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Item 1. Financial Statements

2022-08-23 compared with 2022-03-01 · 132 added, 252 removed, 539 unchanged (42% of the section changed)

2 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

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

Three Months Ended July 31,

Dollars in millions, except per share data 2022 2021

5 unchanged sentences

Amortization 55.6 55.4

Other intangible assets impairment charge 150.4 — 150.4 —

Other special project costs (A)

2.0 1.7 5.1 1.7

Other operating expense (income) – net ( 28.0 ) ( 1.2 )

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CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

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

Three Months Ended July 31,

Dollars in millions 2022 2021

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CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in millions January 31, 2022 April 30, 2021

Dollars in millions July 31, 2022 April 30, 2022

Current Assets

25 unchanged sentences

Accrued trade marketing and merchandising 201.2 193.8

Current portion of long-term debt — 1,152.9

Short-term borrowings 388.0 180.0

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Noncurrent Liabilities

Long-term debt, less current portion 4,309.7 3,516.8

Long-term debt 4,311.5 4,310.6

Deferred income taxes 1,326.9 1,325.8

13 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

Nine Months Ended January 31,

Three Months Ended July 31,

Dollars in millions 2022 2021

4 unchanged sentences

Amortization 55.6 55.4

Other intangible assets impairment charge 150.4 —

Pension settlement loss (gain) 7.5 30.8

Share-based compensation expense 7.9 5.3

Gain on divestitures – net ( 9.6 ) ( 27.2 )

Gain on divestiture ( 1.6 ) —

Other noncash adjustments – net 4.1 3.1

Make-whole payments included in financing activities — 7.0

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

Defined benefit pension contributions ( 70.7 ) ( 0.9 )

Changes in assets and liabilities:

Trade receivables ( 80.2 ) ( 32.9 )

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Additions to property, plant, and equipment ( 88.3 ) ( 68.0 )

Proceeds from divestitures – net 130.2 569.3

Proceeds from divestiture 1.6 —

Other – net 15.2 ( 12.0 )

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Short-term borrowings (repayments) – net 207.0 284.0

Proceeds from long-term debt 797.6 —

Repayments of long-term debt, including make-whole payments — ( 407.0 )

Capitalized debt issuance costs ( 10.4 ) —

Quarterly dividends paid ( 105.1 ) ( 97.2 )

11 unchanged sentences

CONDENSED STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

Nine Months Ended January 31, 2022

Three Months Ended July 31, 2022

Dollars in millions Common

9 unchanged sentences

Balance at July 31, 2022 106,559,359 $ 26.6 $ 5,457.7 $ 2,893.4 $ ( 233.4 ) $ 8,144.3

Net income 206.0 206.0

Other comprehensive income (loss) 11.1 11.1

Comprehensive income 217.1

Purchase of treasury shares ( 5,676 ) — ( 0.6 ) ( 0.1 ) ( 0.7 )

Stock plans 8,521 — 6.6 6.6

Cash dividends declared, $ 0.99 per common share

( 106.9 ) ( 106.9 )

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

Net income 69.7 69.7

Other comprehensive income (loss) 1.2 1.2

Comprehensive income 70.9

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

Stock plans 100,996 — 16.8 16.8

Cash dividends declared, $ 0.99 per common share

( 107.0 ) ( 107.0 )

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

Nine Months Ended January 31, 2021

Three Months Ended July 31, 2021

Dollars in millions Common

8 unchanged sentences

( 106.9 ) ( 106.9 )

Other ( 0.5 ) 0.5 — —

Balance at July 31, 2021 108,359,994 $ 27.1 $ 5,531.0 $ 2,893.8 $ ( 281.6 ) $ 8,170.3

Net income 230.8 230.8

Other comprehensive income (loss) 33.4 33.4

Comprehensive income 264.2

Purchase of treasury shares ( 14,769 ) — ( 1.7 ) 0.1 ( 1.6 )

Stock plans 24,588 — 9.5 9.5

Cash dividends declared, $ 0.90 per common share

( 102.3 ) ( 102.3 )

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

Net income 261.5 261.5

Other comprehensive income (loss) 24.0 24.0

Comprehensive income 285.5

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

Stock plans ( 6,480 ) — 7.5 7.5

Cash dividends declared, $ 0.90 per common share

( 98.5 ) ( 98.5 )

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

See notes to unaudited condensed consolidated financial statements.

