ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results
of operations, financial position, and cash flows for the periods presented. The adjustments are of a normal recurring nature, except as otherwise noted. These condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the ConAgra Foods, Inc. (the Company) annual report on Form 10-K for the fiscal year ended May 27, 2007.
The results of operations for any quarter or a partial fiscal year period are not necessarily indicative of the results to be expected for other periods
or the full fiscal year.
Basis of Consolidation
The condensed consolidated financial statements include the accounts
of ConAgra Foods and all majority-owned subsidiaries. In addition, the accounts of all variable interest entities for which the Company is determined to be the primary beneficiary are included in the Companys condensed consolidated financial
statements from the date such determination is made. All significant intercompany investments, accounts, and transactions have been eliminated.
Variable Interest Entities
The Company consolidates the assets and liabilities of several entities from which it leases corporate aircraft. For periods ending prior to November 25, 2007, the Company consolidated
several entities from which it leases office buildings. Each of these entities had been determined to be a variable interest entity and the Company was determined to be the primary beneficiary of each of these entities. In September 2007, the
Company ceased to be the primary beneficiary of the entities from which it leases office buildings and, accordingly, the Company discontinued the consolidation of the assets and liabilities of these entities.
Due to the consolidation of the variable interest entities, the Company reflects in its balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
November 25,
2007
|
|
May 27,
2007
|
|
November 26,
2006
|
Property, plant and equipment, net
|
|
$
|
53.3
|
|
$
|
155.9
|
|
$
|
159.3
|
Other assets
|
|
|
|
|
|
13.8
|
|
|
12.4
|
Current installments of long-term debt
|
|
|
3.2
|
|
|
6.1
|
|
|
7.7
|
Senior long-term debt, excluding current installments
|
|
|
52.6
|
|
|
144.1
|
|
|
166.4
|
Other accrued liabilities
|
|
|
0.6
|
|
|
0.6
|
|
|
0.6
|
Other noncurrent liabilities
|
|
|
|
|
|
21.9
|
|
|
|
The liabilities recognized as a result of consolidating these entities do not represent additional
claims on the general assets of the Company. The creditors of these entities have claims only on the assets of the specific variable interest entities to which they have advanced credit.
Investments in Unconsolidated Affiliates
The investments in and the operating results of 50%-or-less-owned entities not
required to be consolidated are included in the consolidated financial statements on the basis of the equity method of accounting or the cost method of accounting, depending on specific facts and circumstances.
The Company reviews its investments in unconsolidated affiliates for impairment whenever events or changes in business circumstances indicate that the
carrying amount of the investments may not be fully recoverable. Evidence of a loss in value that is other than temporary might include the absence of an ability to recover the carrying amount of the investment, the inability of the investee to
sustain an earnings capacity which would justify the carrying amount of the investment, or, where applicable, estimated sales proceeds which are insufficient to recover the carrying amount of the investment. Managements assessment as to
whether any decline in value is other than temporary is based on the Companys ability and intent to hold the investment and whether evidence indicating the carrying value of the investment is recoverable within a reasonable period of time
outweighs evidence to the contrary. Management generally considers the Companys investments in its equity method investees to be strategic long-term investments. Therefore, management completes its assessments with a long-term viewpoint. If
the fair value of the investment is determined to be less than the carrying value and the decline in value is considered to be other than temporary, an appropriate write-down is recorded based on the excess of the carrying value over the best
estimate of fair value of the investment.
8
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
Cash and Cash Equivalents
Cash and all highly liquid investments with an
original maturity of three months or less at the date of acquisition, including short-term time deposits and government agency and corporate obligations, are classified as cash and cash equivalents. Restricted cash deposits in margin accounts
required for exchange-traded activity of approximately $0, $95 million, and $232 million are included in prepaid expenses and other current assets in the Companys consolidated balance sheets at November 25, 2007, May 27, 2007,
and November 26, 2006, respectively.
Accounts Payable
Included in accounts payable are short-term notes payable
for goods with repayment terms of up to 180 days, the balances of which were $85.7 million, $204.3 million, and $73.4 million, at November 25, 2007, May 27, 2007, and November 26, 2006, respectively.
Comprehensive Income
Comprehensive income includes net income, currency translation adjustments, certain derivative-related activity,
changes in the value of available-for-sale investments, and changes in prior service cost and net actuarial gains/losses from pension and postretirement health care plans. The Company generally deems its foreign investments to be permanent in nature
and does not provide for taxes on currency translation adjustments arising from converting the investment in a foreign currency to U.S. dollars. When the Company determines that a foreign investment is no longer permanent in nature, estimated taxes
are provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.
The following details
the income tax expense (benefit) on components of other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended
|
|
|
Twenty-six weeks ended
|
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
Net derivative adjustment
|
|
$
|
(0.7
|
)
|
|
$
|
(2.1
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(0.2
|
)
|
Unrealized gains on available-for-sale securities
|
|
|
0.3
|
|
|
|
1.0
|
|
|
|
0.5
|
|
|
|
1.2
|
|
Reclassification adjustment for (gains) losses included in net income
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(2.2
|
)
|
|
|
(1.3
|
)
|
Pension and postretirement healthcare liabilities
|
|
|
1.5
|
|
|
|
|
|
|
|
2.9
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.1
|
|
|
$
|
(1.6
|
)
|
|
$
|
0.1
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting Changes
As further discussed in Note 9, the Company adopted FASB
Interpretation No. (FIN) 48,
Accounting for Uncertainty in Income Taxes (as amended)
, as of the beginning of fiscal 2008. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
As further discussed in Note 11, the Company elected to adopt the measurement date provisions of Statement of Financial Accounting Standards
(SFAS) No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
, as of May 28, 2007.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB
No. 51
. This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest (minority interest) in a subsidiary and for the deconsolidation of a subsidiary. Upon its adoption, effective as of the
beginning of the Companys fiscal 2010, noncontrolling interests will be classified as equity in the Companys financial statements and income and comprehensive income attributed to the noncontrolling interest will be included in the
Companys income and comprehensive income. The provisions of this standard must be applied retrospectively upon adoption. Management is currently evaluating the impact of adopting SFAS No. 160 on the Companys consolidated financial
position and results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations
(SFAS No. 141(R)). SFAS No. 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures the assets acquired, liabilities assumed, and any noncontrolling interest in the
acquiree. The provisions of SFAS No. 141(R) are effective for the Companys business combinations occurring on or after June 1, 2009.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities
. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at
fair value. This
9
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without
being required to apply complex hedge accounting provisions. The provisions of SFAS No. 159 are effective as of the beginning of the Companys fiscal 2009. Management is currently evaluating the impact of adopting SFAS No. 159 on the
Companys consolidated financial position and results of operations.
In September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements
, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective as of the beginning of the Companys
fiscal 2009 for the Companys financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in its consolidated financial statements. The FASB has provided for a one-year
deferral of the implementation of this standard for other nonfinanical assets and liabilities. Management is currently evaluating the impact of adopting SFAS No. 157 on the Companys consolidated financial position and results of
operations.
Use of Estimates
Preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets, liabilities, revenues, and expenses as reflected in the consolidated financial statements. Actual results could
differ from these estimates.
2. DISCONTINUED OPERATIONS AND DIVESTITURES
Packaged Meats Operations
During the
first half of fiscal 2007, the Company completed its divestiture of the packaged meats operations for proceeds of approximately $553 million, resulting in no significant gain or loss. Based upon the Companys estimate of proceeds from the sale
of this business, the Company recognized impairment charges totaling $240.4 million ($209.3 million after tax) in the second half of fiscal 2006. The Company recognized additional charges of approximately $21.1 million ($13.0 million after tax) in
the first half of fiscal 2007. The Company reflects the results of these operations as discontinued operations for all periods presented.
Packaged Cheese Operations
During the first quarter of fiscal 2007, the Company completed its divestiture of the packaged
cheese business for proceeds of approximately $97.6 million, resulting in a pre-tax gain of approximately $57.8 million ($32.0 million after tax). The Company reflects the results of these operations as discontinued operations for all periods
presented.
Culturelle Business
During the first quarter of fiscal 2007, the Company completed its divestiture of its nutritional supplement business for proceeds of approximately $8.2 million, resulting in a pre-tax gain of approximately $6.2 million ($3.5 million after
tax). The Company reflects this gain within discontinued operations.
10
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
Summary of Operational Results
The summary comparative financial results of the discontinued operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended
|
|
|
Twenty-six weeks ended
|
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
Net sales
|
|
$
|
(0.2
|
)
|
|
$
|
210.1
|
|
|
$
|
(0.7
|
)
|
|
$
|
712.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived asset impairment charge
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
(21.1
|
)
|
Income from operations of discontinued operations before income taxes
|
|
|
1.6
|
|
|
|
21.7
|
|
|
|
1.4
|
|
|
|
75.5
|
|
Net gain (loss) from disposal of businesses
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
65.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1.6
|
|
|
|
19.5
|
|
|
|
1.4
|
|
|
|
119.4
|
|
Income tax expense
|
|
|
(0.6
|
)
|
|
|
(7.5
|
)
|
|
|
(0.5
|
)
|
|
|
(49.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
1.0
|
|
|
$
|
12.0
|
|
|
$
|
0.9
|
|
|
$
|
70.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets Held for Sale
During the third quarter of fiscal 2006, the Company initiated a plan to dispose of a refrigerated pizza business with annual revenues of less than $70
million. During the second quarter of fiscal 2007, the Company disposed of this business for proceeds of approximately $22.0 million, resulting in no significant gain or loss. Due to the Companys continuing cash flows associated with this
business, the results of operations of this business are included in continuing operations for all periods presented.
During the second
quarter of fiscal 2007, the Company completed the disposal of an oat milling business for proceeds of approximately $35.8 million, resulting in a pre-tax gain of approximately $17.9 million ($11.1 million after tax). Due to the Companys
continuing cash flows associated with this business, the results of operations of this business are included in continuing operations for all periods presented.
During the third quarter of fiscal 2006, the Company initiated a plan to dispose of two aircraft. During the first quarter of fiscal 2007, these two aircraft were sold for proceeds of approximately $31.4 million,
resulting in pre-tax gains totaling approximately $4.3 million.
3. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
Goodwill by reporting segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
November 25,
2007
|
|
May 27,
2007
|
|
November 26,
2006
|
Consumer Foods
|
|
$
|
3,304.6
|
|
$
|
3,254.6
|
|
$
|
3,254.6
|
International Foods
|
|
|
99.1
|
|
|
91.3
|
|
|
87.3
|
Food and Ingredients
|
|
|
85.7
|
|
|
85.1
|
|
|
84.6
|
Trading and Merchandising
|
|
|
15.9
|
|
|
15.9
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,505.3
|
|
$
|
3,446.9
|
|
$
|
3,442.4
|
|
|
|
|
|
|
|
|
|
|
11
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
Other identifiable intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 25, 2007
|
|
May 27, 2007
|
|
November 26, 2006
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Non-amortizing intangible assets
|
|
$
|
780.8
|
|
$
|
|
|
$
|
752.6
|
|
$
|
|
|
$
|
771.8
|
|
$
|
|
Amortizing intangible assets
|
|
|
39.7
|
|
|
16.0
|
|
|
41.9
|
|
|
18.5
|
|
|
41.6
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
820.5
|
|
$
|
16.0
|
|
$
|
794.5
|
|
$
|
18.5
|
|
$
|
813.4
|
|
$
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizing intangible assets are comprised of the following balances:
|
|
|
|
|
|
|
|
|
|
|
|
November 25,
2007
|
|
May 27,
2007
|
|
November 26,
2006
|
Brands/trademarks
|
|
$
|
780.8
|
|
$
|
752.6
|
|
$
|
752.6
|
Pension intangible asset
|
|
|
|
|
|
|
|
|
19.2
|
|
|
|
|
|
|
|
|
|
|
Total non-amortizing intangible assets
|
|
$
|
780.8
|
|
$
|
752.6
|
|
$
|
771.8
|
|
|
|
|
|
|
|
|
|
|
On July 23, 2007, the Company acquired Alexia Foods, Inc. (Alexia Foods), a
privately held natural food company, headquartered in Long Island City, New York, for approximately $50 million in cash plus assumed liabilities. At November 25, 2007, $33 million of the purchase price has been allocated to goodwill and $19
million to other intangible assets.
On September 5, 2007, the Company acquired Lincoln Snacks Holding Company, Inc. (Lincoln
Snacks), a privately held company located in Lincoln, Nebraska for approximately $50 million in cash plus assumed liabilities. At November 25, 2007, $17 million of the purchase price has been allocated to goodwill and $17 million to other
intangible assets.
Amortizing intangible assets, carrying a weighted average life of approximately 15 years, are principally composed of
licensing arrangements and customer lists. Based on amortizing assets recognized in the Companys balance sheet as of November 25, 2007, amortization expense is estimated to be approximately $3.0 million for each of the next five years.
4. DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of derivative assets is recognized within prepaid expenses and other current assets, while the fair value of derivative liabilities is recognized within other accrued liabilities. As of November 25,
2007, May 27, 2007, and November 26, 2006, the fair value of derivatives recognized within prepaid expenses and other current assets was $276.1 million, $360.0 million, and $636.8 million, respectively, while the amount recognized
within other accrued liabilities was $273.3 million, $233.2 million, and $396.6 million, respectively.
The ineffectiveness associated with
derivatives designated as cash flow hedges from continuing operations resulted in no gain or loss for the thirteen weeks ending November 25, 2007 and a loss of $3.7 million for the thirteen weeks ending November 26, 2006. For the
twenty-six weeks ending November 25, 2007 and November 26, 2006, the ineffectiveness associated with derivatives designated as cash flow hedges from continuing operations resulted in a loss of $1.1 million and $4.0 million, respectively.
Hedge ineffectiveness is recognized within net sales, cost of goods sold, or interest expense, net, depending on the nature of the hedge. The Company does not exclude any component of the hedging instruments gain or loss when assessing
effectiveness.
Generally, the Company enters into economic hedges for a portion of its anticipated consumption of certain commodity inputs
and foreign currency cash flows for periods ranging from 12 to 36 months. The Company may enter into longer-term hedges on particular commodities or foreign currencies if deemed appropriate. As of November 25, 2007, the Company had economically
hedged certain portions of its anticipated consumption of commodity inputs and foreign currency cash flows through May 2008.
12
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
During the first quarter of fiscal 2008, the Company discontinued its practice of designating
derivatives as cash flow hedges of commodity inputs. As such, derivative instruments used to create economic hedges of such commodity inputs are marked-to-market each period with both realized and unrealized changes in market value immediately
included in cost of goods sold. Amounts deferred in accumulated other comprehensive income for previously designated cash flow hedges continue to be deferred until the hedged transaction affects earnings.
As of November 25, 2007, May 27, 2007, and November 26, 2006, the net deferred gains recognized in accumulated other comprehensive
income were $3.1 million, $4.9 million, and $13.0 million, net of tax, respectively. The Company anticipates a gain of $3.1 million, net of tax, will be transferred out of accumulated other comprehensive income and recognized within earnings over
the next 12 months.
5. SHARE-BASED PAYMENTS
For the thirteen and twenty-six weeks ended November 25, 2007, the Company recognized total stock-based compensation expense (including stock options, restricted stock units, performance shares, and restricted cash) of $14.8 million
and $29.0 million, respectively. For the thirteen and twenty-six weeks ended November 26, 2006, the Company recognized total stock-based compensation expense (including stock options, restricted stock units, performance shares, and restricted
cash) of $20.1 million and $33.3 million, respectively. The Company granted 0.8 million restricted stock units at a weighted average grant date price of $26.72 during the first half of fiscal 2008. The Company granted 7.1 million stock
options at a weighted average grant date price of $26.75 during the first half of fiscal 2008.
Under its 2008 Performance Share Plan,
adopted pursuant to stockholder-approved incentive plans, the Company grants selected executives and other key employees performance share awards with vesting contingent upon the Company meeting various Company-wide performance goals. The
performance goals are based upon the Companys earnings before interest and taxes (EBIT) and the Companys return on average invested capital (ROAIC) measured over a defined performance period. The awards actually earned will range from
zero to three hundred percent of the targeted number of performance shares and be paid in shares of common stock. Subject to limited exceptions set forth in the plan, any shares earned will be distributed at the end of the three-year period. The
Company granted 0.6 million performance shares during the first half of fiscal 2008 at a weighted average grant date price of $26.73.
The Companys weighted average Black-Scholes assumptions for stock options granted during the first half of fiscal 2008 are as follows:
|
|
|
Expected volatility (%)
|
|
17.49
|
Dividend yield (%)
|
|
2.96
|
Risk-free interest rate (%)
|
|
4.85
|
Expected life of stock option (years)
|
|
4.77
|
The Companys weighted average Black-Scholes value of stock options granted during the first
half of fiscal 2008 was $4.25.
13
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
6. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average outstanding common shares. Diluted earnings per share is computed on the basis of basic weighted average outstanding common shares adjusted for
the dilutive effect of stock options, restricted stock awards, and other dilutive securities.
The following table reconciles the income and
average share amounts used to compute both basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended
|
|
Twenty-six weeks ended
|
|
|
November 25,
2007
|
|
November 26,
2006
|
|
November 25,
2007
|
|
November 26,
2006
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
243.8
|
|
$
|
201.3
|
|
$
|
419.3
|
|
$
|
309.8
|
Income from discontinued operations, net of tax
|
|
|
1.0
|
|
|
12.0
|
|
|
0.9
|
|
|
70.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
244.8
|
|
$
|
213.3
|
|
$
|
420.2
|
|
$
|
380.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
487.3
|
|
|
508.3
|
|
|
488.4
|
|
|
509.2
|
Add: Dilutive effect of stock options, restricted stock awards, and other dilutive securities
|
|
|
3.4
|
|
|
3.0
|
|
|
3.5
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
490.7
|
|
|
511.3
|
|
|
491.9
|
|
|
511.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the second quarter and first half of fiscal 2008, there were, respectively, 17.8 million
and 15.1 million of stock options outstanding that were excluded from the computation of shares contingently issuable upon exercise of the stock options because exercise prices exceeded the average market value of common stock during the
period. For the second quarter and first half of fiscal 2007, there were, respectively, 16.4 million and 20.0 million of stock options excluded from the calculation.
7. INVENTORIES
The major classes of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
November 25,
2007
|
|
May 27,
2007
|
|
November 26,
2006
|
Raw materials and packaging
|
|
$
|
2,022.7
|
|
$
|
1,154.2
|
|
$
|
1,340.0
|
Work in process
|
|
|
102.3
|
|
|
95.2
|
|
|
140.4
|
Finished goods
|
|
|
1,159.7
|
|
|
1,008.1
|
|
|
1,020.5
|
Supplies and other
|
|
|
64.4
|
|
|
91.0
|
|
|
86.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,349.1
|
|
$
|
2,348.5
|
|
$
|
2,587.7
|
|
|
|
|
|
|
|
|
|
|
Raw materials and packaging includes grain, fertilizer, crude oil, and other trading and
merchandising inventory of $1,289.5 million, $691.0 million, and $785.6 million as of the end of November 25, 2007, May 27, 2007, and November 26, 2006, respectively.
8. RESTRUCTURING
In February 2006, the Companys Board of Directors approved plans recommended
by executive management to simplify the Companys operating structure and reduce its manufacturing and selling, general, and administrative costs. These plans include supply chain rationalization initiatives, the relocation of the Grocery Foods
headquarters from Irvine, California to Naperville, Illinois, the centralization of shared services, salaried headcount reductions, and other cost-reduction initiatives.
14
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
These plans are expected to be substantially completed by the end of fiscal 2008. The forecasted costs of all plans, as updated through November 25,
2007, are $237.0 million, of which a benefit of $8.9 million was recorded in the first half of fiscal 2008, $103.0 million of expense was recorded in fiscal 2007, and $129.8 million of expense was recorded in the second half of fiscal 2006. The
Company has recorded expenses associated with its restructuring plans, including but not limited to, asset impairment charges, accelerated depreciation (i.e., incremental depreciation due to an assets reduced estimated useful life), inventory
write-downs, severance and related costs, and plan implementation costs (e.g., consulting, employee relocation, etc.). The Company anticipates it will recognize the following pre-tax expenses associated with the projects identified to date in the
fiscal 2006 to 2008 timeframe (amounts include the benefits recognized in the first half of fiscal 2008, and charges recognized in all of fiscal 2007, and fiscal 2006):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Foods
|
|
|
Food and
Ingredients
|
|
|
Trading and
Merchandising
|
|
International
Foods
|
|
Corporate
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
62.9
|
|
|
$
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
62.9
|
|
Inventory write-downs
|
|
|
4.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
Severance
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Other (including plant shutdown costs), net
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of goods sold
|
|
|
65.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
67.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
6.2
|
|
Asset impairment
|
|
|
24.8
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
26.4
|
|
Severance (and related costs)
|
|
|
27.1
|
|
|
|
3.0
|
|
|
|
0.2
|
|
|
0.7
|
|
|
23.8
|
|
|
54.8
|
|
Contract termination
|
|
|
18.1
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
25.8
|
|
Pension/Postretirement
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
4.1
|
|
|
4.2
|
|
Plan implementation costs
|
|
|
28.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
27.7
|
|
|
56.5
|
|
Goodwill/Brand impairment
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Other, net
|
|
|
(2.6
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses
|
|
|
101.6
|
|
|
|
10.3
|
|
|
|
0.2
|
|
|
0.7
|
|
|
57.2
|
|
|
170.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
167.1
|
|
|
$
|
11.8
|
|
|
$
|
0.2
|
|
$
|
0.7
|
|
$
|
57.2
|
|
$
|
237.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the above estimates are $143.0 million of charges which have resulted or will result in
cash outflows and $94.0 million of non-cash charges.
During the second quarter of fiscal 2008, the Company recognized the following
pre-tax charges (recoveries) in its consolidated statement of earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Foods
|
|
|
Food and
Ingredients
|
|
Trading and
Merchandising
|
|
International
Foods
|
|
Corporate
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
0.9
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
$
|
0.9
|
|
Other (including plant shutdown costs)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of goods sold
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Severance (and related costs)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(1.1
|
)
|
Plan implementation costs
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
2.6
|
|
Other, net
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
3.3
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
During the first half of fiscal 2008, the Company recognized the following pre-tax charges
(recoveries) in its consolidated statement of earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Foods
|
|
|
Food and
Ingredients
|
|
|
Trading and
Merchandising
|
|
International
Foods
|
|
Corporate
|
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
2.4
|
|
|
$
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
$
|
2.4
|
|
Pension/Postretirement
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
Other (including plant shutdown costs)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of goods sold
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Severance (and related costs)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
(6.3
|
)
|
Contract termination
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
Plan implementation costs
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
3.2
|
|
Other, net
|
|
|
(3.5
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses
|
|
|
(7.6
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
(7.8
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
|
|
$
|
|
|
$
|
(0.4
|
)
|
|
$
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first half of fiscal 2008, the Company reassessed certain aspects of its plans to
rationalize its supply chain. The Company has determined that it will continue to operate three production facilities that it had previously planned to close. As a result of such determination, previously established reserves, primarily for related
severance costs and pension costs, have been reversed (as reflected in the table above). The Company is currently evaluating the best use of a new production facility, the construction of which is in progress, in connection with its restructuring
plans. The Company, based on its current assessment of likely scenarios, believes the carrying value of this facility ($41.8 million at November 25, 2007) is recoverable. In the event the Company determines that the future use of the new
facility will not result in recovery of the recorded value of the asset, an impairment charge would be required.
The Company recognized the
following cumulative (plan inception to November 25, 2007) pre-tax charges (recoveries) related to restructuring in its consolidated statements of earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Foods
|
|
|
Food and
Ingredients
|
|
|
Trading and
Merchandising
|
|
International
Foods
|
|
Corporate
|
|
Total
|
|
Accelerated depreciation
|
|
$
|
62.5
|
|
|
$
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
62.5
|
|
Inventory write-downs
|
|
|
4.4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6
|
|
Severance
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Other (including plant shutdown costs)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of goods sold
|
|
|
65.0
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
66.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
6.1
|
|
Asset impairment
|
|
|
24.8
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
26.4
|
|
Severance (and related costs)
|
|
|
27.1
|
|
|
|
3.1
|
|
|
|
0.2
|
|
|
0.7
|
|
|
23.1
|
|
|
54.2
|
|
Contract termination
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
19.3
|
|
Pension/Postretirement
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
4.2
|
|
|
4.3
|
|
Plan implementation costs
|
|
|
22.7
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
28.3
|
|
|
51.2
|
|
Goodwill/Brand impairment
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Other, net
|
|
|
(2.6
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses
|
|
|
95.9
|
|
|
|
3.7
|
|
|
|
0.2
|
|
|
0.7
|
|
|
57.1
|
|
|
157.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
160.9
|
|
|
$
|
5.0
|
|
|
$
|
0.2
|
|
$
|
0.7
|
|
$
|
57.1
|
|
$
|
223.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
Included in the above are $128.5 million of charges which have resulted or will result in cash
outflows and $95.4 million of non-cash charges.
Liabilities recorded for the various initiatives and changes therein for the second quarter
of fiscal 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
August 26,
2007
|
|
Costs Paid
or Otherwise
Settled
|
|
|
Costs Incurred
and Charged to
Expense
|
|
Changes in
Estimates
|
|
|
Balance at
November 25,
2007
|
Severance (and related costs)
|
|
$
|
13.8
|
|
$
|
(1.6
|
)
|
|
$
|
|
|
$
|
(1.1
|
)
|
|
$
|
11.1
|
Contract termination
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Plan implementation costs
|
|
|
0.9
|
|
|
(3.3
|
)
|
|
|
3.0
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14.8
|
|
$
|
(5.0
|
)
|
|
$
|
3.0
|
|
$
|
(1.1
|
)
|
|
$
|
11.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. INCOME TAXES
In the second quarter of fiscal 2008 and 2007, the Companys income tax expense was $132.9 million and $119.1 million, 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 35% and 34% for the second quarter and first half of fiscal 2008, respectively, and 37% for both the second quarter and first half of fiscal
2007, respectively.
The Company adopted the provisions of FIN 48, effective May 28, 2007. As of May 28, 2007, the Companys
gross unrecognized tax benefits were $54.8 million, excluding a related liability of $12.7 million for gross interest and penalties. The liability for gross unrecognized tax benefits at November 25, 2007 was $124.0 million, excluding a related
liability of $17.7 million for gross interest and penalties. An increase of approximately $62.6 million was recorded to gross unrecognized tax benefits during the quarter. The net amount of unrecognized tax benefits at November 25, 2007 and
May 28, 2007 that, if recognized, would impact the Companys effective tax rate is $40.0 million and $39.0 million, respectively. The adoption of FIN 48 also resulted in a $1.2 million increase to retained earnings.
The Company accrues interest and penalties associated with uncertain tax positions as part of income tax expense.
The Company conducts business and files tax returns in numerous countries, states, and local jurisdictions. The U.S. Internal Revenue Service
(IRS) has completed its audit for tax years through fiscal 2004 and all resulting significant items have been settled with them. Other major jurisdictions where the Company conducts business generally have statutes of limitations ranging
from 3 to 5 years.
The Company expects that the amount of gross unrecognized tax benefits will decrease by $20 million to $30 million over
the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes of limitations.
10. CONTINGENCIES
In fiscal 1991, the Company acquired Beatrice Company (Beatrice). As a result of the acquisition and the significant
pre-acquisition contingencies of the Beatrice businesses and its former subsidiaries, the consolidated post-acquisition financial statements of the Company reflect liabilities associated with the estimated resolution of these contingencies. These
include various litigation and environmental proceedings related to businesses divested by Beatrice prior to its acquisition by the Company. The litigation includes several public nuisance and personal injury suits against a number of lead paint and
pigment manufacturers, including ConAgra Grocery Products and the Company as alleged successors to W. P. Fuller Co., a lead paint and pigment manufacturer owned and operated by Beatrice until 1967. Although decisions favorable to the Company
have been rendered in Rhode Island, New Jersey, and Wisconsin, the Company remains a defendant in active suits in Illinois, Ohio, and California. The Illinois suit seeks class-wide relief in the form of medical monitoring for elevated levels of lead
in blood. The State of Ohio and several of its municipalities seek abatement of the alleged nuisance and unspecified damages. In California, a number of cities and counties have joined in a consolidated action seeking abatement of the alleged public
nuisance.
The environmental proceedings include litigation and administrative proceedings involving Beatrices status as a potentially
responsible party at 36 Superfund, proposed Superfund, or state-equivalent sites; these sites involve locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides, fertilizers, dyes, inks, solvents,
17
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
PCBs, acids, lead, sulfur, tannery wastes, and/or other contaminants. Beatrice has paid or is in the process of paying its liability share at 34 of these
sites. Reserves for these matters have been established based on the Companys best estimate of its undiscounted remediation liabilities, which estimates include evaluation of investigatory studies, extent of required cleanup, the known
volumetric contribution of Beatrice and other potentially responsible parties, and its experience in remediating sites. The reserves for Beatrice environmental matters totaled $96.0 million as of November 25, 2007, a majority of which relates
to the Superfund and state equivalent sites referenced above. Expenditures for these matters are expected to continue for a period of up to 20 years.
In certain limited situations, the Company will guarantee an obligation of an unconsolidated entity. Currently, the Company guarantees certain obligations primarily associated with leases entered into by certain of
its equity method investees and divested companies. Under these arrangements, the Company is obligated to perform should the primary obligor be unable to perform. Most of these guarantees resulted from the Companys fresh beef and pork
divestiture. The remaining terms of these arrangements do not exceed eight years and the maximum amount of future payments the Company has guaranteed is approximately $29.5 million as of November 25, 2007. The Company has also guaranteed the
performance of the divested fresh beef and pork business with respect to a hog purchase contract. The hog purchase contract requires the fresh beef and pork business to purchase a minimum of approximately 1.2 million hogs annually through 2014.
The contract stipulates minimum price commitments, based in part on market prices and, in certain circumstances, also includes price adjustments based on certain inputs. The Company does not have a liability established in its consolidated balance
sheets for these arrangements as the Company has determined that performance under the guarantees is not probable.
The Company is party to
a number of lawsuits and claims arising out of the operation of its business, including lawsuits and claims related to the February 2007 recall of its peanut butter products. The Company believes that the ultimate resolution of these lawsuits and
claims will not have a material adverse effect on the Companys financial condition, results of operations, or liquidity. On June 28, 2007, officials from the Food and Drug Administrations Office of Criminal Investigations executed a
search warrant at the Companys peanut butter manufacturing facility in Sylvester, Georgia, to obtain a variety of records and information relating to plant operations. The Company is cooperating with officials in regard to the investigation.
After taking into account liabilities recorded for all of the foregoing matters, management believes the ultimate resolution of such
matters should not have a material adverse effect on the Companys financial condition, results of operations, or liquidity. Costs of legal services are recognized in earnings as services are provided.
11. PENSION AND POSTRETIREMENT BENEFITS
The Company
and its subsidiaries have defined benefit retirement plans (plans) for eligible salaried and hourly employees. Benefits are based on years of credited service and average compensation or stated amounts for each year of service. The
Company also sponsors postretirement plans which provide certain medical and dental benefits (other benefits) to qualifying U.S. employees.
The Company historically has used February 28 as its measurement date for its plans. Beginning May 28, 2007, the Company elected to early adopt the measurement date provisions of SFAS No. 158. These
provisions require the measurement date for plan assets and liabilities to coincide with the sponsors fiscal year-end. The Company used the alternative method for adoption. As a result, during the first quarter of fiscal 2008 the
Company recorded a decrease to retained earnings of approximately $11.7 million, net of tax, and an increase to accumulated other comprehensive income of approximately $1.6 million, net of tax, representing the periodic benefit cost for the period
from March 1, 2007 through the Companys fiscal 2007 year-end.
18
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
Components of pension benefit and other postretirement benefit costs are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Costs
|
|
|
|
Thirteen weeks ended
|
|
|
Twenty-six weeks ended
|
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
Service cost
|
|
$
|
14.9
|
|
|
$
|
14.6
|
|
|
$
|
29.9
|
|
|
$
|
29.2
|
|
Interest cost
|
|
|
33.4
|
|
|
|
32.7
|
|
|
|
66.7
|
|
|
|
65.4
|
|
Expected return on plan assets
|
|
|
(37.2
|
)
|
|
|
(32.9
|
)
|
|
|
(74.3
|
)
|
|
|
(65.8
|
)
|
Amortization of prior service cost
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
1.7
|
|
|
|
1.6
|
|
Settlement loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
Recognized net actuarial loss
|
|
|
2.1
|
|
|
|
4.5
|
|
|
|
4.2
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit costCompany plans
|
|
|
14.1
|
|
|
|
19.7
|
|
|
|
28.2
|
|
|
|
41.4
|
|
Benefit costmulti-employer plans
|
|
|
2.9
|
|
|
|
2.2
|
|
|
|
4.7
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefit cost
|
|
$
|
17.0
|
|
|
$
|
21.9
|
|
|
$
|
32.9
|
|
|
$
|
45.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Costs
|
|
|
|
Thirteen weeks ended
|
|
|
Twenty-six weeks ended
|
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
Service cost
|
|
$
|
0.2
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
1.0
|
|
Interest cost
|
|
|
5.4
|
|
|
|
5.2
|
|
|
|
10.7
|
|
|
|
10.4
|
|
Expected return on plan assets
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
Amortization of prior service cost
|
|
|
(2.9
|
)
|
|
|
(3.5
|
)
|
|
|
(5.8
|
)
|
|
|
(7.0
|
)
|
Recognized net actuarial loss
|
|
|
3.0
|
|
|
|
2.8
|
|
|
|
6.0
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost Company plans
|
|
$
|
5.6
|
|
|
$
|
4.9
|
|
|
$
|
11.3
|
|
|
$
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter and first half of fiscal 2008, the Company contributed $2.4 million and
$4.0 million, respectively, to the Companys pension plans and contributed $9.2 million and $20.4 million, respectively, to the Companys other postretirement plans. Based upon the current funded status of the plans and the current
interest rate environment, the Company anticipates making further contributions of approximately $4.6 million to its pension plans for the remainder of fiscal 2008. The Company anticipates making further contributions of $23.6 million to its other
postretirement plans during the remainder of fiscal 2008. These estimates are based on current tax laws, plan asset performance, and liability assumptions, which are subject to change.
12. LONG-TERM DEBT
In December 2006, the Company completed an exchange of approximately $200 million
principal amount of its 9.75% subordinated notes due 2021 and $300 million principal amount of its 6.75% senior notes due 2011 for approximately $500 million principal amount of 5.82% senior notes due 2017 and cash of approximately $90 million, in
order to improve the Companys debt maturity profile. The Company is amortizing the $90 million cash payment (the unamortized portion of which is reflected as a reduction of senior long-term debt in the Companys consolidated balance sheet
at November 25, 2007) over the life of the new notes within interest expense.
For periods ending prior to November 25, 2007, the
Company consolidated several entities from which it leases office buildings. These entities were determined to be variable interest entities and the Company was determined to be the primary beneficiary of each of these entities. In September 2007,
the Company ceased to be the primary beneficiary of the entities from which it leases office buildings and, accordingly, the Company discontinued the consolidation of the assets and liabilities of these entities. This resulted in reducing the amount
of long-term debt reflected in the Companys balance sheet by $83 million. However, a lease agreement with one of the variable interest entities was determined to be a capital lease, and, as such, at November 25, 2007 the Company reflected
the related leased assets of $46 million in property, plant and
19
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
equipment, capital lease obligations of $45 million in senior long-term debt, and $1 million in current installments of long-term debt.
13. RELATED PARTY TRANSACTIONS
Trading margins with
affiliates (equity method investees) of $6.2 million and $7.9 million for the second quarter and first half of fiscal 2008, respectively, are included in net sales. Trading margins (losses) with affiliates (equity method investees) of $(0.7) million
and $(0.5) million for the second quarter and first half of fiscal 2007, respectively, are included in net sales. The Company received management fees from affiliates (equity method investees) of $4.2 million and $7.9 million in the second quarter
and first half of fiscal 2008, respectively. The Company received management fees from affiliates (equity method investees) of $3.7 million and $7.1 million in the second quarter and first half of fiscal 2007, respectively. Accounts receivable from
affiliates totaled $3.5 million, $2.5 million, and $4.4 million at November 25, 2007, May 27, 2007, and November 26, 2006, respectively. Accounts payable to affiliates totaled $13.0 million, $13.5 million, and $11.9 million at
November 25, 2007, May 27, 2007, and November 26, 2006, respectively.
During the first quarter of fiscal 2007, the Company
sold an aircraft for proceeds of approximately $8.1 million to a company on whose board of directors one of the Companys directors sits. The Company recognized a gain of approximately $3.0 million on the transaction.
The Company leases various buildings that are beneficially owned by Opus Corporation or entities related to Opus Corporation (the Opus
Entities). The Opus Entities are affiliates or part of a large, national real estate development company. A former member of the Companys Board of Directors, who left the board in the second quarter of fiscal 2008, is a beneficial owner,
officer, and chairman of Opus Corporation and a director or officer of the related entities. The agreements relate to the leasing of land, buildings, and equipment for the Company in Omaha, Nebraska. The Company occupies the buildings pursuant to
long-term leases with Opus Corporation and other investors, which leases contain various termination rights and purchase options. The Company made rental payments of $3.3 million and $6.9 million in the second quarter and first half of fiscal 2008,
respectively, to the Opus Entities. The Company made rental payments of $3.6 million and $7.2 million in the second quarter and first half of fiscal 2007, respectively, to the Opus Entities. The Company has also entered into construction contracts
with the Opus Entities, which relate to the construction of improvements to various properties occupied by the Company. The Company made payments of $0.5 million and $1.1 million to the Opus Entities for construction services for the second quarter
and first half of fiscal 2007, respectively. The Company purchases property management services from Opus Corporation. Payments made by the Company to Opus Corporation or its affiliates for these services totaled $0.4 million and $0.8 million for
the second quarter and first half of fiscal 2008, respectively. Payments made by the Company to Opus Corporation or its affiliates for these services totaled $0.4 million and $0.8 million for the second quarter and first half of fiscal 2007,
respectively.
From time to time, one of the Companys business units has engaged an environmental and agricultural engineering
services firm. The firm is a subsidiary of an entity whose chief executive officer serves on the Companys Board of Directors. Payments to this firm for environmental and agricultural engineering services performed totaled $0.1 million and $0.2
million in the second quarter and first half of fiscal 2008, respectively. Payments to this firm for environmental and agricultural engineering services performed totaled $0.1 million and $0.2 million in the second quarter and first half of fiscal
2007, respectively.
20
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
14. ACQUISITIONS
On July 23, 2007, the Company acquired Alexia Foods, a privately held natural food company, headquartered in Long Island City, New York, for approximately $50 million in cash plus assumed liabilities. Alexia
Foods offers premium natural and organic food items including potato products, appetizers, and artisan breads. At November 25, 2007, $33 million of the purchase price has been allocated to goodwill and $19 million to other intangible assets.
On September 5, 2007, the Company acquired Lincoln Snacks, a privately held company located in Lincoln, Nebraska for approximately $50
million in cash plus assumed liabilities. Lincoln Snacks offers a variety of snack food brands and private label products. At November 25, 2007, $17 million of the purchase price has been allocated to goodwill and $17 million to other
intangible assets.
On October 21, 2007, the Company acquired manufacturing assets of Twin City Foods, Inc. (Twin City
Foods), a potato processing business, for approximately $22 million in cash.
The assets acquired and liabilities assumed in
connection with these acquisitions were as follows:
|
|
|
|
Fair value of assets acquired
|
|
$
|
150.3
|
Cash paid for purchases
|
|
|
122.0
|
|
|
|
|
Liabilities assumed
|
|
$
|
28.3
|
|
|
|
|
Under the purchase method of accounting, the assets acquired and liabilities assumed in these
acquisitions were recorded at their respective estimated fair values at the date of acquisition. The fair values are preliminary and are subject to refinement as the Company completes its analyses relative to the fair values at the respective
acquisition dates.
15. BUSINESS SEGMENTS AND RELATED INFORMATION
The Companys operations are organized into four reporting segments: Consumer Foods, Food and Ingredients, Trading and Merchandising, and International Foods. The Consumer Foods reporting segment includes
branded, private label, and customized food products which are sold in various retail and foodservice channels. The products include a variety of categories (meals, entrees, condiments, sides, snacks, and desserts) across frozen, refrigerated, and
shelf-stable temperature classes. The Food and Ingredients reporting segment includes commercially branded foods and ingredients, which are sold principally to foodservice, food manufacturing, and industrial customers. The segments
primary products include specialty potato products, milled grain ingredients, dehydrated vegetables and seasonings, blends, and flavors. The Trading and Merchandising reporting segment includes the sourcing, merchandising, trading, marketing, and
distribution of agricultural and energy commodities. The International Foods reporting segment includes branded food products which are sold in retail channels principally in North America, Europe, and Asia. The products include a variety of
categories (meals, entrees, condiments, sides, snacks, and desserts) across frozen, refrigerated, and shelf-stable temperature classes.
At
the beginning of the first quarter of fiscal 2008, the Company shifted management responsibility of its handheld product operations into the Consumer Foods segment from the Food and Ingredients segment, and a portion of its international snack
export business from the Consumer Foods segment to the International Foods segment. Accordingly, all prior periods have been recharacterized to reflect these changes.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each segment is based on net sales less all identifiable operating expenses. General corporate expense, net interest expense,
equity method investment earnings, and income taxes have been excluded from segment operations.
The Company initiated a voluntary recall of all varieties of peanut butter manufactured at its Sylvester, Georgia plant during the third quarter of fiscal 2007. That action has resulted in direct costs related to the
recall, most notably product retrieval and destruction costs, legal expenses and liabilities, and other costs. Furthermore, since the Company had no peanut butter in the marketplace from the time of the recall until the recent reintroduction of the
Peter Pan
®
peanut butter brand in August 2007, the size of the Companys peanut butter business during the first half of
fiscal 2008 was much smaller than what it was prior to the recall. The direct costs of the recall negatively impacted gross margin and operating profit primarily in the Consumer Foods segment for the second quarter and first half of fiscal 2008, as
discussed below. Net sales for the Companys peanut butter business in the second quarter and first half of fiscal 2008 were approximately $13 million and $22
21
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
million, respectively. Net sales for the Companys peanut butter business in the second quarter and first half of fiscal 2007 were approximately $40
million and $82 million, respectively. Operating profit for the second quarter and first half of fiscal 2008 at the Consumer Foods segment also includes $3.1 million and $14.6 million, respectively, of costs related to the peanut butter recall
reflected as an increase to cost of goods sold of $7.1 million for the first half of the year, and second quarter and first half increases to selling, general, and administrative expenses of $3.1 million and $7.5 million, respectively.
During the second quarter of fiscal 2008, the Company voluntarily recalled all of its
Banquet
®
and private label pot pies out of concern for potential salmonella contamination. After evaluation of the pot pie plant with the USDA and implementing changes regarding consumer
cooking instructions and more rigorous testing of raw ingredients coming into the plant, the Company resumed pot pie production and distribution to stores. The direct costs of the recall negatively impacted gross margin and operating profit in the
Consumer Foods segment for the second quarter of fiscal 2008, as discussed below. Net sales for the Companys Banquet
®
and private label pot pie business in the second quarter and
first half of fiscal 2008 were approximately $6 million and $29 million, respectively. Net sales for the Companys Banquet
®
and private label pot pie business in the second quarter and
first half of fiscal 2007 were approximately $29 million and $49 million, respectively. Operating profit for the second quarter and first half of fiscal 2008 at the Consumer Foods segment includes charges of $27.2 million of costs related to the
Banquet
®
and private label pot pie recall reflected as a decrease in net sales of $9.6 million, an increase to cost of goods sold of $9.4 million, and an increase to selling, general, and
administrative expenses of $8.2 million.
Operating profit for the second quarter and first half of fiscal 2008 at the Consumer Foods
segment includes a charge of $3.3 million and a benefit of $7.8 million, respectively, related to the Companys fiscal 2006-2008 restructuring plan, while the operating profit for the second quarter and first half of fiscal 2007 included
restructuring plan charges of $38.3 million and $63.8 million, respectively.
