What changed in this filing

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Item 1. Financial Statements

2020-08-25 compared with 2020-02-27 · 104 added, 275 removed, 517 unchanged (42% of the section changed)

2 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

Three Months Ended January 31, Nine Months Ended January 31,

Three Months Ended July 31,

Dollars in millions, except per share data 2020 2019

4 unchanged sentences

Amortization 59.6 58.8

Other intangible assets impairment charges 52.4 107.2 52.4 107.2

Other special project costs (A)

3.3 18.8 9.9 51.9

Other operating expense (income) – net ( 2.8 ) ( 0.6 )

14 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

Three Months Ended January 31, Nine Months Ended January 31,

Three Months Ended July 31,

Dollars in millions 2020 2019

10 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in millions

January 31, 2020 April 30, 2019

Dollars in millions July 31, 2020 April 30, 2020

Current Assets

Cash and cash equivalents $ 396.6 $ 391.1

Trade receivables, less allowance for doubtful accounts 477.3 503.8

Trade receivables – net 497.6 551.4

Finished products 615.8 563.5

44 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

Nine Months Ended January 31,

Three Months Ended July 31,

Dollars in millions 2020 2019

4 unchanged sentences

Amortization 59.6 58.8

Other intangible assets impairment charges 52.4 107.2

Share-based compensation expense 5.9 6.2

Gain on divestiture — ( 27.6 )

Other noncash adjustments – net 3.8 0.2

Defined benefit pension contributions ( 1.1 ) ( 20.1 )

Changes in assets and liabilities, net of effect from acquisition and divestiture:

Changes in assets and liabilities:

Trade receivables 55.1 30.4

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Investing Activities

Business acquired, net of cash acquired — ( 1,903.0 )

Additions to property, plant, and equipment ( 76.6 ) ( 73.0 )

Proceeds from divestiture — 371.4

Other – net 27.4 20.9

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Short-term borrowings (repayments) – net 47.8 ( 130.0 )

Proceeds from long-term debt — 1,500.0

Repayments of long-term debt ( 300.0 ) —

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CONDENSED STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

Three months ended July 31, 2020

Dollars in millions Common

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Cash dividends declared, $0.90 per common share ( 102.4 ) ( 102.4 )

Other ( 0.5 ) 0.5 — —

Balance at July 31, 2020 114,087,442 $ 28.5 $ 5,795.3 $ 2,882.3 $ ( 360.9 ) $ 8,345.2

Net income 211.2 211.2

Other comprehensive income (loss) ( 31.7 ) ( 31.7 )

Comprehensive income 179.5

Purchase of treasury shares ( 4,930 ) — ( 0.6 ) — ( 0.6 )

Stock plans 14,882 — 8.8 8.8

Cash dividends declared, $0.88 per common share ( 100.1 ) ( 100.1 )

Balance at October 31, 2019 114,059,744 $ 29.0 $ 5,781.7 $ 2,533.0 $ ( 248.4 ) $ 8,095.3

Net income 187.4 187.4

Other comprehensive income (loss) ( 17.9 ) ( 17.9 )

Comprehensive income 169.5

Purchase of treasury shares ( 7,180 ) — ( 1.0 ) 0.2 ( 0.8 )

Stock plans ( 11,251 ) — 6.5 6.5

Cash dividends declared, $0.88 per common share ( 100.1 ) ( 100.1 )

Balance at January 31, 2020 114,041,313 $ 29.0 $ 5,787.2 $ 2,620.5 $ ( 266.3 ) $ 8,170.4

Three months ended July 31, 2019

Dollars in millions Common

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Balance at July 31, 2019 114,049,792 $ 29.0 $ 5,773.5 $ 2,421.9 $ ( 216.7 ) $ 8,007.7

Net income 188.5 188.5

Other comprehensive income (loss) 2.4 2.4

Comprehensive income 190.9

Purchase of treasury shares ( 2,485 ) — ( 0.3 ) — ( 0.3 )

Stock plans ( 9,883 ) — 5.1 5.1

Cash dividends declared, $0.85 per common share ( 96.5 ) ( 96.5 )

Balance at October 31, 2018 113,760,080 $ 28.9 $ 5,749.9 $ 2,367.6 $ ( 116.4 ) $ 8,030.0

Net income 121.4 121.4

Other comprehensive income (loss) ( 36.9 ) ( 36.9 )

Comprehensive income 84.5

Purchase of treasury shares ( 1,746 ) — ( 0.2 ) — ( 0.2 )

Stock plans 122 — 3.7 3.7

Cash dividends declared, $0.85 per common share ( 96.4 ) ( 96.4 )

Balance at January 31, 2019 113,758,456 $ 28.9 $ 5,753.4 $ 2,392.6 $ ( 153.3 ) $ 8,021.6

See notes to unaudited condensed consolidated financial statements.

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In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included.

Operating results for the nine months ended January 31, 2020, are not necessarily indicative of the results that may be expected for the year ending April 30, 2020.

Operating results for the three months ended July 31, 2020, are not necessarily indicative of the results that may be expected for the year ending April 30, 2021.

For further information, reference is made to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended April 30, 2020.

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We do not anticipate that the adoption of this ASU will have a material impact on our financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract .

ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

ASU 2018-15 is effective for us on May 1, 2020, but we elected to early adopt on May 1, 2019, as permitted, on a prospective basis.

During the nine months ended January 31, 2020, we capitalized implementation costs related to third-party cloud computing services of $ 3.4 , which is reflected in other noncurrent assets in the Condensed Consolidated Balance Sheet.

In August 2018, the FASB also issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20) Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans , which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20) Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans , which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans.

The guidance removes disclosures that are no longer considered cost beneficial and adds new, as well as clarifies certain other, disclosure requirements.

