What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-06-17 compared with 2020-06-19 · 210 added, 186 removed, 341 unchanged (54% of the section changed)

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Smucker Company makes food that people and pets love.

The Company’s portfolio of 40+ brands, which are found in 90 percent of U.S.

The Company’s portfolio of 40+ brands, which are found in nearly 90 percent of U.S.

homes and countless away from home dining locations, include iconic products consumers have always loved such as Folgers , Jif , and Milk-Bone , plus new favorites like Café Bustelo , Smucker’s Uncrustables , and Rachael Ray Nutrish .

Over the past two decades, the Company has grown by thoughtfully acquiring leading and emerging brands, while ensuring the business has a positive impact on its 7,000+ employees, the communities it is a part of, and the planet.

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As a result of leadership changes, these operating segments are being managed and reported separately and no longer represent a reportable segment for segment reporting purposes.

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

retail market segments in total comprised 88 percent of net sales in 2021 and represent a major portion of our strategic focus – the sale of branded food and beverage products with leadership positions to consumers through retail outlets in North America.

retail market segments, our products are sold primarily to food retailers, club stores, discount and dollar stores, food wholesalers, online retailers, pet specialty stores, natural foods stores and distributors, drug stores, military commissaries, and mass merchandisers.

The products included in the International and Away From Home segment are 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).

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).

Strategic Overview

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Our strategic vision is to own and market a portfolio of food and beverage brands that combines number one and leading brands with emerging, on-trend brands to drive balanced, long-term growth, primarily in North America.

Our strategic growth objectives include increasing net sales by 2 to 3 percent and operating income excluding non-GAAP adjustments (“adjusted operating income”) by 5 percent on average over the long term.

Our strategic growth objectives include increasing net sales by 2 percent and operating income excluding non-GAAP adjustments (“adjusted operating income”) by 5 percent on average over the long term.

Related to income per diluted share excluding non-GAAP adjustments (“adjusted earnings per share”), our strategic growth objective is to achieve an average increase of 8 percent over the long term.

We expect organic growth, including new products, to drive much of our top-line growth, while the contribution from acquisitions will vary from year to year.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, integration and restructuring costs, and unallocated gains and losses on commodity and foreign currency exchange derivatives.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets;

divestiture, acquisition, integration, and restructuring costs (“special project costs”);

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”);

and other one-time items that do not directly reflect ongoing operating results.

Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information.

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Net sales has increased at a compound annual growth rate of 1 percent over the past five years, while adjusted operating income and adjusted earnings per share have increased at a rate of 1 percent and 4 percent, respectively, over the same period.

These increases were primarily driven by the acquisitions of Big Heart in 2015 and Ainsworth in 2019.

Net cash provided by operating activities has increased at a compound annual growth rate of 11 percent.

Our cash deployment strategy is to balance reinvesting in our business through acquisitions and capital expenditures with returning cash to our shareholders through the payment of dividends and share repurchases.

These increases were driven by increased at-home consumption for the U.S.

Retail Coffee and U.S.

Retail Consumer Foods segments and the Ainsworth acquisition in 2019, partially offset by the reduction in net sales from the divestitures of the Crisco and Natural Balance businesses in 2021 and the U.S.

baking business in 2019.

Net cash provided by operating activities has increased at a compound annual growth rate of 1 percent over the past five years.

Our cash deployment strategy is to balance reinvesting in our business through acquisitions and capital expenditures with returning cash to our shareholders

through the payment of dividends and share repurchases.

Our deployment strategy also includes a significant focus on debt repayment.

On May 14, 2018, we acquired the equity of Ainsworth in an all-cash transaction, which was funded by debt and valued at $1.9 billion.

Ainsworth was a leading producer, distributor, and marketer of premium pet food and pet snacks, predominantly within the U.S.

As anticipated, we fully realized approximately $55.0 of annual cost synergies related to this acquisition by the end of 2020.

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, primarily in the U.S.

On December 1, 2020, we sold the Crisco oils and shortening business to 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.

Under our ownership, the business generated net sales of $198.9 and $269.2 in 2021 and 2020, respectively, primarily included in the U.S.

Retail Consumer Foods segment.

The transaction did not include our baking business in Canada.

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

During 2019, we recognized a pre-tax gain of $27.7 related to this transaction, which was included in other operating expense (income) – net within the Statement of Consolidated Income.

The continued spread of COVID-19 throughout the United States and the international community has had, and could continue to have, a negative impact on financial markets, economic conditions, and portions of our business and industry.

We are committed to supporting our employees and communities, while ensuring people and pets have access to a steady supply of food through the following initiatives:

• Financial assistance provided to employees in the form of a $1,500 hardship award to front-line employees, up to

12 weeks of full pay and benefits continuation for employees unable to perform their roles, 14 days of paid sick leave to individuals with and/or caring for family members with COVID-19, and an assistance fund seeded with $100,000 to support employees significantly impacted;

• 100 percent payment of COVID-19 testing for employees and all virtual health screenings conducted by our insurance provider;

• Reinforcement of mental health resources available to our employees;

• Implementation of appropriate physical distancing guidelines and extensive additional sanitation measures and temperature screenings at all of our locations to prevent the spread of COVID-19 and keep employees safe;

• Food and monetary donations to organizations including the Red Cross ® , Feeding America ® , United Way ® , Rescue Bank ® and the Akron-Canton Regional Foodbank;

• 100 percent match of employee donations to more than 20 local and national charities.

We are working closely with our suppliers and customers and have been proactive in taking additional actions to ensure business continuity, maximize product availability, and minimize potential disruptions across our supply chain and operations.

We received net proceeds from the divestiture of $530.2, which were net of cash transaction costs and included a working capital adjustment.

Upon completion of the transaction, we recognized a pre-tax gain of $114.8 during 2021, which is included in other operating expense (income) – net within the Statement of Consolidated Income.

On January 29, 2021, we sold the Natural Balance premium pet food business to Nexus.

