What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-21 compared with 2022-08-23 · 106 added, 66 removed, 248 unchanged (41% of the section changed)

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

This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three months ended July 31, 2022 and 2021.

This discussion and analysis deals with comparisons of material changes in the unaudited condensed consolidated financial statements for the three and six months ended October 31, 2022 and 2021.

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

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Retail Consumer Foods segment.

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.

Final net proceeds from the divestiture were $98.7, which were inclusive of a working capital adjustment and net of 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 first quarter of 2023, 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.

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In addition, the higher costs required us to implement material price increases across all of our businesses in 2022, and we anticipate the price elasticity of demand will continue to increase during 2023 as consumers respond to broader inflation pressures.

During the first three months of 2023, we continued to experience disruption in our supply chain network, including labor shortages and the supply of certain ingredients, packaging, and other sourced materials, which has resulted in the continued elevation of transportation and other supply chain costs.

During the first half of 2023, we continued to experience disruption in our supply chain network, including labor shortages and the supply of certain ingredients, packaging, and other sourced materials, which has resulted in the continued elevation of transportation and other supply chain costs.

It is possible that more significant disruptions could occur if the COVID-19 pandemic and certain geopolitical events continue 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.

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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.

Although we do not have any operations in Russia or Ukraine, we continue to monitor the environment for any significant escalation or expansion of economic or supply chain disruptions, as well as broader inflationary costs.

During the first three months of 2023, the conflict between Russia and Ukraine primarily impacted the price of grains, oils, and fat-based products, which may continue to have an adverse impact on our results of operations during 2023.

During the first half of 2023, the conflict between Russia and Ukraine primarily impacted the price of grains, oils, and fat-based products, which may continue to have an adverse impact on our results of operations during 2023.

Overall, the impact of COVID-19 and the conflict between Russia and Ukraine, including broad-based supply chain disruptions and rising levels of inflation, remain uncertain and ultimately depend on the length and severity of the conflict and the pandemic, inclusive of the introduction of new strains of the virus;

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and the macroeconomic environment.

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

We will continue to evaluate the nature and extent to which COVID-19 and the conflict between Russia and Ukraine will impact our business;

supply chain, including labor availability and attrition;

consolidated results of operations;

financial condition;

and liquidity.

Results of Operations

Three Months Ended July 31,

2022 2021 % Increase (Decrease)

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

2022 2021 % Increase (Decrease) 2022 2021 % Increase (Decrease)

Net sales $ 2,205.1 $ 2,050.0 8 % $ 4,078.1 $ 3,908.0 4 %

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

Three Months Ended July 31,

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

2022 2021 Increase

(Decrease) % 2022 2021 Increase

Net sales $ 2,205.1 $ 2,050.0 $ 155.1 8 % $ 4,078.1 $ 3,908.0 $ 170.1 4 %

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

Net sales in the first three months of 2023 increased $15.0, or 1 percent, which includes $58.5 of noncomparable net sales in the prior year related to divestitures.

Net sales in the second quarter of 2023 increased $155.1, or 8 percent, which includes $65.0 of noncomparable net sales in the prior year related to divestitures.

Net sales excluding divestitures and foreign currency exchange increased $227.1, or 11 percent.

Higher net price realization contributed 14 percentage points to net sales, primarily reflecting list price increases for the U.S.

Retail Coffee, U.S Retail Pet Foods, and International and Away From Home businesses, partially offset by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall.

The favorable net price realization was partially offset by a 9 percentage point decrease from volume/mix, primarily due to manufacturing downtime related to the recall, as well as declines for mainstream roast and ground coffee.

Higher net price realization contributed 17 percentage points to net sales, primarily reflecting list price increases for each of our U.S.

Retail segments and for International and Away From Home.

The favorable net price realization was partially offset by a 6 percentage point decrease from volume/mix, primarily driven by the U.S.

Retail Coffee segment.

Net sales in the first six months of 2023 increased $170.1, or 4 percent, which includes $123.5 of noncomparable net sales in the prior year related to divestitures.

Net sales excluding divestitures and foreign currency exchange increased $305.0, or 8 percent.

Higher net price realization contributed 16 percentage points to net sales, primarily reflecting list price increases for

each of our U.S.

Retail segments and for International and Away From Home, partially offset by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall.

The favorable net price realization was partially offset by a 7 percentage point decrease from volume/mix, primarily driven by the U.S.

Retail Coffee segment and manufacturing downtime related to the recall.

Operating Income

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

Three Months Ended July 31,

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

2022 2021 2022 2021

Gross profit 31.8 % 34.7 % 30.7 % 34.6 %

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Amounts may not add due to rounding.

Gross profit decreased $86.9, or 14 percent, in the first quarter of 2023, including the unfavorable impact of customer returns, fees, manufacturing downtime, and unsaleable inventory related to the Jif peanut butter product recall.

The decrease also reflects higher costs, primarily driven by increased commodity and ingredient, manufacturing, and packaging costs, unfavorable volume/mix, and the noncomparable impact related to divestitures, partially offset by increased pricing.

Operating income decreased $79.7, or 31 percent, primarily reflecting the decrease in gross profit and a $19.8 increase in selling, distribution, and administrative (“SD&A”) expenses, partially offset by a $26.8 increase in net other operating income, primarily reflecting an anticipated insurance recovery related to the Jif peanut butter product recall, as discussed in Note 14:

Contingencies.

Gross profit decreased $10.4, or 1 percent, in the second quarter of 2023, primarily reflecting a lower contribution from volume/mix and the noncomparable impact of the divested natural beverage and grains businesses, partially offset by a favorable net impact of higher net price realization and increased commodity and ingredient, manufacturing, transportation, and packaging costs, inclusive of the unfavorable impact related to the Jif peanut butter product recall.

Operating income decreased $18.4, or 6 percent, primarily reflecting the decrease in gross profit and a $6.6 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 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”) decreased $58.8, or 9 percent, in the first quarter of 2023, primarily reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses, as compared to GAAP gross profit.

Gross profit excluding non-GAAP adjustments (“adjusted gross profit”), primarily reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses as compared to GAAP gross profit, increased $0.1 in the second quarter of 2023.

Operating income excluding non-GAAP adjustments (“adjusted operating income”) decreased $8.3, or 2 percent, as compared to the prior year.

Gross profit decreased $97.3, or 7 percent, in the first six months of 2023, primarily reflecting a lower contribution from volume/mix and the noncomparable impact of the divested natural beverage and grains businesses, partially offset by a favorable net impact of higher net price realization and increased commodity and ingredient, manufacturing, packaging, and transportation costs, inclusive of the unfavorable impact related to the Jif peanut butter product recall.

Operating income decreased $98.1, or 17 percent, primarily reflecting the decrease in gross profit and a $26.4 increase in SD&A expenses, partially offset by a $25.0 increase in net other operating income, primarily reflecting an anticipated insurance recovery related to the Jif peanut butter product recall.

Adjusted gross profit, primarily reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses as compared to GAAP gross profit, decreased $58.7, or 4 percent, in the first six months of 2023.

Adjusted operating income decreased $61.7, or 9 percent, as compared to the prior year.

Interest Expense

Net interest expense decreased $4.0 in the first three months of 2023, primarily driven by prepaying the $400.0 Senior Notes due March 15, 2022, during the first quarter of 2022, partially offset by increased debt outstanding as compared to the prior year.

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

Income taxes decreased $20.0, or 39 percent, in the first three months of 2023, primarily due to the decrease in income before income taxes and a lower effective income tax rate of 22.2 percent, as compared to 25.0 percent for the first quarter of 2022.

Net interest expense decreased $0.6 and $4.6 in the second quarter and first six months of 2023, respectively, primarily due to a net favorable impact of the repayment of Senior Notes and the issuance of debt in the prior year.

For additional information, refer to Note 7:

Debt and Financing Arrangements.

Income taxes decreased $1.0, or 2 percent, in the second quarter of 2023, and decreased $21.0, or 18 percent, in the first six months of 2023, primarily due to the decrease in income before income taxes.

