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Item 7. Management’s Discussion and Analysis

2022-06-16 compared with 2021-06-17 · 277 added, 238 removed, 313 unchanged (62% of the section changed)

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide an understanding of our results of operations, financial condition, and cash flows by focusing on changes in certain key measures from year-to-year, and should be read in conjunction with our consolidated financial statements and the accompanying notes presented in Item 8.

“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

This discussion contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in Item 1A.

“Risk Factors” of this Annual Report on Form 10-K.

Company Background

Inspired by more than 120 years of business success and five generations of family leadership, The J.

Smucker Company makes food that people and pets love.

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.

Each generation of consumers leaves their mark on culture by establishing new expectations for food and the companies that make it.

Smucker Company, it is our privilege to be at the heart of this dynamic with a diverse portfolio that appeals to each generation of people and pets and is found in nearly 90 percent of U.S.

homes and countless restaurants, including iconic brands consumers have always loved such as Folgers , Jif , and Milk-Bone and new favorites like Café Bustelo , Smucker’s Uncrustables , and Rachael Ray Nutrish .

By continuing to immerse ourselves in consumer preferences and acting responsibly, we will continue growing our business and the positive impact we have on society.

We have three reportable segments:

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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 87 percent of net sales in 2022 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.

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

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).

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This continuity of management and thought extends to the broader leadership team that embodies the values and embraces the business practices that have contributed to our consistent growth.

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 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.

Our strategic vision is to engage, delight, and inspire consumers by building brands they love and leading in growing categories.

This vision is our long-term direction that guides business priorities and aligns our organization.

We will continue to drive balanced, long-term growth by advancing on the following executional priorities:

• Drive Commercial Excellence | Deliver best-in-class go-to-market execution and commercial delivery;

• Streamline our Cost Infrastructure | Focus on profitability and cost discipline;

• Reshape our Portfolio | Optimize our portfolio to meet the evolving needs of consumers;

• Unleash our Organization to Win | Inspire, enable, and empower our employees while improving diversity at every level.

Our strategic growth objectives include net sales increasing by a low-single digit percentage and operating income excluding non-GAAP adjustments (“adjusted operating income”) increasing by a mid-single digit percentage 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 increase by a high-single digit percentage 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;

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.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, certain divestiture, acquisition, integration, and restructuring costs (“special project costs”), 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”), and other one-time items that do not directly reflect ongoing operating

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

Due to the unknown and potentially prolonged impact of COVID-19, we may experience difficulties or be delayed in achieving our long-term strategies;

however, we continue to evaluate the effects from COVID-19 on our long-term growth objectives.

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

Due to the unknown and potentially prolonged impact of COVID-19, as well as the challenged supply network and increased labor shortages, we may experience difficulties or be delayed in achieving our long-term strategies;

however, we continue to evaluate the effects on our long-term growth objectives.

Over the past five years, net sales and adjusted earnings per share increased at a compound annual growth rate of 2 percent and 3 percent, respectively, while adjusted operating income decreased at a rate of 1 percent.

These changes were primarily 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.

Retail Consumer Foods segments and the Ainsworth acquisition in 2019, partially offset by the reduction in net sales from the divestitures of the private label dry pet food and natural beverage and grains businesses in 2022, 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 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 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.

On January 31, 2022, we sold the natural beverage and grains businesses to 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 $106.7 and $143.4 in 2022 and 2021, respectively, primarily included in the U.S.

Retail Consumer Foods segment.

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.

Net proceeds from the divestiture were $97.1, which were inclusive of a preliminary working capital adjustment and cash transaction costs, and will be finalized during the first quarter of 2023.

Upon completion of this transaction, we recognized a pre-tax gain of $26.7 during 2022, which was included in other operating expense (income) – net within the Statement of Consolidated Income.

On December 1, 2021, we sold the private label dry pet food business to 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 $62.3 and $94.0 in 2022 and 2021, respectively, 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 this transaction, we recognized a pre-tax loss of $17.1 during 2022, which was 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.

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 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.