The transaction included pet food products sold under the Natural Balance brand, certain trademarks and licensing agreements, and select employees who supported the Natural Balance business.

Under our ownership, the business generated net sales of $156.7 and $222.8 in 2021 and 2020, respectively, included in the U.S.

Retail Pet Foods segment.

We received net proceeds from the divestiture of $33.8, which were net of cash transaction costs and included a working capital adjustment.

Upon completion of the transaction, we recognized a pre-tax loss of $89.5 during 2021, which is included in other operating expense (income) – net within the Statement of Consolidated Income.

The spread of COVID-19 throughout the United States and the international community has had, and will continue to have, an impact on financial markets, economic conditions, and portions of our business and industry.

During 2021, state governments reopened their economies, while adhering to new guidelines and enhanced safety measures, such as social distancing and face mask protocols.

While there has been a general downward trend in U.S.

cases in calendar year 2021, consumers continue to stay at home more frequently as a precaution, and as a result, at-home food consumption and demand remains elevated.

We anticipate these changes in consumer behavior to continue into 2022, dependent upon continued vaccine availability and effectiveness, as well as the impact of additional strains of the virus.

We commenced a phased approach to reopen our corporate headquarters in Orrville, Ohio, with increased safety protocols.

However, occupancy levels remain low as the majority of our office-based employees continue to work remotely where possible, and we continue to monitor the latest public health and government guidance related to COVID-19.

We have crisis management teams at all of our facilities, which are monitoring the evolving situation and implementing risk mitigation actions as necessary.

To date, there has been minimal disruption in our supply chain network, including the supply of our ingredients, packaging, or other sourced materials, although it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world, including the impact of e-commerce pressures on freight charges and potential shipping delays due to supply and demand imbalances.

We also continue to work closely with our customers and external business partners, taking additional actions to ensure safety and business continuity and maximize product availability.

We have increased production at all of our facilities and expanded the availability of appointments at distribution centers.

All of our production operations remain open, and none have experienced significant disruptions or labor reductions related to COVID-19.

Furthermore, we have successfully implemented measures to allocate order volumes to ensure a consistent supply across our retail partners during this high period of demand.

During the fourth quarter of 2020, we experienced an increase in orders across our U.S.

and international retail businesses, in response to the increased consumer demand for our products related to “stock up” shopping and increased at-home consumption.

This benefit was partially offset by the incremental expenses incurred to support the previously mentioned initiatives, which totaled approximately $13.0.

The increase in consumer demand may partially reverse in the coming months as consumer purchasing behavior may change as a result of t he length and severity of the pandemic, duration of physical distancing requirements, stay-at-home orders, and macroeconomic implications.

In addition, if there is a second surge of the virus, we may experience another temporary increase in orders.

However, at the end of 2020, consumer demand and customer orders remain elevated compared to historical seasonal comparisons.

We have also experienced a decline in products sold in the away from home channels as a result of COVID-19, which has negatively impacted our net sales in our International and Away From Home reportable segment and we expect to continue to adversely affect our net sales while government restrictions and physical distancing measures are in place.

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

Furthermore, we have implemented measures to manage order volumes to ensure a consistent supply across our retail partners during this period of high demand.

During 2021, we continued to experience an increase in orders, primarily across our U.S.

Retail Coffee and U.S.

Retail Consumer Foods segments, in response to the increased consumer demand for our products related to the elevated at-home consumption.

It is anticipated that the increase in consumer demand will continue, to a lesser extent, through the beginning of 2022.

A decline in products sold in away from home channels has also been experienced as a result of COVID-19, which has negatively impacted our net sales in our Away From Home operating segment, and we expect COVID-19 will continue to adversely affect our net sales while government-mandated safety measures are in place and consumers continue to stay at home as a precaution.

However, as states have reopened their economies during 2021, our net sales for the away from home channels improved compared to the initial months of the pandemic.

This trend could reverse during 2022 if cases rise and governments impose additional safety measures that further impact away from home consumption, which is partially dependent upon continued vaccine availability and effectiveness.

Overall, the impact of COVID-19 remains uncertain and ultimately depends on the length and severity of the pandemic, inclusive of the introduction of new strains of the virus;

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

continued vaccine availability and effectiveness;

and the macroeconomic environment.

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

Results of Operations

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Net sales $ 8,002.7 $ 7,801.0 $ 201.7 3 %

Ainsworth acquisition (25.4) — (25.4) —

Baking divestiture — (105.9) 105.9 1

Crisco divestiture

— (112.4) 112.4 1

Natural Balance divestiture

— (53.6) 53.6 1

Foreign currency exchange

Net sales excluding acquisition, divestiture, and foreign currency exchange (A)

(7.7) — (7.7) —

Net sales excluding divestitures and foreign currency exchange (A)

$ 7,995.0 $ 7,635.0 $ 360.0 5 %

Amounts may not add due to rounding .

(A) Net sales excluding acquisition, divestiture, and foreign currency exchange is a non-GAAP financial measure used to evaluate performance internally.

(A) Net sales excluding divestitures and foreign currency exchange is a non-GAAP financial measure used to evaluate performance internally.

This measure provides useful information to investors because it enables comparison of results on a year-over-year basis.

Net sales in 2020 decreased $37.0, reflecting $105.9 of noncomparable net sales in the prior year related to the U.S.

baking business, partially offset by incremental net sales in the current year of $25.4 related to the Ainsworth acquisition.

Net sales excluding acquisition, divestiture, and foreign currency exchange increased $50.3, or 1 percent.

Favorable volume/mix contributed 2 percentage points to net sales, primarily driven by gains for the Smucker’s, Dunkin’, Milk-Bone , and Meow Mix brands, reflecting approximately $185.0 of incremental net sales resulting from increased consumer demand related to the COVID-19 pandemic.

These gains were partially offset by declines for private label dog food and the Natural Balance brand.

