Management's explanation of the reported results — what drove revenue, margins, and cash flow — from the annual 10-K filing (Item 7, MD&A).
The text below is reproduced verbatim from CAG’s SEC filing. See also CAG’s supply chain and financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended to provide a summary of significant factors relevant to our financial performance and condition. The discussion and analysis should be read together with our consolidated financial statements and related notes in Item 8, Financial Statements and Supplementary Data. Results for the fiscal year ended May 30, 2021 are not necessarily indicative of results that may be attained in the future. FORWARD-LOOKING STATEMENTS The information contained in this report includes forward-looking statements within the meaning of the federal securities laws. Examples of forward-looking statements include statements regarding our expected future financial performance or position, results of operations, business strategy, plans and objectives of management for future operations, and other statements that are not historical facts. You can identify forward-looking statements by their use of forward-looking words, such as "may", "will", "anticipate", "expect", "believe", "estimate", "intend", "plan", "should", "seek", or comparable terms. Readers of this report should understand that these forward-looking statements are not guarantees of performance or results. Forward-looking statements provide our current expectations and beliefs concerning future events and are subject to risks, uncertainties, and factors relating to our business and operations, all of which are difficult to predict and could cause our actual results to differ materially from the expectations expressed in or implied by such forward-looking statements. These risks, uncertainties, and factors include, among other things: the risk that the cost savings and any other synergies from the acquisition of Pinnacle Foods Inc. (the "Pinnacle acquisition") may not be fully realized or may take longer to realize than expected; the risk that the Pinnacle acquisition may not be accretive within the expected timeframe or to the extent anticipated; the risks that the Pinnacle acquisition and related integration will create disruption to the Company and its management and impede the achievement of business plans; risks related to our ability to achieve the intended benefits of other recent acquisitions and divestitures; risks associated with general economic and industry conditions; risks associated with our ability to successfully execute our long-term value creation strategies; risks related to our ability to deleverage on currently anticipated timelines, and to continue to access capital on acceptable terms or at all; risks related to our ability to execute operating and restructuring plans and achieve targeted operating efficiencies from cost-saving initiatives and to benefit from trade optimization programs; risks related to the effectiveness of our hedging activities and ability to respond to volatility in commodities; risks related to the Company's competitive environment and related market conditions; risks related to our ability to respond to changing consumer preferences and the success of our innovation and marketing investments; risks related to the ultimate impact of any product recalls and litigation, including litigation related to the lead paint and pigment matters, as well as any securities litigation, including securities class action lawsuits; risk associated with actions of governments and regulatory bodies that affect our businesses, including the ultimate impact of new or revised regulations or interpretations; risks related to the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees; risks related to our forecasts of consumer eat-at-home habits as the impacts of the COVID-19 pandemic abate; risks related to the availability and prices of supply chain resources, including raw materials, packaging and transportation, including any negative effects caused by changes in inflation rates, weather conditions, or health pandemics; disruptions or inefficiencies in our supply chain and/or operations, including from the COVID-19 pandemic; risks associated with actions by our customers, including changes in distribution and purchasing terms; risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges; risks related to a material failure in or breach of our or our vendors' information technology systems; the amount and timing of future dividends, which remain subject to Board approval and depend on market and other conditions; and other risks described in our reports filed from time to time with the SEC. We caution readers not to place undue reliance on any forward-looking statements included in this report, which speak only as of the date of this report. We undertake no responsibility to update these statements, except as required by law. The discussion that follows should be read together with the consolidated financial statements and related notes contained in this report. Results for fiscal 2021 are not necessarily indicative of results that may be attained in the future. EXECUTIVE OVERVIEW Conagra Brands, headquartered in Chicago, is one of North America's leading branded food companies. Guided by an entrepreneurial spirit, the Company combines a rich heritage of making great food with a sharpened focus on innovation. The Company's portfolio is evolving to satisfy people's changing food preferences. Its iconic brands such as Birds Eye ® , Duncan Hines ® , Healthy Choice ® , Marie Callender's ® , Reddi-wip ® , and Slim Jim ® , as well as emerging brands, including Angie's ® BOOMCHICKAPOP ® , Duke's ® , Earth Balance ® , Gardein ® , and Frontera ® , offer choices for every occasion. 22 Fiscal 2021 Results Fiscal 2021 performance compared to fiscal 2020 reflected an increase in net sales, with organic (excludes the impacts of foreign exchange, divested businesses, as well as the impact of the 53 rd week on fiscal 2020) increases in all of our operating segments with the exception of our Foodservice segment, in each case compared to fiscal 2020. Organic net sales for our retail segments (inclusive of Grocery & Snacks, Refrigerated & Frozen, and International) were positively impacted by the increase in at-home food consumption as a result of the COVID-19 pandemic, with sales declines in our Foodservice segment due to lower traffic in away-from-home food outlets. Overall gross margin increased due to increased net sales, supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, favorable margin mix, and fixed cost leverage. These benefits were partially offset by higher input cost inflation, higher transportation costs, lost profits due to divested businesses, COVID-19 related expenses, and the exclusion of the 53 rd week in fiscal 2020. Overall segment operating profit increased in all of our operating segments with the exception of our Foodservice segment. Corporate expenses were relatively flat year-over-year, but included various items impacting comparability as discussed below. We experienced an increase in equity method investment earnings, a decrease in interest expense, and a decrease in income tax expense, in each case compared to fiscal 2020. Diluted earnings per share in fiscal 2021 were $2.66. Diluted earnings per share in fiscal 2020 were $1.72. Diluted earnings per share were affected by higher net income as well as several significant items affecting the comparability of year-over-year results of continuing operations (see "Items Impacting Comparability" below). In the fourth quarter fiscal 2021, we experienced higher than expected input cost inflation, including higher transportation and supply chain costs, that negatively impacted gross margins. We expect input cost inflation to be materially higher in fiscal 2022. Supply chain realized productivity and pricing actions will mitigate some of the inflationary pressures, but we do not expect such benefits to occur in time to fully offset the incremental costs in fiscal 2022. As our estimates of inflation for fiscal 2022 continue to change, it is impractical to quantify the impact at this time. Items Impacting Comparability Items of note impacting comparability of results for continuing operations for fiscal 2021 included the following: • a non-cash income tax benefit of $115.6 million associated with a restructuring of our ownership interest in the Ardent Mills joint venture, which primarily relates to a release of a valuation allowance due to the generation of capital gains, • charges totaling $90.9 million ($69.9 million after-tax) related to the impairment of intangible assets, • charges totaling $77.9 million ($58.3 million after-tax) in connection with our restructuring plans, • charges totaling $68.7 million ($51.5 million after-tax) related to the early extinguishment of debt, • a gain of $65.5 million ($34.5 million after-tax) associated with the divestiture of certain businesses, • an income tax benefit of $37.0 million related to a release of valuation allowance associated with the divestiture of certain businesses, • an income tax benefit of $7.6 million related to certain final tax regulations on prior year federal tax matters, • consulting expenses totaling $7.2 million ($5.4 million after-tax) primarily associated with securing tax benefits for a new production facility (the associated tax benefits will be recognized in future periods), • a loss of $7.1 million ($5.3 million after-tax) related to the early exit of an unfavorable contract associated with a recent divestiture, and • charges totaling $5.7 million ($4.3 million after-tax) associated with costs incurred for acquisitions and divestitures. Items of note impacting comparability of results from continuing operations for fiscal 2020 included the following: • charges totaling $165.5 million ($127.0 million after-tax) related to the impairment of intangible assets, 23 • charges totaling $139.5 million ($106.8 million after-tax) in connection with our restructuring plans, • charges totaling $59.0 million ($55.0 million after-tax) related to the impairment of businesses held for sale, • an income tax benefit of $51.2 million associated primarily related to the reorganization of various legacy Pinnacle legal entities and state tax planning strategies, • charges totaling $42.9 million ($32.1 million after-tax) related to pension plan lump-sum settlements and a remeasurement of our hourly and non-qualified pension plan liability, • a gain of $11.9 million ($8.9 million after-tax) related to a contract settlement, • charges totaling $10.1 million ($7.6 million after-tax) related to legal and environmental matters, and • charges totaling $5.3 million ($3.9 million after-tax) associated with costs incurred for acquisitions and divestitures. In addition, fiscal 2020 earnings per share benefited by approximately $0.05 as a result of the fiscal year including 53 weeks. Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and economic hedging of foreign currency exchange rate risks of anticipated transactions are discussed in the segment review below. Divestitures During the fourth quarter of fiscal 2021, we completed the sale of our Egg Beaters ® business for net proceeds of $50.6 million, subject to final working capital adjustments. The results of operations of the divested Egg Beaters ® business were primarily included in our Refrigerated & Frozen segment, and to a lesser extent within our International and Foodservice segments, for the periods preceding the completion of the transaction. During the third quarter of fiscal 2021, we completed the sale of our Peter Pan ® peanut butter business for net proceeds of $101.5 million, including working capital adjustments but subject to final adjustments for certain tax benefits. The results of operations of the divested Peter Pan ® peanut butter business were primarily included in our Grocery & Snacks segment, and to a lesser extent within our International and Foodservice segments, for the periods preceding the completion of the transaction. During the third quarter of fiscal 2020, we completed the sale of our Lender's ® bagel business for net proceeds of $33.3 million, including working capital adjustments. The results of operations of the divested Lender’s ® bagel business were primarily included in our Refrigerated & Frozen segment, and to a lesser extent within our Foodservice segment, for the periods preceding the completion of the transaction. During the second quarter of fiscal 2020, we completed the sale of our Direct Store Delivery ("DSD") snacks business, for net proceeds of $137.5 million, including working capital adjustments. The results of operations of the divested DSD snacks business were included in our Grocery & Snacks segment for the periods preceding the completion of the transaction. Restructuring Plans In December 2018, our Board approved a restructuring and integration plan related to the ongoing integration of the operations of Pinnacle, which we acquired in October 2018 (the "Pinnacle Integration Restructuring Plan"), for the purpose of achieving significant cost synergies between the companies, as a result of which we expect to incur material charges for exit and disposal activities under U.S. generally accepted accounting principles ("U.S. GAAP"). We expect to incur approximately $358.0 million of charges ($283.5 million of cash charges and $74.5 million of non-cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan. The Board and/or our senior management have authorized incurrence of these charges. We recognized charges of $31.7 million, $73.8 million, and $168.2 million in connection with the Pinnacle Integration Restructuring Plan in fiscal 2021, 2020, and 2019, respectively. We expect to incur costs related to the Pinnacle Integration Restructuring Plan over a multi-year period. In fiscal 2019, senior management initiated a restructuring plan (the "Conagra Restructuring Plan") for costs incurred in connection with actions taken to improve selling, general and administrative ("SG&A") expense effectiveness and efficiencies and to optimize our supply chain network. Although we remain unable to make good faith estimates relating to the entire Conagra Restructuring Plan, we are reporting on actions initiated through the end of fiscal 2021, including the estimated amounts or range of amounts for each major type of cost expected to be incurred, and the charges that have resulted or will result in cash outflows. As of May 30, 2021, we had approved the incurrence of $172.2 million ($45.4 million of cash charges and $126.8 million of non- 24 cash charges) for several projects associated with the Conagra Restructuring Plan. We have incurred or expect to incur $ 1 57. 3 million of charges ($ 36.9 million of cash charges and $ 120.4 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan. W e recognized charges of $ 46.2 million , $ 64.4 million , and $2.2 million in connection with the Conagra Restructuring Plan in fiscal 202 1 , 2020, and 20 19 , respectively. We expect to incur costs related to the Conagra Restructuring Plan over a multi-year period. COVID-19 Pandemic We have continued to monitor the impact of the COVID-19 pandemic on all aspects of our business. Throughout fiscal 2021, we experienced higher net sales for our products in both of our Grocery & Snacks and Refrigerated & Frozen segments until the fourth quarter of fiscal 2021, as we began to lap the initial surge in demand at the beginning of the pandemic. We have also experienced reduced demand for our foodservice products across all of our major markets as consumer traffic in away-from-home food outlets decreased as a result of the COVID-19 pandemic. However, as states have reopened their economies during 2021, our foodservice net sales have improved compared to the initial months of the pandemic. As we progress through fiscal 2022, we generally expect retail demand levels to remain elevated versus pre-pandemic levels and we expect foodservice demand levels to return to more historical norms. However, there still remains uncertainty with the pandemic and such trends ultimately depend on the length and severity of the pandemic, inclusive of the introduction of new strains of the virus; the federal, state, and local government actions taken in response; continued vaccine availability and effectiveness; and the macroeconomic environment. In fiscal 2022, we also expect to see inflationary headwinds but anticipate that they will be partially mitigated by supply chain realized productivity and price increases that began to be introduced at the end of fiscal 2021. We also expect a decrease in costs related to the COVID-19 pandemic and a decrease in supply chain costs as we continue to recover our supply and service levels. We will continue to evaluate the extent to which the COVID-19 pandemic will impact our business, consolidated results of operations, and financial condition. During fiscal 2021, our operating margins benefitted from fixed cost leverage, reduced travel expenses, and lower trade promotional activity on certain brands. That benefit was partially offset by several factors including higher transportation and warehousing costs, employee safety and sanitation costs, and employee compensation costs, which combined accounted for an estimated $143 million of additional incremental costs in fiscal 2021. Similar incremental costs starting in the fourth quarter of fiscal 2020 were estimated to be approximately $40 million. While we expect these incremental costs to decrease in fiscal 2022, the timing and amount of such decrease is dependent upon the ultimate length and severity of the pandemic as outlined above. Beginning in February 2020 and over the course of the COVID-19 pandemic, we created COVID-19 pandemic, Return to Office, and Vaccine Preparedness teams, in order to review and assess the evolving COVID-19 pandemic, and to recommend risk mitigation actions for the health and safety of our employees. In order to enhance the safety of our employees during the COVID-19 pandemic, these teams have recommended and implemented various measures, including the installation of physical barriers between employees in production facilities, cleaning and sanitation protocols for both production and office spaces, execution of a phased return to office approach to enable in-person work for corporate personnel, implementation of work-from-home initiatives for certain office personnel, and increased access to vaccines for production facilities and corporate locations. The implementation of such safety measures has not resulted in any meaningful change to our financial control environment. All of our production facilities remain open and there has been minimal disruption to our supply chain network to date, including with respect to the supply of our ingredients, packaging, or other sourced materials. However, we cannot predict the ultimate COVID-19 impact on our suppliers, distributors, and manufacturers. SEGMENT REVIEW We reflect our results of operations in four reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice. Grocery & Snacks The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail channels in the United States. Refrigerated & Frozen The Refrigerated & Frozen reporting segment principally includes branded, temperature-controlled food products sold in various retail channels in the United States. 25 International The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States. Foodservice The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces, and a variety of custom-manufactured culinary products that are packaged for sale to restaurants and other foodservice establishments primarily in the United States. Presentation of Derivative Gains (Losses) from Economic Hedges of Forecasted Cash Flows in Segment Results Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives are generally recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results, immediately. See Note 20 "Business Segments and Related Information" , to the Consolidated Financial Statements contained in this report for further discussion. Presentation of Information Below is a detailed discussion and comparison of our results of operations for the fiscal years ended May 30, 2021 and May 31, 2020. For a discussion of changes from the fiscal year ended May 26, 2019 to the fiscal year ended May 31, 2020, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended May 31, 2020 (filed July 24, 2020). Fiscal 2021 compared to Fiscal 2020 Net Sales ($ in millions) Reporting Segment Fiscal 2021 Net Sales Fiscal 2020 Net Sales % Inc (Dec) Grocery & Snacks $ 4,637.5 $ 4,617.1 0 % Refrigerated & Frozen 4,774.6 4,559.6 5 % International 938.6 925.3 1 % Foodservice 834.0 952.4 (12 )% Total $ 11,184.7 $ 11,054.4 1 % Grocery & Snacks net sales for fiscal 2021 included an increase in volumes of 4%, excluding the impact of divestitures and the 53 rd week in fiscal 2020, compared to the prior-year period. This result reflected an increase across multiple categories due to increased at-home eating and some replenishment of customer inventory levels that had been depleted in connection with the COVID-19 pandemic. Price/mix increased 2%, excluding the impact of divestitures, compared to the prior-year period due to favorable product mix, lower promotional trade activity, and the favorable impact of a $7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual. The inclusion of an additional week of results in fiscal 2020 accounted for an incremental 2% of net sales in the prior-year period. Fiscal 2021 and 2020 included $34.7 million and $113.9 million, respectively, of net sales related to our Peter Pan ® peanut butter business, which was sold in the third quarter of fiscal 2021. Fiscal 2021 and 2020 included $3.6 million and $8.0 million, respectively, of net sales related to our H.K. Anderson ® business, which was sold in the second quarter of fiscal 2021. Fiscal 2020 included $23.1 million of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020. Fiscal 2020 also included $46.1 million of net sales related to our DSD snacks business, which was sold in the second quarter of fiscal 2020. Refrigerated & Frozen net sales for fiscal 2021 included an increase in volumes of 4%, excluding the impact of divestitures and the 53 rd week in fiscal 2020, compared to fiscal 2020. The increase in sales volumes was a result of increased at-home eating 26 and some replenishment of customer inventory levels that had been depleted in connection with the COVID-19 pandemic . Price/ mix increased 4 % for fiscal 2021, excluding the impact of divestitures, compared to fiscal 2020 due to favorable mix, lower promotional trade activity, favorable pricing, and the favorable impact of a $7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual . The inclusion of an additional week of results in fiscal 2020 accounted for an incremental 2% of net sales in the prior-year period . Fiscal 2021 and 2020 included $40.8 million and $41.0 million, respectively, of net sales related to our Egg Beaters ® business, which was sold in the fourth quarter of fiscal 2021. Fiscal 2020 included $23.2 million of net sales related to our Lender's ® bagel business, which was sold in the third quarter of fiscal 2020. International net sales for fiscal 2021 included an increase in price/mix of 4% compared to fiscal 2020 due to lower promotional trade activity, inflation-justified pricing, favorable mix, and the favorable impact of a $2.8 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual. Volumes, excluding the impact of divestitures and the 53 rd week in fiscal 2020, were flat when compared to the prior-year period. The inclusion of an additional week of results in fiscal 2020 accounted for an incremental 2% of net sales in the prior-year period. Fiscal 2021 and 2020 included $1.4 million and $5.2 million, respectively, of net sales related to our Peter Pan ® peanut butter business. Foodservice net sales for fiscal 2021 included a decrease in volumes of 13%, excluding the impact of divestitures and the 53 rd week in fiscal 2020, compared to the prior-year period. The decline in volume reflected lower traffic in away-from-home food outlets as a result of the COVID-19 pandemic. Price/mix, excluding the impact of divestitures, increased 3% in fiscal 2021 compared to fiscal 2020, reflecting inflation-related pricing and lower trade activity. The inclusion of an additional week of results in fiscal 2020 accounted for an incremental 1% of net sales in the prior-year period. Fiscal 2021 and 2020 included $1.0 million and $3.4 million, respectively, of net sales related to our Peter Pan ® peanut butter business. Fiscal 2021 and 2020 included $0.6 million and $2.4 million, respectively, of net sales related to our H.K. Anderson ® business. Fiscal 2020 included $6.6 million and $4.6 million of net sales related to our Lender's ® bagel and private label peanut butter businesses, respectively. SG&A Expenses (Includes general corporate expenses) SG&A expenses totaled $1.40 billion for fiscal 2021, a decrease of $219.5 million compared to fiscal 2020. SG&A expenses for fiscal 2021 reflected the following: Items impacting comparability of earnings • expenses of $90.9 million related to the impairment of certain brand intangible assets, • expenses of $68.7 million associated with the early extinguishment of debt, • gains totaling $65.5 million related to divestitures of certain businesses, • expenses of $40.8 million in connection with our restructuring plans, • consulting expenses of $7.2 million primarily associated with securing tax benefits for a new production facility (the associated tax benefits will be recognized in future periods), • a loss of $7.1 million related to the early exit of an unfavorable contract associated with a recent divestiture, • expenses of $5.7 million associated with costs incurred for acquisitions and divestitures, and • a net expense of $2.6 million related to a previous legal matter. Other changes in expenses compared to fiscal 2020 • an increase in advertising and promotion expense of $27.3 million driven by higher eCommerce investments, • a decrease in salary, wage, and fringe benefit expense of $17.3 million, largely due to achieved synergies from the Pinnacle acquisition and lower employer-related 401(k) costs, • a decrease in incentive compensation expense of $15.3 million, due to further exceeding certain performance targets in the prior year period, • a decrease in travel and entertainment expense of $14.4 million, in part due to reduced travel from the COVID-19 pandemic, • an increase in share-based payment and deferred compensation expense of $12.7 million, due to an increase in stock price and exceeding certain performance targets, 27 • a n in crease of $9.9 million in foreign currency transaction gains, primarily due to the strengthening of the Canadian dollar, • a decrease in depreciation expense of $5.4 million, • a decrease in royalty expense of $5.3 million, in part due to the expiration of a royalty agreement, and • a decrease in lease expense of $4.0 million. SG&A expenses for fiscal 2020 included the following items impacting the comparability of earnings: • expenses of $165.5 million related to the impairment of certain brand intangible assets, • expenses of $105.7 million in connection with our restructuring plans, • expense of $59.0 million related to the impairment of businesses held for sale, • a benefit of $11.9 million related to a contract settlement, • charges totaling $10.1 million related to legal and environmental matters, • expenses of $5.3 million associated with costs incurred for acquisitions and divestitures, and • a net loss of $1.7 million related to divestitures of businesses. Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings) ($ in millions) Reporting Segment Fiscal 2021 Operating Profit Fiscal 2020 Operating Profit % Inc (Dec) Grocery & Snacks $ 1,093.8 $ 915.2 20 % Refrigerated & Frozen 836.5 702.2 19 % International 131.8 100.6 31 % Foodservice 78.9 97.6 (19 )% Grocery & Snacks operating profit for fiscal 2021 reflected an increase in gross profits of $34.3 million compared to fiscal 2020. The higher gross profit was driven by the net sales growth discussed above, the benefits of supply chain realized productivity, favorable margin mix, fixed cost leverage, and cost synergies associated with the Pinnacle acquisition, partially offset by the impact of the 53 rd week of our prior fiscal year, the impacts of input cost inflation, higher transportation costs, a reduction in profit associated with the divestiture of our HK Anderson ® and Peter Pan ® peanut butter businesses and the exit of our private label peanut butter business, and pandemic-related costs. Pandemic-related costs included investments in employee safety protocols, bonuses paid to supply chain employees, and costs necessary to meet elevated levels of demand. Operating profit of the Grocery & Snacks segment was impacted by expense of $27.8 million and $58.4 million related to our restructuring plans in fiscal 2021 and 2020, respectively. Fiscal 2021 and 2020 included certain brand intangible impairment charges of $13.0 million and $46.4 million, respectively. Fiscal 2021 included gains totaling $55.1 million related to the divestitures of certain businesses. Fiscal 2020 also included a charge of $31.4 million related to the impairment of a business held for sale, a benefit of $11.9 million related to a contract settlement, and costs of $3.0 million related to divestitures. Refrigerated & Frozen operating profit for fiscal 2021 reflected an increase in gross profits of $61.9 million compared to fiscal 2020 due to the net sales growth discussed above, the benefits of supply chain realized productivity, favorable margin mix, cost synergies associated with the Pinnacle acquisition, and fixed cost leverage, partially offset by the impact of the 53 rd week of our prior fiscal year, the impacts of input cost inflation, higher transportation costs, a reduction in profit associated with the divestiture of our Lender's ® bagel business, and pandemic-related costs. Operating profit of the Refrigerated & Frozen segment was impacted by charges of $76.9 million and $110.8 million related to the impairment of certain brand intangible assets during fiscal 2021 and 2020, respectively. Fiscal 2021 and 2020 included $26.8 million and $15.8 million, respectively, of charges related to our restructuring plans. Fiscal 2021 also included a gain of $10.4 million related to the divestiture of our Egg Beater's ® business, reduced by a loss of $7.1 million related to the early exit of an unfavorable contract associated with the divestiture. In addition, operating profit of the Refrigerated & Frozen segment included $27.6 million related to the impairment of a business held for sale in fiscal 2020. Advertising and promotion expenses for fiscal 2021 increased by $23.8 million compared to fiscal 2020. 28 International operating profit for fiscal 2021 reflected an increase in g ross profits of $18.3 million compared to fiscal 2020 due to the net sales growth discussed above, the benefits of supply chain realized productivity, fixed cost leverage, and favorable product mix, partially offset by the impact of the 53 rd week of our prior fiscal year, the impacts of input cost inflation, higher transportation costs , and a reduction in profit associated with the divestiture of our Peter Pan ® peanut butter business . International gross profits also reflected a decrease of $ 5.8 million due to foreign exchange rates compared to the prior-year period. Operating profit of the International segment was impacted by charges of $1.0 million and $8.3 million related to the impairment of certain brand intangible assets during fiscal 202 1 and 20 20 , respectively. Foodservice operating profit for fiscal 2021 reflected a decrease in gross profits of $26.0 million compared to fiscal 2020, reflecting lower traffic in away-from-home food outlets due to the COVID-19 pandemic, input cost inflation, the impact of the 53 rd week of our prior fiscal year, pandemic-related costs, and a reduction in profit associated with the divestitures of our Lender's ® bagel, H.K. Anderson ® , and Peter Pan ® peanut butter businesses and the exit of our private label peanut butter business, partially offset by supply chain realized productivity and fixed cost leverage. Pension and Postretirement Non-service Income In fiscal 2021, pension and postretirement non-service income was $54.5 million, an increase of $44.6 million compared to fiscal 2020. The increase was driven by a charge of $44.8 million in fiscal 2020 compared to a charge of $0.8 million in fiscal 2021 related to the year-end write-off of actuarial losses in excess of 10% of our pension liability. The increase in losses outside of the 10% corridor in the prior year was driven by a reduction of the discount rate used to remeasure the pension obligations to present value and a reduction in asset values for certain plan assets. Interest Expense, Net In fiscal 2021, net interest expense was $420.4 million, a decrease of $66.7 million, or 14%, from fiscal 2020. The decrease was driven by an overall reduction of our debt balances. See Note 4, "Long-Term Debt" , to the Consolidated Financial Statements contained in this report for further discussion. Income Taxes Our income tax expense was $193.8 million and $201.3 million in fiscal 2021 and 2020, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment earnings) was approximately 13% and 19% for fiscal 2021 and 2020, respectively. See Note 14, "Pre-Tax Income and Income Taxes" , to the Consolidated Financial Statements contained in this report for a discussion on the change in effective tax rates. In fiscal 2021, we completed a restructuring of our ownership interest in Ardent Mills that utilized a portion of our capital loss carryforward prior to its expiration. Also in fiscal 2021, we completed several other transactions related to retained assets in conjunction with the divestitures of the Peter Pan ® peanut butter and Egg Beaters ® businesses that we believe will utilize a portion of the remaining capital loss carryforward. These transactions are subject to certain elections and are currently under review by the Internal Revenue Service. We believe they may result in increases to the tax basis in those assets and if successful would result in tax benefits being realized in future periods. We expect our effective tax rate in fiscal 2022, exclusive of any unusual transactions or tax events, to be approximately 23%-24%. Equity Method Investment Earnings We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates. Our most significant affiliate is the Ardent Mills joint venture. Our share of earnings from our equity method investment earnings were $84.4 million and $73.2 million for fiscal 2021 and 2020, respectively. Results for fiscal 2020 included a gain of $4.1 million from the sale of assets by the Ardent Mills joint venture. Ardent Mills earnings for fiscal 2021 reflected favorable market conditions. 29 Earnings Per Share Diluted earnings per share in fiscal 2021 and 2020 were $2.66 and $1.72, respectively. The increase in diluted earnings per share reflected higher net income. In addition, see "Items Impacting Comparability" above as several significant items affected the comparability of year-over-year results of operations. LIQUIDITY AND CAPITAL RESOURCES Sources of Liquidity and Capital The primary objective of our financing strategy is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives. We use a combination of equity and short and long-term debt. We use short-term debt principally to finance ongoing operations, including our seasonal requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts payable, accrued payroll, and other accrued liabilities). We are committed to maintaining solid investment grade credit ratings. Management believes that existing cash balances, cash flows from operations, existing credit facilities, our commercial paper program, and access to capital markets will provide sufficient liquidity to meet our debt obligations, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months. Borrowing Facilities and Long-Term Debt At May 30, 2021, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial institutions providing for a maximum aggregate principal amount outstanding at any one time of $1.6 billion (subject to increase to a maximum aggregate principal amount of $2.1 billion with the consent of the lenders). The Revolving Credit Facility matures on July 11, 2024 and is unsecured. The term of the Revolving Credit Facility may be extended for additional one-year or two-year periods from the then-applicable maturity date on an annual basis. We have historically used a credit facility principally as a back-up for our commercial paper program. As of May 30, 2021, there were no outstanding borrowings under the Revolving Credit Facility. We had $705.7 million outstanding under our commercial paper program as of May 30, 2021, and no amounts outstanding as of May 31, 2020. The highest level of borrowings during fiscal 2021 was $1.05 billion. During the fourth quarter of fiscal 2021, we repaid the remaining outstanding $195.9 million aggregate principal amount of our 9.75% subordinated notes on their maturity date of March 1, 2021. The repayment was primarily funded by the issuance of commercial paper. A summary of our long-term debt balances as of May 30, 2021 can be found in Note 4, "Long-Term Debt" , to the Consolidated Financial Statements contained in this report. The weighted-average coupon interest rate of the long-term debt obligations outstanding as of May 30, 2021, was approximately 4.6%. We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt upon maturity, from operating cash flows, our commercial paper program, access to the capital markets, and our Revolving Credit Facility. We continuously evaluate opportunities to refinance our debt; however, any refinancing is subject to market conditions and other factors, including financing options that may be available to us from time to time, and there can be no assurance that we will be able to successfully refinance any debt on commercially acceptable terms at all. As of the end of fiscal 2021, our senior long-term debt ratings were all investment grade. A significant downgrade in our credit ratings would not affect our ability to borrow amounts under the Revolving Credit Facility, although borrowing costs would increase. A downgrade of our short-term credit ratings would impact our ability to borrow under our commercial paper program by negatively impacting borrowing costs and causing shorter durations, as well as making access to commercial paper more difficult, or impossible. Our most restrictive debt agreement (the Revolving Credit Facility) generally requires our ratio of EBITDA to interest expense not be less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to exceed certain decreasing specified levels, ranging from 4.75 through the first quarter of fiscal 2022 to 3.75 from the second quarter of fiscal 2023 and thereafter. Each ratio is to be calculated on a rolling four-quarter basis. As of May 30, 2021, we were in compliance with all financial covenants. 30 On July 13, 2021, subsequent to our fiscal year end, we entered into an amendment to the Revolving Credit Facility . The amendment modifies the ra tio of funded debt to EBITDA financial covenant to require a ratio of not greater than 4.50 on a rolling four-quarter basis. Equity and Dividends We repurchase shares of our common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board. Under the share repurchase authorization, we may repurchase our shares periodically over several years, depending on market conditions and other factors, and may do so in open market purchases or privately negotiated transactions. The share repurchase authorization has no expiration date. During fiscal 2021, we repurchased 8.8 million shares of our common stock under this authorization for an aggregate of $298.1 million. The Company’s total remaining share repurchase authorization as of May 30, 2021, was $1.12 billion. On April 16, 2021, we announced that our Board had authorized a quarterly dividend payment of $0.275 per share, which was paid on June 2, 2021, to stockholders of record as of the close of business on April 30, 2021. Subsequent to our fiscal year end, our Board approved a 14% increase to our annualized dividend rate. The Board approved a quarterly dividend of $0.3125 per share to be paid on September 2, 2021 to stockholders of record as of the close of business on August 3, 2021. Contractual Obligations As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments. These obligations impact our liquidity and capital resource needs. In addition to principal and interest payments on our outstanding long-term debt and notes payable balances, discussed above, our contractual obligations primarily consist of leases payments, income taxes, pension and postretirement benefits, and unconditional purchase obligations. A summary of our operating and finance lease obligations as of May 30, 2021 can be found in Note 15, "Leases" , to the Consolidated Financial Statements contained in this report. The liability for gross unrecognized tax benefits related to uncertain tax positions was $33.0 million as of May 30, 2021. See Note 14, "Pre-Tax Income and Income Taxes" , to the Consolidated Financial Statements contained in this report for information related to income taxes. As of May 30, 2021, we had an aggregate funded pension asset of $109.6 million and an aggregate unfunded postretirement benefit obligation totaling $78.2 million. We expect to make payments totaling approximately $12.3 million and $9.0 million in fiscal 2022 to fund our pension and postretirement plans, respectively. See Note 18, "Pension and Postretirement Benefits" , to the Consolidated Financial Statements and "Critical Accounting Estimates – Employment-Related Benefits" contained in this report for further discussion of our pension obligation and factors that could affect estimates of these obligations. As of May 30, 2021, our unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-pay" contracts) totaled approximately $2.51 billion. Approximately $1.82 billion of this balance is due in fiscal 2022. Included in this amount are open purchase orders and other supply agreements totaling approximately $1.53 billion, which are generally settleable in the ordinary course of business in less than one year. Some are not legally binding and/or may be cancellable. Warehousing service agreements totaling approximately $400 million and obligations for leases that have not yet commenced totaling $272.2 million as of May 30, 2021, make up a majority of our remaining unconditional purchase obligations with various terms of up to 20 years. Capital Expenditures We continue to make investments in our business and operating facilities. Our preliminary