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Item 1. Financial Statements

2022-03-01 compared with 2021-11-23 · 176 added, 78 removed, 615 unchanged (29% of the section changed)

2 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

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

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

Dollars in millions, except per share data 2022 2021 2022 2021

5 unchanged sentences

Amortization 55.3 57.0 166.1 176.1

Other intangible assets impairment charge 150.4 — 150.4 —

Other special project costs (A)

2.0 1.7 5.1 1.7

Other operating expense (income) – net ( 11.2 ) ( 27.2 ) ( 17.1 ) ( 34.9 )

8 unchanged sentences

Net Income – Assuming Dilution $ 0.64 $ 2.32 $ 3.96 $ 6.42

(A) Special project costs include divestiture, acquisition, integration, and restructuring costs, which are recognized in cost of products sold and other special project costs.

(A) Special project costs include certain divestiture, acquisition, integration, and restructuring costs, which are recognized in cost of products sold and other special project costs.

For more information, see Note 3:

4 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

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

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

Dollars in millions 2022 2021 2022 2021

10 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in millions October 31, 2021 April 30, 2021

Dollars in millions January 31, 2022 April 30, 2021

Current Assets

47 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

Six Months Ended October 31,

Nine Months Ended January 31,

Dollars in millions 2022 2021

4 unchanged sentences

Amortization 166.1 176.1

Other intangible assets impairment charge 150.4 —

Pension settlement loss (gain) 7.5 30.8

Share-based compensation expense 15.2 20.9

Gain on divestitures – net ( 9.6 ) ( 27.2 )

Other noncash adjustments – net 12.3 11.6

Make-whole payments included in financing activities 7.0 —

Changes in assets and liabilities:

Changes in assets and liabilities, net of effect from divestitures:

Trade receivables ( 30.7 ) ( 50.4 )

8 unchanged sentences

Additions to property, plant, and equipment ( 244.5 ) ( 198.7 )

Proceeds from divestitures – net 130.2 569.3

Other – net ( 17.6 ) 48.5

18 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

Six Months Ended October 31, 2021

Nine Months Ended January 31, 2022

Dollars in millions Common

17 unchanged sentences

Balance at October 31, 2021 108,362,839 $ 27.1 $ 5,537.0 $ 2,992.8 $ ( 270.5 ) $ 8,286.4

Six Months Ended October 31, 2020

Net income 69.7 69.7

Other comprehensive income (loss) 1.2 1.2

Comprehensive income 70.9

Purchase of treasury shares ( 1,505 ) — ( 0.2 ) — ( 0.2 )

Stock plans 100,996 — 16.8 16.8

Cash dividends declared, $ 0.99 per common share

( 107.0 ) ( 107.0 )

Balance at January 31, 2022 108,462,330 $ 27.1 $ 5,553.6 $ 2,955.5 $ ( 269.3 ) $ 8,266.9

Nine Months Ended January 31, 2021

Dollars in millions Common

18 unchanged sentences

Balance at October 31, 2020 114,097,261 $ 28.5 $ 5,803.1 $ 3,010.9 $ ( 327.5 ) $ 8,515.0

Net income 261.5 261.5

Other comprehensive income (loss) 24.0 24.0

Comprehensive income 285.5

Purchase of treasury shares ( 4,301,631 ) ( 1.1 ) ( 219.0 ) ( 277.8 ) ( 497.9 )

Stock plans ( 6,480 ) — 7.5 7.5

Cash dividends declared, $ 0.90 per common share

( 98.5 ) ( 98.5 )

Balance at January 31, 2021 109,789,150 $ 27.4 $ 5,591.6 $ 2,896.1 $ ( 303.5 ) $ 8,211.6

See notes to unaudited condensed consolidated financial statements.

9 unchanged sentences

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

Operating results for the six months ended October 31, 2021, are not necessarily indicative of the results that may be expected for the year ending April 30, 2022.

Operating results for the nine months ended January 31, 2022, are not necessarily indicative of the results that may be expected for the year ending April 30, 2022.

For further information, reference is made to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended April 30, 2021.

16 unchanged sentences

With the exception of accelerated depreciation, these costs are expensed as incurred.

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

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

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

1 unchanged sentence

A restructuring program was approved by the Board of Directors (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:

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

During the third quarter of 2022, we completed the transition of production to JDE Peet's, as anticipated.

Furthermore, the restructuring program was expanded during the third quarter of 2022 to include certain costs associated with the divestitures of the private label dry pet food and natural beverage and grains businesses, as well as the recently announced plans to close our Ripon, Wisconsin, production facility by the end of calendar year 2022 to further optimize operations for our Consumer Foods business.

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

Divestitures.

During 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 products.

We expect to incur costs of approximately $ 110.0 associated with the restructuring activities approved to date.

Approximately half of these costs are expected to be other transition and termination costs associated with our cost reduction and margin management initiatives, inclusive of accelerated depreciation, 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 the majority of the costs expected to be incurred by the end of 2022.

Approximately half of these costs are

expected to be other transition and termination costs associated with our cost reduction and margin management initiatives, inclusive of accelerated depreciation, 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 the majority of the costs expected to be incurred by the end of calendar year 2022.

The following table summarizes our restructuring costs incurred related to the restructuring program.

Three Months Ended October 31, 2021 Six Months Ended October 31, 2021 Total Costs Incurred to Date at October 31, 2021

Three Months Ended January 31, Nine Months Ended January 31, Total Costs Incurred to Date at January 31, 2022

2022 2021 2022 2021

Employee-related costs $ 1.4 $ 1.7 $ 3.8 $ 1.7 $ 21.1

1 unchanged sentence

Total restructuring costs $ 8.8 $ 1.7 $ 22.6 $ 1.7 $ 46.7

The obligation related to severance costs and retention bonuses was $ 3.0 and $ 14.6 at October 31, 2021 and April 30, 2021, respectively.

As of October 31, 2021, cumulative noncash charges incurred to date were $ 13.6 , including $ 5.9 and $ 9.2 incurred during the three and six months ended October 31, 2021, respectively, and primarily consisted of accelerated depreciation.

We did no t incur any costs related to restructuring during the three and six months ended October 31, 2020.

The obligation related to severance costs and retention bonuses was $ 3.7 and $ 14.6 at January 31, 2022 and April 30, 2021, respectively.

As of January 31, 2022, cumulative noncash charges incurred to date were $ 20.3 , including $ 6.7 and $ 15.9 incurred during the three and nine months ended January 31, 2022, respectively, and primarily consisted of accelerated depreciation.

On January 31, 2022, we sold the natural beverage and grains businesses to Nexus Capital Management LP (“Nexus”).

The transaction included products sold under the R.W.

Knudsen ® and TruRoots ® brands, inclusive of certain trademarks, a licensing agreement for Santa Cruz Organic ® beverages, dedicated manufacturing and distribution facilities in Chico, California, and Havre de Grace, Maryland, and approximately 150 employees who supported the natural beverage and grains businesses.

The transaction did not include Santa Cruz Organic nut butters, fruit spreads, syrups, or applesauce.

Under our ownership, the businesses generated net sales of $ 143.4 in 2021, primarily included in the U.S.

Retail Consumer Foods segment.

Net proceeds from the divestiture were $ 97.3 , which were inclusive of a preliminary working capital adjustment and cash transaction costs, and will be finalized during the fourth quarter of 2022.

On December 1, 2021, we sold the private label dry pet food business to Diamond Pet Foods, Inc.

(“Diamond Pet Foods”).

The transaction included dry pet food products sold under private label brands, a dedicated manufacturing facility located in Frontenac, Kansas, and approximately 220 employees who supported the private label dry pet food business.

The transaction did not include any branded products or our private label wet pet food business.

Under our ownership, the business generated net sales of $ 94.0 in 2021, included in the U.S.

Retail Pet Foods segment.

Final net proceeds from the divestiture were $ 32.9 , which were net of cash transaction costs.

Upon completion of these transactions during the third quarter of 2022, we recognized a pre-tax gain of $ 26.7 related to the natural beverage and grains businesses and a pre-tax loss of $ 17.1 related to the private label dry pet food business, which were included in other operating expense (income) – net within the Condensed Statement of Consolidated Income.