Lower net price realization impacted net sales by 1 percentage point, primarily due to lower net pricing for coffee and peanut butter.

Net sales in 2021 increased $201.7, or 3 percent, which includes $166.0 of noncomparable net sales in the prior year related to the Crisco and Natural Balance divestitures.

Net sales excluding divestitures and foreign currency exchange increased $360.0, or 5 percent, driven by favorable volume/mix across all of our retail businesses, supported by increased at-home consumption for the U.S.

Retail Coffee and U.S.

Retail Consumer Foods segments.

The retail business growth was partially offset by unfavorable volume/mix for the Away From Home operating segment.

Operating Income

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Amortization 2.9 3.0

Goodwill impairment charges — 1.2

Other intangible assets impairment charges

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Amounts may not add due to rounding.

Gross profit increased $86.3, or 3 percent, in 2020, primarily driven by a favorable net impact of lower prices and lower costs, favorable volume/mix, and the noncomparable benefit of Ainsworth, partially offset by the noncomparable impact related to the U.S.

baking business divestiture.

The favorable net impact of price and cost was mostly driven by a favorable change in the impact of derivative gains and losses.

Operating income increased $294.5, or 32 percent, primarily due to the $152.7 decrease in intangible asset impairment charges, a $47.6 decrease in special project costs, a $34.3 decrease in selling, distribution, and administrative (“SD&A”) expenses, and the increase in gross profit, partially offset by the noncomparable impact of the $27.7 pre-tax gain related to the sale of the U.S.

baking business in the prior year.

During 2020, we recognized a noncash impairment charge of $52.4 associated with the Natural Balance brand within the U.S.

Retail Pet Foods segment.

For additional information on this charge, refer to “Critical Accounting Estimates and Policies” in this discussion and analysis.

Gross profit increased $136.7, or 5 percent, in 2021, driven by increased contribution from volume/mix and a net benefit from price and costs, including a favorable change in derivative gains and losses as compared to the prior year, partially offset by the noncomparable impact related to the Crisco and Natural Balance divestitures.

Operating income increased $163.7, or 13 percent, primarily reflecting the increase in gross profit, a $52.4 intangible asset impairment charge in the prior year, and a $25.3 net pre-tax gain related to the divestitures of the Crisco and Natural Balance businesses, partially offset by a $48.8 increase in selling, distribution, and administrative (“SD&A”) expenses.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets;

special project costs;

gains and losses related to the sale of a business;

unallocated derivative gains and losses;

and other one-time items that do not directly reflect ongoing operating results.

Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information.

Gross profit excluding non-GAAP adjustments (“adjusted gross profit”) was comparable to the prior year, further reflecting an unfavorable change related to the exclusion of unallocated derivative gains and losses, as compared to GAAP gross profit.

Adjusted operating income increased $16.4, or 1 percent, as compared to the prior year, further reflecting the exclusion of impairment charges and special project costs, as compared to GAAP operating income.

Gross profit excluding non-GAAP adjustments (“adjusted gross profit”) increased $66.1, or 2 percent, in 2021, reflecting the exclusion of unallocated derivative gains, as compared to GAAP gross profit.

Adjusted operating income increased $20.1, or 1 percent, as compared to the prior year, further reflecting the exclusion of impairment charges and the net pre-tax gain on divestitures.

Interest Expense

Net interest expense decreased $18.7, or 9 percent, in 2020, primarily as a result of reduced debt, as compared to the prior year.

Net interest expense decreased $12.1, or 6 percent, in 2021, primarily as a result of reduced debt outstanding as compared to the prior year.

For additional information, see “Capital Resources” in this discussion and analysis.

Other Income (Expense) – Net

Net other expense increased $30.6 in 2021, primarily reflecting pension settlement charges of $35.5, which includes the aggregate $29.6 pre-tax settlement charges recognized during 2021 related to the purchase of a group annuity contract to transfer our Canadian defined benefit pension plan obligations to an insurance company.

For further information, refer to Note 9:

Pensions and Other Postretirement Benefits.

Income taxes increased $48.4, or 20 percent, in 2021, as compared to the prior year.

The effective tax rate of 25.2 percent for 2021 varied from the U.S.

statutory tax rate of 21.0 percent primarily due to the impact of state income taxes, as well as additional net income tax expense related to the divestitures of the Crisco and Natural Balance businesses during the third quarter of 2021.

The effective tax rate of 24.1 percent for 2020 varied from the U.S.

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

The effective tax rate of 26.7 percent for 2019 was also unfavorably impacted by the income tax expense associated with the sale of the U.S.

baking business and a goodwill impairment charge within the U.S.

Retail Consumer Foods segment, partially offset by a noncash deferred tax benefit related to the integration of Ainsworth.

We anticipate a full-year effective tax rate for 2022 to be approximately 24.0 percent.

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Income Taxes.

Integration Activities

As of April 30, 2020, all integration activities related to the acquisition of Ainsworth were considered complete.

We have incurred total cumulative integration costs of $48.6, of which $16.5 was incurred in 2020.

The majority of these costs were cash charges.

For additional information, refer to Note 3:

Restructuring Activities

A restructuring program was approved by the Board during the third quarter of 2021 associated with opportunities identified 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 related to these divestitures, see Note 4:

Divestitures.

During the fourth quarter of 2021, we substantially completed an organizational redesign related to our corporate headquarters and announced plans to close our Suffolk, Virginia, production facility by the end of 2022, as a result of a new strategic partnership for the production of our Away From Home liquid coffee.

While the entire scope of the program cannot be quantified at this time, we expect to incur approximately $85.0 in costs associated with the restructuring activities approved to date.

Approximately half of these costs are expected to be accelerated depreciation and other transition and termination costs associated with our cost reduction and margin management initiatives, while the remainder represents employee-related costs.

We anticipate the activities associated with this restructuring program will be completed by the end of 2023, with over half of the costs expected to be incurred by the end of 2022.

