CONAGRA BRANDS INC. (CAG)

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 26, 2024 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: risks associated with general economic and industry conditions, including inflation, reduced consumer confidence and spending, recessions, increased energy costs, supply chain challenges, labor shortages, and geopolitical conflicts; 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 the Company’s competitive environment, cost structure, and related market conditions; risks related to our ability to execute operating and value creation plans and achieve returns on our investments and targeted operating efficiencies from cost-saving initiatives, and to benefit from trade optimization programs; risks related to the availability and prices of commodities and other supply chain resources, including raw materials, packaging, energy, and transportation, weather conditions, health pandemics or outbreaks of disease, actual or threatened hostilities or war, or other geopolitical uncertainty; risks related to our ability to respond to changing consumer preferences and the success of our innovation and marketing investments; risks associated with actions by our customers, including changes in distribution and purchasing terms; risks related to the effectiveness of our hedging activities and ability to respond to volatility in commodities; disruptions or inefficiencies in our supply chain and/or operations; risks related to the ultimate impact of, including reputational harm caused by, any product recalls and product liability or labeling litigation, including litigation related to lead-based paint and pigment and cooking spray;  risks related to the seasonality of our business; risks associated with our co-manufacturing arrangements and other third-party service provider dependencies; risks associated with actions of governments and regulatory bodies that affect our businesses, including the ultimate impact of new or revised regulations or interpretations including to address climate change or implement changes to taxes and tariffs; risks related to the Company’s ability to execute on its strategies or achieve expectations related to environmental, social, and governance matters, including as a result of evolving legal, regulatory, and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs, the availability of requisite financing, and changes in carbon pricing or carbon taxes; risks related to a material failure in or breach of our or our vendors’ information technology systems and other cybersecurity incidents; risks related to our ability to identify, attract, hire, train, retain and develop qualified personnel; risk of increased pension, labor or people-related expenses; risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges; risk relating to our ability to protect our intellectual property rights; risks relating to acquisition, divestiture, joint venture or investment activities; the amount and timing of future dividends, which

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remain subject to Board approval and depend on market and other conditions; the amount and timing of future stock repurchases; and other risks described in our reports filed from time to time with the Securities and Exchange Commission (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 2024 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 in Chicago, is one of North America’s leading branded food companies. We combine a 100-year history of making quality food with agility and a relentless focus on collaboration and innovation. The company’s portfolio is continuously evolving to satisfy consumers’ ever-changing food preferences. Conagra’s brands include Birds Eye®, Duncan Hines®, Healthy Choice®, Marie Callender’s®, Reddi-wip®, Slim Jim®, Angie’s® BOOMCHICKAPOP®, and many more.

Fiscal 2024 Results

Fiscal 2024 performance compared to fiscal 2023 reflected a decrease in net sales, with organic (excludes the impacts of foreign exchange) decreases in our Grocery & Snacks and Refrigerated & Frozen segments, partially offset by increases in our International and Foodservice segments. The overall decrease in net sales was primarily due to lower consumption trends, consumer behavior shifts, and strategic trade investment as consumers continue to adapt to the current environment of new reference prices. Overall gross profit increased primarily as a result of higher productivity, lower transportation costs, and lower inventory write-offs, which were partially offset by input cost inflation, lower net sales, and unfavorable operating leverage. Excluding items impacting comparability, overall segment operating profit increased in our Grocery & Snacks, International, and Foodservice segments, which was more than offset by a decrease in our Refrigerated & Frozen segment. Corporate expenses were lower primarily due to lower share-based payment expense and items impacting comparability, as discussed below. Selling, general and administrative ("SG&A") expenses were higher due primarily to items impacting comparability and higher payroll and incentive compensation expense. We recognized lower equity method investment earnings, higher interest expense, and higher income tax expense, in each case compared to fiscal 2023. Excluding items impacting comparability, our effective tax rate was slightly lower compared to fiscal 2023.

Diluted earnings per share were $0.72 and $1.42 in fiscal 2024 and 2023, respectively. Diluted earnings per share were affected by lower net income as well as several significant items affecting the comparability of year-over-year results (see “Items Impacting Comparability” below).

Trends Impacting our Business

Our industry continues to be impacted by commodity cost fluctuations, labor cost inflation, input cost inflation, supply chain disruptions, and other global macroeconomic challenges. While in recent years we experienced material increases to input costs and supply chain disruptions, during fiscal 2024, we experienced a moderate amount of input cost inflation and increased supply chain stability, which we expect to continue throughout fiscal 2025.

We also have experienced a reduction to our volumes due to lower consumption trends seen throughout the industry and consumer behavior shifts, including retail channel preferences. We expect consumer trends to continue to evolve and our volumes to improve over time, however, economic pressures on consumers, including the challenges of high inflation, may continue to negatively impact our volumes throughout fiscal 2025. We will continue to evaluate the evolving macroeconomic environment to take action to mitigate the impact on our business, consolidated results of operations, and financial condition.

Items Impacting Comparability

Items of note impacting comparability of results for fiscal 2024 included the following:

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Items of note impacting comparability of results for fiscal 2023 included the following:

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.

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.

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.

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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 17, “Derivative Financial Instruments”, 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 26, 2024 and May 28, 2023. For a discussion of changes from the fiscal year ended May 29, 2022 to the fiscal year ended May 28, 2023, 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 28, 2023 (filed July 13, 2023).

Fiscal 2024 compared to Fiscal 2023

Net Sales

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Net sales for fiscal 2024 in our Grocery & Snacks segment included a decrease in volumes of 3.1% compared to fiscal 2023 primarily due to the elasticity impact from inflation-driven pricing actions and lower consumption trends seen throughout the industry. Price/mix increased by 2.6% compared to fiscal 2023 primarily due to favorable brand mix and favorability in inflation-driven pricing, partially offset by an increase in strategic trade investments. In fiscal 2023, we had a product recall primarily related to our Armour Star® brand, which resulted in a $7.8 million reduction to net sales for customer returns and fees in addition to estimated lost sales of approximately $40 million.

Net sales for fiscal 2024 in our Refrigerated & Frozen segment included a decrease in volumes of 4.1% compared to fiscal 2023 primarily due to lower consumption trends seen throughout the industry partially offset by the impacts of our strategic trade investments. Price/mix decreased by 1.5% compared to fiscal 2023 primarily attributable to an increase in strategic trade investments slightly offset by favorability in inflation-driven pricing that was implemented in the prior year.

Net sales for fiscal 2024 in our International segment reflected a 2.9% increase due to favorable foreign exchange rates, a 2.6% increase in volumes, and a 2.1% increase in price/mix, in each case compared to fiscal 2023. The increase in volumes was driven by growth in our Mexico business compared to fiscal 2023. The increase in price/mix was primarily due to favorability in inflation-driven pricing that was implemented in the prior year.

Net sales for fiscal 2024 in our Foodservice segment included an increase in price/mix of 6.7% compared to fiscal 2023, reflecting inflation-driven pricing. Volumes decreased by 5.7% compared to fiscal 2023. The decrease in volumes was driven by the ongoing impact of lost business, ongoing softness in restaurant traffic, and the elasticity impact from inflation-driven pricing actions.

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SG&A Expenses (Includes general corporate expenses)

SG&A expenses totaled $2.48 billion for fiscal 2024, an increase of $291.1 million compared to fiscal 2023. SG&A expenses for fiscal 2024 reflected the following:

Items impacting comparability of earnings

Other changes in expenses compared to fiscal 2023

SG&A expenses for fiscal 2023 included the following items impacting the comparability of earnings:

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Segment Operating Profit (Loss) (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings)

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Operating profit in our Grocery & Snacks segment for fiscal 2024 reflected an increase in gross profits of $30.8 million compared to fiscal 2023. The higher gross profit was due to inflation driven pricing that was primarily implemented in the prior year, productivity, lower transportation costs, lower inventory write-offs, and a net benefit of $14.4 million related to insurance proceeds received for lost sales from our Armour Star® brand recall. These increases were partially offset by the impacts of input cost inflation and unfavorable fixed cost leverage. The increase in gross profits was partially offset by higher SG&A expenses, including an increase of $10.0 million in advertising and promotion expenses. Operating profit of the Grocery & Snacks segment included certain brand intangible impairment charges of $77.6 million and $78.9 million in fiscal 2024 and 2023, respectively. Fiscal 2024 and 2023 included charges of $10.3 million and $0.6 million, respectively, related to our restructuring plans. Fiscal 2023 included expenses of $3.5 million related to a municipal water break that impacted one of our production facilities.

Operating profit in our Refrigerated & Frozen segment for fiscal 2024 reflected a decrease in gross profits of $95.0 million compared to fiscal 2023. The decrease was driven by the net sales decline discussed above, impacts of input cost inflation, and unfavorable fixed cost leverage, partially offset by productivity, lower transportation costs, and lower inventory write-offs. Operating profit of the Refrigerated & Frozen segment included higher SG&A expenses compared to fiscal 2023, which included a decrease of $19.3 million in advertising and promotion expenses. The segment was impacted by charges of $879.1 million and $252.6 million related to the impairment of goodwill and certain brand intangible assets as part of our annual impairment testing during fiscal 2024 and 2023, respectively. Fiscal 2023 also included charges of $385.7 million related to the goodwill and Birds Eye® brand impairments in connection with certain reporting unit changes within our Refrigerated & Frozen segment. Fiscal 2024 and 2023 included $32.1 million and $5.1 million, respectively, of charges related to our restructuring plans. Fiscal 2024 and 2023 included a net benefit of $2.8 million and net charges of $15.3 million, respectively, associated with fires occurring at certain of our manufacturing facilities and related insurance recoveries. Operating profit in fiscal 2023 was also impacted by $4.2 million of incremental transportation costs and inventory write-offs as a result of supply chain disruptions caused by a third-party vendor’s system shutdown in connection with the third party experiencing a cybersecurity incident and $5.7 million related to the impairment of businesses previously held for sale.