Operating profit for the first half of fiscal 2008 at the Food
and Ingredients segment includes a benefit of $0.7 million related to the Companys fiscal 2006 to 2008 restructuring plan, while the operating profit for the second quarter and first half of fiscal 2007 included restructuring plan charges of
$0.8 million and $1.0 million, respectively. Operating profit for the second quarter and first half of fiscal 2007 also included an $8.0 million gain resulting from a legal settlement related to a fiscal 2005 fire at a production facility and a
$17.6 million gain related to the sale of an oat milling facility.
Operating profit for the first half of fiscal 2008 at the Trading and
Merchandising segment includes a gain of approximately $6.3 million related to the sale of an available-for-sale marketable security.
Operating profit at the International Foods segment for the second quarter and first half of fiscal 2007 includes a $3.6 million gain on the sale of a certain international right for a brand.
General corporate expenses for the second quarter and first half of fiscal 2008 include foreign currency derivative losses of $7.4 million. In fiscal
2008, the Company began to centrally manage foreign currency risk on behalf of the Companys reporting segments. Foreign currency derivatives used in the Companys risk management processes are not designated for hedge accounting
treatment. These derivatives are viewed by management as providing economic hedges of the foreign currency risk of certain forecasted transactions. As such, these derivatives are recognized at fair market value with realized and unrealized gains and
losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged affects earnings.
General corporate expenses for the second quarter and first half of fiscal 2007 include charges of $4.4 million and $17.3 million,
respectively, related to the Companys fiscal 2006 to 2008 restructuring plan. General corporate expenses for the first half of fiscal 2007 include approximately $7.4 million resulting from a favorable resolution of franchise tax matters.
22
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended
|
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
Sales to unaffiliated customers
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
$
|
1,794.8
|
|
|
$
|
1,766.4
|
|
Food and Ingredients
|
|
|
995.0
|
|
|
|
869.6
|
|
Trading and Merchandising
|
|
|
545.5
|
|
|
|
297.3
|
|
International Foods
|
|
|
175.7
|
|
|
|
155.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,511.0
|
|
|
$
|
3,088.7
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
$
|
23.2
|
|
|
$
|
18.7
|
|
Food and Ingredients
|
|
|
52.6
|
|
|
|
50.9
|
|
Trading and Merchandising
|
|
|
4.9
|
|
|
|
17.0
|
|
International Foods
|
|
|
1.8
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82.5
|
|
|
|
88.7
|
|
Intersegment elimination
|
|
|
(82.5
|
)
|
|
|
(88.7
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
$
|
1,818.0
|
|
|
$
|
1,785.1
|
|
Food and Ingredients
|
|
|
1,047.6
|
|
|
|
920.5
|
|
Trading and Merchandising
|
|
|
550.4
|
|
|
|
314.3
|
|
International Foods
|
|
|
177.5
|
|
|
|
157.5
|
|
Intersegment elimination
|
|
|
(82.5
|
)
|
|
|
(88.7
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,511.0
|
|
|
$
|
3,088.7
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
$
|
234.0
|
|
|
$
|
277.3
|
|
Food and Ingredients
|
|
|
131.3
|
|
|
|
116.7
|
|
Trading and Merchandising
|
|
|
164.5
|
|
|
|
38.9
|
|
International Foods
|
|
|
14.7
|
|
|
|
18.6
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
544.5
|
|
|
|
451.5
|
|
General corporate expenses
|
|
|
126.6
|
|
|
|
91.6
|
|
Interest expense, net
|
|
|
64.3
|
|
|
|
52.1
|
|
Income tax expense
|
|
|
132.9
|
|
|
|
119.1
|
|
Equity method investment earnings
|
|
|
23.1
|
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
243.8
|
|
|
$
|
201.3
|
|
|
|
|
|
|
|
|
|
|
23
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks
ended November 25, 2007 and November 26, 2006
(columnar dollars in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Twenty-six weeks ended
|
|
|
|
November 25,
2007
|
|
|
November 26,
2006
|
|
Sales to unaffiliated customers
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
$
|
3,362.1
|
|
|
$
|
3,288.6
|
|
Food and Ingredients
|
|
|
1,903.7
|
|
|
|
1,686.6
|
|
Trading and Merchandising
|
|
|
873.4
|
|
|
|
502.7
|
|
International Foods
|
|
|
327.4
|
|
|
|
299.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,466.6
|
|
|
$
|
5,777.3
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
$
|
48.9
|
|
|
$
|
51.7
|
|
Food and Ingredients
|
|
|
100.3
|
|
|
|
97.9
|
|
Trading and Merchandising
|
|
|
6.8
|
|
|
|
22.5
|
|
International Foods
|
|
|
4.1
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160.1
|
|
|
|
176.1
|
|
Intersegment elimination
|
|
|
(160.1
|
)
|
|
|
(176.1
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
$
|
3,411.0
|
|
|
$
|
3,340.3
|
|
Food and Ingredients
|
|
|
2,004.0
|
|
|
|
1,784.5
|
|
Trading and Merchandising
|
|
|
880.2
|
|
|
|
525.2
|
|
International Foods
|
|
|
331.5
|
|
|
|
303.4
|
|
Intersegment elimination
|
|
|
(160.1
|
)
|
|
|
(176.1
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,466.6
|
|
|
$
|
5,777.3
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
$
|
410.4
|
|
|
$
|
460.0
|
|
Food and Ingredients
|
|
|
251.5
|
|
|
|
220.8
|
|
Trading and Merchandising
|
|
|
240.1
|
|
|
|
54.5
|
|
International Foods
|
|
|
26.0
|
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
|
Total operating profit
|
|
|
928.0
|
|
|
|
767.1
|
|
General corporate expenses
|
|
|
201.0
|
|
|
|
181.4
|
|
Interest expense, net
|
|
|
122.8
|
|
|
|
110.1
|
|
Income tax expense
|
|
|
220.3
|
|
|
|
180.6
|
|
Equity method investment earnings
|
|
|
35.4
|
|
|
|
14.8
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
419.3
|
|
|
$
|
309.8
|
|
|
|
|
|
|
|
|
|
|
The Companys largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for
approximately 12% and 13% of consolidated net sales (including sales from discontinued operations) for the second quarter and first half of fiscal 2008, respectively, and approximately 13% of consolidated net sales (including sales from discontinued
operations) for the second quarter and first half of fiscal 2007, primarily in the Consumer Foods segment.
Wal-Mart Stores, Inc. and its
affiliates accounted for approximately 8%, 9%, and 12% of consolidated net receivables as of November 25, 2007, May 27, 2007, and November 26, 2006, respectively, primarily in the Consumer Foods segment.
24
ConAgra Foods, Inc. and Subsidiaries
Part I - Financial Information