What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-23 compared with 2021-08-26 · 144 added, 98 removed, 214 unchanged (53% of the section changed)

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(Dollars and shares in millions, unless otherwise noted, except per share data)

This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three months ended July 31, 2021 and 2020.

This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three and six months ended October 31, 2021 and 2020.

All comparisons presented are to the corresponding period of the prior year, unless otherwise noted.

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The spread of novel coronavirus (“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 calendar year 2021, state governments reopened their economies, while adhering to new guidelines and enhanced safety measures, such as social distancing, face mask protocols, and vaccination recommendations.

However, in recent months, there has been a general uptick in U.S.

cases, and as a result, consumers continue to stay at home more frequently as a precaution, leading to the demand of at-home food consumption remaining elevated, though the impact is of a lesser extent as compared to the prior year.

As a result of elevated consumption, the supply chain network continues to be challenged due to rising COVID-19 cases and increasing labor shortages, negatively impacting our business and the overall industry.

We anticipate this consumer behavior and at-home food consumption will continue through 2022, with the extent to which it remains elevated dependent on vaccination rates and effectiveness, as well as the impact of additional COVID-19 variants.

We are continuing the phased approach to reopen our corporate headquarters in Orrville, Ohio, with increased safety protocols.

However, there continues to be a significant number of U.S.

cases, and as a result, consumers continue to stay at home more frequently as a precaution, causing the demand related to at-home food consumption to remain elevated, though the impact is of a lesser extent as compared to the prior year.

While we continue to benefit from elevated consumption, the supply chain network remains challenged due to the increased demand, as well as high COVID-19 cases and increasing labor shortages, which continue to negatively impact our business and overall industry.

We anticipate this consumer behavior and at-home food consumption will continue, to some extent, through 2022, dependent on government guidance regarding risk mitigation measures, vaccination rates and effectiveness, and the impact of additional COVID-19 variants.

In September 2021, the U.S.

President issued an executive order applicable to federal contractors and employers with 100 or more employees.

As a result, we announced a vaccination mandate that requires all employees to be fully vaccinated or receive an approved medical or religious exemption as early as December 2021, and no later than March 2022, dependent upon location.

Furthermore, we are continuing 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.

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

During the first quarter of 2022, we have experienced increased disruption in our supply chain network, including the supply of certain ingredients, packaging, and other sourced materials, which has resulted in higher than expected inflation, including escalating transportation and other supply chain costs, as well as unfavorable volume/mix, as we transition from the unprecedented demand for our products in the prior year period.

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, as well as labor shortages.

We have crisis management teams at all our facilities, which continue to monitor their respective locations and implement additional risk mitigation actions, as necessary.

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

During the first half of 2022, we experienced increased disruption in our supply chain network, including the supply of certain ingredients, packaging, and other sourced materials, which has resulted in higher than expected inflation, including escalating transportation and other supply chain costs.

implementation of vaccination requirements.

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 maintained production at all of our facilities and availability of

appointments at distribution centers.

We have maintained production at all our facilities and availability of appointments at distribution centers.

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 the first three months of 2022, order levels continued to be elevated, primarily across our U.S.

During the first six months of 2022, customer order levels remain elevated, primarily across our U.S.

Retail Consumer Foods and U.S.

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It is anticipated that the increase in consumer demand will continue, to a lesser extent compared to the prior year, through the remainder 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 calendar year 2021, our net sales for the away from home channels have continued to improve compared to the initial months of the pandemic, as experienced during the first quarter of 2022.

This trend could moderate during 2022 if cases continue to rise and governments impose additional safety measures that further impact away from home consumption, which is partially dependent upon vaccination rates and effectiveness, as well as the impact of additional COVID-19 variants.

A decline in products sold in away from home channels has also been experienced as a result of COVID-19, which has 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.

This trend could moderate during 2022 if cases rise and governments impose additional safety measures that further impact away from home consumption, which is partially dependent upon vaccination rates and effectiveness, as well as the impact of additional COVID-19 variants.

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;

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vaccination rates and effectiveness;

the impact of vaccination requirements;

and the macroeconomic environment.

