filings.toolsItem 1. Financial Statements.
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Item 1. Financial Statements.
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| Dollars in millions, except per share data | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net sales | $ | 2,050.0 | $ | 2,034.0 | $ | 3,908.0 | $ | 4,005.8 | |||||||||||||||
| Cost of products sold (A) | 1,338.5 | 1,215.8 | 2,557.1 | 2,412.2 | |||||||||||||||||||
| Gross Profit | 711.5 | 818.2 | 1,350.9 | 1,593.6 | |||||||||||||||||||
| Selling, distribution, and administrative expenses | 347.7 | 382.8 | 671.7 | 740.3 | |||||||||||||||||||
| Amortization | 55.4 | 59.5 | 110.8 | 119.1 | |||||||||||||||||||
| Other special project costs (A) | 1.3 | — | 3.1 | — | |||||||||||||||||||
| Other operating expense (income) – net | (4.7) | (4.9) | (5.9) | (7.7) | |||||||||||||||||||
| Operating Income | 311.8 | 380.8 | 571.2 | 741.9 | |||||||||||||||||||
| Interest expense – net | (40.3) | (45.1) | (83.4) | (91.2) | |||||||||||||||||||
| Other income (expense) – net | (2.7) | (32.2) | (13.8) | (33.6) | |||||||||||||||||||
| Income Before Income Taxes | 268.8 | 303.5 | 474.0 | 617.1 | |||||||||||||||||||
| Income tax expense | 62.8 | 72.7 | 114.1 | 149.3 | |||||||||||||||||||
| Net Income | $ | 206.0 | $ | 230.8 | $ | 359.9 | $ | 467.8 | |||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Net Income | $ | 1.90 | $ | 2.02 | $ | 3.32 | $ | 4.10 | |||||||||||||||
| Net Income – Assuming Dilution | $ | 1.90 | $ | 2.02 | $ | 3.32 | $ | 4.10 |
(A) Special project costs include divestiture, acquisition, integration, and restructuring costs, which are recognized in cost of products sold and other special project costs. For more information, see Note 3: Integration and Restructuring Costs and Note 5: Reportable Segments.
See notes to unaudited condensed consolidated financial statements.
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| Dollars in millions | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net income | $ | 206.0 | $ | 230.8 | $ | 359.9 | $ | 467.8 | |||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments | 2.0 | 2.3 | (2.0) | 15.2 | |||||||||||||||||||
| Cash flow hedging derivative activity, net of tax | 2.7 | 2.7 | 5.0 | 5.3 | |||||||||||||||||||
| Pension and other postretirement benefit plans activity, net of tax | 6.5 | 28.7 | 3.9 | 30.4 | |||||||||||||||||||
| Available-for-sale securities activity, net of tax | (0.1) | (0.3) | — | 0.6 | |||||||||||||||||||
| Total Other Comprehensive Income (Loss) | 11.1 | 33.4 | 6.9 | 51.5 | |||||||||||||||||||
| Comprehensive Income | $ | 217.1 | $ | 264.2 | $ | 366.8 | $ | 519.3 |
See notes to unaudited condensed consolidated financial statements.
THE J. M. SMUCKER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| Dollars in millions | October 31, 2021 | April 30, 2021 | |||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 155.3 | $ | 334.3 | |||||||
| Trade receivables – net | 659.1 | 533.7 | |||||||||
| Inventories: | |||||||||||
| Finished products | 695.5 | 607.6 | |||||||||
| Raw materials | 404.7 | 352.3 | |||||||||
| Total Inventory | 1,100.2 | 959.9 | |||||||||
| Other current assets | 94.2 | 113.8 | |||||||||
| Total Current Assets | 2,008.8 | 1,941.7 | |||||||||
| Property, Plant, and Equipment | |||||||||||
| Land and land improvements | 124.6 | 124.3 | |||||||||
| Buildings and fixtures | 974.7 | 967.0 | |||||||||
| Machinery and equipment | 2,508.2 | 2,469.7 | |||||||||
| Construction in progress | 362.4 | 282.3 | |||||||||
| Gross Property, Plant, and Equipment | 3,969.9 | 3,843.3 | |||||||||
| Accumulated depreciation | (1,954.7) | (1,841.8) | |||||||||
| Total Property, Plant, and Equipment | 2,015.2 | 2,001.5 | |||||||||
| Other Noncurrent Assets | |||||||||||
| Operating lease right-of-use assets | 123.8 | 142.0 | |||||||||
| Goodwill | 6,022.3 | 6,023.6 | |||||||||
| Other intangible assets – net | 5,930.4 | 6,041.2 | |||||||||
| Other noncurrent assets | 140.3 | 134.2 | |||||||||
| Total Other Noncurrent Assets | 12,216.8 | 12,341.0 | |||||||||
| Total Assets | $ | 16,240.8 | $ | 16,284.2 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 1,031.0 | $ | 1,034.1 | |||||||
| Accrued trade marketing and merchandising | 209.8 | 200.6 | |||||||||
| Current portion of long-term debt | — | 1,152.9 | |||||||||
| Short-term borrowings | 320.0 | 82.0 | |||||||||
| Current operating lease liabilities | 40.9 | 41.1 | |||||||||
| Other current liabilities | 288.8 | 356.8 | |||||||||
| Total Current Liabilities | 1,890.5 | 2,867.5 | |||||||||
| Noncurrent Liabilities | |||||||||||
| Long-term debt, less current portion | 4,308.8 | 3,516.8 | |||||||||
| Deferred income taxes | 1,351.6 | 1,349.3 | |||||||||
| Noncurrent operating lease liabilities | 94.1 | 112.8 | |||||||||
| Other noncurrent liabilities | 309.4 | 313.0 | |||||||||
| Total Noncurrent Liabilities | 6,063.9 | 5,291.9 | |||||||||
| Total Liabilities | 7,954.4 | 8,159.4 | |||||||||
| Shareholders’ Equity | |||||||||||
| Common shares | 27.1 | 27.1 | |||||||||
| Additional capital | 5,537.0 | 5,527.6 | |||||||||
| Retained income | 2,992.8 | 2,847.5 | |||||||||
| Accumulated other comprehensive income (loss) | (270.5) | (277.4) | |||||||||
| Total Shareholders’ Equity | 8,286.4 | 8,124.8 | |||||||||
| Total Liabilities and Shareholders’ Equity | $ | 16,240.8 | $ | 16,284.2 |
See notes to unaudited condensed consolidated financial statements.