Final net proceeds from the divestiture were $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 was included in other operating expense (income) – net within the Statement of Consolidated Income.

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.

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

Retail Consumer Foods segment.

Final net proceeds from the divestiture were $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 was 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.

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 requirements.

However, there was a significant number of U.S.

cases in late calendar year 2021 and early calendar year 2022, and as a result, consumers stayed 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 and supply pressures, as well as 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 may continue, to some extent, through calendar year 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 required all employees to be vaccinated or have received an approved medical or religious exemption as early as December 2021, and no later than March 2022, dependent upon location.

We fully implemented the mandate for salaried employees in December 2021, prior to the U.S.

Supreme Court’s ruling in January 2022 to block the federal mandate.

However, we lifted the mandate that required hourly employees to be vaccinated by March 2022 to support business continuity across our operations.

Furthermore, we have reopened our corporate headquarters in Orrville, Ohio, with appropriate safety protocols, and as a result, occupancy levels have gradually increased during 2022 while our office-based employees transition to a hybrid work schedule.

We continue to monitor the latest public health and government guidance related to COVID-19 and will adjust our approach and safety protocols, as needed.

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 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.

We expect that these inflationary cost increases will continue, but we expect they will be partially mitigated by pricing actions implemented in 2022 and those that we plan to implement in 2023.

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 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.

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 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.

However, to the extent that high demand levels or the current supply chain environment continues to disrupt order fulfillment, we may experience volume loss and elevated penalties.

During 2022, customer order levels remain elevated, primarily across our U.S.

Retail Consumer Foods and U.S.

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

Further, as states have reopened their economies during 2022, our net sales for the away from home channels have continued to improve compared to the initial months of the pandemic.

This trend could moderate during the remainder of calendar year 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;

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

continued vaccine availability and effectiveness;

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, 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

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(A) We use non-GAAP financial measures to evaluate our performance.

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

Refer to “Non-GAAP Financial Measures” in this discussion and analysis for a reconciliation to the comparable generally accepted accounting principles (“GAAP”) financial measure.

Year Ended April 30,

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— (156.7) 156.7 2

Private label dry pet food divestiture — (40.7) 40.7 1

Natural beverage and grains divestiture — (35.5) 35.5 —

Foreign currency exchange

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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 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.

Net sales in 2022 was comparable to the prior year, which includes $431.8 of noncomparable net sales in the prior year related to divestitures.

Net sales excluding divestitures and foreign currency exchange increased $410.9, or 5 percent, which was primarily due to higher net price realization across each of our U.S.

Retail segments and for International and Away From Home, reflecting list price increases during 2022.

Operating Income

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Amounts may not add due to rounding.

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.

Gross profit decreased $438.0, or 14 percent, in 2022, reflecting higher costs, primarily driven by increased commodity and ingredient, transportation, packaging, and manufacturing costs, the noncomparable impact related to divestitures, the unfavorable impact of unsaleable inventory and estimated customer returns related to the Jif peanut butter recall, and unfavorable volume/mix, partially offset by higher net pricing.

Operating income decreased $363.0, or 26 percent, primarily reflecting the decrease in gross profit and a $150.4 intangible asset impairment charge in 2022 related to the Rachael Ray Nutrish brand, partially offset by a $162.8 decrease in selling, distribution, and administrative (“SD&A”) expenses, primarily driven by lower marketing spend and incentive compensation expense.

Further offsetting the decrease in operating income is a $36.7 increase in net other operating income, primarily reflecting an anticipated insurance recovery of $49.8, net of the deductible, related to the Jif peanut butter recall that mostly offsets the unfavorable impact of unsaleable inventory, estimated customer returns, and consumer refunds, as discussed in Note 15:

Contingencies.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, 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”) 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.

Gross profit excluding non-GAAP adjustments (“adjusted gross profit”) decreased $303.9, or 10 percent, in 2022, reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses and special project costs, as compared to GAAP gross profit.

Adjusted operating income decreased $88.7, or 6 percent, as compared to the prior year, further reflecting the exclusion of the impairment charge and net pre-tax gain on divestitures.

Interest Expense

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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.

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

Income taxes decreased $83.5, or 28 percent, in 2022, as compared to the prior year.

The effective income tax rate of 25.1 percent for 2022 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 in the third quarter of 2022 to support multiple work locations for office-based employees and our continued strategic activities.

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

statutory income 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.

We anticipate a full-year effective income tax rate for 2023 to be approximately 24.2 percent.

For additional information, refer to Note 13:

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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:

A restructuring program was approved by the Board during 2021, associated with opportunities identified to reduce our overall cost structure, optimize our organizational design, and support our portfolio reshape.

This is inclusive of certain restructuring costs associated with the divestitures of the Crisco , Natural Balance , private label dry pet food, and natural beverage and grains businesses.

For additional information related to the divestitures, see Note 3:

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.

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 liquid coffee products.

During 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 recent 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.

We expect to incur costs of approximately $70.0 associated with the restructuring activities planned to date.

More than 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 planned activities associated with this restructuring program will be completed by the end of 2023, with the majority of the costs expected to be incurred in the first half of 2023.

We have incurred total cumulative restructuring costs of $52.6, of which $28.5 and $24.1 were incurred during 2022 and 2021, respectively.

For further information, refer to Note 2:

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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.

The most significant of these materials, based on 2022 annual spend, are green coffee, peanuts, protein meals, grains, 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.

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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.

In particular, the supply chain for protein meals, fats, corn products, 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 grains and oils and fat-based products has been impacted by the recent conflict between Russia and Ukraine.

We frequently enter into long-term contracts to purchase plastic containers, which are sourced mainly from within the U.S.

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 2021 were higher than in 2020, primarily due to higher costs for green coffee and peanuts.

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 and geopolitical conditions.

Excluding the impact of derivative gains and losses, our overall commodity costs in 2022 were higher than in 2021, primarily due to higher costs for green coffee, protein meals, oils and fats, and grains.

Segment Results

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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;

The presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable.

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

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 and Jif branded products.

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

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Retail Pet Foods

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 Pet Foods segment net sales decreased $80.2 in 2022, inclusive of the impact of $197.4 of noncomparable net sales in the prior year related to the divested Natural Balance and private label dry pet food businesses.

Excluding the noncomparable impact of the divested businesses, net sales increased $117.2, or 4 percent.

Higher net price realization across the portfolio increased net sales by 5 percentage points, primarily reflecting list price increases across the portfolio, partially offset by increased trade spend.

Unfavorable volume/mix decreased net sales by 1 percentage point, primarily driven by declines for dog food, partially offset by growth for cat food and dog snacks.

Segment profit decreased $91.1, primarily reflecting higher commodity and ingredient, transportation, and manufacturing costs and the unfavorable volume/mix, partially offset by the higher net pricing and lower marketing expense.

Retail Coffee

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 Coffee segment net sales increased $122.7 in 2022.

Net price realization contributed 6 percentage points to net sales, primarily reflecting list price increases across the portfolio.

Unfavorable volume/mix decreased net sales by 1 percentage point, primarily driven by the Folgers brand, partially offset by the Dunkin’ and Café Bustelo brands.

Segment profit decreased $32.4, reflecting higher commodity costs and the unfavorable volume/mix, partially offset by higher net pricing.

Retail Consumer Foods

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.

Retail Consumer Foods segment net sales decreased $128.5 in 2022, inclusive of the impact of $211.8 of noncomparable net sales in the prior year related to the divested Crisco and natural beverage and grains businesses.

Excluding the noncomparable impact of the divested businesses, net sales increased $83.3, or 5 percent.

Higher net price realization contributed 4 percentage points to net sales, primarily driven by Smucker’s Uncrustables frozen sandwiches and Smucker’s fruit spreads, including the unfavorable impact of estimated customer returns related to the Jif peanut butter recall.

Volume/mix increased net sales by 1 percentage point, reflecting increases for Smucker’s Uncrustables frozen sandwiches and Jif peanut butter, partially offset by a decline for Smucker’s fruit spreads.

Segment profit decreased $48.3, reflecting the noncomparable segment profit in the prior year related to the divested businesses.

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

Segment profit also reflects the unfavorable impact of unsaleable inventory and estimated customer returns, as well as other associated costs related to the Jif peanut butter recall, which were mostly offset by the anticipated insurance recovery, net of the deductible.

International and Away From Home

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.

International and Away From Home net sales increased $82.2 in 2022, including the noncomparable impact of $22.6 of net sales in the prior year related to the divested Crisco and natural beverage and grains businesses.

Excluding the noncomparable impact of the divested businesses and foreign currency exchange, net sales increased $87.7, or 9 percent, primarily reflecting a 23 percent increase for the Away From Home operating segment, partially offset by a 2 percent decrease for the International operating segment.

Favorable volume/mix for the combined businesses contributed 6 percentage points to net sales, primarily driven by increases for portion control and coffee 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 3 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products in the away from home channels and fruit spread products in the International operating segment.

Segment profit increased $17.9, primarily reflecting higher net pricing, favorable volume/mix, and the favorable foreign currency exchange impact, partially offset by increased commodity costs and the noncomparable segment profit in the prior year related to the divested businesses.

LIQUIDITY AND CAPITAL RESOURCES

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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 $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 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.

The $428.7 decrease in cash provided by operating activities in 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 for accounts payable, changes in accrued incentive compensation and marketing, and an increase in inventory levels compared to the prior year, primarily driven by the recent input cost inflation.

Cash used for investing activities in 2022 consisted primarily of $417.5 in capital expenditures, primarily driven by investments in Smucker’s Uncrustables frozen sandwiches to support the new manufacturing and distribution facilities in McCalla, Alabama, and capacity expansion in Longmont, Colorado, as well as plant maintenance across our facilities.

An increase of $65.4 in our derivative cash margin account balances also contributed to the use of cash in 2022.

These decreases were partially offset by net proceeds received from the divested private label dry pet food and natural beverage and grains businesses of $130.0.

Cash provided by investing activities in 2021 primarily consisted of net proceeds received 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, which primarily reflected capacity expansion at our Longmont facility, as well as plant maintenance across our facilities.

Cash used for financing activities in 2022 consisted primarily of long-term debt repayments of $1,157.0, dividend payments of $418.1, and purchase of treasury shares of $270.4, partially offset by $797.6 in long-term debt proceeds and a net increase in short-term borrowings of $97.6.

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 net short-term debt repayments of $166.4.

Supplier Financing Program

As part of ongoing efforts to maximize working capital, we work with our suppliers to optimize our terms and conditions, which includes the extension of payment terms.

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

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.

Payment terms with our suppliers, which we deem to be commercially reasonable, range from 0 to 180 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.

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.

We have no economic interest in a supplier’s decision to enter into these agreements.

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.

Our rights and 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, 2022 and 2021, $314.3 and $304.2 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers.

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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, the significant majority of which were settled and paid during 2019 and 2020.

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.

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, 2022.

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.

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.

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

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.

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.

Accordingly, no loss contingency has been recorded for these matters as of April 30, 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.

For additional information, see Note 15:

Contingencies.

Product Recall

Subsequent to April 30, 2022, we initiated a voluntary recall of select Jif peanut butter products produced at our Lexington, Kentucky, facility and sold primarily in the U.S., due to potential salmonella contamination.

At that time, we also suspended the manufacturing of Jif peanut butter products at the Lexington facility.

No other products produced at our other facilities were affected by this recall.

As a result, and in accordance with U.S.

GAAP, we recorded reserves of $52.3 in our consolidated financial statements as of April 30, 2022, within our U.S.

Retail Consumer Foods segment, which was inclusive of unsaleable inventory as of April 30, 2022, as well as estimated customer returns and consumer refunds related to net sales in 2022.

We anticipate these costs will be recovered by insurance, and as a result, an insurance receivable of $49.8, net of the deductible, was also recorded as of April 30, 2022.

On June 10, 2022, we announced our plans to resume manufacturing Jif peanut butter products at our Lexington facility.

Further, our Memphis, Tennessee, facility was not affected by the recall and has continued to manufacture Jif peanut butter products.

However, we temporarily paused shipments from the Memphis facility to eliminate confusion while customers cleared their shelves of potentially impacted products manufactured at the Lexington facility.

We will resume shipping from both the Lexington and Memphis facilities and are partnering with retailers to restock Jif peanut butter products as soon as possible.

Based on progress to date, we believe this matter will be substantially resolved during the first quarter of 2023.

Based on our best estimates, we anticipate an unfavorable pre-tax impact of approximately $125.0 in 2023, net of the remaining anticipated insurance recoveries, primarily related to the estimated impact of manufacturing downtime, customer returns and penalties, and unsaleable inventory, as well as other recall related costs.

The recall will primarily impact our U.S.

Retail Consumer Foods segment.

Our ultimate loss from the Jif peanut butter recall could differ materially from these estimates, primarily dependent upon the magnitude of lost sales resulting from the unavailability of products for a longer period of time than anticipated, as well as any resulting adverse consumer reaction, including the loss of perceived value and any shift in consumer preferences.

Capital Resources

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Total capital $ 12,630.7 $ 12,876.5

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.

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 included $7.2 of capitalized debt issuance costs and $2.4 of offering discounts, and which are amortized to interest expense over the life of the debt.

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 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.

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

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

As of April 30, 2022, we had $180.0 of short-term borrowings outstanding, all of which were issued under our commercial paper program, at a weighted-average interest rate of 0.65 percent.

We are in compliance with all of our debt covenants.

We are in compliance with all our debt covenants as of April 30, 2022, 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.

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.

During 2022, we repurchased 2.0 million common shares under a repurchase plan authorized by the Board for $262.5.

At April 30, 2022, approximately 5.8 million common shares remain available for repurchase pursuant to the Board’s authorizations.

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

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

During 2021, we repurchased 5.8 million common shares under a repurchase plan authorized by the Board for $671.9.

In November 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 facility began in the third quarter of 2022, with production expected to begin 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 with each of the three phases.

The following table presents certain cash requirements related to 2023 investing and financing activities based on our current expectations.

Although no principal payments are required on our debt obligations in 2023, we may utilize a portion of our cash for debt repayment.

April 30, 2023

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

Dividend payments – based on current rates and common shares outstanding $ 421.6

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Interest payments 147.2

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 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.

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.

However, as a result of the current economic environment, 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.

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

As of April 30, 2022, total cash and cash equivalents of $46.2 was held by our foreign subsidiaries, primarily in Canada.

We did not repatriate foreign cash to the U.S.

Material Cash Requirements

The following table summarizes our material cash requirements by fiscal year at April 30, 2022.

Total 2023 2024-2025 2026-2027 2028 and

Long-term debt obligations, including current portion (A)

$ 4,350.0 $ — $ 1,000.0 $ — $ 3,350.0

Interest payments (B)

1,982.8 147.2 294.3 224.3 1,317.0

Purchase obligations (C)

2,787.6 2,309.4 297.3 119.7 61.2

Total $ 9,120.4 $ 2,456.6 $ 1,591.6 $ 344.0 $ 4,728.2

(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 for our fixed-rate Senior Notes.

(C) Purchase obligations includes agreements that are enforceable and legally bind us to purchase goods or services, which primarily consist of obligations related to normal, ongoing purchase obligations in which we have guaranteed payment to ensure availability of

raw materials.

We expect to receive consideration for these purchase obligations in the form of materials and services.

These purchase obligations do not represent all future purchases expected but represent only those items for which we are contractually obligated.

Amounts included in the table above represent our current best estimate of payments due.

Actual cash payments may vary due to the variable pricing components of certain purchase obligations.

Our other cash requirements at April 30, 2022, primarily included operating and finance lease obligations, which consist of the minimum rental commitments under non-cancelable operating and finance leases.

As of April 30, 2022, we had total undiscounted minimum lease payments of $121.4 and $4.0 related to our operating and finance leases, respectively.

For additional information, see Note 11:

In addition, we have other liabilities which consisted primarily of projected commitments associated with our defined benefit pension and other postretirement benefit plans, as disclosed in Note 8:

Pensions and Other Postretirement Benefits, including expected contributions of $80.0 in 2023 to our qualified defined benefit pension plans.

The total liability for our unrecognized tax benefits and tax-related net interest at April 30, 2022, was $7.4 under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes ;

however, we are unable to reasonably estimate the timing of cash settlements with the respective taxing authorities.

For additional information, see Note 13:

Income Taxes.

As of April 30, 2022, we do not have material off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as variable interest entities.

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.

NON-GAAP FINANCIAL MEASURES

We use non-GAAP financial measures including:

net sales excluding divestitures and foreign currency exchange;

adjusted gross profit;

adjusted operating income;

adjusted income;

adjusted earnings per share;

earnings before interest, taxes, depreciation, amortization, and impairment charges related to intangible assets (“EBITDA (as adjusted)”);

and free cash flow, as key measures for purposes of evaluating performance internally.

net sales excluding divestitures and foreign currency exchange, adjusted gross profit, adjusted operating income, adjusted income, adjusted earnings per share, earnings before interest, taxes, depreciation, amortization, and impairment charges related to intangible assets (“EBITDA (as adjusted)”), and free cash flow, as key measures for purposes of evaluating performance internally.

We believe that investors’ understanding of our performance is enhanced by disclosing these performance 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;

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.

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 on divestitures, 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.

While this adjusted effective income tax rate does not generally differ materially from our GAAP effective income tax rate, certain exclusions from non-GAAP results, such as the one-time deferred state tax impact of the internal legal entity simplification during 2022, 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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The following table reconciles certain non-GAAP financial measures to the comparable GAAP financial measure.

page 23 for a reconciliation of net sales adjusted for certain noncomparable items to the comparable GAAP financial measure.

See page 28 for a reconciliation of net sales adjusted for certain noncomparable items to the comparable GAAP financial measure.

Year Ended April 30,

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Gross profit $ 2,700.7 $ 3,138.7

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

Cost of products sold – special project costs 3.4 —

Change in net cumulative unallocated derivative gains and losses 23.4 (93.6)

Cost of products sold – special project costs (A)

Adjusted gross profit $ 2,744.6 $ 3,048.5

% of net sales 34.3 % 38.1 %

Operating income reconciliation:

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Gain on divestitures – net (9.6) (25.3)

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

Cost of products sold – special project costs 3.4 —

Other special project costs 20.7 16.5

Change in net cumulative unallocated derivative gains and losses 23.4 (93.6)

Cost of products sold – special project costs (A)

Other special project costs (A)

Adjusted operating income

$ 1,440.1 $ 1,528.8

% of net sales 18.0 % 19.1 %

Net income reconciliation:

Net income $ 631.7 $ 876.3

Income tax expense (benefit) 295.6 247.2

Income tax expense 212.1 295.6

Amortization 223.6 233.0

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Gain on divestitures – net (9.6) (25.3)

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

Cost of products sold – special project costs 3.4 —

Other special project costs 20.7 16.5

Change in net cumulative unallocated derivative gains and losses 23.4 (93.6)

Cost of products sold – special project costs (A)

Other special project costs (A)

Other one-time items:

Pension plan termination settlement charges (A)

Pension plan termination settlement charges (B)

Adjusted income before income taxes

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Net income $ 631.7 $ 876.3

Income tax expense (benefit) 295.6 247.2

Income tax expense 212.1 295.6

Interest expense – net 160.9 177.1

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Free cash flow $ 718.8 $ 1,258.3

(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.

(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 2:

Integration and Restructuring Costs and Note 4:

Reportable Segments.

(B) Represents the nonrecurring pre-tax settlement charges of $29.6 related to the purchase of an irrevocable group annuity contract to transfer our Canadian defined benefit pension plan obligation to an insurance company (the “Canadian buy-out contract” ) .

For additional information, see Note 8:

Pensions and Other Postretirement Benefits .

OFF-BALANCE SHEET ARRANGEMENTS

We do not have material off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as variable interest entities.

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.

CONTRACTUAL OBLIGATIONS

The following table summarizes our contractual obligations by fiscal year at April 30, 2021.

Total 2022 2023–2024 2025–2026 2027 and

Long-term debt obligations, including current portion (A)

$ 4,700.0 $ 1,150.0 $ — $ 1,000.0 $ 2,550.0

Interest payments (B)

1,715.7 153.4 256.6 221.6 1,084.1

Operating lease obligations (C)

162.2 44.2 70.1 40.0 7.9

Purchase obligations (D)

2,179.5 1,752.2 282.6 96.1 48.6

Other liabilities (E)

347.9 31.3 49.9 28.9 237.8

Total $ 9,105.3 $ 3,131.1 $ 659.2 $ 1,386.6 $ 3,928.4

(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 for our fixed-rate Senior Notes.

(D) Purchase obligations includes agreements that are enforceable and legally bind us to purchase goods or services, which primarily consist of obligations related to normal, ongoing purchase obligations in which we have guaranteed payment to ensure availability of raw materials.

We expect to receive consideration for these purchase obligations in the form of materials and services.

These purchase obligations do not represent all future purchases expected, but represent only those items for which we are contractually obligated.

Amounts included in the table above represent our current best estimate of payments due.

Actual cash payments may vary due to the variable pricing components of certain purchase obligations.

(E) Other liabilities consists primarily of projected commitments associated with our defined benefit pension and other postretirement benefit plans, as well as $4.5 related to financing lease obligations.

The liability for unrecognized tax benefits and tax-related net interest of $11.9 under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes , is excluded, since we are unable to reasonably estimate the timing of cash settlements with the respective taxing authorities.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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Trade Marketing and Merchandising Programs:

In order to support our products, various promotional activities are conducted through retail, distributors, or directly with consumers, including in-store display and product placement programs, price discounts, coupons, and other similar activities.

In order to support our products, various promotional activities are conducted through retailers, distributors, or directly with consumers, including in-store display and product placement programs, price discounts, coupons, and other similar activities.

The costs of these programs are classified as a reduction of sales.

We regularly review and revise, when we deem necessary, estimates of costs for these promotional programs based on estimates of what will be redeemed by retail, distributors, or consumers.

We regularly review and revise, when we deem necessary, estimates of costs for these promotional programs based on estimates of what will be redeemed by retailers, distributors, or consumers.

These estimates are made using various techniques, including historical data on performance of similar promotional programs.

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During 2022, 2021, and 2020, subsequent period adjustments were less than 3 percent of both consolidated pre-tax income and cash provided by operating activities.

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

Income Taxes:

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In the ordinary course of business, we are exposed to uncertainties related to tax filing positions and periodically assess the technical merits of these tax positions for all tax years that remain subject to examination, based upon the latest information available.

For material uncertain tax positions, we have recognized a liability for unrecognized tax benefits, including any applicable interest and penalty charges.

We recognize a tax benefit when it is more likely than not the position will be sustained upon examination, based on its technical merits.

The tax position is then measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that it is more likely than not that all or some portion of such assets will not be realized.

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In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of operations.

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, 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.

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

As of April 30, 2022, a portion of our undistributed foreign earnings, primarily in Canada, is not considered permanently reinvested, and an immaterial deferred tax liability has been recognized accordingly.

Further, we have not repatriated foreign cash to the U.S during 2022.

Goodwill and Other Indefinite-Lived Intangible Assets:

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.

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, 2022, the carrying value of goodwill and other intangible assets totaled $11.7 billion, compared to total assets of $16.1 billion and total shareholders’ equity of $8.1 billion.

If the carrying value of these assets exceeds the current estimated fair value, the asset is considered impaired, and this would result in a noncash charge to earnings.

If the carrying value of these assets exceeds the current estimated fair value, the asset is considered impaired, and this would result in a noncash impairment charge to earnings.