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

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

Results of Operations

Three Months Ended July 31,

2021 2020 % Increase (Decrease)

Three Months Ended October 31, Six Months Ended October 31,

2021 2020 % Increase (Decrease) 2021 2020 % Increase (Decrease)

Net sales $ 2,050.0 $ 2,034.0 1 % $ 3,908.0 $ 4,005.8 (2) %

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Refer to “Non-GAAP Financial Measures” in this discussion and analysis for a reconciliation to the comparable GAAP financial measure.

Three months ended July 31,

Three Months Ended October 31, Six Months Ended October 31,

2021 2020 Increase

(Decrease) % 2021 2020 Increase

Net sales $ 2,050.0 $ 2,034.0 $ 16.0 1 % $ 3,908.0 $ 4,005.8 $ (97.8) (2) %

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

Net sales in the first three months of 2022 decreased $113.8, or 6 percent, which includes $135.5 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 $11.3, or 1 percent.

Favorable volume/mix for the Away From Home operating segment and U.S.

Retail Pet Foods segment was partially offset by unfavorable volume/mix for the International operating segment and U.S.

Retail Coffee segment.

A slight benefit from net price realization primarily reflected higher net pricing in the U.S.

Retail Consumer Foods segment, mostly offset by lower net pricing in the U.S.

Retail Coffee segment.

Net sales in the second quarter of 2022 increased $16.0, or 1 percent, which includes $135.7 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 $146.1, or 8 percent, which was primarily due to favorable volume/mix and higher net price realization for each of the U.S.

Retail segments and for International and Away From Home.

Net sales in the first six months of 2022 decreased $97.8, or 2 percent, which includes $271.2 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 $157.4, or 4 percent, which was primarily due to favorable volume/mix and higher net price realization for each of the U.S.

Retail segments and for International and Away From Home.

Operating Income

The following table presents the components of operating income as a percentage of net sales.

Three Months Ended July 31,

Three Months Ended October 31, Six Months Ended October 31,

2021 2020 2021 2020

Gross profit 34.7 % 40.2 % 34.6 % 39.8 %

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Amounts may not add due to rounding.

Gross profit decreased $136.0, or 18 percent, in the first quarter of 2022, reflecting higher costs, primarily driven by increased commodity and transportation costs, the noncomparable impact related to the Crisco and Natural Balance divestitures, and unfavorable volume/mix.

Operating income decreased $101.7, or 28 percent, primarily reflecting the decrease in gross profit, partially offset by a $33.5 decrease in selling, distribution, and administrative (“SD&A”) expenses, primarily attributable to decreased marketing expense.

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;

the change in net cumulative unallocated derivative gains and losses;

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

Gross profit decreased $106.7, or 13 percent, in the second quarter of 2022, reflecting higher costs, primarily driven by increased commodity, manufacturing, transportation, and packaging costs, and the noncomparable impact related to the Crisco and Natural Balance divestitures, partially offset by increased pricing and favorable volume/mix.

Operating income decreased $69.0, or 18 percent, primarily reflecting the decrease in gross profit, partially offset by a $35.1 decrease 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, the change in net cumulative 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”) decreased $113.0, or 15 percent, in the first quarter of 2022, primarily reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses, as compared to GAAP gross profit.

Gross profit excluding non-GAAP adjustments (“adjusted gross profit”)

decreased $55.8, or 7 percent, in the second quarter of 2022, primarily reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses, as compared to GAAP gross profit.

Operating income excluding non-GAAP adjustments (“adjusted operating income”) decreased $20.9, or 5 percent, as compared to the prior year.

Gross profit decreased $242.7, or 15 percent, in the first six months of 2022, reflecting higher costs, primarily driven by increased commodity, transportation, and packaging costs, and the noncomparable impact related to the Crisco and Natural Balance divestitures, partially offset by increased pricing and favorable volume/mix.

Operating income decreased $170.7, or 23 percent, primarily reflecting the decrease in gross profit, partially offset by a $68.6 decrease in SD&A expenses.

Adjusted gross profit decreased $168.8, or 11 percent, in the first six months of 2022, primarily reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses, as compared to GAAP gross profit.

Adjusted operating income decreased $102.0, or 13 percent, as compared to the prior year.

Interest Expense

Net interest expense decreased $3.0, or 7 percent, in the first quarter of 2022, primarily as a result of reduced debt outstanding as compared to the prior year.

Net interest expense decreased $4.8 and $7.8 in the second quarter and first six months of 2022, respectively, 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.

Income taxes decreased $25.3, or 33 percent, in the first quarter of 2022, primarily due to the decrease in income before income taxes, partially offset by a higher effective income tax rate of 25.0 percent, as compared to 24.4 percent for the first quarter of 2021.

During both the current and prior years, the effective income tax rates varied from the U.S.

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

Other Income (Expense) – Net

Net other expense decreased $29.5 and $19.8 in the second quarter and first six months of 2022, respectively, primarily attributable to decreased pension settlement charges, driven by the $27.9 pre-tax settlement charge recognized during the second quarter of 2021 related to the purchase of a group annuity contract to transfer the obligations of our Canadian defined benefit pension plan to an insurance company.

For further information, refer to Note 8:

Pensions and Other Postretirement Benefits.

Income taxes decreased $9.9, or 14 percent, in the second quarter of 2022, and decreased $35.2, or 24 percent, in the first six months of 2022, primarily due to the decrease in income before income taxes and a lower effective income tax rate of 23.4 and 24.1 percent for the second quarter and first six months of 2022, respectively.

The 2021 effective income tax rates were 24.0 percent for the second quarter and 24.2 percent for the first six months.

During the second quarter and first six months of 2022 and 2021, the effective income tax rates varied from the U.S.

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

We anticipate a full-year effective income tax rate for 2022 of approximately 24.0 percent.

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Restructuring Activities

A restructuring program was approved by the Board during 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.

A restructuring program was approved by the Board during 2021, associated with opportunities identified to reduce our overall cost structure and optimize our organizational design, inclusive of stranded overhead associated with the divestitures of the Crisco and Natural Balance businesses.

For additional information related to these divestitures, see Note 4:

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

We have incurred total cumulative restructuring costs of $30.5, of which $6.4 were incurred during the first quarter of 2022.

We have incurred total cumulative restructuring costs of $37.9, of which $7.4 and $13.8 were incurred during the second quarter and first six months of 2022, respectively.

For further information, refer to Note 3:

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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).

Three Months Ended July 31,

Three Months Ended October 31, Six Months Ended October 31,

2021 2020 % Increase

(Decrease) 2021 2020 % Increase

Retail Pet Foods $ 701.6 $ 708.7 (1) % $ 1,349.6 $ 1,401.3 (4) %

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Retail Pet Foods

Retail Pet Foods segment net sales decreased $44.6 in the first quarter of 2022, inclusive of the impact of $56.0 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 $11.4, or 2 percent, primarily due to favorable volume/mix, which contributed 2 percentage points to net sales, primarily driven by growth for the Meow Mix, Milk-Bone , and Pup-Peroni brands, as well as private label pet food, partially offset by declines for the Rachael Ray Nutrish and Kibbles ’n Bits brands.

Net price realization was neutral.

Segment profit decreased $45.4, primarily reflecting higher commodity and transportation costs.

Retail Pet Foods segment net sales decreased $7.1 in the second quarter of 2022, inclusive of the impact of $50.8 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 $43.7, or 7 percent.

Higher net price realization across the portfolio increased net sales by 4 percentage points.

Favorable volume/mix contributed 2 percentage points to net sales, primarily driven by the Milk-Bone , Meow Mix, and 9Lives brands, as well as private label pet food, partially offset by decreases for the Pup-Peroni and Kibbles ’n Bits brands.

Segment profit decreased $25.3, primarily reflecting higher commodity, manufacturing, and transportation costs, partially offset by the higher net pricing.

Retail Pet Foods segment net sales decreased $51.7 in the first six months of 2022, inclusive of the impact of $106.8 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 $55.1, or 4 percent.

Higher net price realization across the portfolio increased net sales by 2 percentage points.

Favorable volume/mix contributed 2 percentage points to net sales, primarily driven by the Milk-Bone and Meow Mix brands, as well as private label pet food, partially offset by decreases for the Kibbles ’n Bits and Rachael Ray Nutrish brands.

Segment profit decreased $70.7, primarily reflecting higher commodity, transportation, and manufacturing costs, partially offset by the higher net pricing.

Retail Coffee

Retail Coffee segment net sales decreased $27.7 in the first quarter of 2022, driven by lower net price realization and unfavorable volume/mix.

Net price realization reduced net sales by 3 percentage points, reflecting increased trade spend related to the lapping of suspended promotions in the prior year.

Volume/mix reduced net sales by 2 percentage points, reflecting the lapping of retailer inventory re-stocking in the prior year, driven by declines for the Folgers brand, partially offset by growth for the Dunkin’ and Café Bustelo brands.

Segment profit decreased $31.3, reflecting lower net pricing, higher commodity costs, and unfavorable volume/mix, partially offset by lower marketing expense.

Retail Coffee segment net sales increased $50.4 in the second quarter of 2022, driven by favorable volume/mix and higher net price realization.

Volume/mix contributed 5 percentage points to net sales, driven by the Dunkin’ and Café Bustelo brands.

Net price realization increased net sales by 3 percentage points, primarily reflecting list price increases and trade spend reductions for roast and ground products.

Segment profit increased $5.7, primarily reflecting higher net pricing and the favorable volume/mix, partially offset by higher commodity costs.

Retail Coffee segment net sales increased $22.7 in the first six months of 2022.

Favorable volume/mix contributed 2 percentage points to net sales, driven by the Dunkin’ and Café Bustelo brands, partially offset by a decline for the Folgers brand.

Net price realization contributed a slight increase to net sales, as the list price increases for roast and ground products were mostly offset by increased trade spend related to the lapping of suspended promotions in the first quarter of the prior year.

Segment profit decreased $25.6, reflecting higher commodity costs, partially offset by lower marketing expense and the favorable volume/mix.

Retail Consumer Foods

Retail Consumer Foods segment net sales decreased $53.6 in the first quarter of 2022, inclusive of the impact of $71.7 of noncomparable net sales in the prior year related to the divested Crisco business.

Retail Consumer Foods segment net sales decreased $37.9 in the second quarter of 2022, inclusive of the impact of $75.1 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 $37.2, or 9 percent.

Higher net price realization contributed 4 percentage points to net sales, primarily driven by peanut butter and Smucker’s Uncrustables ® frozen sandwiches.

Volume/mix was neutral, as growth for Smucker’s Uncrustables frozen sandwiches and Jif peanut butter was mostly offset by a decline for Smucker’s fruit spreads.

Segment profit decreased $12.8, reflecting the noncomparable segment profit in the prior year related to the divested Crisco business and higher transportation, commodity, and packaging costs, partially offset by the higher net pricing and lower marketing expense.

Volume/mix increased net sales by 6 percentage points, driven by Smucker’s Uncrustables ® frozen sandwiches and Jif peanut butter.

Higher net price realization contributed 3 percentage points to net sales, primarily driven by Smucker’s Uncrustables frozen sandwiches and Smucker’s fruit spreads.

Segment profit decreased $24.3, reflecting the noncomparable segment profit in the prior year related to the divested Crisco business.

Comparable segment profit growth from the favorable volume/mix and higher net pricing was partially offset by higher manufacturing, transportation, ingredient, and packaging costs.

Retail Consumer Foods segment net sales decreased $91.5 in the first six months of 2022, inclusive of the impact of $146.8 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 $55.3, or 7 percent.

Higher net price realization contributed 4 percentage points to net sales, primarily driven by Smucker’s Uncrustables frozen sandwiches and Jif peanut butter.

Volume/mix increased net sales by 3 percentage points, driven by Smucker’s Uncrustables frozen sandwiches and Jif peanut butter, partially offset by a decline for Smucker’s fruit spreads.

Segment profit decreased $37.1, reflecting the noncomparable segment profit in the prior year related to the divested Crisco business.

Comparable segment profit growth from the higher net pricing and favorable volume/mix was partially offset by higher transportation, manufacturing, packaging, and ingredient costs.

International and Away From Home

International and Away From Home net sales increased $12.1 in the first quarter of 2022, including the noncomparable impact of $7.8 of net sales in the prior year related to the divested Crisco business and $10.4 of favorable foreign currency exchange.

International and Away From Home net sales increased $10.6 in the second quarter of 2022, including the noncomparable impact of $9.8 of net sales in the prior year related to the divested Crisco business and $5.6 of favorable foreign currency exchange.

Excluding the noncomparable impact of the divested business and foreign currency exchange, net sales increased $14.8, or 6 percent, primarily reflecting a 25 percent increase for the Away From Home operating segment, partially offset by a net sales decline of 10 percent for the International operating segment.

Favorable volume/mix for the combined businesses contributed 3 percentage points to net sales, primarily driven by growth for portion control, coffee, and frozen handheld products in the away from home channels, partially offset by declines for baking mixes and ingredients in the International operating segment.

Favorable volume/mix for the combined businesses contributed 5 percentage points to net sales, primarily driven by increases for coffee, portion control, and frozen handheld products in the away from home channels, partially offset by a decrease for baking mixes and ingredients in the International operating segment.

Net price realization contributed a 1 percentage point increase to net sales.

Segment profit increased $2.0, primarily reflecting the favorable foreign currency exchange impact, lower marketing expense, and a favorable impact of net pricing and costs, partially offset by the noncomparable segment profit in the prior year related to the divested Crisco business and unfavorable volume/mix.

Segment profit increased $0.9, primarily reflecting the increased contribution from volume/mix, higher net pricing, and favorable foreign currency exchange, partially offset by increased commodity costs and the noncomparable segment profit in the prior year related to the divested Crisco business.

International and Away From Home net sales increased $22.7 in the first six months of 2022, including the noncomparable impact of $17.6 of net sales in the prior year related to the divested Crisco business and $16.0 of favorable foreign currency exchange.

Excluding the noncomparable impact of the divested business and foreign currency exchange, net sales increased $24.3, or 5 percent, primarily reflecting a 26 percent increase for the Away From Home operating segment, partially offset by a net sales decline of 11 percent for the International operating segment.

Favorable volume/mix for the combined businesses contributed 4 percentage points to net sales, primarily driven by increases for portion control, coffee, and frozen handheld products in the away from home channels, partially offset by a decrease for baking mixes and ingredients in the International operating segment.

Net price realization contributed a 1 percentage point increase to net sales.

Segment profit increased $2.9, primarily reflecting the increased contribution from volume/mix, favorable foreign currency exchange impact, and the higher

net pricing, partially offset by the noncomparable segment profit in the prior year related to the divested Crisco business and increased commodity costs.

Financial Condition – 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.

At July 31, 2021, total cash and cash equivalents was $168.8, compared to $334.3 at April 30, 2021.

At October 31, 2021, total cash and cash equivalents was $155.3, compared to $334.3 at April 30, 2021.

The following table presents selected cash flow information.

Three Months Ended July 31,

Six Months Ended October 31,

Net cash provided by (used for) operating activities $ 302.9 $ 787.7

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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 $271.2 decrease in cash provided by operating activities in the first three months of 2022 was primarily driven by greater working capital requirements in 2022, as well as lower net income adjusted for noncash items in the current year.

in cash required to fund working capital, as compared to the prior year, was primarily attributable to an increase in trade receivables due to the timing of payments and an increase in inventory levels.

Cash used for investing activities in the first three months of 2022 consisted primarily of $68.0 in capital expenditures and an increase of $11.4 in our derivative cash margin account balances.

Cash used for investing activities in the first three months of 2021 consisted of $76.6 in capital expenditures, partially offset by a $27.6 decrease in our derivative cash margin account balances.

Cash used for financing activities in the first three months of 2022 consisted primarily of long-term debt repayments of $407.0 and dividend payments of $97.2, partially offset by a net increase in short-term borrowings of $284.0.

Cash used for financing activities in the first three months of 2021 consisted primarily of long-term debt repayments of $300.0 and dividend payments of $100.1, partially offset by a net increase in short-term borrowings of $47.8.

The $484.8 decrease in cash provided by operating activities in the first six months of 2022 was primarily driven by greater working capital requirements in 2022, as well as lower net income adjusted for noncash items in the current year.

The increase in cash required to fund working capital, as compared to the prior year, was primarily attributable to timing of payments and collections for accounts payable and trade receivables, respectively, as well as changes in accrued incentive compensation.

Cash used for investing activities in the first six months of 2022 consisted primarily of $127.2 in capital expenditures and an increase of $14.0 in our derivative cash margin account balances.

Cash used for investing activities in the first six months of 2021 consisted of $129.0 in capital expenditures, partially offset by a $27.9 decrease in our derivative cash margin account balances.

Cash used for financing activities in the first six months of 2022 consisted primarily of long-term debt repayments of $1,157.0 and dividend payments of $204.1, partially offset by $797.6 in long-term debt proceeds and a net increase in short-term borrowings of $237.8.

Cash used for financing activities in the first six months of 2021 consisted primarily of long-term debt repayments of $500.0 and dividend payments of $202.4, partially offset by a net increase in short-term borrowings of $31.7.

Supplier Financing Program

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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 July 31, 2021 and April 30, 2021, $278.2 and $304.2 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers.

During the first three months of 2022 and 2021, we paid $267.7 and $122.1, respectively, to a financial institution for payment obligations that were settled through the supplier financing program.

As of October 31, 2021 and April 30, 2021, $279.4 and $304.2 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers.

During the first six months of 2022 and 2021, we paid $530.4 and $293.1, respectively, to a financial institution for payment obligations that were settled through the supplier financing program.

Contingencies

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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 and 2020.

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 July 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.

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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.

We are also defendants in a series of putative class action lawsuits that were originally filed in federal courts in California, Florida, Illinois, Missouri, Texas, Washington, and Washington D.C., but have been transferred to the United States District Court for the Western District of Missouri for coordinated pre-trial proceedings.

The plaintiffs 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.

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 July 31, 2021, and the likelihood of loss is not considered probable or estimable.

Accordingly, no loss contingency has been recorded for these matters as of October 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.

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The following table presents our capital structure.

July 31, 2021 April 30, 2021

October 31, 2021 April 30, 2021

Current portion of long-term debt $ — $ 1,152.9

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Total capital $ 12,915.2 $ 12,876.5

During the first quarter of 2022, we prepaid $400.0 in principal of the Senior Notes due March 15, 2022, and as a result, we recognized a net loss on extinguishment of $6.9, which primarily consisted of a make-whole payment and was included in other income (expense) – net in the Condensed Statement of Consolidated Income.

As of July 31, 2021, we had available a $1.8 billion unsecured revolving credit facility with a group of 11 banks that was scheduled to mature in September 2022.

During the second quarter of 2022, we completed an offering of $800.0 in Senior Notes due March 15, 2032, and September 15, 2041.

The Senior Notes include $7.2 of capitalized debt issuance costs and $2.4 of offering discounts to be amortized to interest expense over the time for which the debt is outstanding.

The net proceeds from the offering were primarily used to repay $750.0 in principal of the Senior Notes due October 15, 2021.

Furthermore, during the first quarter of 2022, we prepaid $400.0 in principal of the Senior Notes due March 15, 2022, and as a result, we recognized a net loss on extinguishment of $6.9, which primarily consisted of a make-whole payment and was included in other income (expense) – net in the Condensed Statement of Consolidated Income.

We have available a $2.0 billion unsecured revolving credit facility with a group of 11 banks that matures in August 2026.

Additionally, we participate in a commercial paper program under which we can issue short-term, unsecured commercial paper not to exceed $2.0 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.

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 is used as a continuing source of short-term financing for general corporate purposes.

As of July 31, 2021, we had $366.0 of short-term borrowings outstanding, all of which were issued under our commercial paper program, at a weighted-average interest rate of 0.17 percent.

Subsequent to the first quarter of 2022, we entered into an unsecured revolving credit facility with a group of 11 banks, which provides for a revolving credit line of $2.0 billion and matures in August 2026.

As a result of entering into the new facility in August 2021, we terminated the $1.8 billion revolving credit facility.

Furthermore, in conjunction with entering into the new unsecured revolving credit facility, we also increased our commercial paper program to $2.0 billion.

We are in compliance with all of our debt covenants as of July 31, 2021.

As of October 31, 2021, we had $320.0 of short-term borrowings outstanding, all of which were issued under our commercial paper program, at a weighted-average interest rate of 0.17 percent.

We are in compliance with all our debt covenants as of October 31, 2021, and expect to be for the next 12 months.

For additional information on our long-term debt, sources of liquidity, and debt covenants, see Note 7:

Debt and Financing Arrangements.

During the first quarter of 2022, we did not repurchase any common shares under a repurchase plan authorized by the Board.

