principles ("U.S.

We recognized pension expense (benefit) from Company plans of $(38.3) million, $5.9 million, and $(22.7) million in fiscal 2021, 2020, and 2019, respectively.

Such amounts reflect the year-end write-off of actuarial losses in excess of 10% of our pension liability of $0.8 million, $44.8 million, and $5.1 million in fiscal 2021, 2020, and 2019, respectively.

This also reflected

expected returns on plan assets of $170.

2 million, $174.4 million, and $218.3 million in fiscal 2020, 2019, and 2018, respectively.

We contributed $17.5 million, $ 14 .

7 million, and $ 312 .

6 million to the pension plans of our continuing operations in fiscal 20 20 , 201 9 , and 201 8 , respectively.

We anticipate contributing approximately $ 32 .

2 million to our pension plans in fiscal 202 1 .

This also reflected expected returns on plan assets of $140.0 million, $170.2 million, and $174.4 million in fiscal 2021, 2020, and 2019, respectively.

We contributed $27.6 million, $17.5 million, and $14.7 million to the pension plans of our continuing operations in fiscal 2021, 2020, and 2019, respectively.

We anticipate contributing approximately $12.3 million to our pension plans in fiscal 2022.

One significant assumption for pension plan accounting is the discount rate.

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We selected a weighted-average discount rate of 3.50% and 2.29% for determination of service and interest expense, respectively, for fiscal 2022.

A 25 basis point increase in our discount rate assumption as of the end of fiscal 2020 would have resulted in an increase of $5.1 million in our pension expense for fiscal 2020.

A 25 basis point decrease in our discount rate assumption as of the end of fiscal 2020 would have resulted in a decrease of $5.5 million in our pension expense for fiscal 2020.

A 25-basis point increase in our discount rate assumption as of the end of fiscal 2021 would increase our annual pension expense for our pension plans in fiscal 2022 by $5.2 million.

A 25-basis point decrease in our discount rate assumption as of the end of fiscal 2021 would decrease our annual pension expense for our pension plans in fiscal 2022 by $5.7 million.

For our year-end pension obligation determination, we selected discount rates of 3.04% and 2.98% for fiscal years 2021 and 2020, respectively.

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A 25-basis point increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2022 would decrease/increase annual pension expense for our pension plans by $9.4 million.

During fiscal 2018, we approved an amendment of our salaried and non-qualified pension plans.

The amendment froze the compensation and service periods used to calculate pension benefits for active employees who participate in those plans.

As a result of this amendment, we changed our salaried and non-qualified pension asset investment strategy to align our related pension plan assets with our projected benefit obligation to reduce volatility.

During 2018, we conducted a mortality experience study and, with the assistance of our third-party actuary, adopted new company-specific mortality tables used in measuring our pension obligations as of May 27, 2018.

In addition, we incorporated a revised mortality improvement scale to be used with the new company-specific mortality tables that reflects the mortality improvement inherent in these tables.

We also provide certain postretirement health care benefits.

We recognized postretirement benefit expense (benefit) of $(4.2) million, $(1.3) million, and $0.7 million in fiscal 2020, 2019, and 2018, respectively.

We recognized postretirement benefit income of $4.4 million, $4.2 million, and $1.3 million in fiscal 2021, 2020, and 2019, respectively.

We anticipate contributing approximately $9.0 million to our postretirement health care plans in fiscal 2022.

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We have assumed the initial year increase in cost of health care to be 6.53%, with the trend rate decreasing to 4.44% by 2029.

A one percentage point change in the assumed health care cost trend rate would have the following effects:

($ in millions)

Effect on total service and interest cost

Effect on postretirement benefit obligation

We provide workers' compensation benefits to our employees.

The measurement of the liability for our cost of providing these benefits is largely based upon actuarial analysis of costs.

One significant assumption we make is the discount rate used to calculate the present value of our obligation.

The weighted-average discount rate used at May 31, 2020 was 2.

A 25 basis point increase/decrease in the discount rate assumption would not have a material impact on workers' compensation expense or the liability.

Business Combinations, Impairment of Long-Lived Assets (including property, plant and equipment), Identifiable Intangible Assets, and Goodwill —We use the acquisition method in accounting for acquired businesses.

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Goodwill is tested annually for impairment of value and whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired.

A significant amount of judgment is involved in determining if an indicator of impairment

has occurred.

Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others.

A significant amount of judgment is involved in determining if an indicator of impairment has occurred.

declining cash flows over multiple periods, among others.

The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.

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Historically, we have experienced impairments in brand intangibles and goodwill as a result of declining sales and other economic conditions.

For instance, in fiscal 2020, we recorded total intangibles impairments of $165.5 million, primarily related to our recently acquired Pinnacle brands.

For instance, in fiscal 2021 and 2020, we recorded total intangibles impairments of $90.9 million and $165.5 million respectively, primarily related to our recently acquired Pinnacle brands.

In fiscal 2019, we recorded total intangibles impairments of $89.6 million, primarily related to our Chef Boyardee ® brand intangible.

With the addition of Pinnacle intangibles that were recorded at fair value in the prior year, we continue to be more susceptible to impairment charges in the future if our long-term sales forecasts, royalty rates, and other assumptions change as a result of lower than expected performance or other economic conditions.

We will monitor these assumptions as management continues to achieve expected synergies, gross margin improvement, and long-term sales growth on certain key brands acquired in the acquisition including, but not limited to, Birds Eye ® , Duncan Hines ® , and Gardein ® .

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses ( Topic 326 ):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), to update the methodology used to measure current expected credit losses ("CECL").

This ASU applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments.

This ASU replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates.

The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption.

This ASU will be effective beginning in the first quarter of our fiscal year 2021.

We do not expect ASU 2016-13 to have a material impact to our consolidated financial statements and related disclosures.

With the addition of Pinnacle intangibles that were recorded at fair value in fiscal 2019, we continue to be more susceptible to impairment charges in the future if our long-term sales forecasts, royalty rates, and other assumptions change as a result of lower than expected performance or other economic conditions.

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-K

Item 7. Management’s Discussion and Analysis