We have incurred total cumulative restructuring costs of $24.1, which were all incurred during the second half of 2021.

For further information, refer to Note 3:

Integration and Restructuring Costs.

Commodities Overview

The raw materials we use are primarily commodities, agricultural-based products, and packaging materials.

The most significant of these materials, based on 2020 annual spend, are green coffee, peanuts, animal protein meals, oils and fats, and plastic containers.

Green coffee and certain oils are traded on active regulated exchanges, and the price of these commodities fluctuates based on market conditions.

The raw materials we use in each of our segments are primarily commodities, agricultural-based products, and packaging materials.

The most significant of these materials, based on 2021 annual spend, are green coffee, peanuts, protein meals, oils and fats, and plastic containers.

Green coffee, corn, certain meals, oils, and grains are traded on active regulated exchanges, and the price of these commodities fluctuates based on market conditions.

Derivative instruments, including futures and options, are used to minimize the impact of price volatility for these commodities.

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Its price is subject to high volatility due to factors such as weather, global supply and demand, plant disease, investor speculation, and political and economic conditions in the source countries.

We source peanuts, animal protein meals, and oils and fats mainly from North America.

We source peanuts, protein meals, and oils and fats mainly from North America.

We are one of the largest procurers of peanuts in the U.S.

and frequently enter into long-term purchase contracts for various periods of time to mitigate the risk of a shortage of this commodity.

The oils we purchase are mainly soybean and canola.

The price of peanuts, animal protein meals, and oils are driven primarily by weather, which impacts crop sizes and yield, as well as global demand, especially from large importing countries such as China and India.

In particular, the supply chain for animal protein meals and fats has been significantly disrupted by the COVID-19 pandemic, and therefore, the price for these commodities has increased and may continue to increase due to such disruptions.

The oils we purchase are mainly peanut and soybean.

The price of peanuts, protein meals, and oils are driven primarily by weather, which impacts crop sizes and yield, as well as global demand, especially from large importing countries such as China and India.

In particular, the supply chain for protein meals, fats, and green coffee has been significantly disrupted by the COVID-19 pandemic, and therefore, the price for these commodities has increased and may continue to increase due to such disruptions.

Furthermore, the price of peanuts has been impacted by the recent decrease in crop supply.

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Plastic resin is made from petrochemical feedstock and natural gas feedstock, and the price can be influenced by feedstock, energy, and crude oil prices as well as global economic conditions.

Excluding the impact of derivative gains and losses, our overall commodity costs in 2020 were lower than in 2019, primarily due to lower costs for green coffee and peanuts.

Excluding the impact of derivative gains and losses, our overall commodity costs in 2021 were higher than in 2020, primarily due to higher costs for green coffee and peanuts.

Segment Results

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 domestic sales of Rachael Ray Nutrish , Meow Mix , Milk-Bone , Kibbles ’n Bits , 9Lives , Natural Balance , 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 leadership changes, these operating segments are being managed and reported separately and no longer represent a reportable segment for segment reporting purposes.

Segment results for prior periods 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 domestic sales of Rachael Ray Nutrish, Meow Mix , Milk-Bone , 9Lives, Kibbles ’n Bits , Pup-Peroni, and Nature’s Recipe branded products;

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

Retail Consumer Foods segment primarily includes 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., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores).

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

Year Ended April 30,

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Retail Pet Foods

Retail Pet Foods segment net sales decreased $10.0 in 2020, including the impact of two weeks of incremental Ainsworth sales in the current year.

Excluding the incremental Ainsworth business, net sales decreased $35.4, reflecting a $59.8 decline related to private label products.

Volume/mix decreased net sales by 2 percentage points, primarily driven by declines for private label dog food and the Natural Balance brand, partially offset by gains for the Milk-Bone and Meow Mix brands, which is reflective of the incremental net sales from stock-up purchasing related to the COVID-19 pandemic.

Net price realization contributed 1 percentage point, primarily related to the Meow Mix and Kibbles ’n Bits brands, partially offset by declines for the Nutrish brand.

The higher net pricing is reflective of list price increases across most brands implemented during the second half of the prior year, partially offset by increased trade spend.

Segment profit increased $49.3, reflecting a $10.9 unfavorable fair value purchase accounting adjustment in the prior year and the benefit from the incremental Ainsworth sales.

Profit improvement was also driven by synergy realization, reduced marketing expense, higher net pricing, and a recovery from a legal settlement related to a prior year supplier issue, partially offset by an increase in SD&A expenses and higher input costs.

Retail Pet Foods segment net sales decreased $25.0 in 2021, inclusive of the impact of $53.6 of noncomparable net sales in the prior year related to the divested Natural Balance business.

Excluding the noncomparable impact of the divested business, net sales increased $28.6, or 1 percent, primarily due to favorable volume/mix, partially offset by lower net price realization.

The favorable volume/mix contributed 2 percentage points to net sales, primarily reflecting growth for dog snacks and cat food, driven by Milk-Bone and Pup-Peroni dog snacks, as well as 9Lives and Meow Mix cat food, partially offset by declines for dog food, driven by Nature’s Recipe and Kibbles ’n Bits .

Lower net price realization reduced net sales by 1 percentage point, primarily reflecting increased trade spend.

Segment profit decreased $65.7, driven by lower net pricing, increased marketing expense, and a recovery in the prior year from a legal settlement related to a supplier issue.

Retail Coffee

Retail Coffee segment net sales increased $27.2 in 2020, reflecting favorable volume/mix, partially offset by lower net price realization.

The favorable volume/mix, which increased net sales by 5 percentage points, was driven by the Dunkin’ , Folgers , and Café Bustelo brands, reflecting the benefit of incremental net sales resulting from increased at-home coffee consumption related to the COVID-19 pandemic.

Lower net pricing, which reduced net sales by 4 percentage points, reflected promotional activity across all brands, mostly supported by lower green coffee costs.

Segment profit increased $14.7, primarily due to favorable volume/mix and decreased marketing expense, partially offset by the net unfavorable impact of lower net pricing and lower green coffee costs and an increase in SD&A expenses.

Retail Coffee segment net sales increased $225.1 in 2021, reflecting favorable volume/mix, which contributed 11 percentage points to net sales, related to growth for the Dunkin’, Café Bustelo, and Folgers brands.

The favorable volume/mix primarily reflects elevated at-home coffee consumption.

Net price realization reduced net sales by 1 percentage point.

Segment profit increased $78.1, primarily due to the favorable volume/mix, partially offset by increased marketing expense.

Retail Consumer Foods

Retail Consumer Foods segment net sales decreased $29.8 in 2020, driven by a $102.2 noncomparable impact of the U.S.

baking business.

Excluding the noncomparable impact of the divested business, net sales increased 4 percent.

volume/mix contributed 7 percentage points to net sales, primarily related to growth for the Smucker’s and Jif brands, reflecting the benefit of incremental net sales resulting from increased consumer demand related to the COVID-19 pandemic and the associated stay-at-home orders.

Lower net price realization reduced net sales by 2 percentage points, primarily driven by the list price decrease on the Jif brand, partially offset by decreased trade spend.

Segment profit decreased $16.4, primarily reflecting $44.3 of segment profit in the prior year related to the divested business, of which $27.7 represented the pre-tax gain related to the sale.

Excluding the impact of the divestiture, segment profit increased 8 percent, driven primarily by the favorable volume/mix and decreased marketing expense, partially offset by the unfavorable net impact of lower pricing and lower input costs, as well as a write-off of equipment related to the discontinuation of Jif Power Ups .

Retail Consumer Foods segment net sales increased $104.0 in 2021, inclusive of the impact of $101.2 of noncomparable net sales in the prior year related to the divested Crisco business.

Excluding the noncomparable impact of the divested business, net sales increased $205.2, or 13 percent, primarily due to favorable volume/mix, which contributed 8 percentage points to net sales, reflecting growth for the Smucker’s brand, inclusive of Uncrustables frozen sandwiches and fruit spreads, and Jif peanut butter.

The favorable volume/mix primarily reflects elevated at-home consumption and continued growth of our Uncrustables brand.

Higher net pricing increased net sales by 4 percentage points, primarily driven by the impact of a peanut butter list price increase taken on the Jif brand during the second quarter of 2021.

Segment profit increased $82.8, reflecting the favorable impact of higher net pricing, the increased contribution from volume/mix, and the lapping of a write-off of equipment related to the discontinuation of Jif Power Ups ® during the prior year, partially offset by the noncomparable segment profit in the prior year related to the divested Crisco business and increased marketing expense.

International and Away From Home

The International and Away From Home segment net sales decreased $24.4 in 2020, including a noncomparable impact of $3.7 of net sales in the prior year related to the divested U.S.

baking business.

Unfavorable volume/mix reduced net sales by 1 percentage point, primarily driven by declines for the Folgers brand and increased shipments in the prior year related to the closing of facilities in Mexico and transition to a distributor export model.

These declines were partially offset by gains for the Smucker’s brand.

Lower net price realization reduced net sales by 1 percentage point, primarily related to the Folgers brand.

Foreign currency exchange had a $6.8 unfavorable impact on net sales.

Segment profit decreased $25.1, primarily reflecting the unfavorable volume/mix, lower pricing, and higher cost.

International and Away From Home net sales decreased $102.4 in 2021, including the noncomparable impact of $11.2 of net sales in the prior year related to the divested Crisco business.

Excluding the noncomparable impact of the divested business, net sales decreased $91.2, primarily reflecting a 21 percent decline for the Away From Home operating segment, partially offset by net sales growth of 4 percent for the International operating segment.

Unfavorable volume/mix for the combined businesses reduced net sales by 10 percentage points, primarily driven by coffee, portion control, and sweetener products in away from home channels.

These declines were partially offset by gains for Uncrustables frozen sandwiches in away from home channels and dog snacks and cat food in the International operating segment.

Foreign currency exchange had a $7.7 favorable impact on net sales.

Segment profit decreased $49.3, primarily reflecting the unfavorable volume/mix and higher input costs, partially offset by lower SD&A expenses.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of funds is cash generated from operations, supplemented by borrowings against our commercial paper program and revolving credit facility.

Total cash and cash equivalents increased to $391.1 at April 30, 2020, compared to $101.3 at April 30, 2019.

Total cash and cash equivalents decreased to $334.3 at April 30, 2021, compared to $391.1 at April 30, 2020.

The following table presents selected cash flow information.

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(A) Free cash flow is a non-GAAP financial measure used by management to evaluate the amount of cash available for debt repayment, dividend distribution, acquisition opportunities, share repurchases, and other corporate purposes.

The $113.6 increase in cash provided by operating activities in 2020 was primarily driven by higher net income adjusted for noncash items in the current year.

The cash required to fund working capital decreased compared to the prior year, excluding the impact of the realization of a $30.0 income tax refund in 2019.

The decrease in working capital requirements was primarily driven by lower payments for accounts payable items driven by working capital initiatives, inclusive of a supplier financing program entered into during 2020.

Offsetting these decreases is a $239.8 settlement of interest rate contracts during 2020.

For additional information, refer to Note 10:

Derivative Financial Instruments.

The $310.2 increase in cash provided by operating activities in 2021 was primarily driven by a favorable benefit from lapping the settlement of interest rate contracts for $239.8 during 2020.

In addition, net income adjusted for noncash items was higher in the current year.

The cash required to fund working capital decreased compared to the prior year, primarily related to lower payments for accounts payable driven by working capital initiatives, inclusive of a supplier financing program entered into during the second half of 2020, and an increase in cash from trade receivables due to the timing of sales and payments, which was mostly offset by increased inventory levels reflecting the lapping of increased consumer demand in the fourth quarter of 2020.

Cash provided by investing activities in 2021 primarily consisted of net proceeds from the divestitures of the Crisco and Natural Balance businesses of $564.0 and a decrease of $54.0 in our derivative cash margin account balances, partially offset by $306.7 in capital expenditures.

Cash used for investing activities in 2020 primarily consisted of $269.3 in capital expenditures.

Cash used for investing activities in 2019 consisted of $1.9 billion related to the Ainsworth acquisition, $359.8 in capital expenditures, and a $29.8 increase in our derivative cash margin account balances, partially offset by net proceeds from the divestiture of the U.S.

baking business of $369.5.

Cash used for financing activities in 2020 consisted primarily of long-term debt repayments of $900.0, dividend payments of $396.8, and a $185.8 net reduction in short-term borrowings, partially offset by $798.2 in long-term debt proceeds.

Cash provided by financing activities in 2019 consisted primarily of $1.5 billion in long-term debt proceeds and a $282.0 net increase in short-term borrowings, partially offset by long-term debt repayments of $700.0 and dividend payments of $377.9.

Cash used for financing activities in 2021 consisted primarily of long-term debt repayments of $700.0, purchase of treasury shares of $678.4, dividend payments of $403.2, and a net decrease in short-term borrowings of $166.4.

Cash used for financing activities in 2020 consisted primarily of long-term debt repayments of $900.0, dividend payments of $396.8, and a $185.8 net decrease in short-term borrowings, partially offset by $798.2 in long-term debt proceeds.

Supplier Financing Program

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Payment terms with our suppliers, which we deem to be commercially reasonable, generally range from 0 to 120 days.

During 2020, we entered into an agreement with a third-party administrator to provide an accounts payable tracking system and facilitate a supplier financing program which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third-party financial institution.

During the second half of 2020, we entered into an agreement with a third-party administrator to provide an accounts payable tracking system and facilitate a supplier financing program which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third-party financial institution.

Participating suppliers can sell one or more of our payment obligations at their sole discretion, and our rights and obligations to our suppliers are not impacted.

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Our obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted by our suppliers’ decisions to sell amounts under these arrangements.

As of April 30, 2020, $157.5 of our outstanding payment obligations were elected and sold to a financial institution by participating suppliers.

During 2020, we paid $31.8 to a financial institution for payment obligations that were settled through the supplier financing program.

As of April 30, 2021 and 2020, $304.2 and $157.5 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers.

During 2021 and 2020, we paid $663.5 and $31.8, respectively, to a financial institution for payment obligations that were settled through the supplier financing program.

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, 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 April 30, 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 will 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 CERT v.

Brad Barry LLC, et al., which alleges that we, in addition to nearly eighty other defendants who manufacture, package, distribute, or sell coffee, failed to provide warnings for our coffee products of exposure to the chemical acrylamide as required under Proposition 65.

As part of a joint defense group organized to defend against the lawsuit, we dispute these claims.

Acrylamide is not added to coffee, but is inherently present in all coffee in small amounts (measured in parts per billion) as a byproduct of the coffee bean roasting process.

The outcome and the financial impact of the case, if any, cannot be predicted at this time.

Accordingly, no loss contingency has been recorded for this matter as of April 30, 2020, as the likelihood of loss is not considered probable or estimable.

However, if we are required to pay significant statutory penalties or to add warning labels to any of our products or place warnings in certain locations where our products are sold as a result of Proposition 65, our business and financial results could be adversely impacted, and sales of those products could suffer not only in those locations but elsewhere.

While we cannot predict with certainty the ultimate results of the remaining 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 April 30, 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 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 appealed the ruling in November 2020 to the California Court of Appeals for the Second Appellate District, which is currently pending.

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.

Five of the lawsuits have been transferred to the United States District

Court for the Western District of Missouri for coordinated pre-trial proceedings.

Similar claims have been asserted against

certain retailers of our Folgers coffee products, and indemnity claims have been asserted by such retailers against us.

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 April 30, 2021, and the likelihood of loss is not considered probable or

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.

For additional information, see Note 16:

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Current portion of long-term debt

$ 1,152.9 $ —

Short-term borrowings

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Total capital $ 12,876.5 $ 13,812.2

In March 2020, we completed an offering of $500.0 and $300.0 in Senior Notes due March 15, 2030, and March 15, 2050, respectively.

A portion of the net proceeds from the offering was used to repay the $500.0 Senior Notes due March 15, 2020, with the balance being held as a cash equivalent to be used for general corporate purposes.

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.

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

Prime Rate or LIBOR, based on our election, and is payable either on a quarterly basis or at the end of the borrowing term.

The Term Loan matures on May 14, 2021, and does not require scheduled amortization payments.

Voluntary prepayments are permitted without premium or penalty.

As of April 30, 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 April 30, 2020, was 1.21 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 consolidated financial statements.

During the third quarter of 2021, we prepaid, in full, the remaining outstanding balance of the $1.5 billion Term Loan Credit Agreement (“Term Loan”) that was entered into in April 2018 to partially finance the Ainsworth acquisition, as discussed in Note 2:

During 2021 and 2020, we prepaid $700.0 and $100.0 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.

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Debt and Financing Arrangements.

During 2020, we did not repurchase any common shares under a repurchase plan authorized by the Board.

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 the repurchase program, a total of 5.8 million common shares were repurchased for $671.9 during 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 April 30, 2021, approximately 2.8 million common shares remain available for repurchase pursuant to the Board’s authorizations.

There is no guarantee as to the exact number of shares that may be repurchased or when such purchases may occur.

We did not repurchase any common shares under a repurchase plan authorized by the Board during 2020.

The following table presents certain cash requirements related to 2022 investing and financing activities based on our current expectations.

Although no principal payments are required on our debt obligations in 2021, we may utilize a portion of our cash for debt repayment.

Additionally, in 2022, a portion of our Senior Notes will mature, and $1.9 billion in principal payments will be required that year.