At July 31, 2021, approximately 2.8 million common shares remain available for repurchase pursuant to the Board’s authorizations.

During the first six months of 2022, we did not repurchase any common shares under a repurchase plan authorized by the Board.

On October 22, 2021, the Board authorized the repurchase of up to 5.0 million common shares, in addition to the 2.8 million common shares that remained available for repurchase pursuant to prior authorizations of the Board.

Therefore, at October 31, 2021, approximately 7.8 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.

On November 18, 2021, we announced plans to invest $1.1 billion to build a new manufacturing facility and distribution center in McCalla, Alabama, dedicated to production of Smucker’s Uncrustables frozen sandwiches.

Construction of this third dedicated manufacturing facility is expected to begin no later than January 2022, with production commencing in calendar year 2025.

The project demonstrates our commitment to meet increasing demand for this highly successful product and deliver on our strategy to focus on brands with the most significant growth opportunities.

Construction of the facility and production will occur in three phases over multiple years and will result in the creation of up to 750 jobs.

Financial investments and job creation will align to each of the three phases and are contingent upon approval of tax and business incentives, as well as the closing of the transaction to purchase the property where the facility will be located.

As a result of these newly approved plans, our capital expenditures for 2022 are expected to increase from $380.0 to $400.0.

Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations, borrowings available under our revolving credit facility and commercial paper program, 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.

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We continue to evaluate these risks, which could affect our financial condition or our ability to fund operations or future investment opportunities.

As of July 31, 2021, total cash and cash equivalents of $17.3 was held by our foreign subsidiaries, primarily in Canada.

As of October 31, 2021, total cash and cash equivalents of $11.7 was held by our foreign subsidiaries, primarily in Canada.

During the first six months of 2022, we did not repatriate foreign cash to the U.S.

Non-GAAP Financial Measures

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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;

the change in net cumulative unallocated derivative gains and losses;

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

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, special project costs, gains and losses related to the sale of a business, the change in net cumulative unallocated derivative gains and losses, and other one-time items that do not directly reflect ongoing operating results.

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.

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Rather, the presentation of these non-GAAP financial measures supplements other metrics we use to internally evaluate our businesses and facilitate the comparison of past and present operations and liquidity.

These non-GAAP financial measures may not be comparable to similar measures used by other companies and may exclude certain nondiscretionary expenses and cash payments.

These non-GAAP financial measures

may not be comparable to similar measures used by other companies and may exclude certain nondiscretionary expenses and cash payments.

The following table reconciles certain non-GAAP measures to the comparable GAAP financial measure.

See page 22 for a reconciliation of net sales adjusted for certain noncomparable items to the comparable GAAP financial measure.

Three Months Ended July 31,

Three Months Ended October 31, Six Months Ended October 31,

2021 2020 2021 2020

Gross profit reconciliation:

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Other special project costs 1.3 — 3.1 —

Other one-time items:

Pension plan termination settlement charge (A)

— 27.9 — 27.9

Adjusted income before income taxes $ 344.9 $ 359.4 $ 614.1 $ 716.4

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Adjusted earnings per share – assuming dilution $ 2.43 $ 2.39 $ 4.33 $ 4.76

(A) Represents the nonrecurring pre-tax settlement charge of $27.9 recognized during the second quarter of 2021 related to the purchase of a group annuity contract to transfer the obligations of our Canadian defined benefit pension plan to an insurance company.

For additional information, see Note 8:

Pensions and Other Postretirement Benefits .

Off-Balance Sheet Arrangements and Contractual Obligations

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Transactions with related parties are in the ordinary course of business and are not material to our results of operations, financial condition, or cash flows.

As of July 31, 2021, there were no material changes to our future contractual obligations as previously reported in our

Annual Report on Form 10-K for the year ended April 30, 2021.

During the second quarter of 2022, we completed an offering of $800.0 in Senior Notes due March 15, 2032, and September 15, 2041.

For additional information, see Note 7:

Debt and Financing Arrangements.

As of October 31, 2021, there were no other material changes to our future contractual obligations as previously reported in our Annual Report on Form 10-K for the year ended April 30, 2021.

Critical Accounting Estimates and Policies

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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-Q

Item 2. Management’s Discussion and Analysis