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

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

Operating results for the three months ended July 31, 2022, are not necessarily indicative of the results that may be expected for the year ending April 30, 2023.

For further information, reference is made to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended April 30, 2022.

Recently Issued Accounting Standards

In November 2020, the U.S.

Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No.

33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements.

These updates are part of the SEC’s broader disclosure effectiveness initiative and reflect a principles-based, registrant-specific approach to disclosures, intended to improve the content and simplify compliance for registrants.

During 2021, we early adopted certain updates to section 301, Selected Financial Data , and 302, Supplementary Financial Information .

As required, we will complete the adoption of the remaining amendments during 2022 and do not anticipate that the adoption of these amendments will have a material impact on our financial statements and disclosures.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes , which removes certain exceptions for investments, intraperiod allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes.

ASU 2019-12 was effective for us on May 1, 2021.

The accounting guidance for franchise taxes and foreign investments was adopted on a modified retrospective basis and all other applicable provisions were adopted on a prospective basis, as required by ASU 2019-12.

The adoption of this ASU did not have a material impact on our financial statements and disclosures.

In March 2022, the U.S.

Securities and Exchange Commission (the “SEC”) issued the proposed rule under SEC Release No.

33-11042, The Enhancement and Standardization of Climate-Related Disclosures for Investors , to enhance and standardize the climate-related disclosures provided by public companies.

This update will require the disclosure of greenhouse gas emissions, including Scope 1 and Scope 2 emissions, which will be subject to third-party assurance, as well as climate-related targets and goals, and how the Board of Directors (the “Board”) and management oversee climate-related risks.

As of July 31, 2022, these amendments were not adopted by the SEC;

however, we anticipate that the adoption of these amendments will have a material impact on our financial statements and disclosures.

Integration and Restructuring Costs

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Restructuring Costs:

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

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

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

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

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

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, see Note 4:

Divestitures.

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

Approximately half of these costs are

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

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

During 2022, we completed the transition of production to JDE Peet’s N.V., 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 closure of our Ripon, Wisconsin, production facility by the end of calendar year 2022 to further optimize operations for our U.S.

Retail 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.

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

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

2022 2021 2022 2021

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

Employee-related costs $ 1.1 $ 1.3 $ 24.7

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Total restructuring costs $ 2.5 $ 6.4 $ 55.1

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

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

The obligation related to severance costs and retention bonuses was $ 2.7 and $ 2.4 at July 31, 2022 and April 30, 2022, respectively.

As of July 31, 2022, cumulative noncash charges incurred to date were $ 27.8 , including $ 4.8 and $ 3.3 incurred during the three months ended July 31, 2022 and 2021, respectively, and primarily consisted of accelerated depreciation.

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

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Retail Consumer Foods segment.

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

Final net proceeds from the divestiture were $ 98.7 , which were inclusive of a working capital adjustment and cash transaction costs.

We recognized a pre-tax gain of $ 28.3 related to the natural beverage and grains businesses, including $ 1.6 during the three months ended July 31, 2022, within other operating expense (income) – net in the Condensed Statement of Consolidated Income, upon finalization of the working capital adjustment.

The remaining pre-tax gain was recognized during the second half of 2022.

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

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

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

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

January 31, 2022

Natural Beverage and Grains Private Label Dry

Assets disposed:

Inventories $ 28.3 $ 19.0

Other current assets 0.5 —

Property, plant, and equipment – net 28.1 31.1

Operating lease right-of-use assets 0.4 0.1

Other intangible assets – net 13.6 —

Total assets disposed $ 70.9 $ 50.2

Liabilities disposed:

Current operating lease liabilities $ 0.3 $ 0.1

Noncurrent operating lease liabilities 0.1 —

Other noncurrent liabilities 0.1 —

Total liabilities disposed 0.5 0.1

Net assets disposed $ 70.4 $ 50.1

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

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

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

Retail Pet Foods segment.

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

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

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

(“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 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 a working capital adjustment.

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

Upon completion of this transaction during the third quarter of 2022, we recognized a pre-tax loss of $ 17.1 .

Reportable Segments

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

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

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

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

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

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

2022 2021 2022 2021

Three Months Ended July 31,

Retail Pet Foods $ 729.0 $ 648.0

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Amortization ( 55.6 ) ( 55.4 )

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

Gain on divestitures – net 9.6 27.2 9.6 27.2

Gain on divestiture 1.6 —

Interest expense – net ( 39.1 ) ( 43.1 )

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The following table presents certain geographical information.