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
| Six Months Ended October 31, | |||||||||||
| Dollars in millions | 2021 | 2020 | |||||||||
| Operating Activities | |||||||||||
| Net income | $ | 359.9 | $ | 467.8 | |||||||
| Adjustments to reconcile net income to net cash provided by (used for) operations: | |||||||||||
| Depreciation | 119.0 | 108.2 | |||||||||
| Amortization | 110.8 | 119.1 | |||||||||
| Pension settlement loss (gain) | 6.2 | 30.6 | |||||||||
| Share-based compensation expense | 10.6 | 13.4 | |||||||||
| Other noncash adjustments – net | 6.5 | 7.3 | |||||||||
| Make-whole payments included in financing activities | 7.0 | — | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Trade receivables | (125.6) | (24.2) | |||||||||
| Inventories | (140.8) | (97.5) | |||||||||
| Other current assets | 38.2 | 8.5 | |||||||||
| Accounts payable | (8.2) | 107.5 | |||||||||
| Accrued liabilities | (53.3) | 65.8 | |||||||||
| Income and other taxes | (18.0) | (24.1) | |||||||||
| Other – net | (9.4) | 5.3 | |||||||||
| Net Cash Provided by (Used for) Operating Activities | 302.9 | 787.7 | |||||||||
| Investing Activities | |||||||||||
| Additions to property, plant, and equipment | (127.2) | (129.0) | |||||||||
| Other – net | (15.8) | 28.1 | |||||||||
| Net Cash Provided by (Used for) Investing Activities | (143.0) | (100.9) | |||||||||
| Financing Activities | |||||||||||
| Short-term borrowings (repayments) – net | 237.8 | 31.7 | |||||||||
| Proceeds from long-term debt | 797.6 | — | |||||||||
| Repayments of long-term debt, including make-whole payments | (1,157.0) | (500.0) | |||||||||
| Capitalized debt issuance costs | (10.2) | — | |||||||||
| Quarterly dividends paid | (204.1) | (202.4) | |||||||||
| Purchase of treasury shares | (7.5) | (6.2) | |||||||||
| Proceeds from stock option exercises | 4.0 | 0.7 | |||||||||
| Other – net | 0.6 | 0.4 | |||||||||
| Net Cash Provided by (Used for) Financing Activities | (338.8) | (675.8) | |||||||||
| Effect of exchange rate changes on cash | (0.1) | 3.5 | |||||||||
| Net increase (decrease) in cash and cash equivalents | (179.0) | 14.5 | |||||||||
| Cash and cash equivalents at beginning of period | 334.3 | 391.1 | |||||||||
| Cash and Cash Equivalents at End of Period | $ | 155.3 | $ | 405.6 |
( ) Denotes use of cash
See notes to unaudited condensed consolidated financial statements.
THE J. M. SMUCKER COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY
(Unaudited)
| Six Months Ended October 31, 2021 | |||||||||||||||||||||||||||||||||||
| Dollars in millions | Common Shares Outstanding | Common Shares | Additional Capital | Retained Income | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||
| Balance at May 1, 2021 | 108,339,057 | $ | 27.1 | $ | 5,527.6 | $ | 2,847.5 | $ | (277.4) | $ | 8,124.8 | ||||||||||||||||||||||||
| Net income | 153.9 | 153.9 | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | (4.2) | (4.2) | |||||||||||||||||||||||||||||||||
| Comprehensive income | 149.7 | ||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | (50,203) | — | (6.1) | (0.7) | (6.8) | ||||||||||||||||||||||||||||||
| Stock plans | 71,140 | — | 9.5 | 9.5 | |||||||||||||||||||||||||||||||
| Cash dividends declared, $0.99 per common share | (106.9) | (106.9) | |||||||||||||||||||||||||||||||||
| Balance at July 31, 2021 | 108,359,994 | $ | 27.1 | $ | 5,531.0 | $ | 2,893.8 | $ | (281.6) | $ | 8,170.3 | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||
| Six Months Ended October 31, 2020 | |||||||||||||||||||||||||||||||||||
| Dollars in millions | Common Shares Outstanding | Common Shares | Additional Capital | Retained Income | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||||||||||||||
| Balance at May 1, 2020 | 114,072,726 | $ | 29.0 | $ | 5,794.1 | $ | 2,746.8 | $ | (379.0) | $ | 8,190.9 | ||||||||||||||||||||||||
| Net income | 237.0 | 237.0 | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 18.1 | 18.1 | |||||||||||||||||||||||||||||||||
| Comprehensive income | 255.1 | ||||||||||||||||||||||||||||||||||
| Purchase of treasury shares | (42,194) | — | (5.5) | 0.9 | (4.6) | ||||||||||||||||||||||||||||||
| Stock plans | 56,910 | — | 6.2 | 6.2 | |||||||||||||||||||||||||||||||
| Cash dividends declared, $0.90 per common share | (102.4) | (102.4) | |||||||||||||||||||||||||||||||||
| Other | (0.5) | 0.5 | — | — | |||||||||||||||||||||||||||||||
| Balance at July 31, 2020 | 114,087,442 | $ | 28.5 | $ | 5,795.3 | $ | 2,882.3 | $ | (360.9) | $ | 8,345.2 | ||||||||||||||||||||||||
| 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) | |||||||||||||||||||||||||||||||||
| Other | — | — | |||||||||||||||||||||||||||||||||
| Balance at October 31, 2020 | 114,097,261 | $ | 28.5 | $ | 5,803.1 | $ | 3,010.9 | $ | (327.5) | $ | 8,515.0 | ||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
THE J. M. SMUCKER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in millions, unless otherwise noted, except per share data)
Note 1: Basis of Presentation
The unaudited interim condensed consolidated financial statements of The J. M. Smucker Company (“Company,” “we,” “us,” or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included.
Operating results for the six months ended October 31, 2021, are not necessarily indicative of the results that may be expected for the year ending April 30, 2022. For further information, reference is made to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended April 30, 2021.
Note 2: 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.
Note 3: Integration and Restructuring Costs
Integration and restructuring costs primarily consist of employee-related costs and other transition and termination costs related to certain divestiture, acquisition, integration, or restructuring activities. Employee-related costs include severance, retention bonuses, and relocation costs. Severance costs and retention bonuses are recognized over the estimated future service period of the impacted employees, and relocation costs are expensed as incurred. Other transition and termination costs include fixed asset-related charges, contract and lease termination costs, professional fees, and other miscellaneous expenditures associated with the integration or restructuring activities. With the exception of accelerated depreciation, these costs are expensed as incurred. These integration and restructuring costs are reported in costs of products sold and other special project costs in the Condensed Statements of Consolidated Income and are not allocated to segment profit. The obligation related to employee separation costs is included in other current liabilities in the Condensed Consolidated Balance Sheets.
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. For additional information related to these divestitures, see Note 4: Divestitures. During 2021, we substantially completed an organizational redesign related to our corporate headquarters and announced plans to close our Suffolk, Virginia, production facility by the end of 2022, as a result of a new strategic partnership for the production of our Away From Home liquid coffee products. We expect to incur costs of approximately $85.0 associated with the restructuring activities approved to date. Approximately half of these costs are expected to be other transition and termination costs associated with our cost reduction and margin management initiatives, inclusive of accelerated depreciation, while the remainder represents employee-related costs. We anticipate the activities associated with this restructuring program will be completed by the end of 2023, with the majority of the costs expected to be incurred by the end of 2022.
The following table summarizes our restructuring costs incurred related to the restructuring program.
| Three Months Ended October 31, 2021 | Six Months Ended October 31, 2021 | Total Costs Incurred to Date at October 31, 2021 | |||||||||||||||
| Employee-related costs | $ | 1.1 | $ | 2.4 | $ | 19.7 | |||||||||||
| Other transition and termination costs | 6.3 | 11.4 | 18.2 | ||||||||||||||
| Total restructuring costs | $ | 7.4 | $ | 13.8 | $ | 37.9 |
The obligation related to severance costs and retention bonuses was $3.0 and $14.6 at October 31, 2021 and April 30, 2021, respectively. As of October 31, 2021, cumulative noncash charges incurred to date were $13.6, including $5.9 and $9.2 incurred during the three and six months ended October 31, 2021, respectively, and primarily consisted of accelerated depreciation. We did not incur any costs related to restructuring during the three and six months ended October 31, 2020.
Note 4: Divestitures
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. We received net proceeds from the divestiture of $530.2, which were net of cash transaction costs and a working capital adjustment.
On January 29, 2021, we sold the Natural Balance premium pet food business to Nexus Capital Management LP (“Nexus”). The transaction included pet food products sold under the Natural Balance brand, certain trademarks and licensing agreements, and select employees who supported the Natural Balance business. Under our ownership, the business generated net sales of $156.7 in 2021, included in the U.S. Retail Pet Foods segment. We received net proceeds from the divestiture of $33.8, which were net of cash transaction costs and a working capital adjustment.
Upon completion of these transactions during the second half of 2021, we recognized a pre-tax gain of $114.8 related to the Crisco business and a pre-tax loss of $89.5 related to the Natural Balance business.
Note 5: Reportable Segments
We operate in one industry: the manufacturing and marketing of food and beverage products. We have three reportable segments: U.S. Retail Pet Foods, U.S. Retail Coffee, and U.S. Retail Consumer Foods. The presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable.
The U.S. Retail Pet Foods segment primarily includes the domestic sales of Rachael Ray® Nutrish®, Meow Mix®, Milk-Bone®, 9Lives®, Kibbles ’n Bits®, Pup-Peroni®, and Nature’s Recipe® branded products; the U.S. Retail Coffee segment primarily includes the domestic sales of Folgers®, Dunkin’®, and Café Bustelo® branded coffee; and the U.S. Retail Consumer Foods segment primarily includes the domestic sales of Smucker’s® and Jif® branded products. 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).
Segment profit represents net sales, less direct and allocable operating expenses, and is consistent with the way in which we manage our segments. However, we do not represent that the segments, if operated independently, would report operating profit equal to the segment profit set forth below, as segment profit excludes certain expenses such as amortization expense and impairment charges related to intangible assets, gains and losses related to the sale of a business, the net change in cumulative unallocated gains and losses on commodity and foreign currency exchange derivative activities (“change in net cumulative unallocated derivative gains and losses”), divestiture, acquisition, integration, and restructuring costs (“special project costs”), as well as corporate administrative expenses.
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. At that time, we reclassify the hedge gains and losses from unallocated derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the hedge without experiencing any mark-to-market volatility. We would expect that any gain or loss in the estimated fair value of the derivatives would generally be offset by a change in the estimated fair value of the underlying exposures.
The following table reconciles segment profit to income before income taxes.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| U.S. Retail Pet Foods | $ | 701.6 | $ | 708.7 | $ | 1,349.6 | $ | 1,401.3 | |||||||||||||||
| U.S. Retail Coffee | 645.1 | 594.7 | 1,188.3 | 1,165.6 | |||||||||||||||||||
| U.S. Retail Consumer Foods | 441.2 | 479.1 | 876.8 | 968.3 | |||||||||||||||||||
| International and Away From Home | 262.1 | 251.5 | 493.3 | 470.6 | |||||||||||||||||||
| Total net sales | $ | 2,050.0 | $ | 2,034.0 | $ | 3,908.0 | $ | 4,005.8 | |||||||||||||||
| Segment profit: | |||||||||||||||||||||||
| U.S. Retail Pet Foods | $ | 99.6 | $ | 124.9 | $ | 179.5 | $ | 250.2 | |||||||||||||||
| U.S. Retail Coffee | 207.8 | 202.1 | 359.1 | 384.7 | |||||||||||||||||||
| U.S. Retail Consumer Foods | 111.0 | 135.3 | 229.7 | 266.8 | |||||||||||||||||||
| International and Away From Home | 40.4 | 39.5 | 73.3 | 70.4 | |||||||||||||||||||
| Total segment profit | $ | 458.8 | $ | 501.8 | $ | 841.6 | $ | 972.1 | |||||||||||||||
| Amortization | (55.4) | (59.5) | (110.8) | (119.1) | |||||||||||||||||||
| Interest expense – net | (40.3) | (45.1) | (83.4) | (91.2) | |||||||||||||||||||
| Change in net cumulative unallocated derivative gains and losses | (13.3) | 31.5 | (15.5) | 47.7 | |||||||||||||||||||
| Cost of products sold – special project costs (A) | (6.1) | — | (10.7) | — | |||||||||||||||||||
| Other special project costs (A) | (1.3) | — | (3.1) | — | |||||||||||||||||||
| Corporate administrative expenses | (70.9) | (93.0) | (130.3) | (158.8) | |||||||||||||||||||
| Other income (expense) – net | (2.7) | (32.2) | (13.8) | (33.6) | |||||||||||||||||||
| Income before income taxes | $ | 268.8 | $ | 303.5 | $ | 474.0 | $ | 617.1 |
(A)Special project costs include divestiture, acquisition, integration, and restructuring costs, which are recognized in cost of products sold and other special project costs in the Condensed Statements of Consolidated Income. For more information, see Note 3: Integration and Restructuring Costs.
The following table presents certain geographical information.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| United States | $ | 1,919.2 | $ | 1,882.2 | $ | 3,652.4 | $ | 3,711.9 | |||||||||||||||
| International: | |||||||||||||||||||||||
| Canada | $ | 112.5 | $ | 123.2 | $ | 214.6 | $ | 231.4 | |||||||||||||||
| All other international | 18.3 | 28.6 | 41.0 | 62.5 | |||||||||||||||||||
| Total international | $ | 130.8 | $ | 151.8 | $ | 255.6 | $ | 293.9 | |||||||||||||||
| Total net sales | $ | 2,050.0 | $ | 2,034.0 | $ | 3,908.0 | $ | 4,005.8 |
The following table presents product category information.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | Primary Reportable Segment (A) | |||||||||||||||||||||||||
| Coffee | $ | 718.5 | $ | 659.6 | $ | 1,331.6 | $ | 1,295.3 | U.S. Retail Coffee | ||||||||||||||||||||
| Dog food | 248.5 | 277.8 | 476.8 | 555.5 | U.S. Retail Pet Foods | ||||||||||||||||||||||||
| Cat food | 242.8 | 231.9 | 463.8 | 451.9 | U.S. Retail Pet Foods | ||||||||||||||||||||||||
| Pet snacks | 229.8 | 216.7 | 445.6 | 429.5 | U.S. Retail Pet Foods | ||||||||||||||||||||||||
| Peanut butter | 200.8 | 192.8 | 412.1 | 392.7 | U.S. Retail Consumer Foods | ||||||||||||||||||||||||
| Frozen handheld | 139.1 | 106.3 | 260.7 | 201.8 | U.S. Retail Consumer Foods | ||||||||||||||||||||||||
| Fruit spreads | 89.9 | 89.2 | 180.7 | 193.5 | U.S. Retail Consumer Foods | ||||||||||||||||||||||||
| Portion control | 40.8 | 31.1 | 75.2 | 55.1 | Other (B) | ||||||||||||||||||||||||
| Juices and beverages | 36.5 | 36.7 | 69.7 | 70.3 | U.S. Retail Consumer Foods | ||||||||||||||||||||||||
| Baking mixes and ingredients | 25.5 | 30.0 | 37.9 | 53.2 | Other (B) | ||||||||||||||||||||||||
| Shortening and oils | — | 82.7 | — | 160.0 | U.S. Retail Consumer Foods (C) | ||||||||||||||||||||||||
| Other | 77.8 | 79.2 | 153.9 | 147.0 | Other (B) | ||||||||||||||||||||||||
| Total net sales | $ | 2,050.0 | $ | 2,034.0 | $ | 3,908.0 | $ | 4,005.8 |
(A)The primary reportable segment generally represents at least 75 percent of total net sales for each respective product category.
(B)Represents the International and Away From Home operating segments, which are combined for segment reporting purposes.
(C)During 2021, the net sales within this category were related to the divested Crisco business. For more information, see Note 4: Divestitures.
Note 6: 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 October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income | $ | 206.0 | $ | 230.8 | $ | 359.9 | $ | 467.8 | |||||||||||||||
| Less: Net income allocated to participating securities | 0.6 | 0.9 | 1.1 | 2.0 | |||||||||||||||||||
| Net income allocated to common stockholders | $ | 205.4 | $ | 229.9 | $ | 358.8 | $ | 465.8 | |||||||||||||||
| Weighted-average common shares outstanding | 108.1 | 113.7 | 108.0 | 113.6 | |||||||||||||||||||
| Add: Dilutive effect of stock options | — | — | 0.1 | — | |||||||||||||||||||
| Weighted-average common shares outstanding – assuming dilution | 108.1 | 113.7 | 108.1 | 113.6 | |||||||||||||||||||
| Net income per common share | $ | 1.90 | $ | 2.02 | $ | 3.32 | $ | 4.10 | |||||||||||||||
| Net income per common share – assuming dilution | $ | 1.90 | $ | 2.02 | $ | 3.32 | $ | 4.10 |
Note 7: Debt and Financing Arrangements
The following table summarizes the components of our long-term debt.
| October 31, 2021 | April 30, 2021 | ||||||||||||||||||||||
| Principal Outstanding | Carrying Amount (A) | Principal Outstanding | Carrying Amount (A) | ||||||||||||||||||||
| 3.50% Senior Notes due October 15, 2021 | $ | — | $ | — | $ | 750.0 | $ | 753.5 | |||||||||||||||
| 3.00% Senior Notes due March 15, 2022 | — | — | 400.0 | 399.4 | |||||||||||||||||||
| 3.50% Senior Notes due March 15, 2025 | 1,000.0 | 997.2 | 1,000.0 | 996.8 | |||||||||||||||||||
| 3.38% Senior Notes due December 15, 2027 | 500.0 | 497.3 | 500.0 | 497.1 | |||||||||||||||||||
| 2.38% Senior Notes due March 15, 2030 | 500.0 | 496.0 | 500.0 | 495.7 | |||||||||||||||||||
| 2.13% Senior Notes due March 15, 2032 | 500.0 | 493.5 | — | — | |||||||||||||||||||
| 4.25% Senior Notes due March 15, 2035 | 650.0 | 644.5 | 650.0 | 644.3 | |||||||||||||||||||
| 2.75% Senior Notes due September 15, 2041 | 300.0 | 297.0 | — | — | |||||||||||||||||||
| 4.38% Senior Notes due March 15, 2045 | 600.0 | 587.3 | 600.0 | 587.1 | |||||||||||||||||||
| 3.55% Senior Notes due March 15, 2050 | 300.0 | 296.0 | 300.0 | 295.8 | |||||||||||||||||||
| Total long-term debt | $ | 4,350.0 | $ | 4,308.8 | $ | 4,700.0 | $ | 4,669.7 | |||||||||||||||
| Current portion of long-term debt | — | — | 1,150.0 | 1,152.9 | |||||||||||||||||||
| Total long-term debt, less current portion | $ | 4,350.0 | $ | 4,308.8 | $ | 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. Borrowings under the revolving credit facility bear interest on the prevailing U.S. Prime Rate, London Interbank Offered Rate, Euro Interbank Offered Rate, or Canadian Dealer Offered Rate, based on our election. Interest is payable either on a quarterly basis or at the end of the borrowing term. We have not drawn upon the new revolving credit facility as of October 31, 2021, and did not have a balance outstanding under the previous revolving credit facility as of April 30, 2021.
We 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. 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 October 31, 2021, and April 30, 2021, we had $320.0 and $82.0 of short-term borrowings outstanding, respectively, which were both issued under our commercial paper program at a weighted-average interest rate of 0.17 percent.
Interest paid totaled $69.0 and $76.2 for the three months ended October 31, 2021 and 2020, respectively, and $81.8 and $86.4 for the six months ended October 31, 2021 and 2020, respectively. This differs from interest expense due to capitalized interest, the effect of interest rate contracts, amortization of debt issuance costs and discounts, payment of other debt fees, and the timing of interest payments.
Our debt instruments contain certain covenant restrictions, including an interest coverage ratio. Our financial covenant restrictions were amended to remove the leverage ratio in August 2021, in conjunction with entering into the $2.0 billion unsecured revolving credit facility. As of October 31, 2021, we are in compliance with all covenants.
Note 8: Pensions and Other Postretirement Benefits
The components of our net periodic benefit cost for defined benefit pension and other postretirement benefit plans are shown below.
| Three Months Ended October 31, | |||||||||||||||||||||||
| Defined Benefit Pension Plans | Other Postretirement Benefits | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Service cost | $ | 0.5 | $ | 0.4 | $ | 0.3 | $ | 0.4 | |||||||||||||||
| Interest cost | 3.0 | 3.2 | 0.3 | 0.5 | |||||||||||||||||||
| Expected return on plan assets | (4.1) | (4.0) | — | — | |||||||||||||||||||
| Amortization of net actuarial loss (gain) | 1.8 | 2.5 | (0.1) | — | |||||||||||||||||||
| Amortization of prior service cost (credit) | 0.2 | 0.2 | (0.1) | (0.2) | |||||||||||||||||||
| Settlement loss (gain) | 2.5 | 30.6 | — | — | |||||||||||||||||||
| Net periodic benefit cost | $ | 3.9 | $ | 32.9 | $ | 0.4 | $ | 0.7 |
| Six Months Ended October 31, | |||||||||||||||||||||||
| Defined Benefit Pension Plans | Other Postretirement Benefits | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Service cost | $ | 0.9 | $ | 0.9 | $ | 0.6 | $ | 0.9 | |||||||||||||||
| Interest cost | 6.2 | 7.8 | 0.7 | 0.9 | |||||||||||||||||||
| Expected return on plan assets | (8.2) | (10.1) | — | — | |||||||||||||||||||
| Amortization of net actuarial loss (gain) | 3.5 | 5.8 | (0.2) | — | |||||||||||||||||||
| Amortization of prior service cost (credit) | 0.4 | 0.4 | (0.3) | (0.5) | |||||||||||||||||||
| Settlement loss (gain) | 6.2 | 30.6 | — | — | |||||||||||||||||||
| Net periodic benefit cost | $ | 9.0 | $ | 35.4 | $ | 0.8 | $ | 1.3 |
During the second quarter of 2021, we transferred $82.6 in obligations of our Canadian defined benefit pension plan to an insurance company through the purchase of an irrevocable group annuity contract (referred to as a buy-out contract). The group annuity contract was purchased using assets from the pension trust. 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.
Note 9: Derivative Financial Instruments
We are exposed to market risks, such as changes in commodity prices, foreign currency exchange rates, and interest rates. To manage the volatility related to these exposures, we enter into various derivative transactions. We have policies in place that define acceptable instrument types we may enter into and establish controls to limit our market risk exposure.
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. Our derivative instruments generally have maturities of less than one year.
We do not qualify commodity derivatives for hedge accounting treatment, and as a result, the derivative gains and losses are immediately recognized in earnings. Although we do not perform the assessments required to achieve hedge accounting for derivative positions, we believe all our commodity derivatives are economic hedges of our risk exposure.
The commodities hedged have a high inverse correlation to price changes of the derivative instrument. Thus, we would expect that over time any gain or loss in the estimated fair value of the derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures.
Foreign Currency Exchange Derivatives: We utilize foreign currency derivatives to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods. The contracts generally have maturities of less than one year. We do not qualify instruments used to manage foreign currency exchange exposures for hedge accounting treatment.
Interest Rate Derivatives: We utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions, as well as to manage changes in the fair value of our long-term debt. 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 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. Generally, changes in the fair value of the contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings.
The following table presents the gross notional value of outstanding derivative contracts.
| October 31, 2021 | April 30, 2021 | ||||||||||
| Commodity contracts | $ | 626.2 | $ | 861.0 | |||||||
| Foreign currency exchange contracts | 83.7 | 88.4 | |||||||||
The following tables set forth the gross fair value amounts of derivative instruments recognized in the Condensed Consolidated Balance Sheets.
| October 31, 2021 | |||||||||||||||||||||||
| Other Current Assets | Other Current Liabilities | Other Noncurrent Assets | Other Noncurrent Liabilities | ||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts | $ | 21.4 | $ | 9.1 | $ | — | $ | — | |||||||||||||||
| Foreign currency exchange contracts | 0.6 | 0.9 | — | — | |||||||||||||||||||
| Total derivative instruments | $ | 22.0 | $ | 10.0 | $ | — | $ | — |
| April 30, 2021 | |||||||||||||||||||||||
| Other Current Assets | Other Current Liabilities | Other Noncurrent Assets | Other Noncurrent Liabilities | ||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Commodity contracts | $ | 52.6 | $ | 13.2 | $ | — | $ | — | |||||||||||||||
| Foreign currency exchange contracts | 0.1 | 3.7 | — | — | |||||||||||||||||||
| Total derivative instruments | $ | 52.7 | $ | 16.9 | $ | — | $ | — |
We have elected to not offset fair value amounts recognized for our exchange-traded derivative instruments and our cash margin accounts executed with the same counterparty that are generally subject to enforceable netting agreements. We are required to maintain cash margin accounts in connection with funding the settlement of our open positions. Our cash margin accounts represented collateral pledged of $3.2 at October 31, 2021, and collateral received of $10.8 at April 30, 2021, and are included in other current assets in the Condensed Consolidated Balance Sheets. The change in the cash margin account balances is included in other – net, investing activities in the Condensed Statements of Consolidated Cash Flows. In the event of default and immediate net settlement of all our open positions with individual counterparties, all our derivative liabilities would be fully offset by either our derivative asset positions or margin accounts based on the net asset or liability position with our individual counterparties. Cash flows associated with the settlement of derivative instruments are classified in the same line item as the cash flows of the related hedged item, which is within operating activities in the Condensed Statements of Consolidated Cash Flows.