April 30, 2022

Principal payments – excludes the impact of potential debt refinancing $ 1,150.0

Dividend payments – based on current rates and common shares outstanding 390.0

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Interest payments 153.4

Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations, borrowings available under our commercial paper program and revolving credit facility, and access to capital markets, will be sufficient to meet our cash requirements for the next 12 months, including the payment of quarterly dividends, capital expenditures, and interest payments on debt outstanding.

Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations, borrowings available under our commercial paper program and revolving credit facility, and access to capital markets, will be sufficient to meet our cash requirements for the next 12 months, including the payment of quarterly dividends, principal and interest payments on debt outstanding, and capital expenditures.

However, as a result of COVID-19, we may experience an increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future, which could affect our financial condition or our ability to fund operations or future investment opportunities.

During 2020, we returned $39.7 of international cash to the U.S., primarily driven by a reduction in our capital investment in certain foreign subsidiaries in conjunction with a restructuring of our international holding and operating entities.

No foreign withholding taxes were applicable, and the state income taxes were not significant.

As of April 30, 2020, total cash and cash equivalents of $83.9 was held by our foreign subsidiaries, primarily in Canada.

The undistributed earnings of our foreign subsidiaries remain permanently reinvested.

During 2021, we returned $100.0 of foreign cash to the U.S.

The repatriation was subject to $5.0 of foreign withholding taxes, while U.S.

federal and state income taxes were not significant.

As of April 30, 2021, we have re-evaluated our global cash needs and determined that a portion of our undistributed earnings, primarily in Canada, are no longer permanently reinvested, resulting in the recognition of an immaterial deferred tax liability.

NON-GAAP FINANCIAL MEASURES

We use non-GAAP financial measures including:

net sales excluding acquisition, divestiture, and foreign currency exchange;

net sales excluding divestitures and foreign currency exchange;

adjusted gross profit;

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Furthermore, these non-GAAP financial measures are used by management in preparation of the annual budget and for the monthly analyses of our operating results.

The Board of Directors also utilizes certain non-GAAP financial measures as components for measuring performance for incentive compensation purposes.

Non-GAAP financial measures exclude certain items affecting comparability that can significantly affect the year-over-year assessment of operating results, which include amortization expense and impairment charges related to intangible assets, integration and restructuring costs (“special project costs”), and unallocated gains and losses on commodity and foreign currency exchange derivatives (“unallocated derivative gains and losses”), as well as the related tax impacts of these exclusions.

The special project costs in the following table relate to specific integration and restructuring projects, and the unallocated derivative gains and losses reflect the changes in fair value of our commodity and foreign currency exchange contracts.

Additionally, income taxes, as adjusted is calculated using an adjusted effective income tax rate that is applied to adjusted income before income taxes.

While this adjusted effective income tax rate does not generally differ materially from our GAAP effective tax rate, certain exclusions from non-GAAP results can significantly impact our adjusted effective income tax rate.

The Board also utilizes certain non-GAAP financial measures as components for measuring performance for incentive compensation purposes.

special project costs;

gains and losses related to the sale of a business;

unallocated derivative gains and losses;

and other one-time items that do not directly reflect ongoing operating results.

Additionally, income taxes, as adjusted is calculated using an adjusted effective income tax rate that is applied to adjusted income before income taxes and reflects the exclusion of the previously discussed items, as well as any adjustments for one-time tax related activities, when they occur.

While this adjusted effective income tax rate does not generally differ materially from our GAAP effective tax rate, certain exclusions from non-GAAP results, such as the permanent tax impacts associated with the Crisco and Natural Balance divestitures, can significantly impact our adjusted effective income tax rate.

These non-GAAP financial measures are not intended to replace the presentation of financial results in accordance with U.S.

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Year Ended April 30,

2020 2019 2018 2017 2016

Gross profit reconciliation:

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Amortization 233.0 236.3

Goodwill impairment charges — 97.9 145.0 — —

Other intangible assets impairment charges 3.8 52.4

Gain on divestitures – net (25.3) —

Unallocated derivative losses (gains) (93.6) (19.6)

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Amortization 233.0 236.3

Goodwill impairment charges — 97.9 145.0 — —

Other intangible assets impairment charges 3.8 52.4

Gain on divestitures – net (25.3) —

Unallocated derivative losses (gains) (93.6) (19.6)

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Other special project costs 20.7 16.5

Other one-time items:

Pension plan termination settlement charges (A)

Adjusted income before income taxes

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Amortization 233.0 236.3

Goodwill impairment charges — 97.9 145.0 — —

Other intangible assets impairment charges 3.8 52.4

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Free cash flow $ 1,258.3 $ 985.5

(A) Represents the nonrecurring pre-tax settlement charges of $29.6 related to the purchase of a group annuity contract to transfer our Canadian defined benefit pension plan obligation to an insurance company.

For additional information, see Note 9:

Pensions and Other Postretirement Benefits .

OFF-BALANCE SHEET ARRANGEMENTS

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(A) Long-term debt obligations, including current portion, excludes the impact of offering discounts, make-whole payments, and debt issuance costs.

(B) Interest payments consists of the interest payments on our long-term debt, which reflect estimated payments for our variable-rate debt based on the current interest rate outlook.

(B) Interest payments consists of the interest payments for our fixed-rate Senior Notes.

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These promotional expenditures, including amounts classified as a reduction of sales, represented 39 percent of net sales in 2021.

The possibility exists that reported results could be different if factors such as the level and success of the promotional programs or other conditions differ from expectations.

Income Taxes:

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For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely, a valuation allowance would have been provided.

As of April 30, 2020, the undistributed earnings of our foreign subsidiaries, primarily in Canada, remain permanently reinvested.

As of April 30, 2021, the Company has re-evaluated its global cash needs and determined that a portion of the undistributed foreign earnings, primarily in Canada, are no longer permanently reinvested.

Goodwill and Other Indefinite-Lived Intangible Assets:

A significant portion of our assets is goodwill and other intangible assets, the majority of which are not amortized but are reviewed at least annually for impairment on February 1, and more often if indicators of impairment exist.

A significant portion of our assets is composed of goodwill and other intangible assets, the majority of which are not amortized but are reviewed for impairment at least annually on February 1, and more often if indicators of impairment exist.

At April 30, 2021, the carrying value of goodwill and other intangible assets totaled $12.1 billion, compared to total assets of $16.3 billion and total shareholders’ equity of $8.1 billion.

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A sensitivity analysis was performed for the Pet Foods reporting unit, assuming a hypothetical 50-basis-point decrease in the expected long-term growth rate or a hypothetical 50-basis-point increase in the weighted-average cost of capital, and both scenarios independently yielded an estimated fair value for the Pet Foods reporting unit below carrying value.

Other indefinite-lived intangible assets, consisting entirely of trademarks, are also tested for impairment at least annually and more often if events or changes in circumstances indicate their carrying value may not be recoverable.

To test these assets for impairment, we estimate the fair value of each asset based on a discounted cash flow model using various inputs, including projected revenues, an assumed royalty rate, and a discount rate.

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Trademarks that represent our leading brands comprise approximately 90 percent of the total carrying value of other indefinite-lived intangible assets.

As of April 30, 2020,

the estimated fair value was substantially in excess of the carrying value for the majority of these leading brand trademarks, and in all instances, the estimated fair value exceeded the carrying value by greater than 10 percent, with the exception of the Rachael Ray Nutrish brand within the U.S.

As of April 30, 2021, the estimated fair value was substantially in excess of the carrying value for the majority of these leading brand trademarks, and in all instances, the estimated fair value exceeded the carrying value by greater than 10 percent, with the exception of the Rachael Ray Nutrish brand within the U.S.

Retail Pet Foods segment.

During 2020, we recognized an impairment charge of $52.4 related to the Natural Balance brand within the U.S.

Retail Pet Foods segment, representing the extent to which the carrying value exceeded the estimated fair value.

We reassessed the long-term strategic expectations for the Natural Balance brand and reclassified this brand as a finite-lived intangible asset as of February 1, 2020.

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

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$2.4 billion and $1.4 billion, respectively, as of April 30, 2021.

These intangible assets remain susceptible to future impairment charges due to narrow differences between fair value and carrying value, which is primarily attributable to recent impairment charges and the acquisition of Ainsworth in May 2018.

These intangible assets remain susceptible to future impairment charges due to narrow differences between fair value and carrying value, which is primarily attributable to the recognition of these assets at fair value resulting from recent impairment charges and the acquisition of Ainsworth in 2019.

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

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While we concluded there were no indicators of impairment as of April 30, 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 significant decline in demand as a result of COVID-19.

As of April 30, 2020, the goodwill related to the Away From Home reporting unit represented approximately 65 percent of the goodwill within the International and Away From Home segment.

As of April 30, 2021, the goodwill related to the Away From Home reporting unit represented approximately 60 percent of the goodwill within International and Away From Home.

For additional information, see Note 7:

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defined benefit pension plans of 3.13 percent to determine benefit obligation, 3.53 percent to determine service cost, and 2.40 percent to determine interest cost, and a rate of compensation increase of 3.55 percent.

For the Canadian defined benefit pension plans, we will use weighted-average discount rates of 2.95 percent to determine benefit obligation, 3.06 percent to determine service cost, and 2.47 percent to determine interest cost, and a rate of compensation increase of 3.00 percent.

For the Canadian defined benefit pension plans, we will use weighted-average discount rates of 2.15 percent to determine benefit obligation and 1.95 percent to determine interest cost.

In addition, we anticipate using an expected rate of return on plan assets of 4.59 percent and 1.70 percent for the U.S.

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These risks and uncertainties include, but are not limited to, those set forth under the caption “Risk Factors” of this Annual Report on Form 10-K, as well as the following:

• the impact of the COVID-19 outbreak on our business, industry, suppliers, customers, consumers, employees, and communities, particularly with respect to our Away From Home business;

• disruptions or inefficiencies in our operations or supply chain, including any impact of the COVID-19 outbreak;

• our ability to achieve cost savings related to our cost management programs in the amounts and within the time frames currently anticipated;

• the impact of the COVID-19 pandemic on our business, industry, suppliers, customers, consumers, employees, and communities, particularly with respect to our Away From Home business;

• disruptions or inefficiencies in our operations or supply chain, including any impact of the COVID-19 pandemic;

• our ability to achieve cost savings related to our restructuring and cost management programs in the amounts and within the time frames currently anticipated;

• our ability to generate sufficient cash flow to continue operating under our capital deployment model, including capital expenditures, debt repayment, dividend payments, and share repurchases;

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• risks associated with derivative and purchasing strategies we employ to manage commodity pricing and interest rate risks;

• the availability of reliable transportation on acceptable terms;

• the availability of reliable transportation on acceptable terms, including any impact of the COVID-19 pandemic;

• our ability to implement and realize the full benefit of price changes, and the impact of the timing of the price changes to profits and cash flow in a particular period;

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• the concentration of certain of our businesses with key customers and suppliers, including single-source suppliers of certain key raw materials and finished goods, and our ability to manage and maintain key relationships;

• impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets or changes in useful lives of other intangible assets or other long-lived assets;

• impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets or changes in the useful lives of other intangible assets or other long-lived assets;

• the impact of new or changes to existing governmental laws and regulations and their application, including tariffs;

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• foreign currency exchange rate and interest rate fluctuations;

• risks related to other factors described under “Risk Factors” in other reports and statements we have filed with the Securities and Exchange Commission.

• risks related to other factors described under “Risk Factors” in other reports and statements we have filed with the SEC.

Readers are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Annual Report on Form 10-K.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis