CONAGRA BRANDS, INC. 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 ofPinnacle 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 recent coronavirus (COVID-19) pandemic on our business, suppliers, consumers, customers and employees; risks related to the availability and prices of raw materials, including any negative effects caused by inflation, weather conditions, or health pandemics; disruptions or inefficiencies in our supply chain and/or operations, including from the recent 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; and other risks described in our reports filed from time to time with theSecurities and Exchange Commission . 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 unaudited Condensed Consolidated Financial Statements and related notes contained in this report and with the financial statements, related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year endedMay 31, 2020 and subsequent filings with theSEC . Results for the first quarter of fiscal 2021 are not necessarily indicative of results that may be attained in the future.
EXECUTIVE OVERVIEW
Conagra Brands, Inc. (the "Company", "Conagra Brands", "we", "us", or "our"), headquartered inChicago , is one ofNorth 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®,Marie Callender's ®, Banquet®, Healthy Choice®, Slim Jim®, Reddi-wip®, and Vlasic®, as well as emerging brands, including Angie's® BOOMCHICKAPOP®, Duke's®, Earth Balance®, Gardein®, and Frontera®, offer choices for every occasion.
The integration of
24
--------------------------------------------------------------------------------Fiscal 2021 First Quarter Results
In the first quarter of fiscal 2021, results reflected an increase in net sales,
with organic (excludes the impacts of foreign exchange and divested businesses)
increases in each of our operating segments with the exception of a decrease in
our Foodservice segment, in each case compared to the first quarter of 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 profit increased due to supply chain realized productivity,
favorable margin mix including lower promotional trade activity, cost synergies
associated with the Pinnacle acquisition, and fixed cost leverage, which were
partially offset by higher input costs, COVID-19 related expenses, the impact of
foreign exchange, and lost profits from divested businesses. Overall segment
operating profit increased in each operating segment with the exception of our
Foodservice segment. Corporate expenses were lower primarily due to items
impacting comparability, as discussed below. There were decreased selling,
general and administrative ("SG&A") expenses as a result of cost synergies
associated with the Pinnacle acquisition and lower travel costs, offset by
increased stock compensation and deferred compensation expense. We recognized
lower equity method investment earnings, lower interest expense, and higher
income tax expense, in each case compared to the first quarter of fiscal 2020.
Excluding items impacting comparability, our effective tax rate was slightly
higher compared to the first quarter of fiscal 2020.
Diluted earnings per share in the first quarter of fiscal 2021 were $0.67 .
Diluted earnings per share in the first quarter of fiscal 2020 were $0.36 .
Diluted earnings per share were affected by higher net income in the first
quarter of fiscal 2021 compared to the first quarter of fiscal 2020 as well as
several significant items affecting the comparability of year-over-year results
(see "Items Impacting Comparability" below).
Items Impacting Comparability
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 is discussed in the segment review below.
Items of note impacting comparability for the first quarter of fiscal 2021 included the following:
• charges totaling
with our restructuring plans and
• an income tax benefit of
regulations on prior year federal tax matters.
Items of note impacting comparability for the first quarter of fiscal 2020 included the following:
• charges totaling
with our restructuring plans,
• a charge of
of a business held for sale,
• charges totaling
impairment of certain brand intangible assets,
• a gain of
asset within the Ardent Mills joint venture, and
• an income tax benefit of $51.0 million primarily related to the
reorganization of various legacy Pinnacle legal entities and state tax
planning strategies.
Divestitures
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
are 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 are included in our Grocery & Snacks segment for the periods
preceding the completion of the transaction.
Restructuring Plans
InDecember 2018 , our Board of Directors (the "Board") approved a restructuring and integration plan related to the ongoing integration of the operations of Pinnacle, which we acquired inOctober 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 25
-------------------------------------------------------------------------------- exit and disposal activities underU.S. generally accepted accounting principles. We have incurred or expect to incur approximately$362.3 million of charges ($278.9 million of cash charges and$83.4 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. In the first quarter of fiscal 2021 and 2020, we recognized charges of$8.6 million and$27.7 million , respectively, in connection with the Pinnacle Integration Restructuring Plan. We expect to incur costs related to the Pinnacle Integration Restructuring Plan through fiscal 2022. In fiscal 2019, management initiated a restructuring plan (the "Conagra Restructuring Plan") for costs in connection with actions taken to improve 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 the first quarter of fiscal 2021, including the estimated amounts or range of amounts for each major type of costs expected to be incurred, and the charges that have resulted or will result in cash outflows. As ofAugust 30, 2020 , we have approved the incurrence of$170.6 million ($43.8 million of cash charges and$126.8 million of non-cash charges) for several projects associated with the Conagra Restructuring Plan. We have incurred or expect to incur$161.5 million of charges ($38.9 million of cash charges and$122.6 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan. In the first quarter of fiscal 2021 and 2020, we recognized charges of$17.3 million and$21.1 million , respectively, in connection with theConagra Restructuring Plan. We expect to incur costs related to theConagra Restructuring Plan over a multi-year period.
COVID - 19
We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business. During the first quarter of fiscal 2021, we continued to experience higher sales for our products in the retail segments as a result of increased customer demand for food at home due to the COVID-19 pandemic. We expect that these trends will continue for at least a portion of fiscal 2021 as work-from-home arrangements are extended in response to the continued spread of COVID-19. However, the increased consumer demand may reverse in the coming months. During the first quarter of fiscal 2021, we also continued to experience reduced demand for our foodservice products across all of our major markets as consumer traffic in away-from-home food outlets has decreased as a result of the COVID-19 pandemic. We expect this trend to continue for at least a portion of fiscal 2021, which will continue to negatively impact our net sales to customers in our Foodservice segment. During the first quarter of fiscal 2021, our operating margins saw improvement largely due to favorable 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, temporary plant closures, employee safety and sanitation costs, and employee compensation costs, which accounted for an estimated$34 million of incremental costs in the first quarter. We created an internal COVID-19 pandemic team 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, we have implemented various measures, including the installation of physical barriers between employees in production facilities, extensive cleaning and sanitation of both production and office spaces, and implementation of broad work-from-home initiatives for office personnel. While all of these measures have been necessary and appropriate, they have resulted in additional costs, many of which we expect to continue to incur throughout fiscal 2021 as we continue to address employee safety. As mentioned above, we have experienced some challenges in connection with the COVID-19 pandemic, including temporary closings of production facilities and reduced demand for certain of our products. Despite these challenges, all of our production facilities remain open and there has been minimal disruption to our supply chain network to date, including the supply of our ingredients, packaging, or other sourced materials. However, we continue to closely monitor the potential impacts of the COVID-19 pandemic, as we cannot predict its ultimate impact on our suppliers, distributors, and manufacturers. At this time, we have not experienced a net negative impact on our liquidity or results of operations and we believe we have sufficient liquidity to satisfy our cash needs. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, financial condition, and liquidity.
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
26
--------------------------------------------------------------------------------Refrigerated & Frozen
The Refrigerated & Frozen reporting segment principally includes branded,
temperature-controlled food products sold in various retail channels in
International
The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside ofthe 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 inthe 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 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.