estimate of capital expenditures for fiscal 2022 is approximately $475 million. Supplier Arrangements In fiscal 2017, we began a program to offer certain suppliers access to a third-party service that allows them to view our scheduled payments online. The third-party service also allows suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct 31 relationship with the suppliers, the third party, or any financial institutions concerning this service. All balances remain as obligations to our suppliers as stated in our supplier agreements and are reflected in a ccounts payable within our Consolidated Balance Sheets. The associated payments are included in net cash flows from operating activities within our Consolidated Statements of Cash Flows . As of May 30, 2021 and May 31, 2020, $ 279.3 million and $258.7 million, respectively, of our total accounts payable was payable to suppliers who utilize this third-party service. The program commenced at about the same time that we began an initiative to negotiate extended payment terms with our suppliers. Although difficult to predict, we generally expect the incremental cash flow benefits associated with these extended payment terms to increase at a slower rate in the future. A number of factors may impact our future payment terms , including our relative creditworthiness, overall market liquidity, and changes in interest rates and other general economic conditions. Cash Flows In fiscal 2021, we used $474.1 million of cash, which was the net result of $1.47 billion generated from operating activities, $340.3 million used in investing activities, $1.61 billion used in financing activities, and an increase of $7.7 million due to the effects of changes in foreign currency exchange rates. Cash generated from operating activities totaled $1.47 billion in fiscal 2021, as compared to $1.84 billion generated in fiscal 2020. Operating cash flows for fiscal 2021 reflected increased net sales in our retail segments from COVID-19 pandemic-related demand as well as decreased interest payments. This was partially offset by increased tax payments compared to fiscal 2020. Tax payments for fiscal 2021 included approximately $47.0 million of fourth quarter fiscal 2020 tax payments, which were deferred due to the extension of the deadline for certain federal cash tax payments. Comparative changes in working capital balances were most notably impacted by inventory rebuilding in fiscal 2021, as certain brands had previously been on allocation due to high demand through the pandemic. Further, our inventory balances also have experienced recent input cost inflation which is giving rise to larger inventory amounts period over period. Operating cash flows benefited from the continued deferral of employer payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act, which totaled $33.9 million for fiscal 2021. Payment of such amounts will occur in fiscal 2022 and 2023. Cash used in investing activities totaled $340.3 million in fiscal 2021 compared to $153.8 million in fiscal 2020. Investing activities in fiscal 2021 consisted primarily of capital expenditures totaling $506.4 million, partially offset by net proceeds totaling $160.9 million from the sale of our Egg Beaters ® , Peter Pan ® peanut butter, and H.K. Anderson ® businesses. Investing activities in fiscal 2020 consisted mainly of capital expenditures of $369.5 million and the net proceeds from divestitures totaling $194.6 million, including the sales of our DSD snacks and Lender's ® bagel businesses. Cash used in financing activities totaled $1.61 billion in fiscal 2021 compared to $1.37 billion in fiscal 2020. Financing activities in fiscal 2021 principally reflect repayments of long-term debt of $2.51 billion, the issuance of long-term debt totaling $988.2 million, net short-term borrowings of $706.3 million, cash dividends paid of $474.6 million, and common stock repurchases of $298.1 million. Financing activities in fiscal 2020 consisted principally of the repayment of long-term debt totaling $947.5 million and cash dividends paid of $413.6 million. Cash Held by International Subsidiaries The Company had cash and cash equivalents of $79.2 million at May 30, 2021, and $553.3 million at May 31, 2020, of which $72.4 million at May 30, 2021, and $80.5 million at May 31, 2020, was held in foreign countries. We believe that our foreign subsidiaries have invested or will invest any undistributed earnings indefinitely, or that any undistributed earnings will be remitted in a tax-neutral transaction, and, therefore, do not provide deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries. CRITICAL ACCOUNTING ESTIMATES The process of preparing financial statements requires the use of estimates on the part of management. The estimates used by management are based on our historical experiences combined with management's understanding of current facts and circumstances. Certain of our accounting estimates are considered critical as they are both important to the portrayal of our financial condition and results and require significant or complex judgment on the part of management. The following is a summary of certain accounting estimates considered critical by management. Our Audit/Finance Committee has reviewed management's development, selection, and disclosure of the critical accounting estimates. 32 Marketing Costs —We offer various forms of trade promotions which are mostly recorded as a reduction in revenue. The methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. Our promotional activities are conducted either through the retail trade or directly with consumers and included activities such as in-store displays and events, feature price discounts, consumer coupons, and loyalty programs. The costs of these activities are recognized as a reduction of revenue at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by either the retail trade or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and actual redemptions are recognized as a change in management estimate in a subsequent period. We have recognized trade promotion liabilities of $146.8 million as of May 30, 2021. Changes in the assumptions used in estimating the cost of any individual customer marketing program would not result in a material change in our results of operations or cash flows. Income Taxes —Our income tax expense is based on our income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our income tax expense and in evaluating our tax positions, including evaluating uncertainties. Management reviews tax positions at least quarterly and adjusts the balances as new information becomes available. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the tax bases of assets and liabilities and their carrying amounts in our consolidated balance sheets, as well as from net operating loss and tax credit carryforwards. Management evaluates the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These estimates of future taxable income inherently require significant judgment. Management uses historical experience and short and long-range business forecasts to develop such estimates. Further, we employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the extent management does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. Further information on income taxes is provided in Note 14, "Pre-tax Income and Income Taxes" , to the Consolidated Financial Statements contained in this report. Environmental Liabilities —Environmental liabilities are accrued when it is probable that obligations have been incurred and the associated amounts can be reasonably estimated. Management works with independent third-party specialists in order to effectively assess our environmental liabilities. Management estimates our environmental liabilities based on evaluation of investigatory studies, extent of required clean-up, our known volumetric contribution, other potentially responsible parties, and our experience in remediating sites. Environmental liability estimates may be affected by changing governmental or other external determinations of what constitutes an environmental liability or an acceptable level of clean-up. Management's estimate as to our potential liability is independent of any potential recovery of insurance proceeds or indemnification arrangements. Insurance companies and other indemnitors are notified of any potential claims and periodically updated as to the general status of known claims. We do not discount our environmental liabilities as the timing of the anticipated cash payments is not fixed or readily determinable. To the extent that there are changes in the evaluation factors identified above, management's estimate of environmental liabilities may also change. We have recognized a reserve of approximately $61.5 million for environmental liabilities as of May 30, 2021. The reserve for each site is determined based on an assessment of the most likely required remedy and a related estimate of the costs required to effect such remedy. Employment-Related Benefits —We incur certain employment-related expenses associated with pensions and postretirement health care benefits. In order to measure the annual expense associated with these employment-related benefits, management must make a variety of estimates including, but not limited to, discount rates used to measure the present value of certain liabilities, assumed rates of return on assets set aside to fund these expenses, compensation increases, employee turnover rates, anticipated mortality rates, and anticipated health care costs. The estimates used by management are based on our historical experience as well as current facts and circumstances. We use third-party specialists to assist management in appropriately measuring the expense associated with these employment-related benefits. Different estimates used by management could result in us recognizing different amounts of expense over different periods of time. 33 T he Company use s a split discount rate (the "spot-rate approach") for the U.S. plans and certain foreign plans. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost. We have recognized a pension liability of $135.4 million and $254.5 million and a postretirement liability of $81.2 million and $89.3 million as of the end of fiscal 2021 and 2020, respectively. We also have recognized a pension asset of $245.0 million and $202.4 million as of the end of fiscal 2021 and 2020, respectively, as certain individual plans of the Company had a positive funded status. We recognize cumulative changes in the fair value of pension plan assets and net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation ("the corridor") in current period expense annually as of our measurement date, which is our fiscal year-end, or when measurement is required otherwise under U.S. GAAP. We recognized pension expense (benefit) from Company plans of $(38.3) million, $5.9 million, and $(22.7) million in fiscal 2021, 2020, and 2019, respectively. Such amounts reflect the year-end write-off of actuarial losses in excess of 10% of our pension liability of $0.8 million, $44.8 million, and $5.1 million in fiscal 2021, 2020, and 2019, respectively. This also reflected expected returns on plan assets of $140.0 million, $170.2 million, and $174.4 million in fiscal 2021, 2020, and 2019, respectively. We contributed $27.6 million, $17.5 million, and $14.7 million to the pension plans of our continuing operations in fiscal 2021, 2020, and 2019, respectively. We anticipate contributing approximately $12.3 million to our pension plans in fiscal 2022. One significant assumption for pension plan accounting is the discount rate. We use a spot-rate approach, discussed above. This approach focuses on measuring the service cost and interest cost components of net periodic benefit cost by using individual spot rates derived from a high-quality corporate bond yield curve and matched with separate cash flows for each future year instead of a single weighted-average discount rate approach. Based on this information, the discount rate selected by us for determination of pension expense was 2.98% for fiscal 2021, 3.88% for fiscal 2020, and 4.15% for fiscal 2019. We selected a weighted-average discount rate of 3.50% and 2.29% for determination of service and interest expense, respectively, for fiscal 2022. A 25-basis point increase in our discount rate assumption as of the end of fiscal 2021 would increase our annual pension expense for our pension plans in fiscal 2022 by $5.2 million. A 25-basis point decrease in our discount rate assumption as of the end of fiscal 2021 would decrease our annual pension expense for our pension plans in fiscal 2022 by $5.7 million. For our year-end pension obligation determination, we selected discount rates of 3.04% and 2.98% for fiscal years 2021 and 2020, respectively. Another significant assumption used to account for our pension plans is the expected long-term rate of return on plan assets. In developing the assumed long-term rate of return on plan assets for determining pension expense, we consider long-term historical returns (arithmetic average) of the plan's investments, the asset allocation among types of investments, estimated long-term returns by investment type from external sources, and the current economic environment. Based on this information, we selected 3.74% for the weighted-average expected long-term rate of return on plan assets for determining our fiscal 2021 pension expense. A 25-basis point increase/decrease in our weighted-average expected long-term rate of return assumption as of the beginning of fiscal 2021 would decrease/increase annual pension expense for our pension plans by $9.3 million. We selected a weighted-average expected rate of return on plan assets of 3.87% to be used to determine our pension expense for fiscal 2022. A 25-basis point increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2022 would decrease/increase annual pension expense for our pension plans by $9.4 million. We also provide certain postretirement health care benefits. We recognized postretirement benefit income of $4.4 million, $4.2 million, and $1.3 million in fiscal 2021, 2020, and 2019, respectively. We anticipate contributing approximately $9.0 million to our postretirement health care plans in fiscal 2022. The postretirement benefit expense and obligation are also dependent on our assumptions used for the actuarially determined amounts. These assumptions include discount rates (discussed above), health care cost trend rates, inflation rates, retirement rates, mortality rates (also discussed above), and other factors. The health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends. Assumed inflation rates are based on an evaluation of external market indicators. Retirement and mortality rates are based primarily on actual plan experience. The discount rate we selected for determination of postretirement expense was 2.39% for fiscal 2021, 3.48% for fiscal 2020, and 3.81% for fiscal 2019. We have selected a weighted-average discount rate of 2.51% for determination of postretirement expense for fiscal 2022. A 25-basis point increase/decrease in our discount rate assumption would not have resulted in a material change to postretirement expense for our plans. We have assumed the initial year increase in cost of health care to be 6.53%, with the trend rate decreasing to 4.44% by 2029. 34 Business Combinations, Impairment of Long-Lived Assets (including property, plant and equipment), Identifiable Intangible Assets, and Goodwill —We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the closing of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of significant acquisitions we normally obtain the assistance of a third-party valuation specialist in estimating fair values of tangible and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants. While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions. We reduce the carrying amounts of long-lived assets (including property, plant and equipment) to their fair values when their carrying amount is determined to not be recoverable. We generally compare undiscounted estimated future cash flows of an asset or asset group to the carrying values of the asset or asset group. If the undiscounted estimated future cash flows exceed the carrying values of the asset or asset group, no impairment is recognized. If the undiscounted estimated future cash flows are less than the carrying values of the asset or asset group, we write-down the asset or assets to their estimated fair values. The estimates of fair value are generally in the form of appraisal, or by discounting estimated future cash flows of the asset or asset group. Determining the useful lives of intangible assets also requires management judgment. Certain brand intangibles are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands, while other acquired intangible assets (e.g., customer relationships) are expected to have determinable useful lives. Our estimates of the useful lives of definite-lived intangible assets are primarily based upon historical experience, the competitive and macroeconomic environment, and our operating plans. The costs of definite-lived intangibles are amortized to expense over their estimated life. We reduce the carrying amounts of indefinite-lived intangible assets, and goodwill to their fair values when the fair value of such assets is determined to be less than their carrying amounts (i.e., assets are deemed to be impaired). Fair value is typically estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to be generated by the particular asset being tested for impairment as well as to select a discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. Estimating future cash flows requires significant judgment by management in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different impairment amounts (or none at all) for long-lived assets and identifiable intangible assets. In assessing other intangible assets not subject to amortization for impairment, we have the option to perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of such an intangible asset is less than its carrying amount. If we determine that it is not more likely than not that the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform any additional tests for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment, then we are required to perform a quantitative impairment test that involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If we perform a quantitative impairment test in evaluating impairment of our indefinite lived brands/trademarks, we utilize a "relief from royalty" methodology. The methodology determines the fair value of each brand through use of a discounted cash flow model that incorporates an estimated "royalty rate" we would be able to charge a third party for the use of the particular brand. When determining the future cash flow estimates, we estimate future net sales and a fair market royalty rate for each applicable brand and an appropriate discount rate to measure the present value of the anticipated cash flows. Estimating future net sales requires significant judgment by management in such areas as future economic conditions, product pricing, and consumer trends. In determining an appropriate discount rate to apply to the estimated future cash flows, we consider the current interest rate environment and our estimated cost of capital. Goodwill is tested annually for impairment of value and whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or 35 declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. Under the qualitative assessment, various events and circumstances that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). Furthermore, management considers the results of the most recent quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital between the current and prior years for each reporting unit. Under the quantitative impairment test, the evaluation involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. Fair value is typically estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to be generated by the reporting unit being tested for impairment as well as to select a risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. We estimate cash flows for the reporting unit over a discrete period (typically five years) and the terminal period (considering expected long term growth rates and trends). Estimating future cash flows requires significant judgment by management in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows or significant changes in risk-adjusted discount rates due to changes in market conditions could produce substantially different estimates of the fair value of the reporting unit. As of May 30, 2021, we have goodwill of $11.37 billion, indefinite-lived intangibles of $3.30 billion and definite-lived intangibles of $856.4 million. The amount of goodwill and intangibles increased significantly during fiscal 2019 as a result of the Pinnacle acquisition. In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business into our legacy reporting segments, to reflect how the business is now being managed. We tested goodwill for impairment both prior to and subsequent to the reallocation of Pinnacle goodwill and there were no impairments of goodwill. Historically, we have experienced impairments in brand intangibles and goodwill as a result of declining sales and other economic conditions. For instance, in fiscal 2021 and 2020, we recorded total intangibles impairments of $90.9 million and $165.5 million respectively, primarily related to our recently acquired Pinnacle brands. In fiscal 2019, we recorded total intangibles impairments of $89.6 million, primarily related to our Chef Boyardee ® brand intangible. With the addition of Pinnacle intangibles that were recorded at fair value in fiscal 2019, we continue to be more susceptible to impairment charges in the future if our long-term sales forecasts, royalty rates, and other assumptions change as a result of lower than expected performance or other economic conditions. We will monitor these assumptions as management continues to achieve expected synergies, gross margin improvement, and long-term sales growth on certain key brands acquired in the acquisition including, but not limited to, Birds Eye ® , Duncan Hines ® , Gardein ® and Vlasic ® . ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The principal market risks affecting us during fiscal 2021 and 2020 were exposures to price fluctuations of commodity and energy inputs, interest rates, and foreign currencies. Commodity Market Risk We purchase commodity inputs such as wheat, corn, oats, soybean meal, soybean oil, meat, dairy products, nuts, sugar, natural gas, electricity, and packaging materials to be used in our operations. These commodities are subject to price fluctuations that may create price risk. We enter into commodity hedges to manage this price risk using physical forward contracts or derivative instruments. We have policies governing the hedging instruments our businesses may use. These policies include limiting the dollar risk exposure for each of our businesses. We also monitor the amount of associated counter-party credit risk for all non-exchange-traded transactions. 36 Interest Rate Risk We may use interest rate swaps to manage the effect of interest rate changes on the fair value of our existing debt as well as the forecasted interest payments for the anticipated issuance of debt. As of May 30, 2021 and May 31, 2020, the fair value of our long-term debt (including current installments) was estimated at $9.76 billion and $11.35 billion, respectively, based on current market rates. As of May 30, 2021 and May 31, 2020, a 1% increase in interest rates would decrease the fair value of our fixed rate debt by approximately $682.2 million and $704.8 million, respectively, while a 1% decrease in interest rates would increase the fair value of our fixed rate debt by approximately $779.8 million and $809.5 million, respectively. Foreign Currency Risk In order to reduce exposures for our processing activities related to changes in foreign currency exchange rates, we may enter into forward exchange or option contracts for transactions denominated in a currency other than the functional currency for certain of our operations. This activity primarily relates to economically hedging against foreign currency risk in purchasing inventory and capital equipment, sales of finished goods, and future settlement of foreign denominated assets and liabilities. Value-at-Risk (VaR) We employ various tools to monitor our derivative risk, including value-at-risk ("VaR") models. We perform simulations using historical data to estimate potential losses in the fair value of current derivative positions. We use price and volatility information for the prior 90 days in the calculation of VaR that is used to monitor our daily risk. The purpose of this measurement is to provide a single view of the potential risk of loss associated with derivative positions at a given point in time based on recent changes in market prices. Our model uses a 95% confidence level. Accordingly, in any given one-day time period, losses greater than the amounts included in the table below are expected to occur only 5% of the time. We include commodity swaps, futures, and options and foreign exchange forwards, swaps, and options in this calculation. The following table provides an overview of our average daily VaR for our energy, agriculture, and foreign exchange positions for fiscal 2021 and 2020. Fair Value Impact In Millions Average During the Fiscal Year Ended May 30, 2021 Average During the Fiscal Year Ended May 31, 2020 Processing Activities Energy commodities $ 0.6 $ 0.4 Agriculture commodities 0.5 0.5 Other commodities — 0.1 Foreign exchange 1.0 0.8 37