Operating profit in our International segment for fiscal 2024 reflected an increase in gross profits of $32.9 million compared to fiscal 2023, reflecting the net sales growth discussed above and productivity, partially offset by the impacts of input cost inflation. The increase in gross profits was partially offset by higher SG&A expenses, including an increase of $6.3 million in advertising and promotion expenses. Operating profit in fiscal 2024 included charges of $36.4 million related to the impairment of a business held for sale and $20.8 million of net charges related to our restructuring plans. Fiscal 2023 was impacted by charges of $13.7 million related to the impairment of certain brand intangible assets.

Operating profit in our Foodservice segment for fiscal 2024 reflected an increase in gross profits of $46.7 million compared to fiscal 2023. The increase in gross profit was driven by the net sales growth discussed above, productivity, and lower transportation costs, partially offset by the impacts of input cost inflation and unfavorable fixed cost leverage. Operating profit in fiscal 2024 and 2023 was impacted by net benefits of $5.9 million and $1.9 million, respectively, associated with insurance recoveries related to a fire that occurred at one of our manufacturing facilities. Fiscal 2023 included expense of $20.5 million related to the impairment of businesses previously held for sale.

Pension and Postretirement Non-service Income

In fiscal 2024, pension and postretirement non-service income was $10.3 million, a decrease of $13.9 million compared to fiscal 2023. Fiscal 2024 reflected higher interest costs, partially offset by a benefit of $11.5 million related primarily to our annual remeasurement of an hourly pension plan liability.

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Interest Expense, Net

In fiscal 2024, net interest expense was $430.5 million, an increase of $20.9 million, or 5.1%, from fiscal 2023. The increase was driven by a higher weighted average interest rate on outstanding debt. See Note 3, “Long-Term Debt”, to the Consolidated Financial Statements contained in this report for further discussion.

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 $177.6 million and $212.0 million for fiscal 2024 and 2023, respectively. Ardent Mills earnings for fiscal 2024 reflected slightly lower volume trends as seen throughout the industry, partially offset by improved product margins.

Income Taxes

Our income tax expense was $262.5 million and $218.7 million in fiscal 2024 and 2023, 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 43.0% and 24.2% for fiscal 2024 and 2023, respectively. The higher effective tax rate was largely due to the goodwill impairment that we recorded in our Sides, Components, Enhancers reporting unit. See Note 14, “Pre-Tax Income and Income Taxes”, to the Consolidated Financial Statements contained in this report for a further discussion on the change in effective tax rates.

We expect our effective tax rate in fiscal 2025, exclusive of any unusual transactions or tax events, to be approximately 23-24%.

Earnings Per Share

Diluted earnings per share in fiscal 2024 and 2023 were $0.72 and $1.42, respectively. The decrease in diluted earnings per share reflected lower net income. 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 and other payables, accrued payroll, and other accrued liabilities). We strive to maintain 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, other contractual obligations, and payment of anticipated quarterly dividends for at least the next twelve months and the foreseeable future thereafter.

Borrowing Facilities and Long-Term Debt

At May 26, 2024, 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 $2.0 billion (subject to increase to a maximum aggregate principal amount of $2.5 billion with the consent of the lenders). The Revolving Credit Facility matures on August 26, 2027 and is unsecured. The Company may request the term of the Revolving Credit Facility 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 26, 2024, there were no outstanding borrowings under the Revolving Credit Facility.

We had $586.0 million outstanding under our commercial paper program as of May 26, 2024 and $576.0 million outstanding as of May 28, 2023. The highest level of borrowings during fiscal 2024 was $697.0 million.

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During the fourth quarter of fiscal 2024, we entered into an unsecured Term Loan with a financial institution and borrowed the full principal amount, $300.0 million, available thereunder (the “2024 Term Loan”). The net proceeds, along with the issuance of commercial paper and operating cash flows, were used to repay the $1.00 billion aggregate principal amount of our 4.30% senior notes on their maturity date of May 1, 2024. The 2024 Term Loan matures on April 29, 2025.

During the second quarter of fiscal 2024, we prepaid $250.0 million of the $500.0 million aggregate principal amount outstanding under our unsecured Term Loan Agreement, dated August 26, 2023 (the "2023 Term Loan"). The repayment was funded by operating cash flows and the issuance of commercial paper. The remaining balance of the 2023 Term Loan matures on August 26, 2025.

During the first quarter of fiscal 2024, we issued $500.0 million aggregate principal amount of 5.30% senior notes due October 1, 2026. The net proceeds, along with operating cash flows, were used to repay the outstanding $500.0 million aggregate principal amount of our 0.50% senior notes on their maturity date of August 11, 2023.

Additional information about our long-term debt balances as of May 26, 2024 can be found in Note 3, “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 26, 2024, was approximately 4.9%.

We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt at maturity or otherwise, 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 2024, 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 not be less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to exceed 4.5 to 1.0. Each ratio is to be calculated on a rolling four-quarter basis. As of May 26, 2024, we were in compliance with all financial covenants.

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 our current 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 did not repurchase any shares of common stock during fiscal 2024. The Company’s total remaining share repurchase authorization as of May 26, 2024 was $916.6 million.

On April 11, 2024, we announced that our Board had authorized a quarterly dividend payment of $0.35 per share, which was paid on May 30, 2024, to stockholders of record as of the close of business on April 30, 2024. Subsequent to our fiscal year end, on July 11, 2024, we announced that our Board had authorized a quarterly dividend of $0.35 per share to be paid on August 29, 2024 to stockholders of record as of the close of business on August 1, 2024.

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 lease payments, income taxes, pension and postretirement benefits, and unconditional purchase obligations.

A summary of our operating and finance lease obligations as of May 26, 2024 can be found in Note 15, “Leases”, to the Consolidated Financial Statements contained in this report.

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The liability for gross unrecognized tax benefits related to uncertain tax positions was $21.7 million as of May 26, 2024. 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 26, 2024, we had an aggregate funded pension asset of $164.2 million and an aggregate unfunded postretirement benefit obligation totaling $44.4 million. We expect to make payments totaling approximately $11.7 million and $6.6 million in fiscal 2025 to fund our pension and postretirement plans, respectively. See Note 18, “Pension and Postretirement Benefits”, to the Consolidated Financial Statements and “Critical Accounting Estimates – Employee-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 26, 2024, 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 $2.53 billion. Approximately $1.80 billion of this balance is due in fiscal 2025. Included in this amount are open purchase orders and other supply agreements totaling approximately $1.49 billion, which are generally settleable in the ordinary course of business in less than one year. Warehousing service agreements totaling approximately $562 million make up a majority of our remaining unconditional purchase obligations with various terms of up to 10 years.

We expect to have sufficient cash flows from the above cited sources to meet the material cash requirements of these contractual obligations as they become settleable in the ordinary course of business.

Capital Expenditures

We continue to make investments in our business and operating facilities. Our preliminary estimate of capital expenditures for fiscal 2025 is approximately $500 million.

Cash Flows

In fiscal 2024, we used $14.9 million of cash, which was the net result of $2.02 billion generated from operating activities, $375.0 million used in investing activities, $1.66 billion used in financing activities, and an increase of $1.2 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities totaled $2.02 billion in fiscal 2024, as compared to $995.4 million generated in fiscal 2023. The increase in operating cash flows for fiscal 2024 compared to fiscal 2023 was primarily driven by a reduction in our inventory balances, which were impacted by lower net sales volumes in addition to an inventory rebuild from previous supply chain constraints in fiscal 2023. Other changes in working capital were positively impacted by decreased accounts receivables and extended payment terms with certain vendors resulting in reduced cash outflows for accounts and other payables. Operating cash flows in fiscal 2024 also benefited from higher dividend payments received from one of our equity method investments.

Cash used in investing activities totaled $375.0 million in fiscal 2024 compared to $354.9 million in fiscal 2023. Net cash outflows from investing activities in fiscal 2024 and 2023 consisted primarily of capital expenditures totaling $388.1 million and $362.2 million, respectively.

Cash used in financing activities totaled $1.66 billion in fiscal 2024 compared to $631.6 million in fiscal 2023. Financing activities in fiscal 2024 principally reflected repayments of long-term debt of $1.77 billion, the issuance of long-term debt totaling $500.0 million, net short-term borrowing issuances of $290.6 million, and cash dividends paid of $659.3 million. Financing activities in fiscal 2023 reflected repayments of long-term debt of $712.4 million, the issuance of long-term debt totaling $500.0 million, net short-term borrowing issuances of $351.4 million, cash dividends paid of $623.8 million, and common stock repurchases of $150.0 million.

Cash Held by International Subsidiaries

The Company had cash and cash equivalents of $77.7 million at May 26, 2024, and $93.3 million at May 28, 2023, of which $66.7 million at May 26, 2024, and $84.9 million at May 28, 2023, was held in foreign countries. A deferred tax liability is provided for certain undistributed foreign earnings that are not considered to be indefinitely reinvested or cannot be remitted in a tax-neutral transaction. Other undistributed foreign earnings are invested indefinitely and therefore we have not provided deferred taxes on those earnings.

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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.

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 include 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 $120.4 million as of May 26, 2024. 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.

Employee-Related Benefits—We incur certain employment-related expenses associated with our pension plans. In order to measure the annual expense associated with these pension 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, employee turnover rates, and anticipated mortality rates. 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 pension benefits. Different estimates used by management could result in us recognizing different amounts of expense over different periods of time.

The Company uses 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 $95.9 million and $101.6 million as of the end of fiscal 2024 and 2023, respectively. We also have recognized a pension asset of $260.1 million and $249.9 million as of the end of fiscal 2024 and 2023, respectively, as certain individual plans of the Company had a positive funded status.

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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 accounting principles generally accepted in the United States of America.

We recognized a pension benefit from Company plans of $0.6 million, $13.9 million, and $54.4 million in fiscal 2024, 2023, and 2022, respectively. Such amounts reflect the year-end write-off of actuarial losses (gains) in excess of 10% of our pension liability of $(12.5) million, $0.1 million, and $(2.9) million in fiscal 2024, 2023, and 2022, respectively. This also reflected expected returns on plan assets of $141.3 million, $145.9 million, and $145.4 million in fiscal 2024, 2023, and 2022, respectively. We contributed $12.2 million, $12.5 million, and $11.5 million to our pension plans in fiscal 2024, 2023, and 2022, respectively. We anticipate contributing approximately $11.7 million to our pension plans in fiscal 2025.

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 weighted-average discount rate selected by us for determination of the interest cost component of our pension expense was 5.41% for fiscal 2024, 4.09% for fiscal 2023, and 2.29% for fiscal 2022. The weighted-average discount rate selected by us for determination of the service cost component of our pension expense was 5.60% for fiscal 2024, 4.74% for fiscal 2023, and 3.50% for fiscal 2022. We selected a weighted-average discount rate of 5.72% and 5.51% for determination of service and interest expense, respectively, for fiscal 2025. A 25-basis point increase in our discount rate assumption as of the end of fiscal 2024 would increase our annual pension expense for our pension plans by $2.5 million. A 25-basis point decrease in our discount rate assumption as of the end of fiscal 2024 would decrease our annual pension expense for our pension plans by $2.6 million. For our year-end pension obligation determination, we selected discount rates of 5.58% and 5.50% for fiscal years 2024 and 2023, 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 5.00% for the weighted-average expected long-term rate of return on plan assets for determining our fiscal 2024 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 2024 would decrease/increase annual pension expense for our pension plans by $7.1 million. A 25-basis point increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2025 would decrease/increase annual pension expense for our pension plans by $6.6 million. We selected a weighted-average expected rate of return on plan assets of 5.53% to be used to determine our pension expense for fiscal 2025.

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 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 for property, plant and equipment. 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.

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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 estimated using a “relief from royalty” methodology for our indefinite-lived intangible assets and is typically estimated using a discounted cash flow method for our goodwill, which requires us to estimate the future cash flows anticipated to be generated by the particular reporting unit being tested for impairment as well as to select a discount rate to measure the present value of the anticipated cash flows. In certain circumstances, we also utilize a guideline public company method which is based on market multiples and our estimated EBITDA that considers public companies that are comparable to our reporting units. When determining future cash flow estimates under the guideline public company method or discounted cash flow method, 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 selected EBITDA multiples and future cash flows could produce different impairment amounts (or none at all) for goodwill and indefinite-lived intangible assets. For further information on our indefinite-lived intangible assets and goodwill, see Note 1, “Summary of Significant Accounting Policies”, to the Consolidated Financial Statements contained in this report.

As of May 26, 2024, we have goodwill of $10.58 billion, indefinite-lived intangibles of $2.03 billion and definite-lived intangibles of $681.6 million. Historically, we have experienced material impairments in brand intangibles and goodwill as a result of declining sales, reductions to our assumed royalty rates due to lower-than-expected profit margins, and other economic conditions such as increases to interest rates. In the fourth quarter of fiscal 2024, we recorded goodwill impairments of $526.5 million in our Sides, Components, Enhancers reporting unit. The carrying value in our Sides, Components, Enhancers reporting unit was approximately $3.2 billion as of our fiscal 2024 annual impairment testing date and was the only reporting unit with 10% or less excess fair value over carrying value as of that date. For our Sides, Components, Enhancers reporting unit, we selected a discount rate of 8.50% and a long-term growth rate that approximated 1%.

In fiscal 2024, 2023, and 2022, we recorded total indefinite-lived intangibles impairments of $430.2 million, $589.2 million, and $209.0 million, respectively, primarily related to brands acquired as part of the Pinnacle acquisition 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 gross margin improvement and long-term sales growth. Discount rates, long-term growth rates, and royalty rates used to estimate the fair value of our domestic retail brands with 10% or less excess fair value over carrying amount as of the fiscal 2024 annual impairment test were as follows:

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Assumptions used in impairment testing are made at a point in time and require significant judgment; therefore, they are subject to change based upon the facts and circumstances present at each annual impairment test date. Additionally, these assumptions are generally interdependent and do not change in isolation. However, as it is reasonably possible that changes in assumptions could occur, as a sensitivity measure, we have presented the estimated effects of isolated changes in discount rates, long-term growth rates, and royalty rates on the fair value of our reporting unit and brands with 10% or less excess fair value over carrying amount. These estimated changes in fair value are not necessarily representative of the actual impairment that would be recorded in the event of a fair value decline.

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If we had changed the assumptions used to estimate the fair value of our reporting unit and brands with 10% or less excess fair value over carrying amount as of the fiscal 2024 annual impairment test, these isolated changes, which are reasonably possible to occur, would have led to the following increase/(decrease) in the aggregate fair value of this reporting unit and certain brands (in millions):

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosure requirements must be applied retrospectively to all prior periods presented in the financial statements. The effective date for the standard is for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are in the process of analyzing the impact of the ASU on our related disclosures.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, to provide more detailed income tax disclosure requirements. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as information on income taxes paid. The disclosure requirements will be applied on a prospective basis, with the option to apply it retrospectively. The effective date for the standard is for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are in the process of analyzing the impact of the ASU on our related disclosures.

In March 2024, the Securities and Exchange Commission ("SEC") issued final climate-related disclosure rules that will require disclosure of material climate-related risks and material direct greenhouse gas emissions from operations owned or controlled (Scope 1) and/or material indirect greenhouse gas emissions from purchased energy consumed in owned or controlled operations (Scope 2). Additionally, the rules require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds. In April 2024, the SEC stayed its implementation of this rule pending the outcome of legal challenges. However, we continue to monitor developments and analyze the potential impact of the new rules on our related disclosures.

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 28, 2023 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: risks associated with general economic and industry conditions, including inflation, rising interest rates, decreased availability of capital, volatility in financial markets, declining consumer spending rates, recessions, decreased energy availability, increased energy costs (including fuel surcharges), supply chain challenges, labor shortages, and geopolitical conflicts (including the ongoing conflict between Russia and Ukraine); negative impacts caused by public health crises; 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 the Company's competitive environment, cost structure, and related market conditions; risks related to our ability to execute operating and value creation plans and achieve returns on our investments and targeted operating efficiencies from cost-saving initiatives, and to benefit from trade optimization programs; risks related to the availability and prices of commodities and other supply chain resources, including raw materials, packaging, energy, and transportation, including any negative effects caused by changes in levels of inflation and interest rates, weather conditions, health pandemics or outbreaks of disease, actual or threatened hostilities or war, or other geopolitical uncertainty; risks related to the effectiveness of our hedging activities and ability to respond to volatility in commodities;   disruptions or inefficiencies in our supply chain and/or operations; risks related to the ultimate impact of, including reputational harm caused by, any product recalls and product liability or labeling litigation, including litigation related to lead-based paint and pigment and cooking spray;  risks related to our ability to respond to changing consumer preferences and the success of our innovation and marketing investments; risks associated with actions by our customers, including changes in distribution and purchasing terms; risks related to the seasonality of our business; risks associated with our co-manufacturing arrangements and other third-party service provider dependencies; risks associated with actions of governments and regulatory bodies that affect our businesses, including the ultimate impact of new or revised regulations or interpretations including to address climate change or implement changes to taxes and tariffs; risks related to the Company's ability to execute on its strategies or achieve expectations related to environmental, social, and governance matters, including as a result of evolving legal, regulatory, and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs, the availability of requisite financing, and changes in carbon pricing or carbon taxes; risks related to a material failure in or breach of our or our vendors' information technology systems and other cybersecurity incidents; risks related to our ability to identify, attract, hire, train, retain and develop qualified personnel; risk of increased pension, labor or people-related expenses; risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges; risk relating to our ability to protect our intellectual property rights; risks relating to acquisition, divestiture, joint venture or investment activities; 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 Securities and Exchange Commission (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 2023 are not necessarily indicative of results that may be attained in the future.

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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®, Marie Callender's®, Duncan Hines®, Healthy Choice®, Slim Jim®, and Reddi-wip®, as well as emerging brands, including Angie's® BOOMCHICKAPOP®, Duke's®, Earth Balance®, Gardein®, and Frontera®, offer choices for every occasion.