ASU 2018-14 will be effective for us on May 1, 2020, with the option to early adopt at any time prior to the effective date, and it will require adoption on a retrospective basis.

We do not anticipate that the adoption of this ASU will have a material impact on our disclosures.

In August 2018, the U.S.

Securities and Exchange Commission (“SEC”) adopted the final rule under SEC Release No.

33-10532, Disclosure Update and Simplification , to eliminate or modify certain disclosure rules that are redundant, outdated, or duplicative of U.S.

GAAP or other regulatory requirements.

This rule was effective on November 5, 2018, and as a result, we adopted a portion of the amendments during 2019.

This rule also amended the disclosure requirements related to the analysis of shareholders’ equity, which was expanded to the interim financial statements and was effective for us on May 1, 2019.

While the new shareholders’ equity disclosure requirements impacted our interim financial statements beginning May 1, 2019, the amendments in this rule did not have a material impact on our other financial statements and disclosures.

In February 2016, in an effort to increase transparency and comparability among organizations, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires lessees to recognize a right-of-use asset and lease liability for all leases with a term of more than 12 months.

We adopted the requirements of ASU 2016-02 and all related amendments on May 1, 2019, utilizing an optional transition method that allows for a cumulative-effect adjustment in the period of adoption with no restatement of prior periods.

This transition method also does not require new lease disclosures for periods prior to the effective date.

We elected certain practical expedients available under the guidance, including a package of practical expedients which allowed us to not reassess prior conclusions related to existing contracts containing leases, lease classification, and initial direct costs.

Adoption of ASU 2016-02 on May 1, 2019, resulted in the recognition of operating lease right-of-use assets and lease liabilities of $ 159.2 and $ 166.6 , respectively, in the Condensed Consolidated Balance Sheet.

The difference between the additional lease assets and lease liabilities was primarily due to an existing deferred rent balance that was reclassified to the operating lease liability.

The new standard did not materially impact our Condensed Statement of Consolidated Income or Condensed Statement of Consolidated Cash Flows.

The additional disclosures required are presented within Note 13:

On May 14, 2018, we acquired the equity of Ainsworth Pet Nutrition, LLC (“Ainsworth”), a leading producer, distributor, and marketer of premium pet food and pet snacks, predominantly within the U.S., in an all-cash transaction valued at $ 1.9 billion.

The transaction was funded with a bank term loan and borrowings under our commercial paper program of approximately $ 1.5 billion and $ 400.0 , respectively.

For additional information on the financing associated with this transaction, refer to Note 9:

Debt and Financing Arrangements.

During 2019, the final purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.

We determined the estimated fair values based on independent appraisals, discounted cash flow analyses, quoted market prices, and other estimates made by management.

The purchase price allocation included total intangible assets of $ 1.3 billion.

The purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired and, as a result, the excess was allocated to goodwill.

As a result of the acquisition, we recognized total goodwill of $ 617.8 within the U.S.

Retail Pet Foods segment, which represented the value we expected to achieve through the implementation of operational synergies and growth opportunities as a result of integrating Ainsworth into our U.S.

Retail Pet Foods segment.

Of the total goodwill, $ 446.0 was deductible for income tax purposes at the acquisition date, of which $ 392.9 remains deductible at January 31, 2020.

The goodwill and indefinite-lived trademarks within the U.S.

Retail Pet Foods segment, inclusive of the recently acquired Ainsworth business, remain susceptible to future impairment charges due to the narrow differences between fair value and carrying value.

Any significant adverse change in our near or long-term projections or macroeconomic conditions could result in future impairment charges.

For more information, see Note 8:

Goodwill and Other Intangible Assets.

ASU 2018-14 was effective for us on May 1, 2020.

It did not impact our interim disclosures and we do not anticipate a material impact on our annual disclosures.

Integration and Restructuring Costs

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Other transition and termination costs include fixed asset-related charges, contract and lease termination costs, professional fees, and other miscellaneous expenditures associated with the integration or restructuring activities, which are expensed as incurred.

These integration and restructuring costs are not allocated to segment profit and are reported in other special project costs in the Condensed Statements of Consolidated Income.

These integration and restructuring costs are not allocated to segment profit and are reported in other special project costs in the Condensed Statement of Consolidated Income.

The obligation related to employee separation costs is included in other current liabilities in the Condensed Consolidated Balance Sheets.

Integration Costs:

Total integration costs related to the acquisition of Ainsworth are anticipated to be approximately $ 50.0 , the majority of which are expected to be cash charges.

Of the total anticipated integration costs, we expect approximately one-third to be employee-related costs.

All remaining integration costs are expected to be incurred by the end of 2020.

The following table summarizes our integration costs incurred related to the Ainsworth acquisition.

Three Months Ended January 31, Nine Months Ended January 31, Total Costs Incurred to Date at January 31, 2020

2020 2019 2020 2019

Employee-related costs $ 0.3 $ 5.4 $ 1.7 $ 13.2 $ 17.2

Other transition and termination costs 3.0 2.3 8.2 10.7 24.8

Total integration costs $ 3.3 $ 7.7 $ 9.9 $ 23.9 $ 42.0

Noncash charges of $ 0.1 and $ 1.0 were included in the integration costs incurred during the three months ended January 31, 2020 and 2019, respectively, and $ 0.5 and $ 2.8 during the nine months ended January 31, 2020 and 2019, respectively.

Cumulative noncash charges incurred to date were $ 4.6 and primarily consisted of accelerated depreciation.

The obligation related to severance costs and retention bonuses was $ 0.3 and $ 1.6 at January 31, 2020, and April 30, 2019, respectively.

Restructuring Costs:

We completed the restructuring activities associated with our organization optimization program as of April 30, 2019, and as a result, we did no t incur any related costs during the three and nine months ended January 31, 2020.

We incurred restructuring costs of $ 11.1 and $ 28.0 during the three and nine months ended January 31, 2019, respectively, primarily consisting of employee-related costs.

Total restructuring costs of $ 74.6 were incurred related to the program, which included $ 48.7 and $ 25.9 of employee-related costs and other transition and termination costs, respectively.

Noncash charges included in the total restructuring costs were $ 15.2 , of which $ 1.2 and $ 2.2 were incurred during the three and nine months ended January 31, 2019, respectively.

As of April 30, 2020, integration of the Ainsworth Pet Nutrition, LLC (“Ainsworth”) acquisition was considered complete.

We incurred total integration costs of $ 48.6 related to the acquisition, of which $ 4.7 were noncash charges.

Noncash charges primarily consisted of accelerated depreciation.

The obligation related to severance costs and retention bonuses was fully satisfied as of January 31, 2020, and was $ 0.8 at April 30, 2019.

On August 31, 2018, we sold our U.S.

baking business to Brynwood Partners VII L.P.

and Brynwood Partners VIII L.P., subsidiaries of Brynwood Partners, an unrelated party.

The transaction included products that were primarily sold in U.S.

retail channels under the Pillsbury ® , Martha White ® , Hungry Jack ® , White Lily ® , and Jim Dandy ® brands, along with all relevant trademarks and licensing agreements, and our manufacturing facility in Toledo, Ohio.

This business generated net sales of approximately $ 370.0 in 2018.

The transaction did not include our baking business in Canada.

The operating results for this business were primarily included in the U.S.

Retail Consumer Foods segment prior to the sale.

We received proceeds from the divestiture of $ 369.5 , which were net of cash transaction costs and included a working capital adjustment.

During 2019, we recognized a pre-tax gain of $ 27.7 related to this transaction, of which $ 1.0 was recognized during the third quarter associated with the working capital adjustment that was finalized during the fourth quarter.

The gain was included in other operating expense (income) – net within the Condensed Statement of Consolidated Income.

While we did no t incur any costs during the three months ended July 31, 2020, we incurred integration costs of $ 3.3 during the three months ended July 31, 2019, primarily consisting of other transition and termination costs.

The obligation related to severance costs and retention bonuses was $ 0.4 and $ 0.5 at July 31, 2020, and April 30, 2020, respectively.

Reportable Segments

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the manufacturing and marketing of food and beverage products.

We have four reportable segments:

We have three reportable segments:

Retail Pet Foods, U.S.

Retail Coffee, U.S.

Retail Consumer Foods, and International and Away From Home.

Retail Pet Foods segment primarily includes the domestic sales of Rachael Ray TM Nutrish ® , Meow Mix ® , Milk-Bone ® , Natural Balance ® , Kibbles ’n Bits ® , 9Lives ® , Nature’s Recipe ® , and Pup-Peroni ® branded products;

Retail Coffee, and U.S.

Retail Consumer Foods.

Effective during the first quarter of 2021, the presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable.

As a result of recent leadership changes, these operating segments are now being managed and reported separately, and no longer represent a reportable segment for segment reporting purposes.

Prior year segment results have not been modified, as the combination of these operating segments represents the previously reported International and Away From Home reportable segment.

Retail Pet Foods segment primarily includes the domestic sales of Rachael Ray ® Nutrish ® , Meow Mix ® , Milk-Bone ® , 9Lives ® , Kibbles ’n Bits ® , Natural Balance ® , Pup-Peroni ® , and Nature’s Recipe ® branded products;

Retail Coffee segment primarily includes the domestic sales of Folgers ® , Dunkin’ Donuts ® , and Café Bustelo ® branded coffee;

Retail Consumer Foods segment primarily includes the domestic sales of Smucker’s ® , Jif ® , and Crisco ® branded products.

The International and Away From Home segment comprises products distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., restaurants, lodging, schools and universities, health care operators).

International and Away From Home includes the sale of products distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores).

Segment profit represents net sales, less direct and allocable operating expenses, and is consistent with the way in which we manage our segments.

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We would expect that any gain or loss in the estimated fair value of the derivatives would generally be offset by a change in the estimated fair value of the underlying exposures.

Three Months Ended January 31, Nine Months Ended January 31,

2020 2019 2020 2019

Three Months Ended July 31,

Retail Pet Foods $ 692.6 $ 669.9

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Amortization ( 59.6 ) ( 58.8 )

Other intangible assets impairment charges ( 52.4 ) ( 107.2 ) ( 52.4 ) ( 107.2 )

Interest expense – net ( 46.1 ) ( 49.4 )

1 unchanged sentence

Other special project costs (A)

( 3.3 ) ( 18.8 ) ( 9.9 ) ( 51.9 )

Corporate administrative expenses ( 65.8 ) ( 71.6 )

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The following table presents certain geographical information.

Three Months Ended January 31, Nine Months Ended January 31,

2020 2019 2020 2019

Three Months Ended July 31,

United States $ 1,829.7 $ 1,657.6

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The following table presents product category information.

Three Months Ended January 31, Nine Months Ended January 31,

Three Months Ended July 31,

2020 2019 Primary Reportable Segment (A)

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Retail Consumer Foods

Portion control 42.0 40.1 123.9 122.6 International and Away From Home

Juices and beverages 33.6 31.2 U.S.

Retail Consumer Foods

Baking mixes and ingredients 19.6 21.9 59.3 164.6 International and Away From Home (B)

Other 70.5 74.9 219.9 234.3 International and Away From Home

Portion control 24.0 39.4 Other (B)

Baking mixes and ingredients 23.2 13.7 Other (B)

Other 67.8 73.1 Other (B)

Total net sales $ 1,971.8 $ 1,778.9

(A) The primary reportable segment generally represents at least 75 percent of total net sales for each respective product category.