The effective income tax rates for the three months ended October 31, 2022 and 2021, were 24.4 and 23.4 percent, respectively, and for the six months ended October 31, 2022 and 2021, were 23.6 and 24.1 percent, respectively.

During both the current and prior years, 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.

We anticipate a full-year effective income tax rate for 2023 of approximately 24.1 percent.

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We anticipate the planned activities associated with this restructuring program will be completed by the end of 2023.

We have incurred total cumulative restructuring costs of $55.1, of which $2.5 and $6.4 were incurred during the three months ended July 31, 2022 and 2021, respectively.

We have incurred total cumulative restructuring costs of $58.6, of which $3.5 and $6.0 were incurred during the second quarter and first six months of 2023, respectively.

For further information, refer to Note 3:

Integration and Restructuring Costs.

Restructuring Costs.

Segment Results

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International and Away From Home includes the sale of products distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores).

Three Months Ended July 31,

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

2022 2021 % Increase

(Decrease) 2022 2021 % Increase

Retail Pet Foods $ 765.2 $ 701.6 9 % $ 1,494.2 $ 1,349.6 11 %

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Retail Pet Foods

Retail Pet Foods segment net sales increased $81.0 in the first three months of 2023, inclusive of the impact of $25.1 of noncomparable net sales in the prior year related to the divested private label dry pet food business.

Retail Pet Foods segment net sales increased $63.6 in the second quarter of 2023, inclusive of the impact of $27.8 of noncomparable net sales in the prior year related to the divested private label dry pet food business.

Excluding the noncomparable impact of the divested business, net sales increased $91.4, or 14 percent.

Higher net price realization increased net sales by 20 percentage points, primarily reflecting list price increases across the portfolio, partially offset by a decreased contribution from volume/mix of 3 percentage points.

Segment profit increased $40.4, primarily reflecting the favorable net impact of higher net price realization and increased commodity and ingredient, packaging, and manufacturing costs, as well as lower marketing spend, partially offset by the unfavorable volume/mix.

Higher net price realization increased net sales by 16 percentage points, primarily reflecting list price increases across the portfolio, partially offset by a decreased contribution from volume/mix of 3 percentage points, primarily driven by decreases for dog food.

Segment profit increased $20.5, primarily reflecting a favorable net impact of higher net price realization and increased commodity and ingredient, transportation, and packaging costs.

Retail Pet Foods segment net sales increased $144.6 in the first six months of 2023, inclusive of the impact of $52.9 of noncomparable net sales in the prior year related to the divested private label dry pet food business.

Excluding the noncomparable impact of the divested business, net sales increased $197.5, or 15 percent.

Higher net price realization increased net sales by 18 percentage points, primarily reflecting list price increases across the portfolio.

Lower contribution from volume/mix of 3 percentage points partially offset the higher net price realization, primarily driven by decreases for dog food and private label offerings, partially offset by increases for dog snacks.

Segment profit increased $60.9, primarily reflecting a favorable net impact of higher net price realization and increased commodity and ingredient, packaging, transportation, and manufacturing costs, as well as lower marketing spend, partially offset by the unfavorable volume/mix.

Retail Coffee

Retail Coffee segment net sales increased $54.7 in the first three months of 2023.

Retail Coffee segment net sales increased $64.7 in the second quarter of 2023.

Net price realization contributed 23 percentage points to net sales, primarily reflecting list price increases across the portfolio.

Unfavorable volume/mix decreased net sales by 13 percentage points, primarily driven by the Folgers and Dunkin’ brands.

Segment profit decreased $5.4, primarily reflecting the unfavorable volume/mix and increased marketing investment, partially offset by a favorable net impact of higher net price realization and increased commodity costs.

Segment profit decreased $20.1, primarily reflecting the unfavorable volume/mix and higher marketing spend, partially offset by a favorable net impact of higher net price realization and increased commodity and manufacturing costs.

Retail Coffee segment net sales increased $119.4 in the first six months of 2023.

Net price realization contributed 23 percentage points to net sales, primarily reflecting list price increases across the portfolio.

Unfavorable volume/mix decreased net sales by 13 percentage points, primarily driven by the Folgers and Dunkin’ brands.

Segment profit decreased $25.5, primarily reflecting the unfavorable volume/mix and higher marketing spend, partially offset by a favorable net impact of higher net price realization and increased commodity and manufacturing costs.

Retail Consumer Foods

Retail Consumer Foods segment net sales decreased $124.5 in the first three months of 2023, inclusive of the impact of $31.4 of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses.

Retail Consumer Foods segment net sales decreased $9.0 in the second quarter of 2023, inclusive of the impact of $35.7 of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses.

Excluding the noncomparable impact of the divested businesses, net sales increased $26.7, or 7 percent.

Net price realization contributed 9 percentage points to net sales, primarily reflecting list price increases across the portfolio.

Volume/mix decreased net sales by 3 percentage points, primarily driven by decreases for peanut butter and fruit spread products, partially offset by an increase for Smucker’s Uncrustables ® frozen sandwiches.

Segment profit decreased $10.7, primarily reflecting higher manufacturing, commodity and ingredient, and packaging costs, inclusive of costs related to the Jif peanut butter product recall, and the impact of the noncomparable segment profit in the prior year related to the divested natural beverage and grains businesses, partially offset by higher net price realization, lower marketing spend, and favorable volume/mix.

Retail Consumer Foods segment net sales decreased $133.5 in the first six months of 2023, inclusive of the impact of $67.1 of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses.

Excluding the noncomparable impact of the divested businesses, net sales decreased $66.4, or 8 percent.

Volume/mix decreased net sales by 20 percentage points, primarily driven by manufacturing downtime for Jif peanut butter, partially offset by an increase for Smucker’s Uncrustables ® frozen sandwiches.

Furthermore, lower net price realization decreased net sales by 3 percentage points, primarily driven by Jif peanut butter, inclusive of the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall, partially offset by list price increases across the remainder of the portfolio.

Segment profit decreased $63.9, primarily reflecting the impact of the recall and the noncomparable segment profit in the prior year related to the divested natural beverage and grains businesses.

Excluding the estimated unfavorable impact of the recall and divested businesses, segment profit increased primarily due to a net favorable impact of higher net price realization and higher commodity and ingredient, manufacturing, and packaging costs, as well as favorable volume/mix.

Volume/mix decreased net sales by 11 percentage points, primarily driven by downtime related to the Jif peanut butter product recall and decreases for fruit spread products, partially offset by an increase for Smucker’s Uncrustables frozen sandwiches.

Net price realization contributed 3 percentage points to net sales, primarily driven by list price increases for the Smucker’s brand, partially offset by declines for Jif peanut butter, inclusive of the unfavorable impact of customer returns and fees related to the recall.

Segment profit decreased $74.6, primarily reflecting higher commodity and ingredient, manufacturing, and packaging costs, inclusive of costs related to the recall, unfavorable volume/mix, and the impact of the noncomparable segment profit in the prior year related to the divested natural beverage and grains businesses, partially offset by higher net price realization, and lower marketing spend.

International and Away From Home

International and Away From Home net sales increased $3.8 in the first three months of 2023, including the noncomparable impact of $2.0 of net sales in the prior year related to the divested natural beverage and grains businesses and $4.4 of unfavorable foreign currency exchange.

Excluding the noncomparable impact of the divested businesses and foreign currency exchange, net sales increased $10.2, or 4 percent, reflecting a 15 percent increase for the Away From Home operating segment, partially offset by a 6 percent decrease for the International operating segment.

Net price realization contributed a 4 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products and baking mixes and ingredients, partially offset by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall.

The International and Away From Home segment net sales increased $35.8 in the second quarter of 2023, including the noncomparable impact of $1.5 of net sales in the prior year related to the divested natural beverage and grains businesses and $7.0 of unfavorable foreign currency exchange.

Excluding the noncomparable impact of the divested businesses and foreign currency exchange, net sales increased $44.3, or 17 percent, reflecting a 19 percent and 15 percent increase for the Away From Home and International operating segments, respectively.

Net price realization contributed an 18 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products and baking mixes and ingredients, partially offset by a decreased contribution from volume/mix of 1 percentage point.

Segment profit increased $1.1, primarily reflecting a favorable net impact of higher net price realization and higher commodity costs, partially offset by the unfavorable volume/mix.

The International and Away From Home segment net sales increased $39.6 in the first six months of 2023, including the noncomparable impact of $3.5 of net sales in the prior year related to the divested natural beverage and grains businesses and $11.4 of unfavorable foreign currency exchange.

Excluding the noncomparable impact of the divested businesses and foreign currency exchange, net sales increased $54.5, or 11 percent, reflecting a 17 percent and 5 percent increase for the Away From Home and International operating segments, respectively.

Net price realization contributed a 12 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products, baking mixes and ingredients, and frozen handheld products, partially offset by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall.

Segment profit decreased $15.2, primarily reflecting the impact of the recall and higher commodity costs, partially offset by higher net pricing.

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

At July 31, 2022, total cash and cash equivalents was $151.6, compared to $169.9 at April 30, 2022.

At October 31, 2022, total cash and cash equivalents was $27.1, compared to $169.9 at April 30, 2022.

The following table presents selected cash flow information.

Three Months Ended July 31,

Six Months Ended October 31,

Net cash provided by (used for) operating activities $ 166.0 $ 302.9

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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 $176.8 decrease in cash provided by operating activities in the first three months of 2023 was primarily driven by the $70.0 contribution to our U.S.

qualified defined benefit pension plans during the first quarter of 2023, lower net income adjusted for noncash items in the current year, and greater working capital requirements in 2023.

The increase in cash required to fund working capital, as compared to the prior year, reflected an increase in inventory levels compared to the prior year, primarily driven by the recent input cost inflation, as well as timing of payments for trade receivables and accounts payable and a decrease in accrued incentive compensation.

Cash used for investing activities in the first three months of 2023 consisted primarily of $88.3 in capital expenditures, primarily driven by investments in the new manufacturing and distribution facilities in McCalla, Alabama, and capacity expansions in Longmont, Colorado, to support growth for the Smucker’s Uncrustables brand, as well as plant maintenance across our facilities.

Partially offsetting the use of cash in 2023 was a decrease of $12.2 in our derivative cash margin account balances.

Cash provided by investing activities in the first three months of 2022 consisted primarily of $68.0 in capital expenditures, which reflected capacity expansion at our Longmont facility, as well as plant maintenance across our facilities.

An increase of $11.4 in our derivative cash margin account balances also contributed to the use of cash in 2022.

Cash provided by financing activities in the first three months of 2023 consisted primarily of a net increase in short-term borrowings of $207.0, partially offset by dividend payments of $105.1.

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

The $136.9 decrease in cash provided by operating activities in the first six months of 2023 was primarily driven by the $70.0 contribution to our U.S.

qualified defined benefit pension plans during the first quarter of 2023 and lower net income adjusted for noncash items in the current year, partially offset by lower working capital requirements in 2023.

The cash required to fund working capital decreased compared to the prior year, primarily related to an increase in cash from trade receivables due to timing of sales and a decrease in incentive compensation, which was partially offset by an unfavorable net impact of increased inventory levels and accounts payable, primarily driven by input cost inflation.

Cash used for investing activities in the first six months of 2023 consisted primarily of $190.4 in capital expenditures, primarily driven by investments in the new manufacturing and distribution facilities in McCalla, Alabama, and capacity expansions in Longmont, Colorado, to support growth for the Smucker’s Uncrustables brand, as well as plant maintenance across our facilities.

Furthermore, an increase in collateral pledged of $23.3 in our derivative cash margin account balances contributed to the use of cash in 2023.

Cash used for investing activities in the first six months of 2022 consisted primarily of $127.2 in capital expenditures, which reflected capacity expansion at our Longmont facility, as well as plant maintenance across our facilities.