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

2022 2021 2022 2021

Three Months Ended July 31,

United States $ 1,759.9 $ 1,733.2

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The following table presents product category information.

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

Three Months Ended July 31,

2022 2021 Primary Reportable Segment (A)

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Retail Pet Foods

Peanut butter 194.6 208.5 606.7 601.2 U.S.

Retail Consumer Foods

Frozen handheld 160.5 121.6 U.S.

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Retail Consumer Foods

Portion control 42.4 27.9 117.6 83.0 Other (B)

Juices and beverages 36.0 33.5 105.7 103.8 U.S.

Peanut butter 60.6 211.3 U.S.

Retail Consumer Foods

Portion control 27.8 34.4 Other (B)

Baking mixes and ingredients 16.3 12.4 Other (B)

Shortening and oils — 33.9 — 193.9 U.S.

Retail Consumer Foods (C)

Juices and beverages 0.8 33.2 Other (B) (C)

Other 75.7 76.1 Other (B)

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(B) Represents the International and Away From Home operating segments, which are combined for segment reporting purposes.

(C) During the three months ended July 31, 2021, the net sales within this category were primarily related to the divested natural beverage business included in the U.S.

Retail Consumer Foods segment.

For more information, see Note 4:

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Earnings per Share

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

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

2022 2021 2022 2021

We computed net income per common share (“basic earnings per share”) under the two-class method for the three months ended July 31, 2022 and 2021, due to certain unvested common shares that contained non-forfeitable rights to dividends (i.e., participating securities) during these periods.

For the three months ended July 31, 2022, the computation of net income per common share – assuming dilution (“diluted earnings per share”) was more dilutive under the treasury stock method, as compared to the two-class method;

therefore, the treasury stock method was used in accordance with FASB ASC 260, Earnings Per Share .

Diluted earnings per share for the three months ended July 31, 2021 was computed under the two-class method.

The following table sets forth the computation of basic earnings per share and diluted earnings per share under the two-class method.

Three Months Ended July 31,

Net income $ 109.8 $ 153.9

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Net income per common share – assuming dilution $ 1.03 $ 1.42

Goodwill and Other Intangible Assets

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

January 31, 2022

April 30, 2021

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

Finite-lived intangible assets subject to

amortization:

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

Patents and technology 167.6 153.0 14.6 168.5 147.3 21.2

Trademarks 661.7 346.2 315.5 364.5 186.7 177.8

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

Indefinite-lived intangible assets not subject to

amortization:

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

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

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

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

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

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

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

Retail Pet Foods segment.

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

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

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

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

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

However, the goodwill within the U.S.

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

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

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

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

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

The following table sets forth the computation of diluted earnings per share under the treasury stock method for the three months ended July 31, 2022.

Net income $ 109.8

Weighted-average common shares outstanding – assuming dilution:

Weighted-average common shares outstanding 106.3

Dilutive effect of stock options 0.1

Dilutive effect of restricted shares, restricted stock units, and performance units 0.4

Weighted-average common shares outstanding – assuming dilution 106.8

Net income per common share – assuming dilution $ 1.03

Debt and Financing Arrangements

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

January 31, 2022 April 30, 2021

July 31, 2022 April 30, 2022

Outstanding Carrying

3.50 % Senior Notes due October 15, 2021

$ — $ — $ 750.0 $ 753.5

3.50 % Senior Notes due March 15, 2025

1,000.0 997.8 1,000.0 997.6

3.50 % Senior Notes due March 15, 2025

1,000.0 997.4 1,000.0 996.8

3.38 % Senior Notes due December 15, 2027

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Total long-term debt $ 4,350.0 $ 4,311.5 $ 4,350.0 $ 4,310.6

Current portion of long-term debt — — 1,150.0 1,152.9

Total long-term debt, less current portion $ 4,350.0 $ 4,309.7 $ 3,550.0 $ 3,516.8

(A) Represents the carrying amount included in the Condensed Consolidated Balance Sheets, which includes the impact of capitalized debt issuance costs, offering discounts, and terminated interest rate contracts.

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

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

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

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

In August 2021, we entered into an unsecured revolving credit facility with a group of 11 banks, which provides for a revolving credit line of $ 2.0 billion and matures in August 2026, and terminated the previous $ 1.8 billion revolving credit facility.

The new revolving credit facility includes $ 4.3 of capitalized debt issuance costs, which will be amortized to interest expense over the time for which the revolving credit facility is effective.

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

Borrowings under the revolving credit facility bear interest on the prevailing U.S.

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

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

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

We do no t have a balance outstanding under the revolving credit facility at July 31, 2022, or April 30, 2022.

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

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

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

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

As of July 31, 2022, and April 30, 2022, we had $ 388.0 and $ 180.0 of short-term borrowings outstanding, respectively, which we re issued under our commercial paper program at a weighted-average interest rate of 2.60 percent and 0.65 percent, respectively .

Interest paid totaled $ 9.4 and $ 12.8 for the three months ended July 31, 2022 and 2021, respectively .

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

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

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

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

Pensions and Other Postretirement Benefits

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

Three Months Ended January 31,

Defined Benefit Pension Plans Other Postretirement Benefits

2022 2021 2022 2021

Service cost $ 0.4 $ 0.5 $ 0.3 $ 0.5

Interest cost 3.1 3.3 0.3 0.4

Expected return on plan assets ( 3.9 ) ( 4.6 ) — —

Amortization of net actuarial loss (gain) 1.7 2.6 ( 0.1 ) —

Amortization of prior service cost (credit) 0.3 0.2 ( 0.2 ) ( 0.3 )

Settlement loss (gain) 1.3 0.2 — —

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

Nine Months Ended January 31,

Three Months Ended July 31,

Defined Benefit Pension Plans Other Postretirement Benefits

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Net periodic benefit cost $ 1.8 $ 5.1 $ 0.4 $ 0.4

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

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

As a result of this transaction, during the second quarter of 2021, we recognized a noncash pre-tax settlement charge of $ 27.9 to accelerate the unrecognized losses within accumulated other comprehensive income (loss) that would have otherwise been recognized in subsequent periods.

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

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

During the first quarter of 2023, we made contributions of $ 70.0 to increase funding for our U.S.

qualified defined benefit pension plans and direct benefit payments of $ 0.7 .

Derivative Financial Instruments

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Commodity Derivatives:

We enter into commodity derivatives to manage price volatility and reduce the variability of future cash flows related to anticipated inventory purchases of key raw materials, notably green coffee, soybean meal, corn, wheat, and edible oils.

We also enter into commodity derivatives to manage price risk for energy input costs, including diesel fuel and natural gas.

11 unchanged sentences

At the inception of an interest rate contract, the instrument is evaluated and documented for qualifying hedge accounting treatment.

If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income (loss) and reclassified to interest expense in the period during which the hedged transaction affects earnings.

If the contract is designated as a cash flow hedge, the mark-to-market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income (loss) and generally reclassified to interest expense in the period during which the hedged transaction affects earnings.

If the contract is designated as a fair value hedge, the contract is recognized at fair value on the balance sheet and changes in the fair value are recognized in interest expense.

1 unchanged sentence

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

January 31, 2022 April 30, 2021

July 31, 2022 April 30, 2022

Commodity contracts $ 1,383.7 $ 2,086.2

1 unchanged sentence

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

January 31, 2022

July 31, 2022

Liabilities Other

11 unchanged sentences

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

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

Our cash margin accounts represented collateral pledged of $ 42.4 and $ 54.6 at July 31, 2022, and April 30, 2022, respectively, and are included in other current assets in the Condensed Consolidated Balance Sheets.

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

3 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended July 31,

Derivative gains (losses) on commodity contracts $ ( 8.9 ) $ 15.8

4 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended July 31,

Net derivative gains (losses) recognized and classified as unallocated $ ( 9.1 ) $ 17.3

2 unchanged sentences

Change in net cumulative unallocated derivative gains and losses $ ( 33.8 ) $ ( 2.2 )

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

The net cumulative unallocated derivative gains were $ 3.5 and $ 37.3 at July 31, 2022, and April 30, 2022, respectively.

Cash Flow Hedges

In 2020, we terminated interest rate contracts concurrent with the pricing of the Senior Notes due March 15, 2030, and March 15, 2050.

They were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing.

In 2020, we terminated all outstanding interest rate contracts concurrent with the pricing of the Senior Notes due March 15, 2030, and March 15, 2050.

The contracts were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing.

The termination resulted in a pre-tax loss of $ 239.8 , which was deferred and included as a component of accumulated other comprehensive income (loss) and is being amortized as interest expense over the life of the debt.

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

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

2022 2021 2022 2021

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

Three Months Ended July 31,

Gains (losses) recognized in other comprehensive income (loss) $ — $ —

Gains (losses) reclassified from accumulated other comprehensive income (loss) to interest expense – net (A)

Gains (losses) reclassified from accumulated other comprehensive income (loss)

to interest expense – net (A)

( 3.3 ) ( 3.5 )

Gains (losses) reclassified from accumulated other

comprehensive income (loss) to other income (expense) – net (B)

Gains (losses) reclassified from accumulated other comprehensive income (loss)

to other income (expense) – net (B)

Change in accumulated other comprehensive income (loss) $ 3.3 $ 2.9

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

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

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

Debt and Financing Arrangements.

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

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

(A) Interest expense – net, as presented in the Condensed Statements of Consolidated Income was $ 39.1 and $ 43.1 for the three months ended July 31, 2022 and 2021, respectively.

(B) Other income (expense) – net, as presented in the Condensed Statements of Consolidated Income was income of $ 0.5 and expense of $ 11.1 for the three months ended July 31, 2022 and 2021, respectively.

The reclassification during the first quarter of 2022 is related to the debt extinguishment of the $400.0 Senior Notes due March 15, 2022.

Included as a component of accumulated other comprehensive income (loss) at July 31, 2022, and April 30, 2022, were deferred net pre-tax losses of $ 210.9 and $ 214.2 , respectively, related to the terminated interest rate contracts.

The related net tax benefit recognized in accumulated other comprehensive income (loss) at July 31, 2022, and April 30, 2022, was $ 49.5 and $ 50.3 , respectively.

Approximately $ 13.5 of the net pre-tax loss will be recognized over the next 12 months related to the terminated interest rate contracts.

3 unchanged sentences

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

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

As of the second quarter of 2022, we had fully recognized the gain of $ 53.5 , of which $ 2.1 was recognized during three months ended July 31, 2021.

Other Financial Instruments and Fair Value Measurements

3 unchanged sentences

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

January 31, 2022 April 30, 2021

July 31, 2022 April 30, 2022

Amount Fair Value Carrying

12 unchanged sentences

(Level 2) Significant

(Level 3) Fair Value at January 31, 2022

(Level 3) Fair Value at July 31, 2022

Marketable securities and other investments:

25 unchanged sentences

Total financial instruments measured at fair value $ ( 3,947.4 ) $ 21.1 $ — $ ( 3,926.3 )

(A) Marketable securities and other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans.

(A) Marketable securities and other investments consists of funds maintained for the payment of benefits associated with nonqualified retirement plans.

The funds include equity securities listed in active markets, municipal obligations valued by a third party using valuation techniques that utilize inputs that are derived principally from or corroborated by observable market data, and money market funds with maturities of three months or less.

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

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

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

We do no t have any municipal obligations scheduled to mature in 2023.

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

$ 0.2 in 2023, $ 1.7 in 2024, $ 1.8 in 2025, $ 0.8 in 2026, $ 4.4 in 2027, and the remaining $ 9.6 in 2028 and beyond.

(B) Level 1 commodity and foreign currency exchange derivatives are valued using quoted market prices for identical instruments in active markets.

5 unchanged sentences

Debt and Financing Arrangements.

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

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

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

For additional information, see Note 7:

Goodwill and Other Intangible Assets.

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

9 unchanged sentences

Minimum lease payments do not include variable lease payments other than those that depend on an index or rate.

Because the interest rate implicit in the lease cannot be readily determined for the majority of our leases, we utilize our incremental borrowing rate to present value lease payments using information available at the lease commencement date.

Because the interest rate implicit in the lease cannot be readily determined for the majority of our leases, we utilize our incremental borrowing rate in determining the present value of lease payments using information available at the lease commencement date.

We consider our credit rating and the current economic environment in determining this collateralized rate.

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

January 31, 2022 April 30, 2021

July 31, 2022 April 30, 2022

Operating lease right-of-use assets $ 98.1 $ 106.5

13 unchanged sentences

The following table summarizes the components of lease expense.

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

2022 2021 2022 2021

Three Months Ended July 31,

Operating lease cost $ 10.5 $ 10.8

7 unchanged sentences

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

Nine Months Ended January 31,

Three Months Ended July 31,

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

7 unchanged sentences

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

January 31, 2022

July 31, 2022

Operating Leases Finance Leases

3 unchanged sentences

2026 18.9 0.6

2026 18.6 0.3

2028 and beyond 2.7 0.1

3 unchanged sentences

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

January 31, 2022 April 30, 2021

July 31, 2022 April 30, 2022

Weighted average remaining lease term (in years):

4 unchanged sentences

Finance leases

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

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

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

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

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

The effective income tax rates for the three months ended July 31, 2022 and 2021, were 22.2 and 25.0 percent, respectively.

During the three months ended July 31, 2022 and 2021, the effective income tax rates varied from the U.S.

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

The effective income tax rate for the three months ended July 31, 2022, reflects the favorable deferred tax benefit of a state income tax rate reduction enacted during the quarter.

Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an estimated $ 1.2 , primarily as a result of the expiration of statute of limitation periods.

On August 16, 2022, President Biden signed into law The Inflation Reduction Act of 2022, H.R.

5376 (the “Act”).

Under the Act, share repurchases after December 31, 2022, will be subject to a 1% excise tax, which would not be material.

Further, the remaining corporate tax changes included in the Act are not expected to have a material impact on our financial statements.

Accumulated Other Comprehensive Income (Loss)

12 unchanged sentences

Income tax benefit (expense) — ( 0.8 ) ( 0.3 ) 0.1 ( 1.0 )

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

Balance at July 31, 2022 $ ( 19.7 ) $ ( 161.4 ) $ ( 53.8 ) $ 1.5 $ ( 233.4 )

Adjustment Net Gains (Losses)

10 unchanged sentences

Income tax benefit (expense) — ( 0.6 ) 0.9 ( 0.1 ) 0.2

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

Balance at July 31, 2021 $ ( 13.0 ) $ ( 172.5 ) $ ( 99.9 ) $ 3.8 $ ( 281.6 )

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

4 unchanged sentences

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

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

For additional information, see Note 8:

3 unchanged sentences

We are currently a defendant in a variety of such legal proceedings, including certain lawsuits related to the alleged price-fixing of shelf stable tuna products prior to 2011 by a business previously owned by, but divested prior to our acquisition of, Big Heart Pet Brands, the significant majority of which were settled and paid during 2019 and 2020.

While we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters, we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at January 31, 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.

8 unchanged sentences

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.

We are a defendant in five putative class action lawsuits as a result of our voluntary recall of select Jif peanut butter products.

The plaintiffs assert causes of action for negligence, breach of warranties, fraudulent concealment, unjust enrichment, and, in some of the lawsuits, violations of state consumer protection and deceptive trade practices laws.

Their claims are premised on allegations that we engaged in business practices designed to mislead the public regarding the safety of Jif peanut butter for human consumption due to the alleged presence of salmonella.

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

Accordingly, no loss contingency has been recorded for these matters as of January 31, 2022, and the likelihood of loss is not considered probable or estimable.

Accordingly, no loss contingency has been recorded for these matters as of July 31, 2022, and the likelihood of loss is not considered probable or estimable.

However, if we are required to pay significant damages, our business and financial results could be adversely impacted, and sales of those products could suffer not only in these locations but elsewhere.

Product Recall:

In May 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 these products at our Lexington facility and temporarily paused shipments from our Memphis, Tennessee, facility.

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

In June 2022, we resumed manufacturing and shipping at our Lexington facility, as well as shipping from our Memphis facility.

We continue to partner with retailers to restock Jif peanut butter products as quickly as possible and anticipate a return to normal levels by the end of 2023.

In addition to the impact of manufacturing downtime, we expect to incur total direct costs of approximately $ 90.0 by the end of 2023, net of the remaining anticipated insurance recoveries, related to customer returns, fees, unsaleable inventory, and other product recall-related costs, primarily within our U.S.

Retail Consumer Foods segment.

Approximately $ 65.0 of direct costs were recognized, net of the remaining anticipated insurance recoveries, during the three months ended July 31, 2022.

We expect the majority of the remaining costs will be incurred through the third quarter of 2023.

Common Shares

The following table sets forth common share information.

January 31, 2022 April 30, 2021

July 31, 2022 April 30, 2022

Common shares authorized 300.0 300.0

2 unchanged sentences

Repurchase Program:

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

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

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

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

During the three months ended July 31, 2022 and 2021, we did no t repurchase any common shares under a repurchase plan authorized by the Board.

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

At July 31, 2022, approximately 5.8 million common shares remain available for repurchase pursuant to the Board’s authorizations.

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

What changed 10-Q

Item 1. Financial Statements