Any such impairment charge would reduce earnings and could be material.

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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, 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.

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

Retail Pet Foods segment were

$2.4 billion and $1.4 billion, respectively, as of 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 the recognition of these assets at fair value resulting from recent impairment charges and the acquisition of Ainsworth in 2019.

As of April 30, 2022, 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.

During 2022, we recognized an impairment charge of $150.4 related to the Rachael Ray Nutrish 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 Rachael Ray Nutrish brand and reclassified this brand as a finite-lived intangible asset on January 31, 2022.

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

Retail Pet Foods segment was $2.4 billion as of April 30, 2022, and remains 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 impairment charges in recent years.

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

Furthermore, we continue to evaluate the potential impact of COVID-19 on the fair value of our goodwill and indefinite-lived intangible assets.

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, 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 6:

Goodwill and Other Intangible Assets.

Furthermore, we continue to evaluate the potential impact of COVID-19 on the fair value of our goodwill and indefinite-lived intangible assets.

While we concluded there were no indicators of impairment as of April 30, 2022, any significant sustained adverse change in consumer purchasing behaviors, government restrictions, financial results, or macroeconomic conditions could result in future impairment.

Pension and Other Postretirement Benefit Plans:

To determine the ultimate obligation under our defined benefit pension and other postretirement benefit plans, we must estimate the future cost of benefits and attribute that cost to the time period during which each covered employee works.

Various actuarial assumptions must be made in order to predict and measure costs and obligations many years prior to the settlement date, the most significant being the interest rates used to discount the obligations of the plans, the long-term rates of return on the plans’ assets, mortality assumptions, assumed pay increases, and the health care cost trend rates.

We, along with third-party actuaries and investment managers, review all of these assumptions on an ongoing basis to ensure that the most reasonable information available is being considered.

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For 2023 expense recognition, we will use weighted-average discount rates for the U.S.

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.

defined benefit pension plans of 4.59 percent to determine benefit obligation, 4.77 percent to determine service cost, and 4.26 percent to determine interest cost.

For the Canadian defined benefit pension plans, we will use weighted-average discount rates of 2.41 percent to determine benefit obligation and 2.33 percent to determine interest cost.

As of April 30, 2022, a 50 basis-point decrease in the discount rate assumption would increase the 2023 net periodic benefit cost by approximately $0.2, and the benefit obligation would increase by approximately $22.2.

In addition, we anticipate using an expected rate of return on plan assets of 4.51 percent and 1.60 percent for the U.S.

and Canadian defined benefit pension plans, respectively.

A 50 basis-point decrease in the expected

rate of return on plan assets assumption would increase the 2023 net periodic benefit cost by approximately $1.8.

A change in the assumptions used for the Canadian defined benefit pension plans would not have a material impact on the net periodic benefit cost and benefit obligation.

FORWARD-LOOKING STATEMENTS

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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 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;

• volatility of commodity, energy, and other input costs;

• the impact of the COVID-19 pandemic on our business, industry, suppliers, customers, consumers, employees, and communities;

• disruptions or inefficiencies in our operations or supply chain, including any impact caused by product recalls (including the recent Jif peanut butter recall), political instability, terrorism, armed hostilities (including the recent conflict between Russia and Ukraine), extreme weather conditions, natural disasters, pandemics (including the COVID-19 pandemic), or other calamities;

• risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging, and transportation;

• the impact of food security concerns involving either our products or our competitors’ products, including product recalls;

• 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, 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;

• 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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• general competitive activity in the market, including competitors’ pricing practices and promotional spending levels;

• the impact of food security concerns involving either our products or our competitors’ products;

• the impact of accidents, extreme weather, natural disasters, and pandemics (such as COVID-19);

• our ability to attract and retain key talent;

• 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 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;

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

• the outcome of tax examinations, changes in tax laws, and other tax matters;

• a disruption, failure, or security breach of our or our suppliers’ information technology systems, including ransomware attacks;

• foreign currency exchange rate and interest rate fluctuations;

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What changed 10-K

Item 7. Management’s Discussion and Analysis