Item 1. Financial Statements
Item 1. Financial Statements.
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
Three Months Ended January 31, Nine Months Ended January 31,
Dollars in millions, except per share data 2021 2020 2021 2020
Net sales $ 2,076.7 $ 1,972.3 $ 6,082.5 $ 5,709.0
Cost of products sold 1,267.3 1,212.3 3,679.5 3,495.4
Gross Profit 809.4 760.0 2,403.0 2,213.6
Selling, distribution, and administrative expenses 371.7 358.9 1,112.0 1,100.9
Amortization 57.0 58.8 176.1 176.4
Other intangible assets impairment charge — 52.4 — 52.4
Other special project costs (A)
1.7 3.3 1.7 9.9
Other operating expense (income) – net ( 27.2 ) ( 2.4 ) ( 34.9 ) ( 2.4 )
Operating Income 406.2 289.0 1,148.1 876.4
Interest expense – net ( 43.5 ) ( 45.1 ) ( 134.7 ) ( 143.6 )
Other income (expense) – net ( 1.2 ) ( 1.4 ) ( 34.8 ) ( 4.5 )
Income Before Income Taxes 361.5 242.5 978.6 728.3
Income tax expense 100.0 55.1 249.3 175.1
Net Income $ 261.5 $ 187.4 $ 729.3 $ 553.2
Earnings per common share:
Net Income $ 2.32 $ 1.64 $ 6.42 $ 4.85
Net Income – Assuming Dilution $ 2.32 $ 1.64 $ 6.42 $ 4.85
(A) Other special project costs includes integration and restructuring costs. For more information, see Note 3: Integration and Restructuring Costs.
See notes to unaudited condensed consolidated financial statements.
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended January 31, Nine Months Ended January 31,
Dollars in millions 2021 2020 2021 2020
Net income $ 261.5 $ 187.4 $ 729.3 $ 553.2
Other comprehensive income (loss):
Foreign currency translation adjustments 14.2 ( 2.5 ) 29.4 2.6
Cash flow hedging derivative activity, net of tax 2.9 ( 17.4 ) 8.2 ( 92.0 )
Pension and other postretirement benefit plans activity, net of tax 6.3 1.5 36.7 4.0
Available-for-sale securities activity, net of tax 0.6 0.5 1.2 0.9
Total Other Comprehensive Income (Loss) 24.0 ( 17.9 ) 75.5 ( 84.5 )
Comprehensive Income $ 285.5 $ 169.5 $ 804.8 $ 468.7
See notes to unaudited condensed consolidated financial statements.
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THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Dollars in millions January 31, 2021 April 30, 2020
ASSETS
Current Assets
Cash and cash equivalents $ 501.5 $ 391.1
Trade receivables – net 604.9 551.4
Inventories:
Finished products 563.5 563.5
Raw materials 334.4 331.8
Total Inventory 897.9 895.3
Other current assets 74.4 134.9
Total Current Assets 2,078.7 1,972.7
Property, Plant, and Equipment
Land and land improvements 124.0 129.5
Buildings and fixtures 956.1 977.9
Machinery and equipment 2,414.5 2,398.3
Construction in progress 252.7 232.6
Gross Property, Plant, and Equipment 3,747.3 3,738.3
Accumulated depreciation ( 1,809.5 ) ( 1,768.9 )
Total Property, Plant, and Equipment 1,937.8 1,969.4
Other Noncurrent Assets
Operating lease right-of-use assets 147.9 148.4
Goodwill 6,016.9 6,304.5
Other intangible assets – net 6,099.4 6,429.0
Other noncurrent assets 148.7 146.4
Total Other Noncurrent Assets 12,412.9 13,028.3
Total Assets $ 16,429.4 $ 16,970.4
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable $ 896.7 $ 782.0
Accrued trade marketing and merchandising 246.4 167.5
Current portion of long-term debt 755.4 —
Short-term borrowings 166.0 248.0
Current operating lease liabilities 39.2 36.5
Other current liabilities 428.7 353.1
Total Current Liabilities 2,532.4 1,587.1
Noncurrent Liabilities
Long-term debt, less current portion 3,915.3 5,373.3
Deferred income taxes 1,302.9 1,351.6
Noncurrent operating lease liabilities 120.2 120.0
Other noncurrent liabilities 347.0 347.5
Total Noncurrent Liabilities 5,685.4 7,192.4
Total Liabilities 8,217.8 8,779.5
Shareholders’ Equity
Common shares 27.4 29.0
Additional capital 5,591.6 5,794.1
Retained income 2,896.1 2,746.8
Accumulated other comprehensive income (loss) ( 303.5 ) ( 379.0 )
Total Shareholders’ Equity 8,211.6 8,190.9
Total Liabilities and Shareholders’ Equity $ 16,429.4 $ 16,970.4
See notes to unaudited condensed consolidated financial statements.
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THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
Nine Months Ended January 31,
Dollars in millions 2021 2020
Operating Activities
Net income $ 729.3 $ 553.2
Adjustments to reconcile net income to net cash provided by (used for) operations:
Depreciation 161.7 156.7
Amortization 176.1 176.4
Other intangible assets impairment charge — 52.4
Pension settlement loss (gain) 30.8 —
Share-based compensation expense 20.9 19.8
Gain on divestitures – net ( 27.2 ) —
Other noncash adjustments – net 11.6 15.9
Changes in assets and liabilities, net of effect from divestitures:
Trade receivables ( 50.4 ) 26.7
Inventories ( 50.9 ) ( 48.0 )
Other current assets 0.9 7.0
Accounts payable 142.7 12.3
Accrued liabilities 88.7 44.6
Income and other taxes 20.1 ( 40.9 )
Other – net 19.7 ( 9.0 )
Net Cash Provided by (Used for) Operating Activities 1,274.0 967.1
Investing Activities
Additions to property, plant, and equipment ( 198.7 ) ( 192.9 )
Proceeds from divestitures – net 569.3 —
Other – net 48.5 15.3
Net Cash Provided by (Used for) Investing Activities 419.1 ( 177.6 )
Financing Activities
Short-term borrowings (repayments) – net ( 82.4 ) ( 122.6 )
Repayments of long-term debt ( 700.0 ) ( 400.0 )
Quarterly dividends paid ( 304.8 ) ( 296.7 )
Purchase of treasury shares ( 504.1 ) ( 4.3 )
Proceeds from stock option exercises 0.7 7.0
Other – net — 0.5
Net Cash Provided by (Used for) Financing Activities ( 1,590.6 ) ( 816.1 )
Effect of exchange rate changes on cash 7.9 ( 0.3 )
Net increase (decrease) in cash and cash equivalents 110.4 ( 26.9 )
Cash and cash equivalents at beginning of period 391.1 101.3
Cash and Cash Equivalents at End of Period $ 501.5 $ 74.4
( ) Denotes use of cash
See notes to unaudited condensed consolidated financial statements.