The following table summarizes the net assets and liabilities disposed, which were measured at the lower of carrying amount or fair value less costs to sell.

January 31, 2022

Natural Beverage and Grains Private Label Dry

Assets disposed:

Inventories $ 28.3 $ 19.0

Other current assets 0.5 —

Property, plant, and equipment – net 28.1 31.1

Operating lease right-of-use assets 0.4 0.1

Other intangible assets – net 13.6 —

Total assets disposed $ 70.9 $ 50.2

Liabilities disposed:

Current operating lease liabilities $ 0.3 $ 0.1

Noncurrent operating lease liabilities 0.1 —

Other noncurrent liabilities 0.1 —

Total liabilities disposed 0.5 0.1

Net assets disposed $ 70.4 $ 50.1

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 in 2021, included in the U.S.

Retail Pet Foods segment.

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

Upon completion of this transaction, we recognized a pre-tax loss of $ 89.5 , of which $ 87.7 was recognized during the third quarter of 2021 and was included in other operating expense (income) – net within the Condensed Statement of Consolidated Income.

On December 1, 2020, we sold the Crisco oils and shortening business to B&G Foods, Inc.

4 unchanged sentences

Retail Consumer Foods segment.

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

On January 29, 2021, we sold the Natural Balance premium pet food business to Nexus Capital Management LP (“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 in 2021, 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 a working capital adjustment.

Upon completion of these transactions during the second half of 2021, we recognized a pre-tax gain of $ 114.8 related to the Crisco business and a pre-tax loss of $ 89.5 related to the Natural Balance business.

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

Upon completion of this transaction, we recognized a pre-tax gain of $ 114.8 , of which $ 114.9 was recognized during the third quarter of 2021 and was included in other operating expense (income) – net within the Condensed Statement of Consolidated Income.

Reportable Segments

11 unchanged sentences

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

However, we do not represent that the segments, if operated independently, would report operating profit equal to the segment profit set forth below, as segment profit excludes certain expenses such as amortization expense and impairment charges related to intangible assets, gains and losses related to the sale of a business, the net change in cumulative unallocated gains and losses on commodity and foreign currency exchange derivative activities (“change in net cumulative unallocated derivative gains and losses”), divestiture, acquisition, integration, and restructuring costs (“special project costs”), as well as corporate administrative expenses.

However, we do not represent that the segments, if operated independently, would report operating profit equal to the segment profit set forth below, as segment profit excludes certain expenses such as amortization expense and impairment charges related to intangible assets, gains and losses on divestitures, the net change in cumulative unallocated gains and losses on commodity and foreign currency exchange derivative activities (“change in net cumulative unallocated derivative

gains and losses”), certain divestiture, acquisition, integration, and restructuring costs (“special project costs”), as well as corporate administrative expenses.

Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of segment operating results until the related inventory is sold.

2 unchanged sentences

The following table reconciles segment profit to income before income taxes.

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

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

2022 2021 2022 2021

11 unchanged sentences

Amortization ( 55.3 ) ( 57.0 ) ( 166.1 ) ( 176.1 )

Other intangible assets impairment charge ( 150.4 ) — ( 150.4 ) —

Gain on divestitures – net 9.6 27.2 9.6 27.2

Interest expense – net ( 39.5 ) ( 43.5 ) ( 122.9 ) ( 134.7 )

7 unchanged sentences

Income before income taxes $ 109.6 $ 361.5 $ 583.6 $ 978.6

(A) Special project costs include divestiture, acquisition, integration, and restructuring costs, which are recognized in cost of products sold and other special project costs in the Condensed Statements of Consolidated Income.

(A) Special project costs include certain divestiture, acquisition, integration, and restructuring costs, which are recognized in cost of products sold and other special project costs in the Condensed Statements of Consolidated Income.

For more information, see Note 3:

1 unchanged sentence

The following table presents certain geographical information.

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

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

2022 2021 2022 2021

6 unchanged sentences

The following table presents product category information.