Economic Hedges
The following table presents the net gains and losses recognized in cost of products sold on derivatives not designated as hedging instruments.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Derivative gains (losses) on commodity contracts | $ | 10.9 | $ | 13.4 | $ | 26.7 | $ | 24.8 | |||||||||||||||
| Derivative gains (losses) on foreign currency exchange contracts | (0.2) | (0.4) | 1.3 | (2.7) | |||||||||||||||||||
| Total derivative gains (losses) recognized in cost of products sold | $ | 10.7 | $ | 13.0 | $ | 28.0 | $ | 22.1 |
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. At that time, we reclassify the hedge gains and losses from unallocated derivative gains and losses to segment profit, allowing our segments to realize the economic effect of the hedge without experiencing any mark-to-market volatility. The following table presents the net change in cumulative unallocated derivative gains and losses.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net derivative gains (losses) recognized and classified as unallocated | $ | 10.7 | $ | 13.0 | $ | 28.0 | $ | 22.1 | |||||||||||||||
| Less: Net derivative gains (losses) reclassified to segment operating profit | 24.0 | (18.5) | 43.5 | (25.6) | |||||||||||||||||||
| Change in net cumulative unallocated derivative gains and losses | $ | (13.3) | $ | 31.5 | $ | (15.5) | $ | 47.7 |
The net cumulative unallocated derivative gains were $45.2 and $60.7 at October 31, 2021, and April 30, 2021, 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. 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 October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Gains (losses) recognized in other comprehensive income (loss) | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| Less: Gains (losses) reclassified from accumulated other comprehensive income (loss) to interest expense – net (A) | (3.5) | (3.5) | (7.0) | (6.9) | |||||||||||||||||||
| Less: Gains (losses) reclassified from accumulated other comprehensive income (loss) to other income (expense) – net (B) | — | — | 0.6 | — | |||||||||||||||||||
| Change in accumulated other comprehensive income (loss) | $ | 3.5 | $ | 3.5 | $ | 6.4 | $ | 6.9 |
(A)Interest expense – net, as presented in the Condensed Statements of Consolidated Income was $40.3 and $45.1 for the three months ended October 31, 2021 and 2020, respectively, and was $83.4 and $91.2 for the six months ended October 31, 2021 and 2020, respectively.
(B)Other income (expense) – net, as presented in the Condensed Statements of Consolidated Income was $2.7 and $32.2 for the three months ended October 31, 2021 and 2020, respectively, and was $13.8 and $33.6 for the six months ended October 31, 2021 and 2020, respectively. The reclassification is related to the debt extinguishment during the first quarter of 2022, as discussed in Note 7: Debt and Financing Arrangements.
Included as a component of accumulated other comprehensive income (loss) at October 31, 2021, and April 30, 2021, were deferred net pre-tax losses of $220.9 and $227.3, respectively, related to the terminated interest rate contracts. The related net tax benefit recognized in accumulated other comprehensive income (loss) at October 31, 2021, and April 30, 2021, was $51.1 and $52.5, respectively. Approximately $13.4 of the net pre-tax loss will be recognized over the next 12 months related to the terminated interest rate contracts.
Fair Value Hedges
In 2015, we terminated the interest rate swap on the Senior Notes due October 15, 2021, which was designated as a fair value hedge and used to hedge against the changes in the fair value of the debt. As a result of the early termination, we received $58.1 in cash, which included $4.6 of accrued and prepaid interest. The gain on termination was recorded as an increase in the long-term debt balance and is being recognized over the life of the debt as a reduction of interest expense. As of October 31, 2021, we have fully recognized the gain of $53.5, of which $1.9 and $4.0 was recognized during the three and six months ended October 31, 2021, respectively, and $2.0 and $4.2 was recognized during the three and six months ended October 31, 2020, respectively.
Note 10: Other Financial Instruments and Fair Value Measurements
Financial instruments, other than derivatives, that potentially subject us to significant concentrations of credit risk consist principally of cash investments, short-term borrowings, and trade receivables. The carrying value of these financial instruments approximates fair value. Our remaining financial instruments, with the exception of long-term debt, are recognized at estimated fair value in the Condensed Consolidated Balance Sheets.
The following table provides information on the carrying amounts and fair values of our financial instruments.
| October 31, 2021 | April 30, 2021 | ||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||
| Marketable securities and other investments | $ | 30.0 | $ | 30.0 | $ | 31.0 | $ | 31.0 | |||||||||||||||
| Derivative financial instruments – net | 12.0 | 12.0 | 35.8 | 35.8 | |||||||||||||||||||
| Total long-term debt | (4,308.8) | (4,717.6) | (4,669.7) | (5,034.5) |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions.
The following tables summarize the fair values and the levels within the fair value hierarchy in which the fair value measurements fall for our financial instruments.
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at October 31, 2021 | ||||||||||||||||||||
| Marketable securities and other investments: (A) | |||||||||||||||||||||||
| Equity mutual funds | $ | 6.3 | $ | — | $ | — | $ | 6.3 | |||||||||||||||
| Municipal obligations | — | 23.7 | — | 23.7 | |||||||||||||||||||
| Money market funds | — | — | — | — | |||||||||||||||||||
| Derivative financial instruments: (B) | |||||||||||||||||||||||
| Commodity contracts – net | 14.1 | (1.8) | — | 12.3 | |||||||||||||||||||
| Foreign currency exchange contracts – net | 0.1 | (0.4) | — | (0.3) | |||||||||||||||||||
| Total long-term debt (C) | (4,717.6) | — | — | (4,717.6) | |||||||||||||||||||
| Total financial instruments measured at fair value | $ | (4,697.1) | $ | 21.5 | $ | — | $ | (4,675.6) |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Fair Value at April 30, 2021 | ||||||||||||||||||||
| Marketable securities and other investments: (A) | |||||||||||||||||||||||
| Equity mutual funds | $ | 6.3 | $ | — | $ | — | $ | 6.3 | |||||||||||||||
| Municipal obligations | — | 24.4 | — | 24.4 | |||||||||||||||||||
| Money market funds | 0.3 | — | — | 0.3 | |||||||||||||||||||
| Derivative financial instruments: (B) | |||||||||||||||||||||||
| Commodity contracts – net | 39.4 | — | — | 39.4 | |||||||||||||||||||
| Foreign currency exchange contracts – net | (0.4) | (3.2) | — | (3.6) | |||||||||||||||||||
| Total long-term debt (C) | (5,034.5) | — | — | (5,034.5) | |||||||||||||||||||
| Total financial instruments measured at fair value | $ | (4,988.9) | $ | 21.2 | $ | — | $ | (4,967.7) |
(A)Marketable securities and other investments consist 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 October 31, 2021, our municipal obligations are scheduled to mature as follows: $1.8 in 2022, $2.2 in 2024, $3.0 in 2025, $1.6 in 2026, and the remaining $15.1 in 2027 and beyond. We do not have any municipal obligations scheduled to mature in 2023.
(B)Level 1 commodity and foreign currency exchange derivatives are valued using quoted market prices for identical instruments in active markets. Level 2 commodity and foreign currency exchange derivatives are valued using quoted prices for similar assets or liabilities in active markets. For additional information, see Note 9: Derivative Financial Instruments.
(C)Long-term debt is composed of public Senior Notes, which are traded in an active secondary market and valued using quoted prices. For additional information, see Note 7: Debt and Financing Arrangements.
Note 11: Leases
We lease certain warehouses, manufacturing facilities, office space, equipment, and vehicles, primarily through operating lease agreements. We have elected to not recognize leases with a term of 12 months or less on the balance sheet. Instead, we recognize the related lease expense on a straight-line basis over the lease term.
Although the majority of our right-of-use asset and lease liability balances consist of leases with renewal options, these optional periods do not typically impact the lease term as we are not reasonably certain to exercise them. Certain leases also include termination provisions or options to purchase the leased property. Since we are not reasonably certain to exercise these types of options, minimum lease payments do not include any amounts related to these termination or purchase options. Our lease agreements generally do not contain residual value guarantees or restrictive covenants that are material.
We determine if an agreement is or contains a lease at inception by evaluating whether an identified asset exists that we control over the term of the arrangement. A lease commences when the lessor makes the identified asset available for our use. We generally account for lease and non-lease components as a single lease component. 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. 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.
| October 31, 2021 | April 30, 2021 | ||||||||||
| Operating lease right-of-use assets | $ | 123.8 | $ | 142.0 | |||||||
| Operating lease liabilities: | |||||||||||
| Current operating lease liabilities | $ | 40.9 | $ | 41.1 | |||||||
| Noncurrent operating lease liabilities | 94.1 | 112.8 | |||||||||
| Total operating lease liabilities | $ | 135.0 | $ | 153.9 | |||||||
| Finance lease right-of-use assets: | |||||||||||
| Machinery and equipment | $ | 9.9 | $ | 9.8 | |||||||
| Accumulated depreciation | (5.8) | (5.5) | |||||||||
| Total property, plant, and equipment | $ | 4.1 | $ | 4.3 | |||||||
| Finance lease liabilities: | |||||||||||
| Other current liabilities | $ | 1.5 | $ | 1.8 | |||||||
| Other noncurrent liabilities | 2.6 | 2.5 | |||||||||
| Total finance lease liabilities | $ | 4.1 | $ | 4.3 |
The following table summarizes the components of lease expense.
| Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Operating lease cost | $ | 10.6 | $ | 11.1 | $ | 21.4 | $ | 22.4 | |||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||
| Amortization of right-of-use assets | 0.6 | 0.6 | 1.1 | 1.2 | |||||||||||||||||||
| Interest on lease liabilities | 0.1 | — | 0.1 | 0.1 | |||||||||||||||||||
| Variable lease cost | 5.7 | 5.5 | 11.0 | 11.1 | |||||||||||||||||||
| Short-term lease cost | 9.3 | 10.3 | 20.1 | 19.3 | |||||||||||||||||||
| Sublease income | (0.3) | (1.0) | (0.6) | (2.5) | |||||||||||||||||||
| Net lease cost | $ | 26.0 | $ | 26.5 | $ | 53.1 | $ | 51.6 |
The following table sets forth cash flow and noncash information related to leases.
| Six Months Ended October 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | 22.0 | $ | 20.2 | |||||||
| Operating cash flows from finance leases | 0.1 | 0.1 | |||||||||
| Financing cash flows from finance leases | 1.3 | 1.4 | |||||||||
| Right-of-use assets obtained in exchange for new lease liabilities: | |||||||||||
| Operating leases | 2.1 | — | |||||||||
| Finance leases | 1.2 | 0.5 |
The following table summarizes the maturity of our lease liabilities by fiscal year.
| October 31, 2021 | |||||||||||
| Operating Leases | Finance Leases | ||||||||||
| 2022 (remainder of the year) | $ | 22.4 | $ | 0.8 | |||||||
| 2023 | 41.4 | 1.3 | |||||||||
| 2024 | 29.8 | 1.1 | |||||||||
| 2025 | 21.4 | 0.7 | |||||||||
| 2026 | 18.7 | 0.3 | |||||||||
| 2027 and beyond | 7.8 | 0.1 | |||||||||
| Total undiscounted minimum lease payments | $ | 141.5 | $ | 4.3 | |||||||
| Less: Imputed interest | 6.5 | 0.2 | |||||||||
| Lease liabilities | $ | 135.0 | $ | 4.1 |
The following table sets forth the weighted average remaining lease term and discount rate.
| October 31, 2021 | April 30, 2021 | ||||||||||
| Weighted average remaining lease term (in years): | |||||||||||
| Operating leases | 4.0 | 4.4 | |||||||||
| Finance leases | 3.2 | 3.1 | |||||||||
| Weighted average discount rate: | |||||||||||
| Operating leases | 2.5 | % | 2.5 | % | |||||||
| Finance leases | 2.2 | % | 2.6 | % |
Note 12: Income Taxes
The effective income tax rates for the three months ended October 31, 2021 and 2020, were 23.4 and 24.0 percent, respectively, and for the six months ended October 31, 2021 and 2020, were 24.1 and 24.2 percent, respectively. During the three and six months ended October 31, 2021 and 2020, the effective income tax rates varied from the U.S. statutory income tax rate of 21.0 percent primarily due to the impact of state income taxes.
Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an estimated $3.3, primarily as a result of the expiration of statute of limitation periods.
Note 13: Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), including the reclassification adjustments for items that are reclassified from accumulated other comprehensive income (loss) to net income, are shown below.
| Foreign Currency Translation Adjustment | Net Gains (Losses) on Cash Flow Hedging Derivatives (A) | Pension and Other Postretirement Liabilities (B) | Unrealized Gain (Loss) on Available- for-Sale Securities | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||
| Balance at May 1, 2021 | $ | (9.0) | $ | (174.8) | $ | (97.3) | $ | 3.7 | $ | (277.4) | |||||||||||||||||||
| Reclassification adjustments | — | 6.4 | 9.6 | — | 16.0 | ||||||||||||||||||||||||
| Current period credit (charge) | (2.0) | — | (4.7) | — | (6.7) | ||||||||||||||||||||||||
| Income tax benefit (expense) | — | (1.4) | (1.0) | — | (2.4) | ||||||||||||||||||||||||
| Balance at October 31, 2021 | $ | (11.0) | $ | (169.8) | $ | (93.4) | $ | 3.7 | $ | (270.5) |
| Foreign Currency Translation Adjustment | Net Gains (Losses) on Cash Flow Hedging Derivatives (A) | Pension and Other Postretirement Liabilities (B) | Unrealized Gain (Loss) on Available- for-Sale Securities | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||
| Balance at May 1, 2020 | $ | (50.5) | $ | (185.6) | $ | (146.7) | $ | 3.8 | $ | (379.0) | |||||||||||||||||||
| Reclassification adjustments | — | 6.9 | 36.3 | — | 43.2 | ||||||||||||||||||||||||
| Current period credit (charge) | 15.2 | — | 4.2 | 0.8 | 20.2 | ||||||||||||||||||||||||
| Income tax benefit (expense) | — | (1.6) | (10.1) | (0.2) | (11.9) | ||||||||||||||||||||||||
| Balance at October 31, 2020 | $ | (35.3) | $ | (180.3) | $ | (116.3) | $ | 4.4 | $ | (327.5) |
(A)The reclassification is composed of deferred gains (losses) related to terminated interest rate contracts. During both 2022 and 2021, the reclassification was primarily from accumulated other comprehensive income (loss) to interest expense. In addition, during the first quarter of 2022, a portion of the reclassification was to other income (expense) – net, which was driven by the prepayment of the Senior Notes due March 15, 2022. For additional information, see Note 9: Derivative Financial Instruments.
(B)The reclassification from accumulated other comprehensive income (loss) to other income (expense) – net is composed of settlement charges and amortization of net losses and prior service costs. The reclassification in 2021 primarily includes the impact of the nonrecurring settlement charge related to the purchase of a group annuity contract to transfer the obligation of our Canadian defined benefit pension plan to an insurance company. For additional information, see Note 8: Pensions and Other Postretirement Benefits.
Note 14: Contingencies
We, like other food manufacturers, are from time to time subject to various administrative, regulatory, and other legal proceedings arising in the ordinary course of business. We are currently a defendant in a variety of such legal proceedings, including certain lawsuits related to the alleged price-fixing of shelf stable tuna products prior to 2011 by a business previously owned by, but divested prior to our acquisition of, Big Heart Pet Brands, the significant majority of which were settled and paid during 2019 and 2020. While we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters, we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at October 31, 2021. Based on the information known to date, with the exception of the matters discussed below, we do not believe the final outcome of these proceedings would have a material adverse effect on our financial position, results of operations, or cash flows.
In addition to the legal proceedings discussed above, we are currently a defendant in Council for Education and Research on Toxics (“CERT”) v. Brad Barry LLC, et al., which alleges that we, in addition to nearly eighty other defendants (collectively the “Defendants”) who manufacture, package, distribute, or sell packaged coffee, failed to provide warnings for our coffee products of exposure to the chemical acrylamide as required under California Health and Safety Code Section 25249.5, the California Safe Drinking Water and Toxic Enforcement Act of 1986 (better known as “Proposition 65”). CERT sought equitable relief, including warnings to consumers, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Proposition 65. In addition, CERT asserted that every consumed cup of coffee, absent a compliant warning, was equivalent to a violation under Proposition 65. In June 2019, the state agency responsible for administering the Proposition 65 program, the California Office of Environmental Health Hazard Assessment (“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, Texas, Washington, and Washington D.C., but have been transferred to the United States District Court for the Western District of Missouri for coordinated pre-trial proceedings. The plaintiffs assert claims arising under various state laws for false advertising, consumer protection, deceptive and unfair trade practices, and similar statutes. Their claims are premised on allegations that we have misrepresented the number of servings that can be made from various canisters of Folgers coffee on the packaging for those products.
The outcome and the financial impact of these cases, if any, cannot be predicted at this time. Accordingly, no loss contingency has been recorded for these matters as of October 31, 2021, and the likelihood of loss is not considered probable or estimable. 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.
Note 15: Common Shares
The following table sets forth common share information.
| October 31, 2021 | April 30, 2021 | ||||||||||
| Common shares authorized | 300.0 | 300.0 | |||||||||
| Common shares outstanding | 108.4 | 108.3 | |||||||||
| Treasury shares | 38.1 | 38.2 |
Repurchase Program: During the six months ended October 31, 2021 and 2020, we did not repurchase any common shares under a repurchase plan authorized by the Board. The shares repurchased during the six months ended October 31, 2021 and 2020, consisted of shares repurchased from stock plan recipients in lieu of cash payments. On October 22, 2021, the Board authorized the repurchase of up to 5.0 million common shares, in addition to the 2.8 million common shares that remained available for repurchase pursuant to prior authorizations of the Board. Therefore, at October 31, 2021, approximately 7.8 million common shares remain available for repurchase pursuant to the Board’s authorizations.
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