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THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY
(Unaudited)
Nine Months Ended January 31, 2021
Dollars in millions Common
Shares
Outstanding Common Shares Additional Capital Retained Income Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity
Balance at May 1, 2020 114,072,726 $ 29.0 $ 5,794.1 $ 2,746.8 $ ( 379.0 ) $ 8,190.9
Net income 237.0 237.0
Other comprehensive income (loss) 18.1 18.1
Comprehensive income 255.1
Purchase of treasury shares ( 42,194 ) — ( 5.5 ) 0.9 ( 4.6 )
Stock plans 56,910 — 6.2 6.2
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 230.8 230.8
Other comprehensive income (loss) 33.4 33.4
Comprehensive income 264.2
Purchase of treasury shares ( 14,769 ) — ( 1.7 ) 0.1 ( 1.6 )
Stock plans 24,588 — 9.5 9.5
Cash dividends declared, $ 0.90 per common share
( 102.3 ) ( 102.3 )
Balance at October 31, 2020 114,097,261 $ 28.5 $ 5,803.1 $ 3,010.9 $ ( 327.5 ) $ 8,515.0
Net income 261.5 261.5
Other comprehensive income (loss) 24.0 24.0
Comprehensive income 285.5
Purchase of treasury shares ( 4,301,631 ) ( 1.1 ) ( 219.0 ) ( 277.8 ) ( 497.9 )
Stock plans ( 6,480 ) — 7.5 7.5
Cash dividends declared, $ 0.90 per common share
( 98.5 ) ( 98.5 )
Balance at January 31, 2021 109,789,150 $ 27.4 $ 5,591.6 $ 2,896.1 $ ( 303.5 ) $ 8,211.6
See notes to unaudited condensed consolidated financial statements.
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THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY
(Unaudited)
Nine Months Ended January 31, 2020
Dollars in millions Common
Shares
Outstanding Common Shares Additional Capital Retained Income Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity
Balance at May 1, 2019 113,742,296 $ 28.9 $ 5,755.8 $ 2,367.6 $ ( 181.8 ) $ 7,970.5
Net income 154.6 154.6
Other comprehensive income (loss) ( 34.9 ) ( 34.9 )
Comprehensive income 119.7
Purchase of treasury shares ( 22,793 ) — ( 2.7 ) ( 0.2 ) ( 2.9 )
Stock plans 330,289 0.1 20.4 20.5
Cash dividends declared, $ 0.88 per common share
( 100.1 ) ( 100.1 )
Other — —
Balance at July 31, 2019 114,049,792 $ 29.0 $ 5,773.5 $ 2,421.9 $ ( 216.7 ) $ 8,007.7
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 )
Other — —
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 )
Other — —
Balance at January 31, 2020 114,041,313 $ 29.0 $ 5,787.2 $ 2,620.5 $ ( 266.3 ) $ 8,170.4
See notes to unaudited condensed consolidated financial statements.
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THE J. M. SMUCKER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, unless otherwise noted, except per share data)
Note 1: Basis of Presentation
The unaudited interim condensed consolidated financial statements of The J. M. Smucker Company (“Company,” “we,” “us,” or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. 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, 2021, 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.
Note 2: Recently Issued Accounting Standards
In November 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements. These updates reflect a continued principles-based disclosure approach, similar to the standards released earlier in the year. We will be required to apply these amendments for 2022, with early adoption permitted. We do not anticipate that the adoption of these amendments will have a material impact on our disclosures.
In August 2020, the SEC adopted the final rule under SEC Release No. 33-10825, Modernization of Regulation S-K Items 101, 103, and 105 , to modernize certain disclosure requirements for the description of business, legal proceedings, and risk factors. These updates are part of the SEC’s broader disclosure effectiveness initiative and reflect a principles-based, registrant-specific approach to disclosure, intended to improve the content and simplify compliance for registrants. The amendments were effective on November 9, 2020. While there was no impact to our interim disclosures, our annual disclosures will be updated accordingly to comply with these amendments.
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes , which removes certain exceptions for investments, intraperiod allocations, and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 will be effective for us on May 1, 2021, with the option to early adopt at any time prior to the effective date. Accounting for franchise taxes will require adoption on a retrospective or modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other applicable provisions will require adoption on a retrospective, modified retrospective, or prospective basis, as required by ASU 2019-12. 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 2018-14, 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 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.
Note 3: Integration and Restructuring Costs
Integration and restructuring costs primarily consist of employee-related costs and other transition and termination costs related to certain divestiture, acquisition, or restructuring activities. Employee-related costs include severance, retention bonuses, and relocation costs. Severance costs and retention bonuses are recognized over the estimated future service period of the affected employees, and relocation costs are expensed as incurred. 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. The
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obligation related to employee separation costs is included in other current liabilities in the Condensed Consolidated Balance Sheets.
Integration Costs: As of April 30, 2020, the 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, primarily consisting of accelerated depreciation. While we did no t incur any costs during 2021, we incurred integration costs of $ 3.3 and $ 9.9 during the three and nine months ended January 31, 2020, respectively, primarily consisting of other transition and termination costs. The obligation related to severance costs and retention bonuses was fully satisfied as of January 31, 2021, and was $ 0.5 at April 30, 2020.
Restructuring Costs: A restructuring program was approved by the Board of Directors (the “Board”) during the third quarter of 2021. Under this program, we have identified opportunities to reduce our overall cost structure and optimize our organizational design, inclusive of stranded overhead associated with recent divestitures of the Crisco ® and Natural Balance ® businesses. For additional information, see Note 4: Divestitures. While the entire scope of the program cannot be quantified at this time, we expect to incur approximately $ 60.0 in costs associated with the restructuring activities approved to date. Over half of these costs are expected to be employee-related costs, while the remainder represent other transition and termination costs associated with our cost reduction and margin management initiatives. We anticipate the activities and costs associated with this restructuring program will be completed by the end of 2023, with the majority of the costs expected to be incurred in 2022.
During the three and nine months ended January 31, 2021, we incurred $ 1.7 of employee-related costs, all of which were cash charges. The obligation related to severance costs and retention bonuses was $ 1.4 at January 31, 2021.
Note 4: Divestitures
On December 1, 2020, we sold the Crisco oils and shortening business to B&G Foods, Inc. (“B&G Foods”). The transaction included oils and shortening products sold under the Crisco brand, primarily in the U.S. and Canada, certain trademarks and licensing agreements, dedicated manufacturing and warehouse facilities located in Cincinnati, Ohio, and approximately 160 employees who supported the Crisco business. The business generated net sales of approximately $ 270.0 in 2020, included primarily in the U.S. Retail Consumer Foods segment. Net proceeds from the divestiture were $ 533.4 , inclusive of a preliminary working capital adjustment and transaction costs paid to date, which will be finalized during the fourth quarter of 2021.
On January 29, 2021, we sold the Natural Balance premium pet food business to Nexus Capital Management LP (“Nexus”). The transaction encompassed pet food products sold under the Natural Balance brand, certain trademarks and licensing agreements, and select employees who supported the Natural Balance business. The business generated net sales of approximately $ 220.0 in 2020, included in the U.S. Retail Pet Foods segment. Net proceeds from the divestiture were $ 35.9 , inclusive of a preliminary working capital adjustment and transaction costs paid to date, which will be finalized during the fourth quarter of 2021.
Upon completion of these transactions during the third quarter of 2021, we recognized a pre-tax gain of $ 114.9 related to the Crisco business and a pre-tax loss of $ 87.7 related to the Natural Balance business, which were included in other operating expense (income) – net within the Condensed Statement of Consolidated Income.
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The following table summarizes the net assets and liabilities disposed, which were measured at the lower of carrying amount or fair value less costs to sell.
January 31, 2021
Crisco Natural Balance
Assets disposed:
Inventories $ 32.9 $ 18.2
Property, plant, and equipment – net 37.2 —
Operating lease right-of-use assets 1.6 0.1
Goodwill 227.6 74.1
Other intangible assets – net 117.5 41.3
Other noncurrent assets 0.2 —
Total assets disposed $ 417.0 $ 133.7
Liabilities disposed:
Current operating lease liabilities $ 0.6 $ —
Noncurrent operating lease liabilities 1.0 —
Deferred income taxes — 10.1
Other noncurrent liabilities — 0.3
Total liabilities disposed 1.6 10.4
Net assets disposed $ 415.4 $ 123.3
Note 5: Reportable Segments
We operate in one industry: the manufacturing and marketing of food and beverage products. We have three reportable segments: U.S. Retail Pet Foods, U.S. 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 leadership changes, these operating segments are 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.
The U.S. Retail Pet Foods segment primarily includes the domestic sales of Rachael Ray ® Nutrish ® , Meow Mix ® , Milk-Bone ® , 9Lives ® , Kibbles ’n Bits ® , Pup-Peroni ® , and Nature’s Recipe ® branded products; the U.S. Retail Coffee segment primarily includes the domestic sales of Folgers ® , Dunkin’ TM , and Café Bustelo ® branded coffee; and the U.S. Retail Consumer Foods segment primarily includes the domestic sales of Smucker’s ® and Jif ® branded products. 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. However, we do not represent that the segments, if operated independently, would report operating profit equal to the segment profit set forth below, as segment profit excludes certain expenses such as corporate administrative expenses, gains and losses related to the sale of a business, unallocated gains and losses on commodity and foreign currency exchange derivative activities (“unallocated derivative gains and losses”), as well as amortization expense and impairment charges related to intangible assets.
Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of segment operating results until the related inventory is sold. At that time, we reclassify the hedge gains and losses from unallocated derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the hedge without experiencing any mark-to-market volatility. 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.
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Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
Net sales:
U.S. Retail Pet Foods $ 768.6 $ 721.9 $ 2,169.9 $ 2,101.7
U.S. Retail Coffee 625.9 558.8 1,791.5 1,567.9
U.S. Retail Consumer Foods 447.6 422.9 1,415.9 1,251.2
International and Away From Home 234.6 268.7 705.2 788.2
Total net sales $ 2,076.7 $ 1,972.3 $ 6,082.5 $ 5,709.0
Segment profit:
U.S. Retail Pet Foods $ 135.1 $ 146.0 $ 385.3 $ 403.1
U.S. Retail Coffee 210.7 189.5 595.4 500.9
U.S. Retail Consumer Foods 110.9 84.2 377.7 256.6
International and Away From Home 24.5 49.0 94.9 131.7
Total segment profit $ 481.2 $ 468.7 $ 1,453.3 $ 1,292.3
Amortization ( 57.0 ) ( 58.8 ) ( 176.1 ) ( 176.4 )
Other intangible assets impairment charge — ( 52.4 ) — ( 52.4 )
Gain on divestitures – net 27.2 — 27.2 —
Interest expense – net ( 43.5 ) ( 45.1 ) ( 134.7 ) ( 143.6 )
Unallocated derivative gains (losses) 33.8 7.7 81.5 37.6
Other special project costs (A)
( 1.7 ) ( 3.3 ) ( 1.7 ) ( 9.9 )
Corporate administrative expenses ( 77.3 ) ( 72.9 ) ( 236.1 ) ( 214.8 )
Other income (expense) – net ( 1.2 ) ( 1.4 ) ( 34.8 ) ( 4.5 )
Income before income taxes $ 361.5 $ 242.5 $ 978.6 $ 728.3
(A) Other special project costs includes integration and restructuring costs. For more information, see Note 3: Integration and Restructuring Costs.
The following table presents certain geographical information.
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
Net sales:
United States $ 1,939.5 $ 1,837.6 $ 5,651.4 $ 5,311.1
International:
Canada $ 113.9 $ 108.7 $ 345.3 $ 318.9
All other international 23.3 26.0 85.8 79.0
Total international $ 137.2 $ 134.7 $ 431.1 $ 397.9
Total net sales $ 2,076.7 $ 1,972.3 $ 6,082.5 $ 5,709.0
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The following table presents product category information.
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020 Primary Reportable Segment (A)
Coffee $ 693.7 $ 650.7 $ 1,989.0 $ 1,824.5 U.S. Retail Coffee
Dog food 296.5 300.8 852.0 899.0 U.S. Retail Pet Foods
Cat food 245.2 223.9 697.1 633.6 U.S. Retail Pet Foods
Pet snacks 246.6 214.6 676.1 617.8 U.S. Retail Pet Foods
Peanut butter 208.5 180.0 601.2 533.3 U.S. Retail Consumer Foods
Frozen handheld 100.0 82.6 301.8 247.5 U.S. Retail Consumer Foods
Fruit spreads 99.8 88.3 293.3 264.0 U.S. Retail Consumer Foods
Shortening and oils 33.9 68.9 193.9 192.2 U.S. Retail Consumer Foods
Juices and beverages 33.5 30.4 103.8 94.0 U.S. Retail Consumer Foods
Portion control 27.9 42.0 83.0 123.9 Other (B)
Baking mixes and ingredients 21.5 19.6 74.7 59.3 Other (B)
Other 69.6 70.5 216.6 219.9 Other (B)
Total net sales $ 2,076.7 $ 1,972.3 $ 6,082.5 $ 5,709.0
(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.
Note 6: 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,
2021 2020 2021 2020
Net income $ 261.5 $ 187.4 $ 729.3 $ 553.2
Less: Net income allocated to participating securities 1.1 1.1 3.1 3.2
Net income allocated to common stockholders $ 260.4 $ 186.3 $ 726.2 $ 550.0
Weighted-average common shares outstanding 112.1 113.4 113.1 113.3
Add: Dilutive effect of stock options — — — —
Weighted-average common shares outstanding – assuming dilution 112.1 113.4 113.1 113.3
Net income per common share $ 2.32 $ 1.64 $ 6.42 $ 4.85
Net income per common share – assuming dilution $ 2.32 $ 1.64 $ 6.42 $ 4.85
Note 7: Goodwill and Other Intangible Assets
A summary of changes in goodwill is as follows:
U.S. Retail
Pet Foods U.S. Retail
Coffee U.S. Retail
Consumer Foods International
and Away
From Home Total
Balance at May 1, 2020 $ 2,442.3 $ 2,090.9 $ 1,358.2 $ 413.1 $ 6,304.5
Divestitures ( 74.1 ) — ( 210.7 ) ( 16.9 ) ( 301.7 )
Other (A)
— — — 14.1 14.1
Balance at January 31, 2021 (B)
$ 2,368.2 $ 2,090.9 $ 1,147.5 $ 410.3 $ 6,016.9
(A) The amounts classified as other represent foreign currency exchange adjustments.
(B) Included in goodwill as of May 1, 2020, are accumulated goodwill impairment charges of $ 242.9 . No impairment charges have been recognized in 2021.
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The following table summarizes our other intangible assets and related accumulated amortization and impairment charges including foreign currency exchange adjustments.
January 31, 2021
April 30, 2020
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 $ 1,497.2 $ 2,973.9 $ 4,471.1 $ 1,353.0 $ 3,118.1
Patents and technology 168.5 145.1 23.4 168.5 138.4 30.1
Trademarks 348.0 177.9 170.1 662.0 311.0 351.0
Total intangible assets subject to amortization $ 4,987.6 $ 1,820.2 $ 3,167.4 $ 5,301.6 $ 1,802.4 $ 3,499.2
Indefinite-lived intangible assets not subject to
amortization:
Trademarks $ 3,158.1 $ 226.1 $ 2,932.0 $ 3,158.1 $ 228.3 $ 2,929.8
Total other intangible assets $ 8,145.7 $ 2,046.3 $ 6,099.4 $ 8,459.7 $ 2,030.7 $ 6,429.0
The decrease in finite-lived intangible assets from April 30, 2020, is primarily due to the divestitures of the Crisco and Natural Balance trademarks during the third quarter of 2021. For additional information, see Note 4: Divestitures.
We review goodwill and other indefinite-lived intangible assets for impairment at least annually on February 1, and more often if indicators of impairment exist. As a result of the divestitures during the third quarter of 2021, we reviewed all impacted reporting units and concluded that the estimated fair values were in excess of the carrying values as of the date of the divestitures. Furthermore, there were no other indicators of impairment, and as a result, we do not believe that our reporting units or any of our material indefinite-lived intangible assets are more likely than not impaired as of January 31, 2021. However, the goodwill and indefinite-lived trademarks within the U.S. Retail Pet Foods segment 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, 2021.
In addition, we continue to evaluate the nature and extent to which the novel coronavirus (“COVID-19”) could impact our business, specifically as it relates to the fair value of our goodwill and indefinite-lived intangible assets. While we have concluded there were no indicators of impairment as of January 31, 2021, any significant sustained adverse change in consumer purchasing behaviors, government restrictions, financial results, or macroeconomic conditions could result in future impairment, specifically as it relates to the Away From Home reporting unit, which has experienced a decline in demand as a result of COVID-19. As of January 31, 2021, the goodwill related to the Away From Home reporting unit represented approximately 65 percent of the goodwill within the combined International and Away From Home operating segments.
During the third quarter of 2020, we recognized an impairment charge of $ 52.4 related to the recently divested Natural Balance brand within the U.S. Retail Pet Foods segment due to a decline in the 2020 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 reclassified the Natural Balance brand as a finite-lived intangible asset as of February 1, 2020, as a result of a change in our long-term strategic expectations for the brand.
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Note 8: Debt and Financing Arrangements
The following table summarizes the components of our long-term debt.
January 31, 2021 April 30, 2020
Principal
Outstanding Carrying
Amount (A)
Principal
Outstanding Carrying
Amount (A)
3.50 % Senior Notes due October 15, 2021
$ 750.0 $ 755.4 $ 750.0 $ 761.1
3.00 % Senior Notes due March 15, 2022
400.0 399.2 400.0 398.7
3.50 % Senior Notes due March 15, 2025
1,000.0 996.6 1,000.0 996.0
3.38 % Senior Notes due December 15, 2027
500.0 497.0 500.0 496.7
2.38 % Senior Notes due March 15, 2030
500.0 495.6 500.0 495.2
4.25 % Senior Notes due March 15, 2035
650.0 644.2 650.0 643.9
4.38 % Senior Notes due March 15, 2045
600.0 586.9 600.0 586.5
3.55 % Senior Notes due March 15, 2050
300.0 295.8 300.0 295.7
Term Loan Credit Agreement due May 14, 2021 — — 700.0 699.5
Total long-term debt $ 4,700.0 $ 4,670.7 $ 5,400.0 $ 5,373.3
Current portion of long-term debt 750.0 755.4 — —
Total long-term debt, less current portion $ 3,950.0 $ 3,915.3 $ 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, offering discounts, and terminated interest rate contracts.
During the third quarter of 2021, we prepaid, in full, the remaining outstanding balance of the $ 1.5 billion senior unsecured delayed-draw Term Loan Credit Agreement (“Term Loan”) that was entered into in April 2018 to partially finance the Ainsworth acquisition. During the three and nine months ended January 31, 2021, we prepaid $ 200.0 and $ 700.0 on the Term Loan, respectively.
We have available a $ 1.8 billion unsecured revolving credit facility with a group of 11 banks that matures in September 2022. Borrowings under the revolving credit facility bear interest on the prevailing U.S. Prime Rate, LIBOR, or Canadian Dealer Offered Rate, based on our election. 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, 2021, 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. The commercial paper program is backed by our revolving credit facility and reduces what we can borrow under the revolving credit facility by the amount of commercial paper outstanding. Commercial paper will be used as a continuing source of short-term financing for general corporate purposes. As of January 31, 2021, and April 30, 2020, we had $ 166.0 and $ 248.0 of short-term borrowings outstanding, respectively, which were issued under our commercial paper program at weighted-average interest rates of 0.17 percent and 0.40 percent, respectively.
Interest paid totaled $ 8.7 and $ 18.3 for the three months ended January 31, 2021 and 2020, respectively, and $ 95.1 and $ 118.3 , for the nine months ended January 31, 2021 and 2020, 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. We are in compliance with all covenants.
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Note 9: Pensions and Other Postretirement Benefits
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
2021 2020 2021 2020
Service cost $ 0.5 $ 0.4 $ 0.5 $ 0.4
Interest cost 3.3 5.2 0.4 0.5
Expected return on plan assets ( 4.6 ) ( 6.0 ) — —
Amortization of net actuarial loss (gain) 2.6 2.0 — ( 0.1 )
Amortization of prior service cost (credit) 0.2 0.2 ( 0.3 ) ( 0.2 )
Settlement loss (gain) 0.2 — — —
Net periodic benefit cost $ 2.2 $ 1.8 $ 0.6 $ 0.6
Nine Months Ended January 31,
Defined Benefit Pension Plans Other Postretirement Benefits
2021 2020 2021 2020
Service cost $ 1.4 $ 1.2 $ 1.4 $ 1.3
Interest cost 11.1 15.7 1.3 1.7
Expected return on plan assets ( 14.7 ) ( 18.1 ) — —
Amortization of net actuarial loss (gain) 8.4 6.0 — ( 0.2 )
Amortization of prior service cost (credit) 0.6 0.6 ( 0.8 ) ( 0.8 )
Settlement loss (gain) 30.8 — — —
Net periodic benefit cost $ 37.6 $ 5.4 $ 1.9 $ 2.0
During the second quarter of 2021, we transferred $ 82.6 of our Canadian defined benefit pension plan obligations to an insurance company through the purchase of an irrevocable group annuity contract (referred to as a buy-out contract). The group annuity contract was purchased using assets from the pension trust. As a result of this transaction, we recognized a noncash pre-tax settlement charge of $ 27.9 to accelerate the unrecognized losses within accumulated other comprehensive income (loss) that would have otherwise been recognized in subsequent periods. This settlement charge was included within other income (expense) – net in the Condensed Statement of Consolidated Income. We did no t recognize any additional charges related to the buy-out contract during the third quarter of 2021.
Note 10: Derivative Financial Instruments
We are exposed to market risks, such as changes in commodity prices, foreign currency exchange rates, and interest rates. To manage the volatility related to these exposures, we enter into various derivative transactions. We have policies in place that define acceptable instrument types we may enter into and establish controls to limit our market risk exposure.
Commodity Price Management: We enter into commodity derivatives to manage price volatility and reduce the variability of future cash flows related to anticipated inventory purchases of key raw materials, notably green coffee, corn, soybean meal, wheat, and edible oils. We also enter into commodity derivatives to manage price risk for energy input costs, including diesel fuel and natural gas. Our derivative instruments generally have maturities of less than one year .
We do not qualify commodity derivatives for hedge accounting treatment, and as a result, the derivative gains and losses are immediately recognized in earnings. Although we do not perform the assessments required to achieve hedge accounting for derivative positions, we believe all of our commodity derivatives are economic hedges of our risk exposure.
The commodities hedged have a high inverse correlation to price changes of the derivative instrument. Thus, we would expect that over time any gain or loss in the estimated fair value of the derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures.
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Foreign Currency Exchange Rate Hedging: We utilize foreign currency derivatives to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods. The contracts generally have maturities of less than one year . We do not qualify instruments used to manage foreign currency exchange exposures for hedge accounting treatment.
Interest Rate Hedging: We utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions, as well as to manage changes in the fair value of our long-term debt. At the inception of an interest rate contract, the instrument is evaluated and documented for qualifying hedge accounting treatment. If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the contract 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 transaction affects earnings. If the contract is designated as a fair value hedge, the contract is recognized at fair value on the balance sheet and changes in the fair value are recognized in interest expense. 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.
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 $ 47.5 of the gain, of which $ 2.2 and $ 6.4 was recognized during the three and nine months ended January 31, 2021, respectively, and $ 2.1 and $ 6.2 was recognized during the three and nine months ended January 31, 2020, respectively. The remaining gain will be recognized as follows: $ 2.0 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, 2021
Other
Current
Assets Other
Current
Liabilities Other
Noncurrent
Assets Other
Noncurrent
Liabilities
Derivatives not designated as hedging instruments:
Commodity contracts $ 23.7 $ 4.1 $ — $ —
Foreign currency exchange contracts 0.1 2.0 — —
Total derivative instruments $ 23.8 $ 6.1 $ — $ —
April 30, 2020
Other
Current
Assets Other
Current
Liabilities Other
Noncurrent
Assets Other
Noncurrent
Liabilities
Derivatives not designated as hedging instruments:
Commodity contracts $ 14.7 $ 33.2 $ — $ —
Foreign currency exchange contracts 2.4 0.1 — —
Total derivative instruments $ 17.1 $ 33.3 $ — $ —
We have elected to not offset fair value amounts recognized for our exchange-traded derivative instruments and our cash margin accounts executed with the same counterparty that are generally subject to enforceable netting agreements. We are required to maintain cash margin accounts in connection with funding the settlement of our open positions. At January 31, 2021, our cash margin accounts represented collateral received of $ 5.6 , and at April 30, 2020, our cash margin accounts represented collateral pledged of $ 43.2 , 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 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.
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Interest expense – net, as presented in the Condensed Statements of Consolidated Income was $ 43.5 and $ 45.1 for the three months ended January 31, 2021 and 2020, respectively, and was $ 134.7 and $ 143.6 for the nine months ended January 31, 2021 and 2020, 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 January 31, Nine Months Ended January 31,
2021 2020 2021 2020
Gains (losses) recognized in other comprehensive income (loss) $ — $ ( 22.7 ) $ — $ ( 119.8 )
Less: Gains (losses) reclassified from accumulated other comprehensive income (loss)
to interest expense
( 3.5 ) ( 0.1 ) ( 10.4 ) ( 0.3 )
Change in accumulated other comprehensive income (loss) $ 3.5 $ ( 22.6 ) $ 10.4 $ ( 119.5 )
Included as a component of accumulated other comprehensive income (loss) at January 31, 2021, and April 30, 2020, were deferred net pre-tax losses of $ 230.7 and $ 241.1 , respectively, related to the terminated interest rate contracts. The related net tax benefit recognized in accumulated other comprehensive income (loss) at January 31, 2021, and April 30, 2020, was $ 53.3 and $ 55.5 , respectively. Approximately $ 13.7 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,
2021 2020 2021 2020
Gains (losses) on commodity contracts $ 38.0 $ ( 7.3 ) $ 62.8 $ ( 4.8 )
Gains (losses) on foreign currency exchange contracts ( 2.6 ) 0.3 ( 5.3 ) ( 0.8 )
Total gains (losses) recognized in cost of products sold $ 35.4 $ ( 7.0 ) $ 57.5 $ ( 5.6 )
Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of segment operating results until the related inventory is sold. At that time, we reclassify the hedge gains and losses from unallocated derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the hedge without experiencing any mark-to-market volatility. The following table presents the activity in unallocated derivative gains and losses.
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
Net gains (losses) on mark-to-market valuation of unallocated derivative positions $ 35.4 $ ( 7.0 ) $ 57.5 $ ( 5.6 )
Less: Net gains (losses) on derivative positions reclassified to segment operating profit 1.6 ( 14.7 ) ( 24.0 ) ( 43.2 )
Unallocated derivative gains (losses) $ 33.8 $ 7.7 $ 81.5 $ 37.6
As of January 31, 2021, the net cumulative unallocated derivative gains were $ 48.6 , and at April 30, 2020, the net cumulative unallocated derivative losses were $ 32.9 .
The following table presents the gross notional value of outstanding derivative contracts.
January 31, 2021 April 30, 2020
Commodity contracts $ 373.3 $ 890.1
Foreign currency exchange contracts 87.4 65.6
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Note 11: Other Financial Instruments and Fair Value Measurements
Financial instruments, other than derivatives, that potentially subject us to significant concentrations of credit risk consist principally of cash investments, short-term borrowings, and trade receivables. The carrying value of these financial instruments approximates fair value. Our remaining financial instruments, with the exception of long-term debt, are recognized at estimated fair value in the Condensed Consolidated Balance Sheets.
The following table provides information on the carrying amounts and fair values of our financial instruments.
January 31, 2021 April 30, 2020
Carrying
Amount Fair Value Carrying
Amount Fair Value
Marketable securities and other investments $ 39.1 $ 39.1 $ 38.6 $ 38.6
Derivative financial instruments – net 17.7 17.7 ( 16.2 ) ( 16.2 )
Total long-term debt ( 4,670.7 ) ( 5,209.0 ) ( 5,373.3 ) ( 5,740.6 )
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions.
The following tables summarize the fair values and the levels within the fair value hierarchy in which the fair value measurements fall for our financial instruments.
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Fair Value at January 31, 2021
Marketable securities and other investments: (A)
Equity mutual funds $ 9.1 $ — $ — $ 9.1
Municipal obligations — 29.3 — 29.3
Money market funds 0.7 — — 0.7
Derivative financial instruments: (B)
Commodity contracts – net 19.6 — — 19.6
Foreign currency exchange contracts – net ( 0.1 ) ( 1.8 ) — ( 1.9 )
Total long-term debt (C)
( 5,209.0 ) — — ( 5,209.0 )
Total financial instruments measured at fair value $ ( 5,179.7 ) $ 27.5 $ — $ ( 5,152.2 )
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Fair Value at
April 30, 2020
Marketable securities and other investments: (A)
Equity mutual funds $ 8.7 $ — $ — $ 8.7
Municipal obligations — 24.2 — 24.2
Money market funds 5.7 — — 5.7
Derivative financial instruments: (B)
Commodity contracts – net ( 18.3 ) ( 0.2 ) — ( 18.5 )
Foreign currency exchange contracts – net 0.2 2.1 — 2.3
Total long-term debt (C)
( 5,032.0 ) ( 708.6 ) — ( 5,740.6 )
Total financial instruments measured at fair value $ ( 5,035.7 ) $ ( 682.5 ) $ — $ ( 5,718.2 )
(A) Marketable securities and other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans. The funds include equity securities listed in active markets, municipal obligations valued by a third party using valuation techniques that utilize inputs that are derived principally from or corroborated by observable market data, and money market funds with maturities of three months or less. Based on the short-term nature of these money market funds, carrying value approximates fair value. As of January 31, 2021, our municipal obligations are scheduled to mature as follows: $ 0.3 in 2021, $ 1.5 in 2022, $ 3.5 in 2024, and the remaining $ 24.0 in 2025 and beyond. We do no t have any municipal obligations scheduled to mature in 2023.
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(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. For additional information, see Note 10: Derivative Financial Instruments.
(C) Long-term debt is composed of public Senior Notes, which are classified as Level 1, and the Term Loan, which was classified as Level 2 prior to the prepayment of the remaining balance during the third quarter of 2021. The public Senior Notes are traded in an active secondary market and valued using quoted prices. The fair value of the Term Loan was based on the net present value of each interest and principal payment calculated utilizing an interest rate derived from an estimated yield curve obtained from independent pricing sources for similar types of term loan borrowing arrangements. For additional information, see Note 8: Debt and Financing Arrangements.
Note 12: Leases
We lease certain warehouses, manufacturing facilities, office space, equipment, and vehicles, primarily through operating lease agreements. We have elected to not recognize leases with a term of 12 months or less on the balance sheet. 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, 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. Since we are not reasonably certain to exercise these types of options, minimum lease payments do not include any amounts related to these termination or purchase options. Our lease agreements generally do not contain residual value guarantees or restrictive covenants that are material.
We determine if an agreement is or contains a lease at inception by evaluating whether an identified asset exists that we control over the term of the arrangement. A lease commences when the lessor makes the identified asset available for our use. We generally account for lease and non-lease components as a single lease component. Minimum lease payments do not include variable lease payments other than those that depend on an index or rate.
For the majority of our leases, the interest rate implicit in the lease cannot be readily determined, so we utilize our incremental borrowing rate to present value lease payments using information available at the lease commencement date. We consider our credit rating and the current economic environment in determining this collateralized rate.
The following table sets forth the right-of-use assets and lease liabilities recognized in the Condensed Consolidated Balance Sheets.
January 31, 2021 April 30, 2020
Operating lease right-of-use assets $ 147.9 $ 148.4
Operating lease liabilities:
Current operating lease liabilities $ 39.2 $ 36.5
Noncurrent operating lease liabilities
120.2 120.0
Total operating lease liabilities $ 159.4 $ 156.5
Finance lease right-of-use assets:
Machinery and equipment
$ 9.9 $ 11.6
Accumulated depreciation
( 5.3 ) ( 5.9 )
Total property, plant, and equipment $ 4.6 $ 5.7
Finance lease liabilities:
Other current liabilities
$ 2.0 $ 2.2
Other noncurrent liabilities
2.7 3.5
Total finance lease liabilities $ 4.7 $ 5.7
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The following table summarizes the components of lease expense.
Three Months Ended January 31, Nine Months Ended January 31,
2021 2020 2021 2020
Operating lease cost $ 11.6 $ 13.2 $ 34.0 $ 38.5
Finance lease cost:
Amortization of right-of-use assets 0.6 0.7 1.8 2.3
Interest on lease liabilities
— 0.1 0.1 0.2
Variable lease cost 6.6 5.0 17.7 17.6
Short-term lease cost 9.5 8.5 28.8 25.9
Sublease income ( 0.9 ) ( 1.1 ) ( 3.4 ) ( 3.4 )
Net lease cost $ 27.4 $ 26.4 $ 79.0 $ 81.1
The following table sets forth cash flow and noncash information related to leases.
Nine Months Ended January 31,
2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$ 32.3 $ 38.8
Operating cash flows from finance leases 0.1 0.2
Financing cash flows from finance leases
2.0 2.1
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases 31.2 56.6
Finance leases
0.8 2.4
The following table summarizes the maturity of our lease liabilities by fiscal year.
January 31, 2021
Operating Leases Finance Leases
2021 (remainder of the year) $ 10.5 $ 0.6
2022 42.5 1.8
2023 40.0 1.1
2024 28.6 0.9
2025 20.9 0.4
2026 and beyond 26.3 0.1
Total undiscounted minimum lease payments $ 168.8 $ 4.9
Less: Imputed interest 9.4 0.2
Lease liabilities $ 159.4 $ 4.7
The following table sets forth the weighted average remaining lease term and discount rate.
January 31, 2021 April 30, 2020
Weighted average remaining lease term (in years):
Operating leases
4.6 4.7
Finance leases 3.1 3.4
Weighted average discount rate:
Operating leases 2.6 % 3.1 %
Finance leases
2.7 % 2.9 %
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Note 13: Income Taxes
The effective tax rates for the three months ended January 31, 2021 and 2020, were 27.7 and 22.7 percent, respectively, and for the nine months ended January 31, 2021 and 2020, were 25.5 and 24.0 percent, respectively. During the three and nine months ended January 31, 2021 and 2020, the effective tax rates varied from the U.S. statutory income tax rate of 21.0 percent due to the impact of state income taxes. The effective tax rates for the current year were also unfavorably impacted by additional net income tax expense related to the divestitures of the Crisco and Natural Balance businesses during the third quarter of 2021.
Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an additional $ 1.8 , primarily as a result of expiring statute of limitations periods.