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

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

2022 2021 2022 2021 Primary Reportable Segment (A)

1 unchanged sentence

Retail Coffee

Dog food 248.5 277.8 476.8 555.5 U.S.

Retail Pet Foods

Cat food 243.7 245.2 707.5 697.1 U.S.

2 unchanged sentences

Retail Pet Foods

Dog food 219.9 296.5 696.7 852.0 U.S.

Retail Pet Foods

Peanut butter 194.6 208.5 606.7 601.2 U.S.

19 unchanged sentences

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

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

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

2022 2021 2022 2021

7 unchanged sentences

Net income per common share – assuming dilution $ 0.64 $ 2.32 $ 3.96 $ 6.42

Goodwill and Other Intangible Assets

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

January 31, 2022

April 30, 2021

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

Finite-lived intangible assets subject to

amortization:

Customer and contractual relationships $ 4,450.0 $ 1,677.2 $ 2,772.8 $ 4,471.1 $ 1,545.0 $ 2,926.1

Patents and technology 167.6 153.0 14.6 168.5 147.3 21.2

Trademarks 661.7 346.2 315.5 364.5 186.7 177.8

Total intangible assets subject to amortization $ 5,279.3 $ 2,176.4 $ 3,102.9 $ 5,004.1 $ 1,879.0 $ 3,125.1

Indefinite-lived intangible assets not subject to

amortization:

Trademarks $ 2,833.1 $ 226.0 $ 2,607.1 $ 3,141.1 $ 225.0 $ 2,916.1

Total other intangible assets $ 8,112.4 $ 2,402.4 $ 5,710.0 $ 8,145.2 $ 2,104.0 $ 6,041.2

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

During the third quarter of 2022, we began our annual planning cycle, inclusive of a strategy review within our strategic business areas.

We made certain strategic decisions related to our U.S.

Retail Pet Foods segment in support of our continued focus on prioritizing and accelerating growth in dog snacks, driving momentum in cat food, and improving dog food performance, which will require further allocation of resources to support more strategic, faster growth opportunities.

As a result, we completed an interim review to determine the impact these strategic decisions had on the fair value of the goodwill and certain indefinite-lived intangible assets within the U.S.

Retail Pet Foods segment.

We recognized an impairment charge of $ 150.4 related to the Rachael Ray Nutrish brand within the U.S.

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

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

Additionally, we reassessed the long-term strategic expectations for the Rachael Ray Nutrish brand and reclassified this brand as a finite-lived intangible asset as of January 31, 2022, which will result in annual amortization expense of $ 10.5 .

Furthermore, as a result of the divestitures of the private label dry pet food business and natural beverage and grains businesses during the third quarter of 2022, we reviewed all impacted reporting units and concluded that the estimated fair values were in excess of the carrying values as of the date of the divestitures.

However, the goodwill within the U.S.

Retail Pet Foods segment remains susceptible to future impairment charges due to the narrow difference between fair value and carrying value.

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

The carrying value of the goodwill within the U.S.

Retail Pet Foods segment was $ 2.4 billion as of January 31, 2022.

There were no other indicators of impairment, and as a result, we do not believe that any of our remaining reporting units or material indefinite-lived intangible assets are more likely than not impaired as of January 31, 2022.

Debt and Financing Arrangements

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

October 31, 2021 April 30, 2021

January 31, 2022 April 30, 2021

Outstanding Carrying

33 unchanged sentences

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

We have no t drawn upon the new revolving credit facility as of October 31, 2021, and did not have a balance outstanding under the previous revolving credit facility as of April 30, 2021.

We have no t drawn upon the new revolving credit facility as of January 31, 2022, and did no t have a balance outstanding under the previous revolving credit facility as of April 30, 2021.

We participate in a commercial paper program under which we can issue short-term, unsecured commercial paper not to exceed $ 2.0 billion, which was increased from $ 1.8 billion in August 2021, in conjunction with entering into the $2.0 billion unsecured revolving credit facility.

1 unchanged sentence

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

As of October 31, 2021, and April 30, 2021, we had $ 320.0 and $ 82.0 of short-term borrowings outstanding, respectively, which were both issued under our commercial paper program at a weighted-average interest rate of 0.17 percent.

Interest paid totaled $ 69.0 and $ 76.2 for the three months ended October 31, 2021 and 2020, respectively, and $ 81.8 and $ 86.4 for the six months ended October 31, 2021 and 2020, respectively.

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

As of January 31, 2022, and April 30, 2021, we had $ 94.0 and $ 82.0 of short-term borrowings outstanding, respectively, which we re both issued under our commercial paper program at a weighted-average interest rate of 0.17 percent.

Interest paid totaled $ 8.6 and $ 8.7 for the three months ended January 31, 2022 and 2021, respectively, and $ 90.4 and $ 95.1 for the nine months ended January 31, 2022 and 2021, respectivel y.

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

Our debt instruments contain certain covenant restrictions, including an interest coverage ratio.

Our financial covenant restrictions were amended to remove the leverage ratio in August 2021, in conjunction with entering into the $2.0 billion unsecured revolving credit facility.

As of October 31, 2021, we are in compliance with all covenants.

As of January 31, 2022, we are in compliance with all covenants.

Pensions and Other Postretirement Benefits

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

Three Months Ended October 31,

Three Months Ended January 31,

Defined Benefit Pension Plans Other Postretirement Benefits

7 unchanged sentences

Net periodic benefit cost $ 2.9 $ 2.2 $ 0.3 $ 0.6

Six Months Ended October 31,

Nine Months Ended January 31,

Defined Benefit Pension Plans Other Postretirement Benefits

7 unchanged sentences

Net periodic benefit cost $ 11.9 $ 37.6 $ 1.1 $ 1.9

During the second quarter of 2021, we transferred $ 82.6 in obligations of our Canadian defined benefit pension plan to an insurance company through the purchase of an irrevocable group annuity contract (referred to as a buy-out contract).

The group annuity contract was purchased using assets from the pension trust.

1 unchanged sentence

This settlement charge was included within other income (expense) – net in the Condensed Statement of Consolidated Income.

We did no t recognize any additional charges related to the Canadian buy-out contract during the three and nine months ended January 31, 2022.

Derivative Financial Instruments

21 unchanged sentences

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

October 31, 2021 April 30, 2021

January 31, 2022 April 30, 2021

Commodity contracts $ 969.1 $ 861.0

1 unchanged sentence

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

October 31, 2021

January 31, 2022

Liabilities Other

11 unchanged sentences

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

Our cash margin accounts represented collateral pledged of $ 3.2 at October 31, 2021, and collateral received of $ 10.8 at April 30, 2021, and are included in other current assets in the Condensed Consolidated Balance Sheets.

Our cash margin accounts represented collateral pledged of $ 4.6 at January 31, 2022, and collateral received of $ 10.8 at April 30, 2021, and are included in other current assets in the Condensed Consolidated Balance Sheets.

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

3 unchanged sentences

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

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

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

2022 2021 2022 2021

5 unchanged sentences

The following table presents the net change in cumulative unallocated derivative gains and losses.

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

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

2022 2021 2022 2021

3 unchanged sentences

Change in net cumulative unallocated derivative gains and losses $ ( 22.4 ) $ 33.8 $ ( 37.9 ) $ 81.5

The net cumulative unallocated derivative gains were $ 45.2 and $ 60.7 at October 31, 2021, and April 30, 2021, respectively.

The net cumulative unallocated derivative gains were $ 22.8 and $ 60.7 at January 31, 2022, and April 30, 2021, respectively.

Cash Flow Hedges

3 unchanged sentences

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

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

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

2022 2021 2022 2021

5 unchanged sentences

Change in accumulated other comprehensive income (loss) $ 3.4 $ 3.5 $ 9.8 $ 10.4

(A) Interest expense – net, as presented in the Condensed Statements of Consolidated Income was $ 40.3 and $ 45.1 for the three months ended October 31, 2021 and 2020, respectively, and was $ 83.4 and $ 91.2 for the six months ended October 31, 2021 and 2020, respectively.

(B) Other income (expense) – net, as presented in the Condensed Statements of Consolidated Income was $ 2.7 and $ 32.2 for the three months ended October 31, 2021 and 2020, respectively, and was $ 13.8 and $ 33.6 for the six months ended October 31, 2021 and 2020, respectively.

(A) Interest expense – net, as presented in the Condensed Statements of Consolidated Income was $ 39.5 and $ 43.5 for the three months ended January 31, 2022 and 2021, respectively, and was $ 122.9 and $ 134.7 for the nine months ended January 31, 2022 and 2021, respectively.

(B) Other expense – net, as presented in the Condensed Statements of Consolidated Income was $ 1.5 and $ 1.2 for the three months ended January 31, 2022 and 2021, respectively, and was $ 15.3 and $ 34.8 for the nine months ended January 31, 2022 and 2021, respectively.

The reclassification is related to the debt extinguishment during the first quarter of 2022, as discussed in Note 8:

Debt and Financing Arrangements.

Included as a component of accumulated other comprehensive income (loss) at October 31, 2021, and April 30, 2021, were deferred net pre-tax losses of $ 220.9 and $ 227.3 , respectively, related to the terminated interest rate contracts.

The related net tax benefit recognized in accumulated other comprehensive income (loss) at October 31, 2021, and April 30, 2021, was $ 51.1 and $ 52.5 , respectively.

Included as a component of accumulated other comprehensive income (loss) at January 31, 2022, and April 30, 2021, were deferred net pre-tax losses of $ 217.5 and $ 227.3 , respectively, related to the terminated interest rate contracts.

The related net tax benefit recognized in accumulated other comprehensive income (loss) at January 31, 2022, and April 30, 2021, was $ 51.1 and $ 52.5 , respectively.

Approximately $ 13.4 of the net pre-tax loss will be recognized over the next 12 months related to the terminated interest rate contracts.

2 unchanged sentences

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

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

As of October 31, 2021, we have fully recognized the gain of $ 53.5 , of which $ 1.9 and $ 4.0 was recognized during the three and six months ended October 31, 2021, respectively, and $ 2.0 and $ 4.2 was recognized during the three and six months ended October 31, 2020, respectively.

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

As of the second quarter of 2022, we had fully recognized the gain of $ 53.5 , of which $ 4.0 was recognized during the nine months ended January 31, 2022, and $ 2.2 and $ 6.4 was recognized during three and nine months ended January 31, 2021, respectively.

Other Financial Instruments and Fair Value Measurements

3 unchanged sentences

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

October 31, 2021 April 30, 2021

January 31, 2022 April 30, 2021

Amount Fair Value Carrying

12 unchanged sentences

(Level 2) Significant

(Level 3) Fair Value at October 31, 2021

(Level 3) Fair Value at January 31, 2022

Marketable securities and other investments:

28 unchanged sentences

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

As of October 31, 2021, our municipal obligations are scheduled to mature as follows:

As of January 31, 2022, our municipal obligations are scheduled to mature as follows:

$ 1.2 in 2022, $ 2.0 in 2024, $ 2.9 in 2025, $ 1.6 in 2026, and the remaining $ 15.1 in 2027 and beyond.

7 unchanged sentences

Debt and Financing Arrangements.

During the third quarter of 2022, we recognized an impairment charge of $ 150.4 related to the Rachael Ray Nutrish brand within the U.S.

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

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

For additional information, see Note 7:

Goodwill and Other Intangible Assets.

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

12 unchanged sentences

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

October 31, 2021 April 30, 2021

January 31, 2022 April 30, 2021

Operating lease right-of-use assets $ 113.4 $ 142.0

13 unchanged sentences

The following table summarizes the components of lease expense.

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

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

2022 2021 2022 2021

3 unchanged sentences

Interest on lease liabilities

0.1 — 0.1 0.1

Variable lease cost 5.9 6.6 16.9 17.7

3 unchanged sentences

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

Six Months Ended October 31,

Nine Months Ended January 31,

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

7 unchanged sentences

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

October 31, 2021

January 31, 2022

Operating Leases Finance Leases

9 unchanged sentences

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

October 31, 2021 April 30, 2021

January 31, 2022 April 30, 2021

Weighted average remaining lease term (in years):

4 unchanged sentences

Finance leases

The effective income tax rates for the three months ended October 31, 2021 and 2020, were 23.4 and 24.0 percent, respectively, and for the six months ended October 31, 2021 and 2020, were 24.1 and 24.2 percent, respectively.

During the three and six months ended October 31, 2021 and 2020, 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.

The effective income tax rates for the three months ended January 31, 2022 and 2021, were 36.4 and 27.7 percent, respectively, and for the nine months ended January 31, 2022 and 2021, were 26.4 and 25.5 percent, respectively.

During the three and nine months ended January 31, 2022, the effective income tax rates varied from the U.S.

statutory income tax rate of 21.0 percent primarily due to state income taxes, including an unfavorable one-time deferred tax impact of an internal legal entity simplification to support multiple work locations for office-based employees and our continued strategic activities.

The effective income tax rates for the three and nine months ended January 31, 2021, varied from the U.S.

statutory rate due to the impact of state income taxes, and were also unfavorably impacted by additional net income tax expense related to the Crisco and Natural Balance divestitures during the third quarter of 2021.

Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an estimated $ 3.2 , primarily as a result of the expiration of statute of limitation periods.

13 unchanged sentences

Income tax benefit (expense) — ( 1.4 ) ( 2.0 ) ( 0.1 ) ( 3.5 )

Balance at October 31, 2021 $ ( 11.0 ) $ ( 169.8 ) $ ( 93.4 ) $ 3.7 $ ( 270.5 )

Balance at January 31, 2022 $ ( 18.0 ) $ ( 166.4 ) $ ( 88.7 ) $ 3.8 $ ( 269.3 )

Adjustment Net Gains (Losses)

10 unchanged sentences

Income tax benefit (expense) — ( 2.2 ) ( 11.8 ) ( 0.3 ) ( 14.3 )

Balance at October 31, 2020 $ ( 35.3 ) $ ( 180.3 ) $ ( 116.3 ) $ 4.4 $ ( 327.5 )

Balance at January 31, 2021 $ ( 21.1 ) $ ( 177.4 ) $ ( 110.0 ) $ 5.0 $ ( 303.5 )

(A) The reclassification is composed of deferred gains (losses) related to terminated interest rate contracts.

4 unchanged sentences

(B) The reclassification from accumulated other comprehensive income (loss) to other income (expense) – net is composed of settlement charges and amortization of net losses and prior service costs.

The reclassification in 2021 primarily includes the impact of the nonrecurring settlement charge related to the purchase of a group annuity contract to transfer the obligation of our Canadian defined benefit pension plan to an insurance company.

The reclassification in 2021 primarily includes the impact of the nonrecurring settlement charge related to the Canadian buy-out contract.

For additional information, see Note 9:

3 unchanged sentences

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

5 unchanged sentences

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 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.

We are also defendants in a series of putative class action lawsuits that were originally filed in federal courts in California, Florida, Illinois, Missouri, New York, 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.

1 unchanged sentence

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 October 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 January 31, 2022, 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.

1 unchanged sentence

The following table sets forth common share information.

October 31, 2021 April 30, 2021

January 31, 2022 April 30, 2021

Common shares authorized 300.0 300.0

2 unchanged sentences

Repurchase Program:

During the six months ended October 31, 2021 and 2020, we did no t repurchase any common shares under a repurchase plan authorized by the Board.

The shares repurchased during the six months ended October 31, 2021 and 2020, consisted of shares repurchased from stock plan recipients in lieu of cash payments.

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.

During the nine months ended January 31, 2022, we did no t repurchase any common shares under a repurchase plan authorized by the Board.

During the nine months ended January 31, 2021, we repurchased 4.5 million common shares for $ 521.9 under our repurchase program.

The remaining shares repurchased during the nine months ended January 31, 2022 and 2021, consisted of shares repurchased from stock plan recipients in lieu of cash payments.

At January 31, 2022, approximately 7.8 million common shares remain available for repurchase pursuant to the Board’s authorizations.

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

What changed 10-Q

Item 1. Financial Statements