(B) During the three and nine months ended January 31, 2019, the primary reportable segment was U.S.

Retail Consumer Foods, as the majority of the net sales within this category were related to the divested U.S.

baking business.

For more information, see Note 5:

(A) The identified primary reportable segment generally represents at least 75 percent of total net sales for each respective product category.

(B) Represents the combined International and Away From Home operating segments.

Earnings per Share

The following table sets forth the computation of net income per common share and net income per common share – assuming dilution under the two-class method.

Three Months Ended January 31, Nine Months Ended January 31,

2020 2019 2020 2019

Three Months Ended July 31,

Net income $ 237.0 $ 154.6

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Net income per common share – assuming dilution $ 2.08 $ 1.36

Goodwill and Other Intangible Assets

The following table summarizes our other intangible assets and related accumulated amortization and impairment charges including foreign currency exchange adjustments.

January 31, 2020 April 30, 2019

Acquisition Cost Accumulated Amortization/Impairment Charges/Foreign Currency Exchange Net Acquisition Cost Accumulated Amortization/Impairment Charges/Foreign Currency Exchange Net

Finite-lived intangible assets subject to

amortization:

Customer and contractual relationships $ 4,471.1 $ 1,302.8 $ 3,168.3 $ 4,471.1 $ 1,156.8 $ 3,314.3

Patents and technology 168.5 135.6 32.9 168.5 127.4 41.1

Trademarks 502.0 188.0 314.0 499.9 166.9 333.0

Total intangible assets subject to amortization $ 5,141.6 $ 1,626.4 $ 3,515.2 $ 5,139.5 $ 1,451.1 $ 3,688.4

Indefinite-lived intangible assets not subject to

amortization:

Trademarks $ 3,319.0 $ 342.8 $ 2,976.2 $ 3,321.1 $ 290.7 $ 3,030.4

Total other intangible assets $ 8,460.6 $ 1,969.2 $ 6,491.4 $ 8,460.6 $ 1,741.8 $ 6,718.8

We review goodwill and other indefinite-lived intangible assets at least annually on February 1 for impairment, and more often if indicators of impairment exist.

During the third quarter of 2020, we began our annual planning cycle, which was not complete as of January 31, 2020;

however, certain brand-level decisions were made during the quarter that we evaluated to determine whether the carrying value of certain indefinite-lived intangible assets more likely than not exceeded fair value.

As a result, we recognized an impairment charge of $ 52.4 related to the Natural Balance brand within the U.S.

Retail Pet Foods segment due to a decline in current year and long-term net sales expectations and the royalty rate used in the interim analysis, primarily driven by the market environment and re-positioning of this brand within the Pet Foods brand portfolio.

This charge was included as a noncash charge in our Condensed Statement of Consolidated Income.

Additionally, we reassessed the long-term strategic expectations for the Natural Balance brand and will reclassify this brand as a finite-lived intangible asset as of February 1, 2020, resulting in annual amortization expense of $ 4.5 .

As of January 31, 2020, there were no other indicators of impairment, and as a result, we do not believe that our reporting units or any of our remaining indefinite-lived intangible assets are more likely than not impaired.

However, the goodwill and indefinite-lived trademarks within the U.S.

Retail Pet Foods segment, inclusive of the recently acquired Ainsworth business, remain susceptible to future impairment charges due to the narrow differences between fair value and carrying value.

Any significant adverse change in our near or long-term projections or macroeconomic conditions could result in future impairment charges.

The carrying values of the goodwill and indefinite-lived intangible assets within the U.S.

Retail Pet Foods segment were $ 2.4 billion and $ 1.4 billion, respectively, as of January 31, 2020.

During the third quarter of 2019, we recognized a noncash impairment charge of $ 107.2 related to certain indefinite-lived intangible assets within the U.S.

Retail Pet Foods segment.

Debt and Financing Arrangements

Long-term debt consists of the following:

January 31, 2020 April 30, 2019

The following table summarizes the components of our long-term debt.

July 31, 2020 April 30, 2020

Outstanding Carrying

2.20% Senior Notes due December 6, 2019 $ — $ — $ 300.0 $ 299.5

2.50% Senior Notes due March 15, 2020 500.0 499.8 500.0 499.0

3.50% Senior Notes due October 15, 2021 $ 750.0 $ 759.2 $ 750.0 $ 761.1

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4.25% Senior Notes due March 15, 2035 650.0 644.0 650.0 643.9

4.38% Senior Notes due March 15, 2045 600.0 586.7 600.0 586.5

3.55% Senior Notes due March 15, 2050 300.0 295.7 300.0 295.7

Term Loan Credit Agreement due May 14, 2021 400.0 399.8 700.0 699.5

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Total long-term debt, less current portion $ 4,700.0 $ 4,672.8 $ 5,400.0 $ 5,373.3

(A) Represents the carrying amount included in the Condensed Consolidated Balance Sheets, which includes the impact of capitalized debt issuance costs, terminated interest rate contracts, and offering discounts.

We entered into interest rate contracts in November 2018 and June 2018, with notional values of $ 300.0 and $ 500.0 , respectively, to manage our exposure to interest rate volatility associated with anticipated debt financing in 2020.

These interest rate contracts are designated as cash flow hedges, and as a result, the mark-to-market gains or losses on these contracts are deferred and included as a component of accumulated other comprehensive income (loss) and reclassified to interest expense in the period during which the hedged transactions affect earnings.

At January 31, 2020, unrealized losses of $ 168.9 were deferred in accumulated other comprehensive income (loss) for these derivative instruments.

For additional information, see Note 11:

Derivative Financial Instruments.

(A) Represents the carrying amount included in the Condensed Consolidated Balance Sheets, which includes the impact of capitalized debt issuance costs, offering discounts, and terminated interest rate contracts.

In April 2018, we entered into a senior unsecured delayed-draw Term Loan Credit Agreement (“Term Loan”) with a syndicate of banks and an available commitment amount of $ 1.5 billion.

The full amount of the Term Loan was drawn on May 14, 2018, to partially finance the Ainsworth acquisition, as discussed in Note 3:

The full amount of the Term Loan was drawn on May 14, 2018, to partially finance the Ainsworth acquisition.

Borrowings under the Term Loan bear interest on the prevailing U.S.

Prime Rate or London Interbank Offered Rate (“LIBOR”), based on our election, and are payable either on a quarterly basis or at the end of the borrowing term.

Prime Rate or London Interbank Offered Rate (“LIBOR”), based on our election, and is payable either on a quarterly basis or at the end of the borrowing term.

The Term Loan does not require scheduled amortization payments.

Voluntary prepayments are permitted without premium or penalty.

As of January 31, 2020, we have prepaid $ 800.0 on the Term Loan to date, including $ 100.0 in 2020.

The interest rate on the Term Loan at January 31, 2020, was 2.45 percent.

In November 2019, we entered into an amendment to the Term Loan that decreased the applicable margins on LIBOR, based on our long-term unsecured debt rating.

This amendment did not have a material impact on our condensed consolidated financial statements.

All of our Senior Notes outstanding at January 31, 2020, are unsecured and interest is paid semiannually, with no required scheduled principal payments until maturity.

We may prepay all or part of the Senior Notes at 100 percent of the principal amount thereof, together with the accrued and unpaid interest, and any applicable make-whole amount.

As of July 31, 2020, we have prepaid $ 1.1 billion on the Term Loan to date, including $ 300.0 in the first quarter of 2021.

The interest rate on the Term Loan at July 31, 2020, was 0.97 percent.

We have available a $ 1.8 billion unsecured revolving credit facility with a group of 11 banks that matures in September 2022.

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Interest is payable either on a quarterly basis or at the end of the borrowing term.

We did no t have a balance outstanding under the revolving credit facility at January 31, 2020, or April 30, 2019.

We did no t have a balance outstanding under the revolving credit facility at July 31, 2020, or April 30, 2020.

We participate in a commercial paper program under which we can issue short-term, unsecured commercial paper not to exceed $ 1.8 billion at any time.

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Commercial paper will be used as a continuing source of short-term financing for general corporate purposes.

As of January 31, 2020, and April 30, 2019, we had $ 310.0 and $ 426.0 of short-term borrowings outstanding, respectively, which were issued under our commercial paper program at weighted-average interest rates of 1.79 percent and 2.75 percent, respectively.

Interest paid totaled $ 18.3 and $ 24.4 for the three months ended January 31, 2020 and 2019, respectively, and $ 118.3 and $ 131.8 , for the nine months ended January 31, 2020 and 2019, respectively.

This differs from interest expense due to the timing of interest payments, effect of interest rate contracts, amortization of debt issuance costs and discounts, capitalized interest, and payment of other debt fees.

As of July 31, 2020, and April 30, 2020, we had $ 296.0 and $ 248.0 of short-term borrowings outstanding, respectively, which were issued under our commercial paper program at weighted-average interest rates of 0.25 percent and 0.40 percent, respectively.

Interest paid totaled $ 10.2 and $ 21.6 for the three months ended July 31, 2020 and 2019, respectively.

This differs from interest expense due to the timing of interest payments, amortization of debt issuance costs and discounts, effect of interest rate contracts, capitalized interest, and payment of other debt fees.

Our debt instruments contain certain financial covenant restrictions, including a leverage ratio and an interest coverage ratio.

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The components of our net periodic benefit cost for defined benefit pension and other postretirement benefit plans are shown below.

Three Months Ended January 31,

Defined Benefit Pension Plans Other Postretirement Benefits

2020 2019 2020 2019

Service cost $ 0.4 $ 0.6 $ 0.4 $ 0.5

Interest cost 5.2 5.9 0.5 0.6

Expected return on plan assets ( 6.0 ) ( 6.8 ) — —

Amortization of net actuarial loss (gain) 2.0 2.0 ( 0.1 ) ( 0.1 )

Amortization of prior service cost (credit) 0.2 0.2 ( 0.2 ) ( 0.4 )

Curtailment loss (gain) — 0.3 — —

Settlement loss (gain) — 4.2 — —

Net periodic benefit cost $ 1.8 $ 6.4 $ 0.6 $ 0.6

Nine Months Ended January 31,

Three Months Ended July 31,

Defined Benefit Pension Plans Other Postretirement Benefits

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Amortization of prior service cost (credit) 0.2 0.2 ( 0.3 ) ( 0.3 )

Curtailment loss (gain) — 0.3 — —

Settlement loss (gain) — 4.2 — —

Net periodic benefit cost $ 2.5 $ 1.8 $ 0.6 $ 0.7

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Generally, changes in the fair value of the contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings.

These interest rate contracts are designated as cash flow hedges, and as a result, unrealized losses of $ 168.9 were deferred in accumulated other comprehensive income (loss) at January 31, 2020.

In 2020, we terminated interest rate contracts concurrent with the pricing of the Senior Notes due March 15, 2030, and March 15, 2050.

They were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing.

The termination resulted in a pre-tax loss of $ 239.8 , which was deferred and included as a component of accumulated other comprehensive income (loss) and is being amortized as interest expense over the life of the debt.

In 2015, we terminated the interest rate swap on the Senior Notes due October 15, 2021, which was designated as a fair value hedge and used to hedge against the changes in the fair value of the debt.

As a result of the early termination, we received $ 58.1 in cash, which included $ 4.6 of accrued and prepaid interest.

The gain on termination was recorded as an increase in the long-term debt balance and is being recognized over the remaining life of the underlying debt as a reduction to interest expense.

To date, we have recognized $ 39.2 of the gain, of which $ 2.1 and $ 6.2 was recognized during the three and nine months ended January 31, 2020, respectively.

The gain on termination was recorded as an increase in the long-

term debt balance and is being recognized over the remaining life of the underlying debt as a reduction to interest expense.

To date, we have recognized $ 43.3 of the gain, of which $ 2.2 and $ 2.0 was recognized during the three months ended July 31, 2020 and 2019, respectively.

The remaining gain will be recognized as follows:

$ 1.9 through the remainder of 2020, $ 8.4 in 2021, and $ 4.0 in 2022.

$ 6.2 through the remainder of 2021 and $ 4.0 in 2022.

The following tables set forth the gross fair value amounts of derivative instruments recognized in the Condensed Consolidated Balance Sheets.

January 31, 2020

July 31, 2020

Liabilities Other

Derivatives designated as hedging instruments:

Interest rate contracts $ — $ 168.9 $ — $ —

Total derivatives designated as hedging instruments $ — $ 168.9 $ — $ —

Derivatives not designated as hedging instruments:

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Foreign currency exchange contracts 0.5 1.3 — —

Total derivatives not designated as hedging instruments $ 9.0 $ 16.5 $ — $ —

Total derivative instruments $ 20.9 $ 18.9 $ 0.1 $ —

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Liabilities Other

Derivatives designated as hedging instruments:

Interest rate contracts $ — $ 49.1 $ — $ —

Total derivatives designated as hedging instruments $ — $ 49.1 $ — $ —

Derivatives not designated as hedging instruments:

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Foreign currency exchange contracts 2.4 0.1 — —

Total derivatives not designated as hedging instruments $ 6.2 $ 26.0 $ — $ —

Total derivative instruments $ 17.1 $ 33.3 $ — $ —

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We are required to maintain cash margin accounts in connection with funding the settlement of our open positions.

At January 31, 2020, and April 30, 2019, we maintained cash margin account balances of $ 25.7 and $ 40.7 , respectively, included in other current assets in the Condensed Consolidated Balance Sheets.

At July 31, 2020, and April 30, 2020, we maintained cash margin account balances of $ 15.6 and $ 43.2 , respectively, included in other current assets in the Condensed Consolidated Balance Sheets.

The change in the cash margin account balances is included in other – net, investing activities in the Condensed Statements of Consolidated Cash Flows.

In the event of default and immediate net settlement of all of our open positions with individual counterparties, all of our exchange-traded derivative liabilities would be fully offset by either our derivative asset positions or margin accounts based on the net asset or liability position with our individual counterparties.

Interest expense – net, as presented in the Condensed Statements of Consolidated Income, was $ 45.1 and $ 51.6 for the three months ended January 31, 2020 and 2019, respectively, and was $ 143.6 and $ 158.8 for the nine months ended January 31, 2020 and 2019, respectively.

The following table presents information on the pre-tax gains and losses recognized on interest rate contracts designated as cash flow hedges.

Three Months Ended January 31, Nine Months Ended January 31,

2020 2019 2020 2019

In the event of default and immediate net settlement of all of our open positions with individual counterparties, all of our derivative liabilities would be fully offset by either our derivative asset positions or margin accounts based on the net asset or liability position with our individual counterparties.

Interest expense – net, as presented in the Condensed Statements of Consolidated Income was $ 46.1 and $ 49.4 for the three months ended July 31, 2020 and 2019, respectively.

The following table presents information on the pre-tax gains and losses recognized on terminated interest rate contracts that were designated as cash flow hedges.

Three Months Ended July 31,

Gains (losses) recognized in other comprehensive income (loss) $ — $ ( 53.0 )

Gains (losses) reclassified from accumulated other

comprehensive income (loss) to interest expense

Gains (losses) reclassified from accumulated other comprehensive income (loss)

to interest expense

( 3.4 ) ( 0.1 )

Change in accumulated other comprehensive income (loss) $ 3.4 $ ( 52.9 )

Included as a component of accumulated other comprehensive income (loss) at January 31, 2020, and April 30, 2019, were deferred net pre-tax losses of $ 172.0 and $ 52.5 , respectively, related to the active and terminated interest rate contracts.

The related net tax benefit recognized in accumulated other comprehensive income (loss) at January 31, 2020, and April 30, 2019, was $ 39.6 and $ 12.1 , respectively.

Approximately $ 8.9 of the net pre-tax loss will be recognized over the next 12 months related to the active and terminated interest rate contracts.

Included as a component of accumulated other comprehensive income (loss) at July 31, 2020, and April 30, 2020, were deferred net pre-tax losses of $ 237.7 and $ 241.1 , respectively, related to the terminated interest rate contracts.

The related net tax benefit recognized in accumulated other comprehensive income (loss) at July 31, 2020, and April 30, 2020, was $ 54.7 and $ 55.5 , respectively.

Approximately $ 13.9 of the net pre-tax loss will be recognized over the next 12 months related to the terminated interest rate contracts.

The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as hedging instruments.

Three Months Ended January 31, Nine Months Ended January 31,

2020 2019 2020 2019

Three Months Ended July 31,

Gains (losses) on commodity contracts $ 11.4 $ 12.6

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The following table presents the activity in unallocated derivative gains and losses.

Three Months Ended January 31, Nine Months Ended January 31,

2020 2019 2020 2019

Net gains (losses) on mark-to-market valuation of

unallocated derivative positions $ ( 7.0 ) $ ( 25.6 ) $ ( 5.6 ) $ ( 54.2 )

Net gains (losses) on derivative positions

reclassified to segment operating profit ( 14.7 ) ( 22.7 ) ( 43.2 ) ( 29.2 )

Three Months Ended July 31,

Net gains (losses) on mark-to-market valuation of unallocated derivative positions $ 9.1 $ 11.6

Net gains (losses) on derivative positions reclassified to segment operating profit ( 7.1 ) ( 17.4 )

Unallocated derivative gains (losses) $ 16.2 $ 29.0

The net cumulative unallocated derivative losses were $ 14.9 and $ 52.5 at January 31, 2020, and April 30, 2019, respectively.

The net cumulative unallocated derivative losses were $ 16.7 and $ 32.9 at July 31, 2020, and April 30, 2020, respectively.

The following table presents the gross notional value of outstanding derivative contracts.

January 31, 2020 April 30, 2019

July 31, 2020 April 30, 2020

Commodity contracts $ 679.5 $ 890.1

Foreign currency exchange contracts 74.3 65.6

Interest rate contracts 800.0 800.0

Other Financial Instruments and Fair Value Measurements

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The following table provides information on the carrying amounts and fair values of our financial instruments.

January 31, 2020 April 30, 2019

July 31, 2020 April 30, 2020

Amount Fair Value Carrying

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(Level 2) Significant

(Level 3) Fair Value at January 31, 2020

(Level 3) Fair Value at July 31, 2020

Marketable securities and other investments:

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Foreign currency exchange contracts – net ( 0.2 ) ( 0.6 ) — ( 0.8 )

Interest rate contracts — ( 168.9 ) — ( 168.9 )

Total long-term debt (C)

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Foreign currency exchange contracts – net 0.2 2.1 — 2.3

Interest rate contracts — ( 49.1 ) — ( 49.1 )

Total long-term debt (C)

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Based on the short-term nature of these money market funds, carrying value approximates fair value.

As of January 31, 2020, our municipal obligations are scheduled to mature as follows:

$ 0.3 in 2020, $ 1.0 in 2021, $ 1.5 in 2022, $ 1.0 in 2023, and the remaining $ 27.3 in 2024 and beyond.

As of July 31, 2020, our municipal obligations are scheduled to mature as follows:

$ 1.0 in 2021, $ 1.6 in 2022, $ 3.5 in 2024, and the remaining $ 18.5 in 2025 and beyond.

We do no t have any municipal obligations scheduled to mature in 2023.

(B) Level 1 commodity and foreign currency exchange derivatives are valued using quoted market prices for identical instruments in active markets.

Level 2 commodity and foreign currency exchange derivatives are valued using quoted prices for similar assets or liabilities in active markets.

The Level 2 interest rate contracts are valued using standard valuation techniques, the income approach, and observable Level 2 market expectations at the measurement date to convert future amounts to a single discounted present value.

Level 2 inputs for the valuation of the interest rate contracts are limited to prices that are observable for the asset or liability.

For additional information, see Note 8:

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Debt and Financing Arrangements.

During the third quarter of 2020 and 2019, we recognized impairment charges of $ 52.4 and $ 107.2 , respectively, related to certain indefinite-lived trademarks in the U.S.

Retail Pet Foods segment, which were included as a noncash charge in our Condensed Statements of Consolidated Income.

We utilized Level 3 inputs based on management's best estimates and assumptions to estimate the fair value of the indefinite-lived trademarks.

For additional information, see Note 8:

Goodwill and Other Intangible Assets.

We lease certain warehouses, manufacturing facilities, office space, equipment, and vehicles, primarily through operating lease agreements.

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Instead, we recognize the related lease expense on a straight-line basis over the lease term.

Although the majority of our right-of-use asset and lease liability balances consist of leases with renewal options, we generally are not reasonably certain to exercise them, and therefore, the optional periods do not typically impact the lease term.

Although the majority of our right-of-use asset and lease liability balances consist of leases with renewal options, these optional periods do not typically impact the lease term as we are not reasonably certain to exercise them.

Certain leases also include termination provisions or options to purchase the leased property.

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We consider our credit rating and the current economic environment in determining this collateralized rate.

For the initial implementation of the lease standard, the incremental borrowing rate at May 1, 2019, was used to calculate all operating lease liabilities.

The following table sets forth the right-of-use assets and lease liabilities recognized in the Condensed Consolidated Balance Sheet.

January 31, 2020

The following table sets forth the right-of-use assets and lease liabilities recognized in the Condensed Consolidated Balance Sheets.

July 31, 2020 April 30, 2020

Operating lease right-of-use assets $ 138.3 $ 148.4

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Machinery and equipment

$ 10.2 $ 11.6

Accumulated depreciation

( 4.9 ) ( 5.9 )

Total property, plant, and equipment $ 5.3 $ 5.7

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The following table summarizes the components of lease expense.

Three Months Ended January 31, 2020 Nine Months Ended January 31, 2020

Three Months Ended July 31,

Operating lease cost $ 11.3 $ 12.4

7 unchanged sentences

The following table sets forth cash flow and noncash information related to leases.

Nine Months Ended January 31, 2020

Three Months Ended July 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$ 10.4 $ 13.1

Operating cash flows from finance leases — 0.1

4 unchanged sentences

The following table summarizes the maturity of our lease liabilities by fiscal year.

January 31, 2020

July 31, 2020

Operating Leases Finance Leases

8 unchanged sentences

Lease liabilities $ 148.4 $ 5.3

As of April 30, 2019, our minimum operating lease obligations were as follows:

$ 43.0 in 2020, $ 36.7 in 2021, $ 30.5 in 2022, $ 24.8 in 2023, and $ 12.3 in 2024.

The following table sets forth the weighted average remaining lease term and discount rate.

January 31, 2020

July 31, 2020 April 30, 2020

Weighted average remaining lease term (in years):

4 unchanged sentences

Finance leases

The effective tax rates for the three months ended January 31, 2020 and 2019, were 22.7 and 22.8 percent, respectively, and for the nine months ended January 31, 2020 and 2019, were 24.0 and 26.1 percent, respectively.

During the three and nine months ended January 31, 2020 and 2019, the effective tax rates varied from the U.S.

The effective tax rates for the three months ended July 31, 2020 and 2019, were 24.4 and 25.2 percent, respectively.

During the three months ended July 31, 2020 and 2019, the effective tax rates varied from the U.S.

statutory income tax rate of 21.0 percent primarily due to the impact of state income taxes.

The effective tax rate for the nine months ended January 31, 2019, was also unfavorably impacted by additional income tax expense related to the sale of the U.S.

baking business.

Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an additional $ 2.6 , primarily as a result of expiring statute of limitations periods.

As of January 31, 2020, the undistributed earnings of our foreign subsidiaries remain permanently reinvested.

As of July 31, 2020, the undistributed earnings of our foreign subsidiaries remain permanently reinvested.

During 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted, which included rollbacks of certain provision of the U.S.

Tax Cuts and Jobs Act (the “Tax Act”) .

While these specific rollbacks did not impact us, future legislative actions in response to the novel coronavirus (“COVID-19”) could further modify provisions of the Tax Act, and such changes will need to be analyzed for their respective impacts on our income taxes at that time.

Accumulated Other Comprehensive Income (Loss)

12 unchanged sentences

Income tax benefit (expense) — ( 0.8 ) ( 0.5 ) ( 0.2 ) ( 1.5 )

Balance at January 31, 2020 $ ( 32.9 ) $ ( 132.4 ) $ ( 106.0 ) $ 5.0 $ ( 266.3 )

Balance at July 31, 2020 $ ( 37.6 ) $ ( 183.0 ) $ ( 145.0 ) $ 4.7 $ ( 360.9 )

Adjustment Net Gains (Losses)

10 unchanged sentences

Income tax benefit (expense) — 12.1 ( 0.3 ) ( 0.1 ) 11.7

Balance at January 31, 2019 $ ( 26.5 ) $ ( 31.7 ) $ ( 98.3 ) $ 3.2 $ ( 153.3 )

Balance at July 31, 2019 $ ( 31.0 ) $ ( 81.2 ) $ ( 108.9 ) $ 4.4 $ ( 216.7 )

(A) The reclassification from accumulated other comprehensive income (loss) to interest expense was related to terminated interest rate contracts.

The current period credit (charge) relates to the unrealized gains (losses) on the interest rate contracts entered into in November 2018 and June 2018.

The current period charge in 2020 relates to losses on the interest rate contracts entered into in November 2018 and June 2018 that were terminated in 2020.

For additional information, see Note 8:

4 unchanged sentences

We are currently a defendant in a variety of such legal proceedings, including certain lawsuits related to the alleged price-fixing of shelf stable tuna products prior to 2011 by a business previously owned by, but divested prior to our acquisition of, Big Heart Pet Brands, the significant majority of which were settled and paid during the second half of 2019.

While we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters, we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at January 31, 2020.

Based on the information known to date, with the exception of the matter discussed below, we do not believe the final outcome of these proceedings would have a material adverse effect on our financial position, results of operations, or cash flows.

22 unchanged sentences

During the third quarter of 2020, CERT filed several motions seeking judgment in its favor as a matter of law, and the defendants also filed their own motion.

Briefing on all motions is expected to continue into March 2020.

On July 15, 2020, and August 10, 2020, seven of CERT’s motions were denied, and the remainder of the pending motions, including the defendants motion for summary judgement, were rescheduled for hearing on August 25, 2020, due to COVID-19.

At this stage of the proceedings, prior to and without knowing whether the regulation will stand as a defense or the trial on remedies issues will move forward in light of the challenge, we are unable to predict or reasonably estimate the potential loss or effect on our operations.

Accordingly, no loss contingency has been recorded for this matter as of January 31, 2020, as the likelihood of loss is not considered probable or estimable.

Accordingly, no loss contingency has been recorded for this matter as of July 31, 2020, as the likelihood of loss is not considered probable or estimable.

The trial court has discretion to impose zero penalties against us or to impose significant statutory penalties if the case proceeds.

4 unchanged sentences

The following table sets forth common share information.

January 31, 2020 April 30, 2019

July 31, 2020 April 30, 2020

Common shares authorized 300.0 300.0

2 unchanged sentences

Repurchase Program:

During the nine months ended January 31, 2020 and 2019, we did no t repurchase any common shares under a repurchase plan authorized by the Board of Directors (the “Board”).

Share repurchases during the nine months ended January 31, 2020 and 2019, consisted of shares repurchased from stock plan recipients in lieu of cash payments.

At January 31, 2020, we had approximately 3.6 million common shares available for repurchase pursuant to the Board’s authorizations.

During the three months ended July 31, 2020 and 2019, we did no t repurchase any common shares under a repurchase plan authorized by the Board of Directors (the “Board”).

Share repurchases during the three months ended July 31, 2020 and 2019, consisted of shares repurchased from stock plan recipients in lieu of cash payments.

At July 31, 2020, approximately 3.6 million common shares remain available for repurchase pursuant to the Board’s authorizations.

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

What changed 10-Q

Item 1. Financial Statements