As of January 31, 2021, the undistributed earnings of our foreign subsidiaries remain permanently reinvested.
During calendar year 2020, the Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act of 2021 were enacted in response to the COVID-19 pandemic and economic downturn. These statutes included rollbacks of certain provisions of the U.S. Tax Cuts and Jobs Act (the “Tax Act”), tax extenders for expiring tax breaks, and other tax provisions. While these specific rollbacks and tax provisions had minimal impact to the Company, any future legislative actions in response to COVID-19 could further modify provisions of the Tax Act, and such changes will need to be analyzed for their respective impact on our income taxes at that time.
Note 14: Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), including the reclassification adjustments for items that are reclassified from accumulated other comprehensive income (loss) to net income, are shown below.
Foreign
Currency
Translation
Adjustment Net Gains (Losses)
on Cash Flow
Hedging
Derivatives (A)
Pension and
Other
Postretirement
Liabilities (B)
Unrealized
Gain (Loss)
on Available-
for-Sale
Securities Accumulated
Other
Comprehensive
Income (Loss)
Balance at May 1, 2020 $ ( 50.5 ) $ ( 185.6 ) $ ( 146.7 ) $ 3.8 $ ( 379.0 )
Reclassification adjustments — 10.4 39.0 — 49.4
Current period credit (charge) 29.4 — 9.5 1.5 40.4
Income tax benefit (expense) — ( 2.2 ) ( 11.8 ) ( 0.3 ) ( 14.3 )
Balance at January 31, 2021 $ ( 21.1 ) $ ( 177.4 ) $ ( 110.0 ) $ 5.0 $ ( 303.5 )
Foreign
Currency
Translation
Adjustment Net Gains (Losses)
on Cash Flow
Hedging
Derivatives (A)
Pension and
Other
Postretirement
Liabilities (B)
Unrealized
Gain (Loss)
on Available-
for-Sale
Securities Accumulated
Other
Comprehensive
Income (Loss)
Balance at May 1, 2019 $ ( 35.5 ) $ ( 40.4 ) $ ( 110.0 ) $ 4.1 $ ( 181.8 )
Reclassification adjustments — 0.3 5.2 — 5.5
Current period credit (charge) 2.6 ( 119.8 ) — 1.2 ( 116.0 )
Income tax benefit (expense) — 27.5 ( 1.2 ) ( 0.3 ) 26.0
Balance at January 31, 2020 $ ( 32.9 ) $ ( 132.4 ) $ ( 106.0 ) $ 5.0 $ ( 266.3 )
(A) The reclassification from accumulated other comprehensive income (loss) to interest expense was related to terminated interest rate contracts. The current period charge in 2020 was related 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 10: Derivative Financial Instruments.
(B) The reclassification from accumulated other comprehensive income (loss) to other income (expense) – net is composed of settlement charges and amortization of net losses and prior service costs. The reclassification adjustments in 2021 primarily include the impact of the nonrecurring settlement charge related to the purchase of a group annuity contract to transfer our Canadian defined benefit pension plan obligations to an insurance company. For additional information, see Note 9: Pensions and Other Postretirement Benefits .
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Note 15: Contingencies
We, like other food manufacturers, are from time to time subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. 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 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, 2021. Based on the information known to date, with the exception of the matters 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.
In addition to the legal proceedings discussed above, we are currently a defendant in Council for Education and Research on Toxics (“CERT”) v. Brad Barry LLC, et al., which alleges that we, in addition to nearly eighty other defendants (collectively the “Defendants”) who manufacture, package, distribute, or sell packaged coffee, failed to provide warnings for our coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code Section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986 (better known as “Proposition 65”). CERT sought equitable relief, including warnings to consumers, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Proposition 65. In addition, CERT asserted that every consumed cup of coffee, absent a compliant warning, was equivalent to a violation under Proposition 65. In June 2019, the state agency responsible for administering the Proposition 65 program, the California Office of Environmental Health Hazard Assessment (“OEHHA”), approved a regulation clarifying that cancer warnings are not required for coffee under Proposition 65, and in August 2020, the trial court granted the Defendants’ motion for summary judgment based on the regulation. CERT submitted its formal notice to appeal on November 20, 2020.
We are also defendants in nine pending putative class action lawsuits filed in federal courts in California, Florida, Illinois, Missouri, Texas, Washington, and Washington D.C. The plaintiffs in those actions assert claims arising under various state laws for false advertising, consumer protection, deceptive and unfair trade practices, and similar statutes. Their claims are premised on allegations that we have misrepresented the number of servings that can be made from various canisters of Folgers coffee on the packaging for those products. Similar claims have been asserted against certain retailers of our Folgers coffee products, and indemnity claims have been asserted by such retailers against us. Various other potential plaintiffs have threatened to assert similar claims against us.
The outcome and the financial impact of these cases, if any, cannot be predicted at this time. Accordingly, no loss contingency has been recorded for these matters as of January 31, 2021, and the likelihood of loss is not considered probable or estimable. However, if we are required to pay significant damages, our business and financial results could be adversely impacted, and sales of those products could suffer not only in these locations but elsewhere.
Note 16: Common Shares
The following table sets forth common share information.
January 31, 2021 April 30, 2020
Common shares authorized 300.0 300.0
Common shares outstanding 109.8 114.1
Treasury shares 36.7 32.4
Repurchase Program: On October 22, 2020, the Board authorized the repurchase of up to 5.0 million common shares, in addition to the 3.6 million common shares that remained available for repurchase pursuant to prior authorizations of the Board, for a total of 8.6 million common shares available for repurchase. Under our repurchase program, 4.5 million common shares were repurchased for $ 521.9 between December 2, 2020, and January 29, 2021, of which 0.2 million common shares will be settled during the fourth quarter of 2021. Included in the total repurchases during the third quarter of 2021 were 2.0 million common shares repurchased under a 10b5-1 plan entered into on December 30, 2020. At January 31, 2021, approximately 4.1 million common shares remain available for repurchase pursuant to the Board’s authorizations. The remaining shares repurchased during the nine months ended January 31, 2021 and 2020, consisted of shares repurchased from stock plan recipients in lieu of cash payments.
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