Fiscal 2023 Results

Fiscal 2023 performance compared to fiscal 2022 reflected an increase in net sales, with organic (excludes the impacts of foreign exchange) increases in all of our operating segments. Overall gross profit increased primarily as a result of higher net sales, productivity, and lower transportation costs, which were partially offset by input cost inflation, unfavorable operating leverage, and elevated supply chain operating costs. Excluding items impacting comparability, overall segment operating profit increased in all of our operating segments. Corporate expenses were higher primarily due to items impacting comparability, as discussed below, in addition to higher share-based payment expense. Selling, general and administrative ("SG&A") expenses were also higher due to items impacting comparability, in addition to higher advertising and promotional expenses. We recognized higher equity method investment earnings, higher interest expense, and lower income tax expense, in each case compared to fiscal 2022. Excluding items impacting comparability, our effective tax rate was slightly higher compared to fiscal 2022.

Diluted earnings per share were $1.42 and $1.84 in fiscal 2023 and 2022, respectively. Diluted earnings per share were affected by lower net income as well as several significant items affecting the comparability of year-over-year results (see "Items Impacting Comparability" below).

Trends Impacting our Business

During fiscal 2022 and continuing into fiscal 2023, our industry has been impacted by supply chain disruptions, commodity cost fluctuations, labor market issues, input cost inflation, and other global macroeconomic challenges. While we continued to experience significant input cost inflation throughout fiscal 2023, our pricing actions and supply chain productivity assisted in a 198-basis point recovery to gross margin. While we are seeing some moderation in input cost inflation, we do expect inflationary pressures to persist into fiscal 2024. However, we anticipate continued supply chain productivity and previously implemented pricing actions to mitigate some of the inflationary pressures. We will continue to evaluate the evolving macroeconomic environment to take action to mitigate the impact on our business, consolidated results of operations, and financial condition.

Items Impacting Comparability

Items of note impacting comparability of results for fiscal 2023 included the following:

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Items of note impacting comparability of results for fiscal 2022 included the following:

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.

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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.

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Refrigerated & Frozen

The Refrigerated & Frozen reporting segment principally includes branded, temperature-controlled food products sold in various retail channels in the United States.

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 19, "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 28, 2023 and May 29, 2022. For a discussion of changes from the fiscal year ended May 30, 2021 to the fiscal year ended May 29, 2022, 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 29, 2022 (filed July 21, 2022).

Fiscal 2023 compared to Fiscal 2022

Net Sales

Net sales for fiscal 2023 in our Grocery & Snacks segment included an increase in price/mix of 15% compared to fiscal 2022 due to favorability in inflation-driven pricing. Volumes decreased by 9% compared to fiscal 2022. This result was primarily due to the elasticity impact from inflation-driven pricing actions and shortages from supply chain disruptions. In fiscal 2023, we had a product recall primarily related to our Armour Star® brand, which resulted in a $7.8 million reduction to net sales for customer returns and fees in addition to estimated lost sales of approximately $40 million.

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Net sales for fiscal 2023 in our Refrigerated & Frozen segment included an increase in price/mix of 13% compared to fiscal 2022 due to favorability in inflation-driven pricing. Volumes decreased by 7% compared to fiscal 2022 primarily due to the elasticity impact from inflation-driven pricing actions and shortages from supply chain disruptions.

Net sales for fiscal 2023 in our International segment reflected a 13% increase in price/mix, an 8% decrease in volumes, and a 2% decrease due to unfavorable foreign exchange rates, in each case compared to fiscal 2022. The increase in price/mix was primarily due to favorability in inflation-driven pricing. The decrease in volumes was driven by the elasticity impact from inflation-driven pricing actions.

Net sales for fiscal 2023 in our Foodservice segment included an increase in price/mix of 16% compared to fiscal 2022, reflecting inflation-driven pricing. Volumes decreased by 3% compared to fiscal 2022. The decrease in volumes was driven by the elasticity impact from inflation-driven pricing actions.

SG&A Expenses (Includes general corporate expenses)

SG&A expenses totaled $2.19 billion for fiscal 2023, an increase of $696.7 million compared to fiscal 2022. SG&A expenses for fiscal 2023 reflected the following:

Items impacting comparability of earnings

Other changes in expenses compared to fiscal 2022

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SG&A expenses for fiscal 2022 included the following items impacting the comparability of earnings:

Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings)

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Operating profit in our Grocery & Snacks segment for fiscal 2023 reflected an increase in gross profits of $154.2 million compared to fiscal 2022. The higher gross profit was driven by the net sales growth discussed above, productivity, and lower transportation costs, partially offset by the impacts of input cost inflation, unfavorable fixed cost leverage, higher inventory reserves, and continued elevated supply chain operating costs. The increase in gross profits was partially offset by higher SG&A expenses, including an increase of $17.3 in advertising and promotion expenses. Operating profit of the Grocery & Snacks segment included certain brand intangible impairment charges of $78.9 million and $90.7 million in fiscal 2023 and 2022, respectively. Fiscal 2023 and 2022 included charges of $0.6 million and $9.4 million, respectively, related to our restructuring plans. Fiscal 2023 included expenses of $3.5 million related to a municipal water break that impacted one of our production facilities. Fiscal 2022 included charges of $26.3 million related to the impairment of businesses previously held for sale. Operating profit for fiscal 2023 in our Grocery & Snacks segment was impacted by $7.8 million in charges related to our product recall, discussed above, in addition to estimated lost profits of approximately $14 million.

Operating profit in our Refrigerated & Frozen segment for fiscal 2023 reflected an increase in gross profits of $257.8 million compared to fiscal 2022. The increase was driven by the net sales growth discussed above, productivity, and lower transportation costs, partially offset by the impacts of input cost inflation, unfavorable fixed cost leverage, and continued elevated supply chain operating costs. The increase in gross profits was partially offset by higher SG&A expenses, including an increase of $26.8 million in advertising and promotion expenses. Operating profit of the Refrigerated & Frozen segment was impacted by charges of $252.6 million and $103.9 million related to the impairment of certain brand intangible assets as part of our annual impairment testing during fiscal 2023 and 2022, respectively. Fiscal 2023 also included charges of $385.7 million related to the goodwill and Birds Eye® brand impairments in connection with certain reporting unit changes within our Refrigerated & Frozen segment. Fiscal 2023 and 2022 included $5.1 million and $14.5 million, respectively, of charges related to our restructuring plans and $15.3 million and $2.8 million, respectively, in charges associated with fires occurring at certain of our manufacturing facilities. Operating profit in fiscal 2023 was also impacted by $4.2 million of incremental transportation costs and inventory write-offs as a result of supply chain disruptions caused by a third-party vendor’s system shutdown in connection with the third party experiencing a cybersecurity incident. Operating profit in fiscal 2022 included $28.9 million of charges related to the impairment of businesses previously held for sale.

Operating profit in our International segment for fiscal 2023 reflected an increase in gross profits of $21.4 compared to fiscal 2022, reflecting the net sales growth discussed above and productivity, partially offset by the impacts of input cost inflation, unfavorable fixed cost leverage, and elevated supply chain operating costs. Operating profit of the International segment was impacted by charges of $13.7 million and $14.4 million related to the impairment of certain brand intangible assets during fiscal 2023 and 2022, respectively.

Operating profit in our Foodservice segment for fiscal 2023 reflected an increase in gross profits of $34.1 million compared to fiscal 2022. The increase in gross profit was driven by the net sales growth discussed above and productivity, partially offset by the impacts of input cost inflation, unfavorable fixed cost leverage, and elevated supply chain operating costs. Operating profit in fiscal 2023 and 2022 included expense of $20.5 million and $14.9 million, respectively, related to the impairment of businesses previously held for sale. In addition, fiscal 2023 and 2022 were impacted by a net benefit of $1.9 million and charges of $7.6 million, respectively, associated with fires occurring at certain of our manufacturing facilities and related insurance recoveries.

Pension and Postretirement Non-service Income

In fiscal 2023, pension and postretirement non-service income was $24.2 million, a decrease of $43.1 million compared to fiscal 2022. Fiscal 2023 reflected higher interest costs.

Interest Expense, Net

In fiscal 2023, net interest expense was $409.6 million, an increase of $29.7 million, or 7.8%, from fiscal 2022. The increase was driven by a higher weighted average interest rate on outstanding debt. See Note 3, "Long-Term Debt", to the Consolidated Financial Statements contained in this report for further discussion.

Income Taxes

Our income tax expense was $218.7 million and $290.5 million in fiscal 2023 and 2022, 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 24% and 25% for fiscal 2023 and 2022, respectively. See Note 13, "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.

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We expect our effective tax rate in fiscal 2024, exclusive of any unusual transactions or tax events, to be approximately 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 $212.0 million and $145.3 million for fiscal 2023 and 2022, respectively. Ardent Mills earnings for fiscal 2023 reflected favorable market conditions, including the joint venture’s continued effective management through the recent volatility in the wheat markets.

Earnings Per Share

Diluted earnings per share in fiscal 2023 and 2022 were $1.42 and $1.84, respectively. The decrease in diluted earnings per share reflected lower net income. 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 strive to maintain 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, other contractual obligations, and payment of anticipated quarterly dividends for at least the next twelve months and the foreseeable future thereafter.

Borrowing Facilities and Long-Term Debt

At May 28, 2023, 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 $2.0 billion (subject to increase to a maximum aggregate principal amount of $2.5 billion with the consent of the lenders). The Revolving Credit Facility matures on August 26, 2027 and is unsecured. The Company may request the term of the Revolving Credit Facility 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 28, 2023, there were no outstanding borrowings under the Revolving Credit Facility.

We had $576.0 million outstanding under our commercial paper program as of May 28, 2023, and $180.0 million outstanding as of May 29, 2022. The highest level of borrowings during fiscal 2023 was $718.0 million.

We repaid the remaining outstanding $437.0 million aggregate principal amount of our 3.20% senior notes on their maturity date of January 25, 2023. The repayment was primarily funded by the issuance of commercial paper. We have $500.0 million aggregate principal amount of 0.500% senior notes maturing on August 11, 2023 that we expect to repay with long-term debt and/or cash on hand.

During the first quarter of fiscal 2023, we entered into an unsecured Term Loan Agreement (the "Term Loan Agreement") with a syndicate of financial institutions. The Term Loan Agreement provides for delayed draw term loans to the Company in an aggregate principal amount of up to $500.0 million. The Term Loan Agreement matures on August 26, 2025. During the second quarter of fiscal 2023, we borrowed the full $500.0 million aggregate principal amount available under the Term Loan Agreement. The proceeds were used to repay the full outstanding $250.0 million aggregate principal amount of our 3.25% senior notes on their maturity date of September 15, 2022 as well as to repay outstanding borrowings under our commercial paper program.

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Additional information about our long-term debt balances as of May 28, 2023 can be found in Note 3, "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 28, 2023, was approximately 4.6%.

We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt at maturity or otherwise, 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 2023, 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 4.5 to 1.0. Each ratio is to be calculated on a rolling four-quarter basis. As of May 28, 2023, we were in compliance with all financial covenants.

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 our current 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 2023, we repurchased 4.2 million shares of our common stock under this authorization for an aggregate of $150.0 million. The Company’s total remaining share repurchase authorization as of May 28, 2023, was $916.6 million.

On April 12, 2023, we announced that our Board had authorized a quarterly dividend payment of $0.33 per share, which was paid on June 1, 2023, to stockholders of record as of the close of business on April 28, 2023. Subsequent to our fiscal year end, on July 12, 2023, our Board declared a quarterly dividend of $0.35 per share to be paid on August 31, 2023 to stockholders of record as of the close of business on July 31, 2023, which represents a 6% increase to our annualized dividend rate.

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 lease payments, income taxes, pension and postretirement benefits, and unconditional purchase obligations.

A summary of our operating and finance lease obligations as of May 28, 2023 can be found in Note 14, "Leases", to the Consolidated Financial Statements contained in this report.

The liability for gross unrecognized tax benefits related to uncertain tax positions was $23.7 million as of May 28, 2023. See Note 13, "Pre-Tax Income and Income Taxes", to the Consolidated Financial Statements contained in this report for information related to income taxes.

As of May 28, 2023, we had an aggregate funded pension asset of $148.3 million and an aggregate unfunded postretirement benefit obligation totaling $49.7 million. We expect to make payments totaling approximately $12.1 million and $7.2 million in fiscal 2024 to fund our pension and postretirement plans, respectively. See Note 17, "Pension and Postretirement Benefits", to the Consolidated Financial Statements and "Critical Accounting Estimates – Employee-Related Benefits" contained in this report for further discussion of our pension obligation and factors that could affect estimates of these obligations.

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As of May 28, 2023, 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 $2.58 billion. Approximately $1.72 billion of this balance is due in fiscal 2024. Included in this amount are open purchase orders and other supply agreements totaling approximately $1.45 billion, which are generally settleable in the ordinary course of business in less than one year. Warehousing service agreements totaling approximately $629 million make up a majority of our remaining unconditional purchase obligations with various terms of up to 10 years.

We expect to have sufficient cash flows from the above cited sources to meet the material cash requirements of these contractual obligations as they become settleable in the ordinary course of business.

Capital Expenditures

We continue to make investments in our business and operating facilities. Our preliminary estimate of capital expenditures for fiscal 2024 is approximately $500 million.

Supplier Arrangements

Certain suppliers have access to third-party services that allow them to view our scheduled payments online. These third-party services also allow suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. Balances remain as obligations to our suppliers as stated in our supplier agreements and are either reflected in accounts payable or in notes payable within our Consolidated Balance Sheets depending on the nature of the arrangement. The associated payments are included in net cash flows from operating activities for those balances reflected in accounts payable, whereas the proceeds and payments associated with short-term borrowings are reflected as financing activities within our Consolidated Statements of Cash Flows. As of May 28, 2023 and May 29, 2022, $355.1 million and $378.3 million, respectively, of our total accounts payable was payable to suppliers who utilize these third-party services. As of May 28, 2023, we also had approximately $62.5 million of short-term borrowings related to these arrangements.

The program commenced at about the same time that we began an initiative to negotiate extended payment terms with our suppliers. 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 2023, we generated $10.6 million of cash, which was the net result of $995.4 million generated from operating activities, $354.9 million used in investing activities, $631.6 million used in financing activities, and an increase of $1.7 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities totaled $995.4 million in fiscal 2023, as compared to $1.18 billion generated in fiscal 2022. While we had higher gross profits in fiscal 2023, the decrease in operating cash flows for fiscal 2023 compared to fiscal 2022 was primarily driven by changes in working capital, which were negatively impacted by the timing of payments of accounts payable, higher inventory balances, due in part to input cost inflation, and increased tax and interest payments.

Cash used in investing activities totaled $354.9 million in fiscal 2023 compared to $434.9 million in fiscal 2022. Net cash outflows from investing activities in fiscal 2023 and 2022 consisted primarily of capital expenditures totaling $362.2 million and $464.4 million, respectively.

Cash used in financing activities totaled $631.6 million in fiscal 2023 compared to $738.0 million in fiscal 2022. Financing activities in fiscal 2023 principally reflected repayments of long-term debt of $712.4 million, the issuance of long-term debt totaling $500.0 million, net short-term borrowing issuances of $351.4 million, cash dividends paid of $623.8 million, and common stock repurchases of $150.0 million. Financing activities in fiscal 2022 reflected net proceeds of $499.1 million from the issuance of $500.0 million aggregate principal amount of long-term debt, net short-term borrowing repayments of $523.1 million, cash dividends paid of $581.8 million, and common stock repurchases of $50.0 million.

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Cash Held by International Subsidiaries

The Company had cash and cash equivalents of $93.9 million at May 28, 2023, and $83.3 million at May 29, 2022, of which $85.5 million at May 28, 2023, and $74.7 million at May 29, 2022, was held in foreign countries. A deferred tax liability is provided for certain undistributed foreign earnings in fiscal 2023 that are not considered to be indefinitely reinvested or cannot be remitted in a tax-neutral transaction. Other undistributed foreign earnings are invested indefinitely and therefore we have not provided deferred taxes on those earnings.

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.

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 include 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 $125.7 million as of May 28, 2023. 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 13, "Pre-tax Income and Income Taxes", to the Consolidated Financial Statements contained in this report.

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Employee-Related Benefits—We incur certain employment-related expenses associated with our pension plans. In order to measure the annual expense associated with these pension 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, employee turnover rates, and anticipated mortality rates. 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 pension benefits. Different estimates used by management could result in us recognizing different amounts of expense over different periods of time.

The Company uses 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 $101.6 million and $114.9 million as of the end of fiscal 2023 and 2022, respectively. We also have recognized a pension asset of $249.9 million and $277.0 million as of the end of fiscal 2023 and 2022, 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 accounting principles generally accepted in the United States of America ("U.S. GAAP").

We recognized a pension benefit from Company plans of $13.9 million, $54.4 million, and $38.3 million in fiscal 2023, 2022, and 2021, respectively. Such amounts reflect the year-end write-off of actuarial losses (gains) in excess of 10% of our pension liability of $0.1 million, $(2.9) million, and $0.8 million in fiscal 2023, 2022, and 2021, respectively. This also reflected expected returns on plan assets of $145.9 million, $145.4 million, and $140.0 million in fiscal 2023, 2022, and 2021, respectively. We contributed $12.5 million, $11.5 million, and $27.6 million to our pension plans in fiscal 2023, 2022, and 2021, respectively. We anticipate contributing approximately $12.1 million to our pension plans in fiscal 2024.

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 weighted-average discount rate selected by us for determination of the interest cost component of our pension expense was 4.09% for fiscal 2023, 2.29% for fiscal 2022, and 2.30% for fiscal 2021. The weighted-average discount rate selected by us for determination of the service cost component of our pension expense was 4.74% for fiscal 2023, 3.50% for fiscal 2022, and 3.35% for fiscal 2021. We selected a weighted-average discount rate of 5.64% and 5.44% for determination of service and interest expense, respectively, for fiscal 2024. A 25-basis point increase in our discount rate assumption as of the end of fiscal 2023 would increase our annual pension expense for our pension plans in fiscal 2023 by $2.6 million. A 25-basis point decrease in our discount rate assumption as of the end of fiscal 2023 would decrease our annual pension expense for our pension plans in fiscal 2023 by $2.8 million. For our year-end pension obligation determination, we selected discount rates of 5.50% and 4.48% for fiscal years 2023 and 2022, 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 4.56% for the weighted-average expected long-term rate of return on plan assets for determining our fiscal 2023 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 2023 would decrease/increase annual pension expense for our pension plans by $8.0 million. A 25-basis point increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2024 would decrease/increase annual pension expense for our pension plans by $7.1 million. We selected a weighted-average expected rate of return on plan assets of 5.01% to be used to determine our pension expense for fiscal 2024.

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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 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 for property, plant and equipment. 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. For further information on our indefinite-lived intangible assets and goodwill, see Note 1, “Summary of Significant Accounting Policies”, to the Consolidated Financial Statements contained in this report.

As of May 28, 2023, we have goodwill of $11.18 billion, indefinite-lived intangibles of $2.47 billion and definite-lived intangibles of $735.3 million. Historically, we have experienced impairments in brand intangibles and goodwill as a result of declining sales, reductions to our assumed royalty rates due to lower-than-expected profit margins, and other economic conditions such as increases to interest rates. In the first quarter of fiscal 2023, we recorded goodwill impairments of $141.7 million in our Sides, Components, Enhancers reporting unit. The carrying value of goodwill in our Sides, Components, Enhancers reporting unit was approximately $3.3 billion as of our fiscal 2023 annual impairment testing date and was the only reporting unit with 10% or less excess fair value over carrying value as of that date. For our Sides, Components, Enhancers reporting unit, we selected a discount rate of 7.75% and a long-term growth rate that approximated 1%.

In fiscal 2023, 2022, and 2021, we recorded total intangibles impairments of $589.2 million, $209.0 million, and $90.9 million, respectively, primarily related to brands acquired as part of the Pinnacle acquisition 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 gross margin improvement and long-term sales growth. Discount rates, long-term growth rates, and royalty rates used to estimate the fair value of our domestic retail brands with 10% or less excess fair value over carrying amount as of the fiscal 2023 annual impairment test were as follows:

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Assumptions used in impairment testing are made at a point in time and require significant judgment; therefore, they are subject to change based upon the facts and circumstances present at each annual impairment test date. Additionally, these assumptions are generally interdependent and do not change in isolation. However, as it is reasonably possible that changes in assumptions could occur, as a sensitivity measure, we have presented the estimated effects of isolated changes in discount rates, long-term growth rates, and royalty rates on the fair value of our reporting unit and brands with 10% or less excess fair value over carrying amount. These estimated changes in fair value are not necessarily representative of the actual impairment that would be recorded in the event of a fair value decline.

If we had changed the assumptions used to estimate the fair value of our reporting unit and brands with 10% or less excess fair value over carrying amount as of the fiscal 2023 annual impairment test, these isolated changes, which are reasonably possible to occur, would have led to the following increase/(decrease) in the aggregate fair value of this reporting unit and certain brands (in millions):

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2022-04, Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations, to add disclosure requirements related to supplier financing programs under Accounting Standards Codification 405, Liabilities. The guidance requires entities that maintain supplier financing programs to provide information in their financial statements about their use of supplier finance programs and their effect on the entity's working capital, liquidity, and cash flows. Specifically, the amendment requires entities to disclose the key terms of their programs, amounts outstanding, balance sheet presentation, and a roll-forward of amounts outstanding during the annual period. Only the amount outstanding at the end of the period is required to be disclosed in interim periods. The ASU will be effective beginning in the first quarter of fiscal 2024, except for the roll-forward requirement, which is effective in fiscal 2025. Early adoption is permitted. We are reviewing the provisions of this new pronouncement but do not expect this ASU to have a significant impact on our financial statements and related disclosures.

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 29, 2022 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, health pandemics or outbreaks of disease, actual or threatened hostilities or war, or other geopolitical uncertainty; disruptions or inefficiencies in our supply chain and/or operations, including from the COVID-19 pandemic; risks related to disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine; 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; risks related to the Company’s ability to execute on its strategies or achieve expectations related to environmental, social, and governance matters, including as a result of evolving legal, regulatory, and other standards processes, and assumptions, the pace of scientific and technological developments, increased costs, the availability of  requisite financing, and changes in carbon markets; 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 2022 are not necessarily indicative of results that may be attained in the future.

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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®, 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.

Fiscal 2022 Results

Fiscal 2022 performance compared to fiscal 2021 reflected an increase in net sales, with organic (excludes the impacts of foreign exchange and divested businesses) increases in all of our operating segments. Overall gross profit decreased primarily as a result of input cost inflation, higher transportation costs, elevated supply chain operating costs due, in part, to disruptions in the availability of labor and certain materials, and lost profits from divested businesses, which were partially offset by higher organic net sales, supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, and lower COVID-19 pandemic-related expenses. Overall segment operating profit decreased in all of our operating segments. Corporate expenses were lower primarily due to items impacting comparability, as discussed below, in addition to lower share-based payment and deferred compensation expense. Selling, general and administrative ("SG&A") expenses were higher primarily due to items impacting comparability, partially offset by lower advertising and promotional expenses. We recognized higher equity method investment earnings, lower interest expense, higher income tax expense, in each case compared to fiscal 2021. Excluding items impacting comparability, our effective tax rate was slightly higher compared to fiscal 2021.

Diluted earnings per share in fiscal 2022 were $1.84. Diluted earnings per share in fiscal 2021 were $2.66. Diluted earnings per share were affected by lower net income as well as several significant items affecting the comparability of year-over-year results of continuing operations (see "Items Impacting Comparability" below).

During fiscal 2022, 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 persist in fiscal 2023. Supply chain realized productivity and pricing actions will mitigate some of the inflationary pressures and are expected to improve margins more heavily in the third and fourth quarters of fiscal 2023. As our estimates of inflation for fiscal 2023 continue to change, it is impractical to quantify the impact at this time.

Although we are a North American focused company with no operations in or direct exposure to Russia and Ukraine, we have experienced shortages in materials and increased costs for transportation, energy, and raw materials due in part to the negative impact of the Russia-Ukraine military conflict on the global economy. To date, the conflict between Russia and Ukraine has not had a material impact on our business, financial condition, or result of operations.

Items Impacting Comparability

Items of note impacting comparability of results for continuing operations for fiscal 2022 included the following:

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Items of note impacting comparability of results from continuing operations for fiscal 2021 included the following:

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 $50.7 million. 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. 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. 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 this 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. 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.

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Restructuring Plans

In December 2018, the Board approved a restructuring and integration plan related to the ongoing integration of the operations of Pinnacle (such plan 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 $346.9 million of charges ($284.3 million of cash charges and $62.6 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 $19.6 million, $31.7 million, and $73.8 million in connection with the Pinnacle Integration Restructuring Plan in fiscal 2022, 2021, and 2020, 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 for costs incurred in connection with actions taken to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network (the "Conagra Restructuring Plan"). 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 2022, 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 29, 2022, we had approved the incurrence of $180.6 million ($53.8 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 $148.4 million of charges ($46.4 million of cash charges and $102.0 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan. We recognized charges of $29.4 million, $46.2 million, and $64.4 million in connection with the Conagra Restructuring Plan in fiscal 2022, 2021, and 2020, respectively. We expect to incur costs related to the Conagra Restructuring Plan over a multi-year period.

COVID-19 Pandemic

We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business. Throughout fiscal 2022, we continued to experience elevated demand for our products in the retail segments versus pre-pandemic levels, but volumes were lower compared to fiscal 2021, primarily due to the elasticity impact from inflation-driven pricing actions. We experienced higher demand for our foodservice products across all of our major markets during fiscal 2022 compared to fiscal 2021 as consumer traffic in away-from-home food outlets continue to recover from the impacts of the pandemic. We incurred $69.8 million of supply chain costs associated with the COVID-19 pandemic during fiscal 2022, which was a decrease in comparison to fiscal 2021.

As we continue into fiscal 2023, we generally expect retail demand levels to remain elevated versus pre-pandemic levels and we continue to expect foodservice demand levels to return to more historical norms. However, uncertainty remains with the pandemic and such trends ultimately depend on the length and severity of the pandemic, inclusive of the introduction of new strains and variants of the virus; infection rates in the markets where we do business; the federal, state, and local government actions taken in response; vaccine effectiveness; and the macroeconomic environment. In fiscal 2023, we continue to expect to see inflationary headwinds but anticipate that gross margins will begin to benefit from sales price increases and other cost savings measures. We also continue to expect a decrease in costs related to the COVID-19 pandemic and a decrease in supply chain costs as we focus on realized productivity initiatives. We will continue to evaluate the extent to which the COVID-19 pandemic will impact our business, consolidated results of operations, and financial condition.

We have experienced some challenges in connection with the COVID-19 pandemic, including with respect to the supply of our ingredients, packaging, or other sourced materials. Despite these challenges, all of our production facilities remain open. 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.

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Refrigerated & Frozen

The Refrigerated & Frozen reporting segment principally includes branded, temperature-controlled food products sold in various retail channels in the United States.

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 19 "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 29, 2022 and May 30, 2021. For a discussion of changes from the fiscal year ended May 31, 2020 to the fiscal year ended May 30, 2021, 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 30, 2021 (filed July 23, 2021).

Fiscal 2022 compared to Fiscal 2021

Net Sales

Net sales for fiscal 2022 in our Grocery & Snacks segment included a decrease in volumes of 4%, excluding the impact of divestitures, compared to the prior-year period. This result was primarily due to lapping the prior year's surge in at-home food consumption from the COVID-19 pandemic and replenishment of customer inventory levels in connection with the COVID-19 pandemic coupled with the elasticity impact from inflation-driven pricing actions. Price/mix increased 7%, excluding the impact of divestitures, compared to the prior-year period due to favorability in inflation-driven pricing coupled with favorable brand mix, partially offset by a benefit in the prior-year period of $7.4 million related to a change in estimate associated with our fiscal 2020 fourth quarter trade accrual. Fiscal 2021 included $34.7 million of net sales related to our Peter Pan® peanut butter business, which was sold in the third quarter of fiscal 2021. Fiscal 2021 included $3.6 million of net sales related to our H.K. Anderson® business, which was sold in the second quarter of fiscal 2021.

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Net sales for fiscal 2022 in our Refrigerated & Frozen segment included a decrease in volumes of 5%, excluding the impact of divestitures, compared to fiscal 2021. The decrease in sales volumes was primarily due to lapping the prior year's surge in at-home food consumption from the COVID-19 pandemic and replenishment of inventory levels in connection with the COVID-19 pandemic coupled with the elasticity impact from inflation-driven pricing actions and supply constraints. Price/mix increased 8% for fiscal 2022, excluding the impact of divestitures, compared to fiscal 2021 primarily driven by favorability in inflation-driven pricing coupled with favorable brand mix, partially offset by a benefit in the prior-year period of $7.4 million related to a change in estimate associated with our fiscal 2020 fourth quarter trade accrual. Fiscal 2021 included $40.8 million of net sales related to our Egg Beaters® business, which was sold in the fourth quarter of fiscal 2021.

Net sales for fiscal 2022 in our International segment reflected a 5% decrease in volumes, a 2% increase due to favorable foreign exchange rates, and a 7% increase in price/mix, excluding the impact of divestitures, in each case compared to fiscal 2021. The decrease in volumes was driven by lapping the prior year's surge in at-home food demand from the COVID-19 pandemic coupled with the elasticity impact from inflation-driven pricing actions. The increase in price/mix was primarily due to favorability in inflation-driven pricing and favorable product mix, partially offset by a benefit in the prior-year period of $2.8 million related to a change in estimate associated with our fiscal 2020 fourth quarter trade accrual. Fiscal 2021 included $1.4 million of net sales related to our Peter Pan® peanut butter business.

Net sales for fiscal 2022 in our Foodservice segment included an increase in volumes of 11%, excluding the impact of divestitures, compared to the prior-year period. The increase in volume reflected the continued recovery of away-from-home food outlets from the impacts of the COVID-19 pandemic, partially offset by the elasticity impact from inflation-driven pricing actions. Price/mix, excluding the impact of divestitures, increased 8% in fiscal 2022 compared to fiscal 2021, reflecting inflation-driven pricing and favorable product mix. Fiscal 2021 included $1.0 million and $0.6 million of net sales related to our Peter Pan® peanut butter business and H.K. Anderson® business, respectively.

SG&A Expenses (Includes general corporate expenses)

SG&A expenses totaled $1.49 billion for fiscal 2022, an increase of $89.8 million compared to fiscal 2021. SG&A expenses for fiscal 2022 reflected the following:

Items impacting comparability of earnings

Other changes in expenses compared to fiscal 2021

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SG&A expenses for fiscal 2021 included the following items impacting the comparability of earnings:

Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings)

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Operating profit in our Grocery & Snacks segment for fiscal 2022 reflected a decrease in gross profits of $94.0 million compared to fiscal 2021. The lower gross profit was driven by the impacts of input cost inflation, higher inventory write-offs, unfavorable fixed cost leverage, elevated supply chain operating costs due, in part, to disruptions in the availability of labor and certain materials, and a reduction in profit associated with the divestitures of our H.K. Anderson® and Peter Pan® peanut butter businesses, partially offset by the benefits of supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, and a decrease in COVID-19 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 charges of $9.4 million and $27.8 million related to our restructuring plans in fiscal 2022 and 2021, respectively. Fiscal 2022 and 2021 included certain brand intangible impairment charges of $90.7 million and $13.0 million, respectively. Fiscal 2022 included charges of $26.3 million related to the impairment of businesses held for sale. Fiscal 2021 included gains totaling $55.1 million related to the divestitures of certain businesses. Advertising and promotion expenses for fiscal 2022 decreased by $6.0 million compared to fiscal 2021.

Operating profit in our Refrigerated & Frozen segment for fiscal 2022 reflected a decrease in gross profits of $231.5 million compared to fiscal 2021 due the impacts of input cost inflation, unfavorable fixed cost leverage, elevated supply chain operating costs due, in part, to disruptions in the availability of labor and certain materials, higher inventory write-offs, and a reduction in profit associated with the divestiture of our Egg Beaters® business, partially offset by the benefits of supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, and a decrease in COVID-19 pandemic-related costs. Operating profit of the Refrigerated & Frozen segment was impacted by charges of $103.9 million and $76.9 million related to the impairment of certain brand intangible assets during fiscal 2022 and 2021, respectively. Fiscal 2022 and 2021 included $14.5 million and $26.8 million, respectively, of charges related to our restructuring plans. Operating profit of the Refrigerated & Frozen segment included $28.9 million of charges related to the impairment of businesses held for sale and charges of $2.8 million associated with a fire occurring at one of our manufacturing facilities in fiscal 2022. 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. Advertising and promotion expenses for fiscal 2022 decreased by $8.1 million compared to fiscal 2021.

Operating profit in our International segment for fiscal 2022 reflected flat gross profits compared to fiscal 2021, reflecting the net sales growth discussed above and the benefits of supply chain realized productivity, partially offset by the impacts of input cost inflation. Operating profit of the International segment was impacted by charges of $14.4 million and $1.0 million related to the impairment of certain brand intangible assets during fiscal 2022 and 2021, respectively.

Operating profit in our Foodservice segment for fiscal 2022 reflected a decrease in gross profits of $3.0 million compared to fiscal 2021 driven by input cost inflation, elevated supply chain operating costs due, in part, to disruptions in the availability of labor and certain materials, and higher inventory write-offs, which more than offset the net sales growth discussed above and the benefits of supply chain realized productivity. Fiscal 2022 included charges of $14.9 million related to the impairment of businesses held for sale and charges of $7.6 million associated with a fire occurring at one of our manufacturing facilities.

Pension and Postretirement Non-service Income

In fiscal 2022, pension and postretirement non-service income was $67.3 million, an increase of $12.8 million compared to fiscal 2021. Fiscal 2022 reflected lower interest costs and an increase in expected returns on plan assets.

Interest Expense, Net

In fiscal 2022, net interest expense was $379.9 million, a decrease of $40.5 million, or 10%, from fiscal 2021. The decrease was driven by a lower weighted average interest rate on outstanding debt. See Note 3, "Long-Term Debt", to the Consolidated Financial Statements contained in this report for further discussion.

Income Taxes

Our income tax expense was $290.5 million and $193.8 million in fiscal 2022 and 2021, 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 25% and 13% for fiscal 2022 and 2021, respectively. See Note 13, "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.

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In fiscal 2021, we completed a restructuring of our ownership interest in the Ardent Mills joint venture, a milling business ("Ardent Mills"), that utilized a portion of our capital loss carryforward prior to its expiration. After the restructuring, certain balance sheet adjustments on Ardent Mills may impact our effective tax rate in future periods. 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 were subject to elections made in connection with filing our fiscal 2021 federal tax return. These elections are still under review by the Internal Revenue Service. These elections 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 2023, exclusive of any unusual transactions or tax events, to be approximately 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 $145.3 million and $84.4 million for fiscal 2022 and 2021, respectively. Ardent Mills earnings for fiscal 2022 reflected the joint venture’s effective management through the recent volatility in the wheat markets.

Earnings Per Share

Diluted earnings per share in fiscal 2022 and 2021 were $1.84 and $2.66, respectively. The decrease in diluted earnings per share reflected lower net income. 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, other contractual obligations, and payment of anticipated quarterly dividends for at least the next twelve months.

Borrowing Facilities and Long-Term Debt

At May 29, 2022, 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. In the first quarter of fiscal 2022, we entered into an amendment to the Revolving Credit Facility, which modified the ratio of funded debt to earnings before interest, taxes, depreciation, and amortization ("EBITDA") financial covenant to require a ratio of not greater than 4.5 to 1.0 on a rolling four-quarter basis. We have historically used a credit facility principally as a back-up for our commercial paper program. As of May 29, 2022, there were no outstanding borrowings under the Revolving Credit Facility.

We had $180.0 million outstanding under our commercial paper program as of May 29, 2022, and $705.7 million outstanding as of May 30, 2021. The highest level of borrowings during fiscal 2022 was $989.0 million.

During the first quarter of fiscal 2022, we issued $500.0 million aggregate principal amount of 0.500% senior notes due August 11, 2023. The proceeds were primarily used to refinance commercial paper borrowings.

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Additional information about our long-term debt balances as of May 29, 2022 can be found in Note 3, "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 29, 2022, was approximately 4.4%.

We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt at maturity or otherwise, 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 2022, 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 4.5 to 1.0. Each ratio is to be calculated on a rolling four-quarter basis. As of May 29, 2022, we were in compliance with all financial covenants.

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 2022, we repurchased 1.5 million shares of our common stock under this authorization for an aggregate of $50.0 million. The Company’s total remaining share repurchase authorization as of May 29, 2022, was $1.07 billion.

On April 14, 2022, we announced that our Board had authorized a quarterly dividend payment of $0.3125 per share, which was paid on June 1, 2022, to stockholders of record as of the close of business on April 29, 2022. Subsequent to our fiscal year end, on July 21, 2022, our Board approved a 5.6% increase to our annualized dividend rate. The Board also approved a quarterly dividend of $0.33 per share to be paid on September 1, 2022 to stockholders of record as of the close of business on August 3, 2022.

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 lease payments, income taxes, pension and postretirement benefits, and unconditional purchase obligations.

A summary of our operating and finance lease obligations as of  May 29, 2022 can be found in Note 14, "Leases", to the Consolidated Financial Statements contained in this report.

The liability for gross unrecognized tax benefits related to uncertain tax positions was $62.9 million as of May 29, 2022. See Note 13, "Pre-Tax Income and Income Taxes", to the Consolidated Financial Statements contained in this report for information related to income taxes.

As of May 29, 2022, we had an aggregate funded pension asset of $162.1 million and an aggregate unfunded postretirement benefit obligation totaling $61.4 million. We expect to make payments totaling approximately $12.4 million and $8.1 million in fiscal 2023 to fund our pension and postretirement plans, respectively. See Note 17, "Pension and Postretirement Benefits", to the Consolidated Financial Statements and "Critical Accounting Estimates – Employee-Related Benefits" contained in this report for further discussion of our pension obligation and factors that could affect estimates of these obligations.

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As of May 29, 2022, 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 $2.63 billion. Approximately $1.91 billion of this balance is due in fiscal 2023. Included in this amount are open purchase orders and other supply agreements totaling approximately $1.70 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 $375 million make up a majority of our remaining unconditional purchase obligations with various terms of up to 10 years.

Capital Expenditures

We continue to make investments in our business and operating facilities. Our preliminary estimate of capital expenditures for fiscal 2023 is approximately $500 million.

Supplier Arrangements

We 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 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 accounts 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 29, 2022 and May 30, 2021, $378.3 million and $279.3 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 2022, we generated $3.1 million of cash, which was the net result of $1.18 billion generated from operating activities, $434.9 million used in investing activities, $738.0 million used in financing activities, and a decrease of $1.3 million due to the effects of changes in foreign currency exchange rates.

Cash generated from operating activities totaled $1.18 billion in fiscal 2022, as compared to $1.47 billion generated in fiscal 2021. The decrease in operating cash flows for fiscal 2022 compared to fiscal 2021 was primarily driven by lower gross profits, which reflect the impact of realized input cost inflation and higher transportation costs. This was partially offset by decreased interest and pension contribution payments and increased equity method investment distributions received in fiscal 2022 compared to fiscal 2021. Operating cash flows in fiscal 2021 also benefited from the deferral of $33.9 million of employer payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act. Payments totaling 50% of such amounts were made in the third quarter of fiscal 2022 and remaining payments will occur in the third quarter of fiscal 2023. Changes in working capital were negatively impacted by increased accounts receivables resulting from inflation-driven pricing actions, offset by a smaller degree of inventory build relative to prior year.

Cash used in investing activities totaled $434.9 million in fiscal 2022 compared to $340.3 million in fiscal 2021. Net cash outflows from investing activities in fiscal 2022 and 2021 consisted primarily of capital expenditures totaling $464.4 million and $506.4 million, respectively. Investing cash flows for fiscal 2021 also included proceeds totaling $160.9 million from the sale of our Egg Beaters®, Peter Pan® peanut butter, and H.K. Anderson® businesses.

Cash used in financing activities totaled $738.0 million in fiscal 2022 compared to $1.61 billion in fiscal 2021. Financing activities in fiscal 2022 principally reflect net proceeds of $499.1 million from the issuance of $500.0 million aggregate principal amount of long-term debt, net short-term borrowing repayments of $523.1 million, cash dividends paid of $581.8 million, and common stock repurchases of $50.0 million. Financing activities in fiscal 2021 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.

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Cash Held by International Subsidiaries

The Company had cash and cash equivalents of $83.3 million at May 29, 2022, and $79.2 million at May 30, 2021, of which $74.7 million at May 29, 2022, and $72.4 million at May 30, 2021, was held in foreign countries. A deferred tax liability is provided for certain undistributed foreign earnings in fiscal 2022 that are not considered to be indefinitely reinvested or cannot be remitted in a tax-neutral transaction. Other undistributed foreign earnings are invested indefinitely and therefore we have not provided deferred taxes on those earnings.

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.

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 $125.9 million as of May 29, 2022. 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 13, "Pre-tax Income and Income Taxes", to the Consolidated Financial Statements contained in this report.

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Employee-Related Benefits—We incur certain employment-related expenses associated with our pension plans. In order to measure the annual expense associated with these pension 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, employee turnover rates, and anticipated mortality rates. 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 pension benefits. Different estimates used by management could result in us recognizing different amounts of expense over different periods of time.

The Company uses 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 $114.9 million and $135.4 million as of the end of fiscal 2022 and 2021, respectively. We also have recognized a pension asset of $277.0 million and $245.0 million as of the end of fiscal 2022 and 2021, 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 $(54.4) million, $(38.3) million, and $5.9 million in fiscal 2022, 2021, and 2020, respectively. Such amounts reflect the year-end write-off of actuarial losses (gains) in excess of 10% of our pension liability of $(2.9) million, $0.8 million, and $44.8 million in fiscal 2022, 2021, and 2020, respectively. This also reflected expected returns on plan assets of $145.4 million, $140.0 million, and $170.2 million in fiscal 2022, 2021, and 2020, respectively. We contributed $11.5 million, $27.6 million, and $17.5 million to the pension plans of our continuing operations in fiscal 2022, 2021, and 2020, respectively. We anticipate contributing approximately $12.4 million to our pension plans in fiscal 2023.

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 weighted-average discount rate selected by us for determination of the interest cost component of our pension expense was 2.29% for fiscal 2022, 2.30% for fiscal 2021, and 3.51% for fiscal 2020. The weighted-average discount rate selected by us for determination of the service cost component of our pension expense was 3.50% for fiscal 2022, 3.35% for fiscal 2021, and 4.04% for fiscal 2020. We selected a weighted-average discount rate of 4.74% and 4.09% for determination of service and interest expense, respectively, for fiscal 2023. A 25-basis point increase in our discount rate assumption as of the end of fiscal 2022 would increase our annual pension expense for our pension plans in fiscal 2022 by $3.6 million. A 25-basis point decrease in our discount rate assumption as of the end of fiscal 2022 would decrease our annual pension expense for our pension plans in fiscal 2022 by $3.6 million. For our year-end pension obligation determination, we selected discount rates of 4.48% and 3.04% for fiscal years 2022 and 2021, 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 3.87% for the weighted-average expected long-term rate of return on plan assets for determining our fiscal 2022 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 2022 would decrease/increase annual pension expense for our pension plans by $9.4 million. We selected a weighted-average expected rate of return on plan assets of 4.56% to be used to determine our pension expense for fiscal 2023. 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 $8.0 million.

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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 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 for property, plant and equipment. 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 indefinite-lived 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.

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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 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 29, 2022, we have goodwill of $11.33 billion, indefinite-lived intangibles of $3.06 billion and definite-lived intangibles of $791.5 million. Historically, we have experienced impairments in brand intangibles and goodwill as a result of declining sales and other economic conditions. For instance, in fiscal 2022, 2021, and 2020, we recorded total intangibles impairments of $209.0 million, $90.9 million, and $165.5 million respectively, primarily related to our recently acquired Pinnacle brands.

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 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®.

During the first quarter of fiscal 2023 (on June 27, 2022), management reorganized its internal reporting structure for certain brands within two reporting units in our Refrigerated & Frozen segment. This change in management reporting requires us to reassign goodwill between the two reporting units and complete a goodwill impairment test both prior to and subsequent to the change. As outlined in Note 7, "Goodwill and Other Identifiable Intangible Assets", to the Consolidated Financial Statement contained in this report, our Sides, Components, Enhancers reporting unit had approximately 20% excess fair value over carrying value as of our most recent annual impairment test in the fourth quarter of fiscal 2022. A significant input in estimating the fair value of a reporting unit is the discount rate. We used a discount rate for our Sides, Components, Enhancers reporting unit of 6.50% in our most recent goodwill impairment test. A 100-basis point increase in our discount rate would result in less than 2% excess of fair value over carrying value in this reporting unit with all other assumptions unchanged from our most recent quantitative impairment test.

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Assumptions used in impairment testing are made at a point in time and require significant judgment; therefore, they are subject to change based upon the facts and circumstances present at each impairment test date. We have not completed our goodwill impairment assessment necessitated by the change in internal reporting structure, but we believe it is likely that we will incur a material impairment charge in the first quarter of fiscal 2023 as a result of current economic conditions, including a significant increase in interest rates since our last quantitative goodwill impairment test. Any implied goodwill impairment would also trigger a reassessment of fair value for our indefinite-lived intangibles that are within the respective reporting unit and may also result in a material impairment charge.

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.

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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 53rd 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 53rd 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:

Items of note impacting comparability of results from continuing operations for fiscal 2020 included the following:

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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-

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cash charges) for several projects associated with the Conagra Restructuring Plan. We have incurred or expect to incur $157.3 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. We recognized charges of $46.2 million, $64.4 million, and $2.2 million in connection with the Conagra Restructuring Plan in fiscal 2021, 2020, and 2019, 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.

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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

Grocery & Snacks net sales for fiscal 2021 included an increase in volumes of 4%, excluding the impact of divestitures and the 53rd 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 53rd week in fiscal 2020, compared to fiscal 2020. The increase in sales volumes was a result of increased at-home eating

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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 53rd 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 53rd 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

Other changes in expenses compared to fiscal 2020

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SG&A expenses for fiscal 2020 included the following items impacting the comparability of earnings:

Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings)

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 53rd 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 53rd 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.

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International operating profit for fiscal 2021 reflected an increase in gross 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 53rd 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 2021 and 2020, 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 53rd 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.

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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.

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On July 13, 2021, subsequent to our fiscal year end, we entered into an amendment to the Revolving Credit Facility. The amendment modifies the ratio 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

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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 accounts 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.

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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.

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The Company uses 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.

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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

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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®.