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:
Thirteen weeks ended
August 30, August 25,
($ in millions) 2020 2019
Gross derivative losses incurred $ (4.0 ) $ (7.3 ) Less: Net derivative losses allocated to reporting segments
(1.5 ) (0.1 )
Net derivative losses recognized in general corporate expenses
$ (2.5 ) $ (7.2 )
Net derivative losses allocated to Grocery & Snacks $ (1.8 ) $ (0.1 )
Net derivative losses allocated to Refrigerated &
Frozen (1.1 ) (0.3 )
Net derivative gains allocated to International 1.6 0.1
Net derivative gains (losses) allocated to
Foodservice (0.2 ) 0.2
Net derivative losses included in segment operating profit
$ (1.5 ) $ (0.1 )
As ofAugust 30, 2020 , the cumulative amount of net derivative losses from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was$6.6 million . This amount reflected net losses of$3.5 million incurred during the thirteen weeks endedAugust 30, 2020 and net losses of$3.1 million incurred prior to fiscal 2021. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results losses of$3.9 million in fiscal 2021 and losses of$2.7 million in fiscal 2022 and thereafter.Net Sales Net Sales ($ in millions) Thirteen weeks ended August 30, August 25, % Inc Reporting Segment 2020 2019 (Dec) Grocery & Snacks$ 1,134.2 $ 977.6 16 % Refrigerated & Frozen 1,130.6 959.1 18 % International 219.0 204.4 7 % Foodservice 195.1 249.6 (22 )% Total$ 2,678.9 $ 2,390.7 12 % Net sales for the first quarter of fiscal 2021 in our Grocery & Snacks segment included an increase in volumes of 17%, excluding the impact of divestitures, compared to the prior-year period. The increase in volumes reflected an increase across multiple 27
-------------------------------------------------------------------------------- categories due to increased at-home eating and replenishment of customer inventory levels in connection with the COVID-19 pandemic. Price/mix increased by 4% for the first quarter of fiscal 2021, excluding the impact of divestitures, when compared to the prior-year period due in part to lower promotional trade activity in the current period and the favorable impact of a$7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual. The first quarter of fiscal 2020 included$29.2 million of net sales related to our DSD Snacks business, which was sold in the second quarter of fiscal 2020. The first quarter of fiscal 2020 also included$8.6 million of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020. Net sales for the first quarter of fiscal 2021 in our Refrigerated & Frozen segment reflected an increase in volumes of 13%, excluding the impact of divestitures, compared to the prior-year period, due to increased at-home eating and replenishment of customer inventory levels in connection with the COVID-19 pandemic. Price/mix increased by 6% for the first quarter of fiscal 2021, excluding the impact of divestitures, when compared to the prior-year period, due in part to lower promotional trade activity in the current period and the favorable impact of a$7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual. The first quarter of fiscal 2020 included$9.1 million of net sales related to our Lender's® bagel business, which was sold in the third quarter of fiscal 2020. Net sales for the first quarter of fiscal 2021 in our International segment reflected a 10% increase in volume, a 6% decrease due to unfavorable foreign exchange rates, and a 3% increase in price/mix, in each case compared to the prior-year period. The increase in volumes was driven by elevated demand related to the impacts of the COVID-19 pandemic. The increase in price/mix was driven by the favorable impact of a$2.8 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual. Net sales for the first quarter of fiscal 2021 in our Foodservice segment reflected a 24% decrease in volume, excluding the impact of divestitures, 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 by 4% in the first quarter of fiscal 2021 compared to the prior-year period, reflecting inflation-related pricing and the value-over-volume strategy. The first quarter of fiscal 2020 included$2.4 million of net sales related to our Lender's® bagel business, which was sold in the third quarter of fiscal 2020. The first quarter of fiscal 2020 also included$2.3 million of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020.
SG&A Expenses (includes general corporate expenses)
SG&A expenses totaled$300.3 million for the first quarter of fiscal 2021, a decrease of$100.5 million , as compared to the first quarter of fiscal 2020. SG&A expenses for the first quarter of fiscal 2021 reflected the following:
Items impacting comparability of earnings
• expenses of
• expenses of
and planned divestitures,
• a benefit of $2.0 million related to a previous legal matter, and
• expenses of
matters.
Other changes in expenses compared to the first quarter of fiscal 2020
• a decrease in salary, wage, and fringe benefit expense of
largely due to achieved synergies from the Pinnacle acquisition,
• an increase in share-based payment and deferred compensation expense of
• a decrease of
in part due to reduced travel from the COVID-19 pandemic,
• a decrease in royalty expense of $3.9 million , in part due to the
expiration of a royalty agreement,
• a decrease of
• a decrease in depreciation expense of
SG&A expenses for the first quarter of fiscal 2020 included the following items impacting the comparability of earnings:
• expenses of$45.0 million in connection with our restructuring plans, 28
--------------------------------------------------------------------------------
• expense of
sale,
• charges totaling
intangible assets,
• expenses of
and planned divestitures, and
• a loss of $1.7 million related to the divestiture of a business.
Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings)
Operating Profit
($ in millions) Thirteen weeks ended
August 30, August 25, % Inc
Reporting Segment 2020 2019 (Dec)
Grocery & Snacks $ 283.6 $ 151.7 87 %
Refrigerated & Frozen 240.1 155.6 54 %
International 38.5 24.8 56 %
Foodservice 24.9 31.1 (20 )%
Operating profit in our Grocery & Snacks segment for the first quarter of fiscal
2021 reflected an increase in gross profits of $77.2 million compared to the
first quarter of fiscal 2020. The higher gross profit was driven by the net
sales growth discussed above, the benefits of supply chain realized
productivity, and cost synergies associated with the Pinnacle acquisition,
partially offset by the impacts of higher input costs, a reduction in profit
associated with the divestiture of our DSD Snacks business 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 $13.9 million and $19.1 million related to our restructuring plans
in the first quarter of fiscal 2021 and 2020, respectively. The first quarter of
fiscal 2020 also included charges of $31.4 million related to the impairment of
a business held for sale, $3.5 million related to the impairment of certain
brand intangible assets, and $1.7 million related to the divestiture of our
Wesson® oil business.
Operating profit in our Refrigerated & Frozen segment for the first quarter of
fiscal 2021 reflected an increase in gross profits of $64.8 million compared to
the first quarter of fiscal 2020. The increase was driven by the net sales
growth discussed above, the benefits of supply chain realized productivity, and
cost synergies associated with the Pinnacle acquisition, partially offset by the
impacts of higher input 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 expense of
$5.7 million and $0.6 million related to our restructuring plans in the first
quarter of fiscal 2021 and 2020, respectively. The first quarter of fiscal 2020
also included charges of $15.8 million related to the impairment of certain
brand intangible assets.
Operating profit in our International segment for the first quarter of fiscal
2021 reflected an increase in gross profits of $6.8 million when compared to the
prior-year period, due to the net sales growth discussed above, the benefits of
supply chain realized productivity, and cost synergies associated with the
Pinnacle acquisition, partially offset by the impacts of higher input costs and
unfavorable foreign exchange rates. Operating profit of the International
segment was impacted by income of $0.1 million and expense of $1.2 million
related to our restructuring plans in the first quarter of fiscal 2021 and 2020,
respectively.
Operating profit in our Foodservice segment for the first quarter of fiscal 2021
reflected a decrease in gross profits of $7.8 million compared to the first
quarter of fiscal 2020. The lower gross profit primarily reflected the lower
restaurant traffic due to the COVID-19 pandemic, higher input costs, the sale of
our Lender's® bagel business, and the exit of our private label peanut butter
business, partially offset by supply chain realized productivity and cost
synergies associated with the Pinnacle acquisition.
Pension and Postretirement Non-service Income
In the first quarter of fiscal 2021, pension and postretirement non-service
income was
Interest Expense, Net
Net interest expense was$113.7 million and$122.7 million for the first quarter of fiscal 2021 and 2020, respectively. The decrease reflected the redemption of$525.0 million aggregate principal amount of our floating rate notes dueOctober 22, 2020 and repayment of$200.0 million in borrowings under our term loan agreement that financed a portion of our acquisition of Pinnacle. 29 --------------------------------------------------------------------------------
Income Taxes
In the first quarter of fiscal 2021 and 2020, we recognized income tax expense of$86.7 million and an income tax benefit of$11.5 million , respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was approximately 20.8% and (7.0)% for the first quarter of fiscal 2021 and 2020, respectively. The effective tax rate in the first quarter of fiscal 2021 reflected a benefit resulting from the regulations issued by theU.S. Treasury and Internal Revenue Service on certain provisions of the 2017 Tax Cuts and Jobs Act.
The effective tax rate in the first quarter of fiscal 2020 reflected the following:
• additional tax expense associated with non-deductible goodwill related to
assets held for sale, for which an impairment charge was recognized,
• a tax benefit resulting from state law changes,
• a benefit from the settlement of tax issues that were previously reserved,
• additional benefit due to a change in the deferred state tax rates
relating to the integration of Pinnacle activity for tax purposes, and
• an income tax benefit associated with a tax planning strategy that will
allow us to utilize certain state tax attributes.
Equity Method Investment Earnings
Equity method investment earnings were$6.5 million and$12.3 million for the first quarter of fiscal 2021 and 2020, respectively. Results for the first quarter of fiscal 2020 included a gain of$5.4 million related to the sale of an asset by the Ardent Mills joint venture.
Earnings Per Share
Diluted earnings per share in the first quarter of fiscal 2021 and 2020 were$0.67 and$0.36 , respectively. 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
Our primary financing objective is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives. If necessary, 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), and a combination of equity and long-term debt to finance both our base working capital needs and our non-current assets. We are committed to maintaining solid investment grade credit ratings. AtAugust 30, 2020 , 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). We have historically used a credit facility principally as a back-up for our commercial paper program. As ofAugust 30, 2020 , there were no outstanding borrowings under the Revolving Credit Facility. We had no amounts outstanding under our commercial paper program as ofAugust 30, 2020 , andMay 31, 2020 . We did not borrow under the commercial paper program during the first quarter of fiscal 2021. During the first quarter of fiscal 2021, we repaid the remaining outstanding$126.6 million aggregate principal amount of our 4.95% senior notes on their maturity date ofAugust 15, 2020 . During the fourth quarter of fiscal 2020, we entered into an unsecured term loan agreement (the "Credit Agreement") with a financial institution. The Credit Agreement provides for delayed draw term loans to the Company in an aggregate principal amount not in excess of$600 million (subject to increase to a maximum aggregate principal amount of$750 million ). Borrowings under the Credit Agreement can be drawn, in full or in part, throughOctober 9, 2020 . The Credit Agreement matures onMay 21, 2023 . As ofAugust 30, 2020 , there were no outstanding borrowings under the Credit Agreement. 30 -------------------------------------------------------------------------------- Borrowings under the Credit Agreement will bear interest at, at the Company's election, either (a) LIBOR plus a percentage spread (ranging from 1.125% to 1.75%) based on the Company's senior unsecured long-term indebtedness ratings or (b) the alternate base rate, described in the Credit Agreement as the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) one-month LIBOR plus 1.00%, plus a percentage spread (ranging from 0% to 0.625%) based on the Company's senior unsecured long-term indebtedness ratings. The Company may voluntarily prepay term loans under the Credit Agreement, in whole or in part, without penalty, subject to certain conditions. We have$718.7 million of long-term debt maturing in the next 12 months. We are committed to continuing our de-leveraging efforts during fiscal 2021 and we expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt upon maturity, from operating cash flows, our undrawn Credit Agreement, 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 the first quarter 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 earnings before interest, taxes, depreciation, and amortization ("EBITDA") to interest expense be not less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to exceed certain decreasing specified levels, ranging from 5.25 through the first quarter of fiscal 2021 to 3.75 from the second quarter of fiscal 2023 and thereafter, with each ratio to be calculated on a rolling four-quarter basis. As ofAugust 30, 2020 , we were in compliance with these financial covenants. 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. We plan to repurchase shares under our authorized program only at times and in amounts as are consistent with the prioritization of achieving our leverage targets. The Company's total remaining share repurchase authorization as ofAugust 30, 2020 was$1.41 billion . OnSeptember 3, 2020 , the Company paid a quarterly dividend payment of $0.2125 per share to stockholders of record as of the close of business onAugust 4, 2020 . Subsequent to quarter-end, our Board approved a 29% increase to our quarterly dividend payment to$0.275 per share to be paid onDecember 2, 2020 , to stockholders of record as of the close of business onNovember 2, 2020 .
Cash Flows
During the first quarter of fiscal 2021, we used$115.1 million of cash, which was the net result of$284.5 million generated from operating activities,$142.9 million used in investing activities,$259.6 million used in financing activities, and an increase of$2.9 million due to the effects of changes in foreign currency exchange rates. Cash generated from operating activities totaled$284.5 million in the first quarter of fiscal 2021, as compared to$207.0 million generated in the first quarter of fiscal 2020. The increase in operating cash flows for the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 was largely due to the impact of increased sales in our retail segments from COVID-19 pandemic-related demand. This was partially offset by increased tax payments for the first quarter fiscal 2021, compared to fiscal 2020. The increase reflects approximately$47 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 also impacted by the timing of vendor payments made in the first quarter of fiscal 2021, related to expanded inventory purchases in the fourth quarter of fiscal 2020. Operating cash flows benefited from the continued deferral of employer payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act by approximately$15 million , and payment of such amounts will occur in part in fiscal 2022 and 2023. Cash used in investing activities totaled$142.9 million and$107.5 million in the first quarter of fiscal 2021 and 2020, respectively. Net cash outflows from investing activities in the first quarter of fiscal 2021 and 2020 consisted primarily of capital expenditures totaling$145.5 million and$106.6 million , respectively. 31
-------------------------------------------------------------------------------- Cash used in financing activities totaled$259.6 million and$270.8 million in the first quarter of fiscal 2021 and 2020, respectively. Financing activities in the first quarter of fiscal 2021 consisted principally of the repayment of long-term debt totaling$133.4 million and cash dividends paid of$103.5 million . Financing activities in the first quarter of fiscal 2020 consisted primarily of the repayment of long-term debt totaling$205.8 million and cash dividends paid of$103.3 million , partially offset by net short-term borrowings primarily under our commercial paper program of$55.0 million . The Company had cash and cash equivalents of$438.2 million atAugust 30, 2020 and$553.3 million atMay 31, 2020 , of which$71.7 million atAugust 30, 2020 and$80.5 million atMay 31, 2020 was held in foreign countries. We believe that our foreign subsidiaries have invested or will invest any undistributed earnings indefinitely, or that any undistributed earnings will be remitted in a tax-neutral transaction, and, therefore, do not provide deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries.
We continue to make investments in our business and operating facilities. Our
estimate of capital expenditures for fiscal 2021 is approximately
Management believes that existing cash balances, cash flows from operations, existing credit facilities, and access to capital markets will provide sufficient liquidity to meet our repayment of debt, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months. OBLIGATIONS AND COMMITMENTS As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as lease agreements, debt agreements, and unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-pay" contracts). The unconditional purchase obligation arrangements are entered into in our normal course of business in order to ensure adequate levels of sourced product are available. Of these items, debt, notes payable, finance lease obligations, and operating lease obligations were recognized as liabilities in the Condensed Consolidated Balance Sheets contained in this report as ofAugust 30, 2020 . A summary of our contractual obligations as ofAugust 30, 2020 was as follows: Payments Due by Period (in millions) More than 5
Contractual Obligations Total Less than 1 Year 1-3 Years 3-5 Years Years Long-term debt$ 9,504.9 $ 695.9$ 2,287.0 $ 1,000.1 $ 5,521.9 Finance lease obligations 150.9 22.8 39.4 28.2 60.5 Operating lease obligations 284.8 50.6 76.1 43.9 114.2 Purchase obligations1 and other contracts 1,489.2 1,281.9 114.6 59.9 32.8 Notes payable 0.6 0.6 - - - Total$ 11,430.4 $ 2,051.8$ 2,517.1 $ 1,132.1 $ 5,729.4 1Amounts include open purchase orders and agreements, some of which are not legally binding and/or may be cancellable. Such agreements are generally settleable in the ordinary course of business in less than one year. Purchase obligations and other contracts, which totaled$1.47 billion as ofAugust 30, 2020 , were not recognized as liabilities in the Condensed Consolidated Balance Sheets contained in this report, in accordance with generally accepted accounting principles. We are also contractually obligated to pay interest on our long-term debt and finance lease obligations. The weighted average coupon interest rate of the long-term debt obligations outstanding as ofAugust 30, 2020 was approximately 4.7%.
The operating lease obligations noted in the table above have not been reduced
by non-cancellable sublease rentals of
As ofMay 31, 2020 , we had aggregate unfunded pension and postretirement benefit obligations totaling$52.1 million and$86.4 million , respectively. These amounts are not included in the table above as the unfunded obligations are remeasured each fiscal year, thereby resulting in our inability to accurately predict the ultimate amount and timing of any future required contributions to such plans. Based on current statutory requirements, we are not obligated to fund any amount to our qualified pension plans during the next twelve months. We estimate that we will make payments of approximately$32.2 million and$10.0 million over the next twelve months to fund our pension and postretirement plans, respectively. See Note 12 "Pension and Postretirement Benefits", to the Condensed Consolidated Financial Statements contained in this report and Note 18 "Pension and Postretirement Benefits", to the Consolidated Financial Statements and "Critical Accounting Estimates - Employment-Related Benefits" contained in the Company's Annual Report on 32 --------------------------------------------------------------------------------
Form 10-K for the year ended
As part of our ongoing operations, we also enter into arrangements that obligated us to make future cash payments only upon the occurrence of a future event. As ofAugust 30, 2020 , we had$54.6 million of standby letters of credit issued on our behalf. These standby letters of credit are primarily related to our self-insured workers compensation programs and are not reflected in the Condensed Consolidated Balance Sheets contained in this report. In certain limited situations, we will guarantee an obligation of an unconsolidated entity. We guarantee certain leases resulting from the divestiture of theJM Swank business completed in the first quarter of fiscal 2017. As ofAugust 30, 2020 , the remaining terms of these arrangements did not exceed three years and the maximum amount of future payments we have guaranteed was$0.4 million . In addition, we guarantee a certain lease resulting from an exited facility. As ofAugust 30, 2020 , the remaining term of this arrangement did not exceed seven years and the maximum amount of future payments we have guaranteed was$15.8 million . We also guarantee an obligation of the Lamb Weston business pursuant to a guarantee arrangement that existed prior to the spinoff of the Lamb Weston business (the "Spinoff") and remained in place following completion of the Spinoff until such guarantee obligation is substituted for guarantees issued by Lamb Weston. Pursuant to the Separation and Distribution Agreement, dated as ofNovember 8, 2016 (the "Separation Agreement"), between us and Lamb Weston, this guarantee arrangement is deemed a liability of Lamb Weston that was transferred to Lamb Weston as part of the Spinoff. Accordingly, in the event that we are required to make any payments as a result of these guarantee arrangement, Lamb Weston is obligated to indemnify us for any such liability, reduced by any insurance proceeds received by us, in accordance with the terms of the indemnification provisions under the Separation Agreement. Lamb Weston is a party to an agricultural sublease agreement with a third party for certain farmland through 2020 (subject, at Lamb Weston's option, to extension for two additional five-year periods). Under the terms of the sublease agreement, Lamb Weston is required to make certain rental payments to the sublessor. We have guaranteed the sublessor Lamb Weston's performance and the payment of all amounts (including indemnification obligations) owed by Lamb Weston under the sublease agreement, up to a maximum of$75.0 million . We believe the farmland associated with this sublease agreement is readily marketable for lease to other area farming operators. As such, we believe that any financial exposure to the Company, in the event that we were required to perform under the guarantee, would be largely mitigated. The obligations and commitments disclosed above do not include any reserves for uncertainties in income taxes, as we are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes. The liability for gross unrecognized tax benefits atAugust 30, 2020 was$34.4 million . The net amount of unrecognized tax benefits atAugust 30, 2020 , that, if recognized, would impact our effective tax rate was$29.1 million . Recognition of these tax benefits would have a favorable impact on our effective tax rate. CRITICAL ACCOUNTING ESTIMATES
A discussion of our critical accounting estimates can be found in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section in Part II, Item 7, of our Annual Report on Form 10-K for
the fiscal year ended
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