An increase in collateral pledged of $14.0 in our derivative cash margin account balances also contributed to the use of cash in 2022.

Cash used for financing activities in the first six months of 2023 consisted primarily of dividend payments of $213.5, partially offset by a net increase in short-term borrowings of $118.2.

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

Supplier Financing Program

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

As of July 31, 2022 and April 30, 2022, $353.2 and $314.3 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers.

During the first three months of 2023 and 2022, we paid $338.8 and $267.7, respectively, to a financial institution for payment obligations that were settled through the supplier financing program.

As of October 31, 2022 and April 30, 2022, $370.7 and $314.3 of our outstanding payment obligations, respectively, were elected and sold to a financial institution by participating suppliers.

During the first six months of 2023 and 2022, we paid $692.4 and $530.4, respectively, to a financial institution for payment obligations that were settled through the supplier financing program.

Contingencies

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

While we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters, we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at July 31, 2022.

probable and reasonably estimable at October 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.

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In June 2019, the state agency responsible for administering the Proposition 65 program, OEHHA, approved a regulation clarifying that cancer warnings are not required for coffee under Proposition 65, and in August 2020, the trial court granted the Defendants’ motion for summary judgment based on the regulation.

CERT appealed the ruling in November 2020 to the California Court of Appeals for the Second Appellate District, which is currently pending.

We are also defendants in 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.

CERT appealed the ruling in November 2020 to the California Court of Appeals for the Second Appellate District.

The Court issued its order on October 26, 2022, affirming the lower court’s decision.

CERT may petition the California Supreme Court for further appeal by December 5, 2022.

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, and Washington D.C., but have been transferred to the United States District Court for the Western District of Missouri for coordinated pre-trial proceedings.

The plaintiffs assert claims arising under various state laws for false advertising, consumer protection, deceptive and unfair trade practices, and similar statutes.

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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 cases are pending and consolidated in the United States District Court for the Northern District of Ohio.

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

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

Accordingly, no loss contingency has been recorded for these matters as of October 31, 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.

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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.

Approximately $25.0 and $90.0 of direct costs were recognized, net of the remaining anticipated insurance recoveries, during the three and six months ended October 31, 2022, respectively.

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

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The following table presents our capital structure.

July 31, 2022 April 30, 2022

October 31, 2022 April 30, 2022

Short-term borrowings $ 302.0 $ 180.0

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

As of July 31, 2022, we had $388.0 of short-term borrowings outstanding, all of which were issued under our commercial paper program, at a weighted-average interest rate of 2.60 percent.

We are in compliance with all our debt covenants as of July 31, 2022, and expect to be for the next 12 months.

As of October 31, 2022, we had $302.0 of short-term borrowings outstanding, all of which were issued under our commercial paper program, at a weighted-average interest rate of 3.40 percent.

We are in compliance with all our debt covenants as of October 31, 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:

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During the first three months of 2023 and 2022, we did not repurchase any common shares under a repurchase plan authorized by the Board.

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

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

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

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

As of July 31, 2022, total cash and cash equivalents of $29.2 was held by our foreign subsidiaries, primarily in Canada.

As of October 31, 2022, total cash and cash equivalents of $17.7 was held by our foreign subsidiaries, primarily in Canada.

We have not repatriated foreign cash to the U.S.

during the first three months of 2023.

during the first six months of 2023.

Material Cash Requirements

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

As of July 31, 2022, there were no material changes to our material cash requirements as previously reported in our Annual Report on Form 10-K for the year ended April 30, 2022.

As of October 31, 2022, there were no material changes to our material cash requirements as previously reported in our Annual Report on Form 10-K for the year ended April 30, 2022.

Non-GAAP Financial Measures

12 unchanged sentences

See page 20 for a reconciliation of net sales adjusted for certain noncomparable items to the comparable GAAP financial measure.

Three Months Ended July 31,

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

2022 2021 2022 2021

Gross profit reconciliation:

28 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis