UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 27, 2011
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-7275
CONAGRA FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 47-0248710 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
One ConAgra Drive, Omaha, Nebraska | 68102-5001 | |
(Address of principal executive offices) | (Zip Code) |
(402) 240-4000
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Number of shares outstanding of issuers common stock, as of December 25, 2011, was 412,584,290.
1 | ||||||||
Item 1 | 1 | |||||||
1 | ||||||||
2 | ||||||||
Unaudited Condensed Consolidated Balance Sheets as of November 27, 2011 and May 29, 2011 |
3 | |||||||
4 | ||||||||
Notes to Unaudited Condensed Consolidated Financial Statements |
5 | |||||||
Item 2 | Managements Discussion and Analysis of Financial Condition and Results of Operations |
26 | ||||||
Item 3 | 36 | |||||||
Item 4 | 37 | |||||||
38 | ||||||||
Item 1 | 38 | |||||||
Item 2 | 38 | |||||||
Item 6 | 38 | |||||||
39 | ||||||||
Exhibit Index | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 12 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 101.1 |
PART I FINANCIAL INFORMATION
ConAgra Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions except per share amounts)
(unaudited)
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||
November 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
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Net sales |
$ | 3,403.9 | $ | 3,147.5 | $ | 6,475.9 | $ | 5,951.8 | ||||||||
Costs and expenses: |
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Cost of goods sold |
2,646.6 | 2,387.5 | 5,119.9 | 4,540.5 | ||||||||||||
Selling, general and administrative expenses |
455.8 | 428.3 | 878.7 | 838.3 | ||||||||||||
Interest expense, net |
50.6 | 33.7 | 103.5 | 71.0 | ||||||||||||
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Income from continuing operations before income taxes and equity method investment earnings |
250.9 | 298.0 | 373.8 | 502.0 | ||||||||||||
Income tax expense |
87.7 | 101.4 | 131.3 | 168.3 | ||||||||||||
Equity method investment earnings |
11.5 | 4.6 | 17.7 | 10.8 | ||||||||||||
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Income from continuing operations |
174.7 | 201.2 | 260.2 | 344.5 | ||||||||||||
Income from discontinued operations, net of tax |
| 0.6 | 0.1 | 3.6 | ||||||||||||
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Net income |
$ | 174.7 | $ | 201.8 | $ | 260.3 | $ | 348.1 | ||||||||
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Less: Net income attributable to noncontrolling interests |
2.9 | 0.9 | 3.2 | 0.8 | ||||||||||||
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Net income attributable to ConAgra Foods, Inc. |
$ | 171.8 | $ | 200.9 | $ | 257.1 | $ | 347.3 | ||||||||
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Earnings per share basic |
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Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders |
$ | 0.41 | $ | 0.46 | $ | 0.62 | $ | 0.78 | ||||||||
Income from discontinued operations attributable to ConAgra Foods, Inc. common stockholders |
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Net income attributable to ConAgra Foods, Inc. common stockholders |
$ | 0.41 | $ | 0.46 | $ | 0.62 | $ | 0.78 | ||||||||
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Earnings per share diluted |
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Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders |
$ | 0.41 | $ | 0.45 | $ | 0.61 | $ | 0.77 | ||||||||
Income from discontinued operations attributable to ConAgra Foods, Inc. common stockholders |
| | | 0.01 | ||||||||||||
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Net income attributable to ConAgra Foods, Inc. common stockholders |
$ | 0.41 | $ | 0.45 | $ | 0.61 | $ | 0.78 | ||||||||
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Cash dividends declared per common share |
$ | 0.24 | $ | 0.23 | $ | 0.47 | $ | 0.43 |
See notes to the condensed consolidated financial statements.
1
ConAgra Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(unaudited)
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||
November 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
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Net income |
$ | 174.7 | $ | 201.8 | $ | 260.3 | $ | 348.1 | ||||||||
Other comprehensive income (loss): |
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Net derivative adjustment, net of tax |
(48.3 | ) | | (80.2 | ) | 0.1 | ||||||||||
Unrealized gains (losses) on available-for-sale securities, net of tax |
(0.1 | ) | 0.2 | (0.2 | ) | | ||||||||||
Currency translation adjustment: |
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Unrealized translation gains (losses) |
(41.0 | ) | 13.1 | (50.9 | ) | 18.0 | ||||||||||
Pension and postretirement healthcare liabilities, net of tax |
24.9 | 1.0 | 31.0 | 3.3 | ||||||||||||
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Comprehensive income |
110.2 | 216.1 | 160.0 | 369.5 | ||||||||||||
Comprehensive income attributable to noncontrolling interests |
2.9 | 0.9 | 3.2 | 0.8 | ||||||||||||
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Comprehensive income attributable to ConAgra Foods, Inc. |
$ | 107.3 | $ | 215.2 | $ | 156.8 | $ | 368.7 | ||||||||
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See notes to the condensed consolidated financial statements.
2
ConAgra Foods, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions except share data)
(unaudited)
November 27, 2011 |
May 29, 2011 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
$ | 706.5 | $ | 972.4 | ||||
Receivables, less allowance for doubtful accounts of $9.2 and $7.8 |
972.0 | 849.4 | ||||||
Inventories |
2,032.0 | 1,803.4 | ||||||
Prepaid expenses and other current assets |
297.3 | 274.1 | ||||||
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Total current assets |
4,007.8 | 3,899.3 | ||||||
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Property, plant and equipment |
5,726.0 | 5,698.1 | ||||||
Less accumulated depreciation |
(3,122.5 | ) | (3,028.0 | ) | ||||
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Property, plant and equipment, net |
2,603.5 | 2,670.1 | ||||||
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Goodwill |
3,602.5 | 3,609.4 | ||||||
Brands, trademarks and other intangibles, net |
984.7 | 936.3 | ||||||
Other assets |
279.9 | 293.6 | ||||||
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$ | 11,478.4 | $ | 11,408.7 | |||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Current installments of long-term debt |
$ | 48.3 | $ | 363.5 | ||||
Accounts payable |
1,404.9 | 1,083.7 | ||||||
Accrued payroll |
135.4 | 124.1 | ||||||
Other accrued liabilities |
754.5 | 554.3 | ||||||
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Total current liabilities |
2,343.1 | 2,125.6 | ||||||
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Senior long-term debt, excluding current installments |
2,650.0 | 2,674.4 | ||||||
Subordinated debt |
195.9 | 195.9 | ||||||
Other noncurrent liabilities |
1,601.7 | 1,704.3 | ||||||
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Total liabilities |
6,790.7 | 6,700.2 | ||||||
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Commitments and contingencies (Note 12) |
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Common stockholders equity |
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Common stock of $5 par value, authorized 1,200,000,000 shares; issued 567,907,172 |
2,839.7 | 2,839.7 | ||||||
Additional paid-in capital |
888.3 | 899.1 | ||||||
Retained earnings |
4,915.1 | 4,853.6 | ||||||
Accumulated other comprehensive loss |
(323.0 | ) | (222.7 | ) | ||||
Less treasury stock, at cost, 155,995,841 and 157,412,899 common shares |
(3,639.2 | ) | (3,668.2 | ) | ||||
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Total ConAgra Foods, Inc. common stockholders equity |
4,680.9 | 4,701.5 | ||||||
Noncontrolling interests |
6.8 | 7.0 | ||||||
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Total stockholders equity |
4,687.7 | 4,708.5 | ||||||
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$ | 11,478.4 | $ | 11,408.7 | |||||
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See notes to the condensed consolidated financial statements.
3
ConAgra Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Twenty-six weeks ended | ||||||||
November 27, 2011 |
November 28, 2010 |
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Cash flows from operating activities: |
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Net income |
$ | 260.3 | $ | 348.1 | ||||
Income from discontinued operations |
0.1 | 3.6 | ||||||
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Income from continuing operations |
260.2 | 344.5 | ||||||
Adjustments to reconcile income from continuing operations to net cash flows from operating activities: |
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Depreciation and amortization |
186.5 | 174.2 | ||||||
Asset impairment charges |
7.4 | 0.4 | ||||||
Insurance recoveries recognized related to Garner accident |
| (1.8 | ) | |||||
Receipts from insurance carriers related to Garner accident |
| 10.9 | ||||||
Distributions from affiliates less than current earnings |
(11.2 | ) | (2.7 | ) | ||||
Share-based payments expense |
24.4 | 22.7 | ||||||
Proceeds from settlement of interest rate swaps |
| 31.5 | ||||||
Non-cash interest income on payment-in-kind notes |
| (37.3 | ) | |||||
Contributions to pension plans |
(71.5 | ) | (112.0 | ) | ||||
Other items (including noncurrent deferred income taxes) |
15.3 | 58.8 | ||||||
Change in operating assets and liabilities excluding effects of business acquisitions and dispositions: |
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Accounts receivable |
(115.1 | ) | (48.0 | ) | ||||
Inventory |
(228.9 | ) | (353.2 | ) | ||||
Prepaid expenses and other current assets |
(23.2 | ) | 59.1 | |||||
Accounts payable |
347.4 | 207.5 | ||||||
Accrued payroll |
11.3 | (139.7 | ) | |||||
Other accrued liabilities |
84.9 | 99.3 | ||||||
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Net cash flows from operating activities continuing operations |
487.5 | 314.2 | ||||||
Net cash flows from operating activities discontinued operations |
2.4 | 4.9 | ||||||
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Net cash flows from operating activities |
489.9 | 319.1 | ||||||
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Cash flows from investing activities: |
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Additions to property, plant and equipment |
(160.5 | ) | (211.0 | ) | ||||
Sale of property, plant and equipment |
5.7 | 13.1 | ||||||
Receipts from insurance carriers related to Garner accident |
| 1.5 | ||||||
Purchase of businesses and intangible assets |
(57.5 | ) | (136.0 | ) | ||||
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Net cash flows from investing activities continuing operations |
(212.3 | ) | (332.4 | ) | ||||
Net cash flows from investing activities discontinued operations |
| 245.5 | ||||||
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Net cash flows from investing activities |
(212.3 | ) | (86.9 | ) | ||||
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Cash flows from financing activities: |
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Repayment of long-term debt |
(348.1 | ) | (289.3 | ) | ||||
Repurchase of ConAgra Foods, Inc. common shares |
(84.0 | ) | (200.0 | ) | ||||
Cash dividends paid |
(189.7 | ) | (176.4 | ) | ||||
Exercise of stock options and issuance of other stock awards |
88.8 | 21.6 | ||||||
Other items |
| (0.2 | ) | |||||
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Net cash flows from financing activities continuing operations |
(533.0 | ) | (644.3 | ) | ||||
Net cash flows from financing activities discontinued operations |
| (0.1 | ) | |||||
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Net cash flows from financing activities |
(533.0 | ) | (644.4 | ) | ||||
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Effect of exchange rate changes on cash and cash equivalents |
(10.5 | ) | 4.2 | |||||
Net change in cash and cash equivalents |
(265.9 | ) | (408.0 | ) | ||||
Cash and cash equivalents at beginning of period |
972.4 | 953.2 | ||||||
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Cash and cash equivalents at end of period |
$ | 706.5 | $ | 545.2 | ||||
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See notes to the condensed consolidated financial statements.
4
ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Twenty-six Weeks ended November 27, 2011 and November 28, 2010
(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, we, us, or our) annual report on Form 10-K for the fiscal year ended May 29, 2011.
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, Inc. and all majority-owned subsidiaries. In addition, the accounts of all variable interest entities for which we have been determined to be the primary beneficiary are included in our condensed consolidated financial statements from the date such determination is made. All significant intercompany investments, accounts, and transactions have been eliminated.
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. We generally deem our foreign investments to be essentially permanent in nature and we do not provide for taxes on currency translation adjustments arising from converting the investment denominated in a foreign currency to U.S. dollars. When we determine that a foreign investment, as well as undistributed earnings, are 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 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
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Net derivative adjustment |
$ | (28.5 | ) | $ | 0.1 | $ | (47.3 | ) | $ | 0.1 | ||||||
Unrealized gains (losses) on available-for-sale securities |
| 0.1 | (0.1 | ) | | |||||||||||
Pension and postretirement healthcare liabilities |
14.4 | 1.4 | 18.1 | 2.9 | ||||||||||||
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$ | (14.1 | ) | $ | 1.6 | $ | (29.3 | ) | $ | 3.0 | |||||||
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Reclassifications Certain prior year amounts have been reclassified to conform with current year presentation.
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 condensed consolidated financial statements. Actual results could differ from these estimates.
5
2. ACQUISITIONS
In the first quarter of fiscal 2011, we acquired the assets of American Pie, LLC (American Pie) for $131.0 million in cash, plus assumed liabilities. American Pie is a manufacturer of frozen fruit pies, thaw and serve pies, fruit cobblers, and pie crusts under the Marie Callenders® and Claim Jumper® trade names, as well as frozen dinners, pot pies, and appetizers under the Claim Jumper® trade name. Approximately $51.5 million of the purchase price was allocated to goodwill and $61.3 million was allocated to brands, trademarks and other intangibles. The amount allocated to goodwill is deductible for income tax purposes and is primarily attributable to American Pies product portfolio, as well as anticipated synergies and other intangibles that do not qualify for separate recognition. This business is included in the Consumer Foods segment.
On November 28, 2011, subsequent to the end of our second quarter of fiscal 2012, we acquired an additional equity interest in AgroTech Foods Limited (ATFL) for approximately $10 million in cash. ATFL is an Indian public limited company that markets food and food ingredients to consumers and institutional customers in India. As a result of this investment, we now have a majority interest (approximately 52%) in ATFL. Accordingly, we will consolidate the financial statements of ATFL beginning in the third quarter of fiscal 2012. Prior to our acquisition of a majority interest in ATFL, we accounted for our noncontrolling interest (approximately 48%) under the equity method. In accordance with the acquisition method of accounting, we will remeasure our previously held noncontrolling equity interest in ATFL at fair value and record a gain of approximately $59 million in the third quarter of fiscal 2012, which represents the excess of the fair value over the carrying value of our noncontrolling equity interest in ATFL. This business will be included in the Consumer Foods segment.
On November 30, 2011, subsequent to the end of our second quarter of fiscal 2012, we acquired National Pretzel Company for approximately $296 million in cash, plus assumed liabilities. National Pretzel Company is a private label supplier and branded producer of pretzels and related products. All products are produced at its manufacturing facilities in California and Pennsylvania. This business, which has annual sales in excess of $175 million, will be included in the Consumer Foods segment.
3. DISCONTINUED OPERATIONS AND DIVESTITURES
Discontinued Operations
Frozen Handhelds Operations
During the fourth quarter of fiscal 2011, we completed the sale of substantially all of the assets of our frozen handhelds operations for $8.8 million in cash. We reflected the results of these operations as discontinued operations for all periods presented.
Gilroy Foods & FlavorsTM Operations
During the first quarter of fiscal 2011, we completed the sale of substantially all of the assets of Gilroy Foods & Flavors dehydrated garlic, onion, capsicum and Controlled Moisture, GardenFrost®, Redi-Made, and fresh vegetable operations for $245.7 million in cash. We reflected the results of these operations as discontinued operations for all periods presented.
In connection with the sale of this business, we entered into agreements to purchase certain ingredients, at prices approximating market rates, from the divested business for a period of five years. The continuing cash flows related to these agreements are not significant, and, accordingly, are not deemed to be direct cash flows of the divested business.
Summary of Operational Results
The summary comparative financial results of the discontinued operations were as follows:
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||
November 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
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Net sales |
$ | | $ | 13.6 | $ | 0.5 | $ | 67.6 | ||||||||
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Income (loss) from operations of discontinued operations before income taxes |
| (0.6 | ) | 0.1 | 4.6 | |||||||||||
Net gain (loss) from disposal of businesses |
| (0.5 | ) | | 0.4 | |||||||||||
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Income (loss) before income taxes |
| (1.1 | ) | 0.1 | 5.0 | |||||||||||
Income tax benefit (expense) |
| 1.7 | | (1.4 | ) | |||||||||||
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Income from discontinued operations, net of tax |
$ | | $ | 0.6 | $ | 0.1 | $ | 3.6 | ||||||||
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6
Operating results from discontinued operations for the second quarter and first half of fiscal 2011 reflect the impact of favorable resolutions of foreign tax matters. Operating results for the first half of fiscal 2011 also include the reversal of an accrual of $3.0 million related to certain legal matters of divested businesses.
There were no assets and liabilities classified as held for sale as of November 27, 2011 and May 29, 2011.
4. VARIABLE INTEREST ENTITIES
Variable Interest Entities Consolidated
We own a 49.99% interest in Lamb Weston BSW, LLC (Lamb Weston BSW), a potato processing venture with Ochoa Ag Unlimited Foods, Inc. (Ochoa). We provide all sales and marketing services to Lamb Weston BSW. Under certain circumstances, we could be required to compensate the other equity owner of Lamb Weston BSW for lost profits resulting from significant production shortfalls (production shortfalls). Commencing on June 1, 2018, or on an earlier date under certain circumstances, we have a contractual right to purchase the remaining equity interest in Lamb Weston BSW from Ochoa (the call option). We are currently subject to a contractual obligation to purchase all of Ochoas equity investment in Lamb Weston BSW at the option of Ochoa (the put option). The purchase prices under the call option and the put option (the options) are based on the book value of Ochoas equity interest at the date of exercise, as modified by an agreed-upon rate of return for the holding period of the investment balance. The agreed-upon rate of return varies depending on the circumstances under which any of the options are exercised. As of November 27, 2011, the price at which Ochoa had the right to put its equity interest to us was $34.6 million. This amount is presented within other liabilities in our condensed consolidated balance sheet. We have determined that Lamb Weston BSW is a variable interest entity and that we are the primary beneficiary of the entity. Accordingly, we consolidate the financial statements of Lamb Weston BSW.
In the first quarter of fiscal 2011, we repaid $35.4 million of bank borrowings of Lamb Weston BSW and took assignment of a promissory note from a lender of the joint venture, the balance of which was $36.1 million at November 27, 2011. The promissory note is due in December 2015. The promissory note is currently accruing interest at a rate of LIBOR plus 200 basis points with a floor of 3.25%. In addition, as of November 27, 2011, we provided lines of credit of up to $15.0 million to Lamb Weston BSW. Borrowings under the lines of credit bear interest at a rate of LIBOR plus 200 basis points with a floor of 3.25%. The amounts owed by Lamb Weston BSW to the Company are not reflected in our condensed consolidated balance sheets, as they are eliminated in consolidation.
Our variable interests in Lamb Weston BSW include an equity investment in the venture, the options, the promissory note, certain fees paid to us by Lamb Weston BSW for sales and marketing services, the contingent obligation related to production shortfalls, and the lines of credit advanced to Lamb Weston BSW. Our maximum exposure to loss as a result of our involvement with this venture is equal to our equity investment in the venture, the balance of the promissory note extended to the venture, the amount, if any, advanced under the lines of credit, and the amount, if any, by which the put option exercise price exceeds the fair value of the noncontrolling interest in Lamb Weston BSW on, or after, the put option exercise date. Also, in the event of a production shortfall, we could be required to compensate the other equity owner of Lamb Weston BSW for lost profits. It is not possible to determine the maximum exposure to losses from the potential exercise of the put option or from potential production shortfalls. However, we do not expect to incur material losses resulting from these potential exposures.
We also consolidate the assets and liabilities of several entities from which we lease corporate aircraft. Each of these entities has been determined to be a variable interest entity and we have been determined to be the primary beneficiary of each of these entities. Under the terms of the aircraft leases, we provide guarantees to the owners of these entities of a minimum residual value of the aircraft at the end of the lease term. We also have fixed price purchase options on the aircraft leased from these entities. Our maximum exposure to loss from our involvement with these entities is limited to the difference between the fair value of the leased aircraft and the amount of the residual value guarantees at the time we terminate the leases (the leases expire between December 2011 and October 2012). The total amount of the residual value guarantees for these aircraft at the end of the respective lease terms is $38.4 million.
7
Due to the consolidation of these variable interest entities, we reflected in our condensed consolidated balance sheets:
November 27, 2011 |
May 29, 2011 |
|||||||
Cash and cash equivalents |
$ | 9.0 | $ | 5.3 | ||||
Receivables, less allowance for doubtful accounts |
20.6 | 18.9 | ||||||
Inventories |
1.5 | 1.5 | ||||||
Prepaid expenses and other current assets |
0.2 | 0.3 | ||||||
Property, plant and equipment, net |
89.9 | 91.8 | ||||||
Goodwill |
18.8 | 18.8 | ||||||
Brands, trademarks and other intangibles, net |
8.7 | 9.0 | ||||||
|
|
|
|
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Total assets |
$ | 148.7 | $ | 145.6 | ||||
|
|
|
|
|||||
Current installments of long-term debt |
$ | 41.5 | $ | 13.4 | ||||
Accounts payable |
11.6 | 13.1 | ||||||
Accrued payroll |
0.4 | 0.4 | ||||||
Other accrued liabilities |
1.0 | 0.7 | ||||||
Senior long-term debt, excluding current installments |
| 30.1 | ||||||
Other noncurrent liabilities (minority interest) |
29.6 | 26.7 | ||||||
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|
|
|||||
Total liabilities |
$ | 84.1 | $ | 84.4 | ||||
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|
The liabilities recognized as a result of consolidating the Lamb Weston BSW entity do not represent additional claims on our general assets. The creditors of Lamb Weston BSW have claims only on the assets of Lamb Weston BSW. The assets recognized as a result of consolidating Lamb Weston BSW are the property of the venture and are not available to us for any other purpose, other than as a secured lender under the promissory note and lines of credit.
Variable Interest Entities Not Consolidated
We also have variable interests in certain other entities that we have determined to be variable interest entities, but for which we are not the primary beneficiary. We do not consolidate the financial statements of these entities.
We hold a 50% interest in Lamb Weston RDO, a potato processing venture. We provide all sales and marketing services to Lamb Weston RDO. We receive a fee for these services based on a percentage of the net sales of the venture. We reflect the value of our ownership interest in this venture in other assets in our condensed consolidated balance sheets, based upon the equity method of accounting. The balance of our investment was $13.7 million and $13.6 million at November 27, 2011 and May 29, 2011, respectively, representing our maximum exposure to loss as a result of our involvement with this venture. The capital structure of Lamb Weston RDO includes owners equity of $27.5 million and term borrowings from banks of $43.0 million as of November 27, 2011. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of this venture.
We lease certain office buildings from entities that we have determined to be variable interest entities. The lease agreements with these entities include fixed-price purchase options for the assets being leased, representing our only variable interest in these lessor entities. These leases are accounted for as operating leases, and accordingly, there are no material assets or liabilities associated with these entities included in our condensed consolidated balance sheets. We have no material exposure to loss from our variable interests in these entities. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of these entities. In making this determination, we have considered, among other items, the terms of the lease agreements, the expected remaining useful lives of the assets leased, and the capital structure of the lessor entities.
8
5. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for the first half of fiscal 2012 was as follows:
Consumer Foods |
Commercial Foods |
Total | ||||||||||
Balance as of May 29, 2011 |
$ | 3,479.7 | $ | 129.7 | $ | 3,609.4 | ||||||
Foreign currency translation |
(6.3 | ) | (0.6 | ) | (6.9 | ) | ||||||
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Balance as of November 27, 2011 |
$ | 3,473.4 | $ | 129.1 | $ | 3,602.5 | ||||||
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Other identifiable intangible assets were as follows:
November 27, 2011 | May 29, 2011 | |||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
|||||||||||||
Non-amortizing intangible assets |
$ | 828.7 | $ | | $ | 771.2 | $ | | ||||||||
Amortizing intangible assets |
214.1 | 58.1 | 213.9 | 48.8 | ||||||||||||
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$ | 1,042.8 | $ | 58.1 | $ | 985.1 | $ | 48.8 | |||||||||
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Non-amortizing intangible assets are comprised of brands and trademarks.
Amortizing intangible assets, carrying a weighted average life of approximately 13 years, are principally composed of licensing arrangements, customer relationships, and intellectual property. Based on amortizing assets recognized in our condensed consolidated balance sheet as of November 27, 2011, amortization expense is estimated to average $16.5 million for each of the next five years.
In the first quarter of fiscal 2012, we acquired the Marie Callenders® brand trademarks for $57.5 million in cash. This intangible asset is presented in the Consumer Foods segment.
6. DERIVATIVE FINANCIAL INSTRUMENTS
Our operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and energy, foreign currency exchange rates, and interest rates. In the normal course of business, these risks are managed through a variety of strategies, including the use of derivatives.
Commodity and commodity index futures and option contracts are used from time to time to economically hedge commodity input prices on items such as natural gas, vegetable oils, proteins, dairy, grains, and electricity. Generally, we economically hedge a portion of our anticipated consumption of commodity inputs for periods of up to 36 months. We may enter into longer-term economic hedges on particular commodities, if deemed appropriate. As of November 27, 2011, we had economically hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with expiration dates through July 2013.
In order to reduce exposures related to changes in foreign currency exchange rates, we enter into forward exchange, option, or swap contracts from time to time for transactions denominated in a currency other than the applicable functional currency. This includes, but is not limited to, hedging against foreign currency risk in purchasing inventory and capital equipment, sales of finished goods, and future settlement of foreign-denominated assets and liabilities. As of November 27, 2011, we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through May 2017.
From time to time, we may use derivative instruments, including interest rate swaps, to reduce risk related to changes in interest rates. This includes, but is not limited to, hedging against increasing interest rates prior to the issuance of long-term debt and hedging the fair value of our senior long-term debt.
Derivatives Designated as Cash Flow Hedges
We have entered into interest rate swap contracts to hedge the interest rate risk related to our forecasted issuance of long-term debt in 2014 (based on the anticipated refinancing of the senior long-term debt maturing at that time). We designated these interest rate swaps as cash flow hedges of the forecasted interest payments related to this debt issuance. The pre-tax unrealized loss associated with these derivatives, which is deferred in accumulated other comprehensive loss at November 27, 2011, was $139.4 million.
The net notional amount of these interest rate derivatives at November 27, 2011 was $500.0 million.
9
Hedge ineffectiveness for cash flow hedges may impact net earnings when a change in the value of a hedge does not entirely offset the change in the value of the underlying hedged item. Depending on the nature of the hedge, ineffectiveness is recognized within cost of goods sold or selling, general and administrative expenses. We do not exclude any component of the hedging instruments gain or loss when assessing ineffectiveness. The ineffectiveness associated with derivatives designated as cash flow hedges from continuing operations was not material to our results of operations in any period presented.
Derivatives Designated as Fair Value Hedges
During fiscal 2010, we entered into interest rate swap contracts to hedge the fair value of certain of our senior long-term debt instruments maturing in fiscal 2012 and 2014. We designated these interest rate swap contracts as fair value hedges of the debt instruments.
Changes in fair value of the derivative instruments are immediately recognized in earnings along with changes in the fair value of the items being hedged (based solely on the change in the benchmark interest rate). These gains and losses are classified within selling, general and administrative expenses. We recognized a net gain of $1.1 million and $23.0 million on the interest rate swap contracts during the second quarter and first half of fiscal 2011, respectively. A net loss of $10.4 million and $29.7 million was recognized on the senior long-term debt during the second quarter and first half of fiscal 2011, respectively.
During the second quarter of fiscal 2011, we terminated the interest rate swap contracts and received proceeds of $31.5 million. The cumulative adjustment to the fair value of the debt instruments being hedged (the effective portion of the hedge) is included in long-term debt and is being amortized as a reduction of interest expense over the remaining lives of the debt instruments (through fiscal 2014). At November 27, 2011, the unamortized amount was $22.1 million.
The entire change in fair value of the derivative instruments was included in our assessment of hedge effectiveness.
Economic Hedges of Forecasted Cash Flows
Many of our derivatives do not qualify for, and we do not currently designate certain commodity or foreign currency derivatives to achieve, hedge accounting treatment. We reflect realized and unrealized gains and losses from derivatives used to economically hedge anticipated commodity consumption and to mitigate foreign currency cash flow risk in earnings immediately within general corporate expense (within cost of goods sold). The gains and losses are reclassified to segment operating results in the period in which the underlying item being economically hedged is recognized in cost of goods sold.
Economic Hedges of Fair Values Foreign Currency Exchange Rate Risk
We may use options and cross currency swaps to economically hedge the fair value of certain monetary assets and liabilities (including intercompany balances) denominated in a currency other than the functional currency. These derivatives are marked-to-market with gains and losses immediately recognized in selling, general and administrative expenses. These substantially offset the foreign currency transaction gains or losses recognized on the monetary assets or liabilities being economically hedged.
Derivative Activity in Our Milling Operations
We also use derivative instruments within our milling operations, which are part of the Commercial Foods segment. Derivative instruments used to economically hedge commodity inventories and forward purchase and sales contracts within the milling operations are marked-to-market such that realized and unrealized gains and losses are immediately included in operating results. The underlying inventory and forward contracts being hedged are also marked-to-market with changes in market value recognized immediately in operating results.
For commodity derivative trading activities within our milling operations that are not intended to mitigate commodity input cost risk, the derivative instrument is marked-to-market each period with gains and losses included in net sales of the Commercial Foods segment. There were no material gains or losses from derivative trading activities in the periods being reported.
10
All derivative instruments are recognized in our condensed consolidated balance sheets at fair value. 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. In accordance with the Financial Accounting Standards Board (FASB) guidance, we offset certain derivative asset and liability balances, as well as certain amounts representing rights to reclaim cash collateral and obligations to return cash collateral, where legal right of setoff exists. At November 27, 2011 and May 29, 2011, amounts representing a right to reclaim cash collateral of $32.0 million and $7.8 million, respectively, were included in prepaid expenses and other current assets in our condensed consolidated balance sheets.
Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or obligation to return cash collateral were reflected in our condensed consolidated balance sheets as follows:
November 27, 2011 |
May 29, 2011 |
|||||||
Prepaid expenses and other current assets |
$ | 99.5 | $ | 71.5 | ||||
Other accrued liabilities |
186.9 | 92.2 |
The following table presents our derivative assets and liabilities, on a gross basis, prior to the offsetting of amounts where legal right of setoff existed at November 27, 2011:
Derivative Assets |
Derivative Liabilities |
|||||||||||
Balance Sheet Location |
Fair Value | Balance Sheet Location |
Fair Value | |||||||||
Interest rate contracts |
Prepaid expenses and other current assets | $ | | Other accrued liabilities | $ | 139.4 | ||||||
|
|
|
|
|||||||||
Total derivatives designated as hedging instruments |
$ | | $ | 139.4 | ||||||||
|
|
|
|
|||||||||
Commodity contracts |
Prepaid expenses and other current assets | $ | 95.8 | Other accrued liabilities | $ | 68.6 | ||||||
Foreign exchange contracts |
Prepaid expenses and other current assets | 7.5 | Other accrued liabilities | 16.4 | ||||||||
Other |
Prepaid expenses and other current assets | 2.4 | Other accrued liabilities | 0.7 | ||||||||
|
|
|
|
|||||||||
Total derivatives not designated as hedging instruments |
$ | 105.7 | $ | 85.7 | ||||||||
|
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|
|
|||||||||
Total derivatives |
$ | 105.7 | $ | 225.1 | ||||||||
|
|
|
|
11
The following table presents our derivative assets and liabilities, on a gross basis, prior to the offsetting of amounts where legal right of setoff existed at May 29, 2011:
Derivative Assets |
Derivative Liabilities |
|||||||||||
Balance Sheet Location |
Fair Value | Balance Sheet Location |
Fair Value | |||||||||
Interest rate contracts |
Prepaid expenses and other current assets | $ | | Other accrued liabilities | $ | 11.8 | ||||||
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|
|||||||||
Total derivatives designated as hedging instruments |
$ | | $ | 11.8 | ||||||||
|
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|
|
|||||||||
Commodity contracts |
Prepaid expenses and other current assets | $ | 85.4 | Other accrued liabilities | $ | 84.4 | ||||||
Foreign exchange contracts |
Prepaid expenses and other current assets | 1.0 | Other accrued liabilities | 19.2 | ||||||||
Other |
Prepaid expenses and other current assets | 0.7 | Other accrued liabilities | 0.2 | ||||||||
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|
|||||||||
Total derivatives not designated as hedging instruments |
$ | 87.1 | $ | 103.8 | ||||||||
|
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|
|
|||||||||
Total derivatives |
$ | 87.1 | $ | 115.6 | ||||||||
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The location and amount of gains (losses) from derivatives not designated as hedging instruments in our condensed consolidated statements of earnings were as follows:
Derivatives Not Designated as Hedging Instruments |
Location in Condensed Consolidated Statement of Earnings of |
Amount of Gain (Loss) Recognized on Derivatives in Condensed Consolidated Statement of Earnings for the Thirteen Weeks Ended |
||||||||
November 27, 2011 |
November 28, 2010 |
|||||||||
Commodity contracts |
Cost of goods sold | $ | 30.6 | $ | 35.4 | |||||
Foreign exchange contracts |
Cost of goods sold | 6.0 | (2.6 | ) | ||||||
Commodity contracts |
Selling, general and administrative expense | (0.1 | ) | | ||||||
Foreign exchange contracts |
Selling, general and administrative expense | 6.2 | (2.0 | ) | ||||||
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|
|||||||
Total gain from derivative instruments not designated as hedging instruments |
$ | 42.7 | $ | 30.8 | ||||||
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12
Derivatives Not Designated as Hedging Instruments |
Location in Condensed Consolidated Statement of Earnings of Gain (Loss) Recognized on Derivatives |
Amount of Gain (Loss) Recognized on Derivatives in Condensed Consolidated Statement of Earnings for the Twenty-six Weeks Ended |
||||||||
November 27, 2011 |
November 28, 2010 |
|||||||||
Commodity contracts |
Cost of goods sold | $ | 73.1 | $ | 9.7 | |||||
Foreign exchange contracts |
Cost of goods sold | (1.0 | ) | (12.2 | ) | |||||
Commodity contracts |
Selling, general and administrative expense | (0.1 | ) | | ||||||
Foreign exchange contracts |
Selling, general and administrative expense | 6.5 | (2.4 | ) | ||||||
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|
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Total gain from derivative instruments not designated as hedging instruments |
$ | 78.5 | $ | (4.9 | ) | |||||
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As of November 27, 2011, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $1.1 billion and $1.0 billion for purchase and sales contracts, respectively. As of May 29, 2011, our open commodity contracts had a notional value of $1.0 billion and $1.2 billion for purchase and sales contracts, respectively. The notional amount of our foreign currency forward and cross currency swap contracts as of November 27, 2011 and May 29, 2011 was $328.4 million and $292.7 million, respectively. In addition, we held foreign currency option collar contracts with notional amounts of $23.0 million and $86.4 million as of November 27, 2011 and May 29, 2011, respectively.
We enter into certain commodity, interest rate, and foreign exchange derivatives with a diversified group of counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit exposure to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these counterparties. We have not incurred a material loss due to nonperformance in any period presented and do not expect to incur any such material loss. We also enter into futures and options transactions through various regulated exchanges.
At November 27, 2011, the maximum amount of loss due to the credit risk of the counterparties, had the counterparties failed to perform according to the terms of the contracts, was $85.5 million.
7. SHARE-BASED PAYMENTS
For the second quarter and first half of fiscal 2012, we recognized total stock-based compensation expense (including stock options, restricted stock units, and performance shares) of $12.1 million and $24.4 million, respectively. For the second quarter and first half of fiscal 2011, we recognized total stock-based compensation expense of $14.3 million and $22.7 million, respectively. During the first half of fiscal 2012, we granted 1.7 million restricted stock units at a weighted average grant date price of $26.10, 4.1 million stock options at a weighted average exercise price of $26.15, and 0.5 million performance shares at a weighted average grant date price of $26.11.
Performance shares are granted to selected executives and other key employees with vesting contingent upon meeting various Company-wide performance goals. The performance goals for the performance periods ending in fiscal 2012 and fiscal 2013 are based upon our earnings before interest and taxes and our return on average invested capital measured over a defined performance period. The performance goals for the performance period ending in fiscal 2014 are based upon our operating cash flow return on operations, a measure of operating cash flow as a percentage of invested capital measured over a defined performance period, and revenue growth. The awards actually earned will range from zero to three hundred percent of the targeted number of performance shares for the performance period ending in fiscal 2012; from zero to two hundred percent of the targeted number of performance shares for the performance period ending in fiscal 2013; and from zero to two hundred twenty percent of the targeted number of performance shares for the performance period ending in fiscal 2014. For the performance period ending in fiscal 2014, a payout equal to 25% of approved target incentive is required to be paid out if we achieve a threshold level of cash flow return on operations. Awards, if earned, will be paid in shares of our common stock.
13
Subject to limited exceptions set forth in the performance share plan, any shares earned will be distributed at the end of the performance period. The value of the performance shares is adjusted based upon the market price of our common stock at the end of each reporting period and amortized as compensation expense over the vesting period.
The weighted average Black-Scholes assumptions for stock options granted during the first half of fiscal 2012 were as follows:
Expected volatility (%) |
22.89 | |||
Dividend yield (%) |
3.97 | |||
Risk-free interest rate (%) |
1.38 | |||
Expected life of stock option (years) |
4.75 |
The weighted average value of stock options granted during the first half of fiscal 2012 was $3.26 per option, based upon a Black-Scholes methodology.
8. 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 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
|||||||||||||
Net income available to ConAgra Foods, Inc. common stockholders: |
||||||||||||||||
Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders |
$ | 171.8 | $ | 200.3 | $ | 257.0 | $ | 343.7 | ||||||||
Income from discontinued operations, net of tax, attributable to ConAgra Foods, Inc. common stockholders |
| 0.6 | 0.1 | 3.6 | ||||||||||||
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|
|
|
|
|
|||||||||
Net income attributable to ConAgra Foods, Inc. common stockholders |
$ | 171.8 | $ | 200.9 | $ | 257.1 | $ | 347.3 | ||||||||
Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated |
0.7 | 0.9 | 1.0 | 2.3 | ||||||||||||
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|
|
|
|
|||||||||
Net income available to ConAgra Foods, Inc. common stockholders |
$ | 171.1 | $ | 200.0 | $ | 256.1 | $ | 345.0 | ||||||||
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Weighted average shares outstanding: |
||||||||||||||||
Basic weighted average shares outstanding |
413.6 | 437.8 | 413.0 | 439.7 | ||||||||||||
Add: Dilutive effect of stock options, restricted stock awards, and other dilutive securities |
5.0 | 3.8 | 5.4 | 4.1 | ||||||||||||
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Diluted weighted average shares outstanding |
418.6 | 441.6 | 418.4 | 443.8 | ||||||||||||
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For the second quarter and first half of fiscal 2012, there were 14.7 million and 13.9 million stock options outstanding, respectively, 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 our common stock during the period. For the second quarter and first half of fiscal 2011, there were 21.2 million and 19.0 million stock options, respectively, excluded from the calculation.
9. INVENTORIES
The major classes of inventories were as follows:
November 27, 2011 |
May 29, 2011 |
|||||||
Raw materials and packaging |
$ | 687.6 | $ | 639.5 | ||||
Work in process |
143.7 | 83.1 | ||||||
Finished goods |
1,109.5 | 992.9 | ||||||
Supplies and other |
91.2 | 87.9 | ||||||
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|
|||||
Total |
$ | 2,032.0 | $ | 1,803.4 | ||||
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14
10. RESTRUCTURING
Administrative Efficiency Restructuring Plan
In August 2011, we made a decision to reorganize our Consumer Foods sales function and certain other administrative functions within our Commercial Foods and Corporate reporting segments. These actions, collectively referred to as the Administrative Efficiency Restructuring Plan (the Administrative Efficiency Plan), are intended to improve the efficiency and effectiveness of the affected sales and administrative functions. In connection with the Administrative Efficiency Plan, we expect to incur approximately $20.0 million of charges, primarily for severance and costs of employee relocation. In the second quarter and first half of fiscal 2012, we recognized charges of approximately $2.1 million and $13.4 million, respectively, in relation to the Administrative Efficiency Plan.
We anticipate that we will recognize the following pre-tax expenses associated with the Administrative Efficiency Plan in the fiscal 2012 to 2013 timeframe (amounts include charges recognized in the first half of fiscal 2012):
Consumer Foods |
Commercial Foods |
Corporate | Total | |||||||||||||
Accelerated depreciation |
$ | | $ | | $ | 1.4 | $ | 1.4 | ||||||||
Severance and related costs |
5.3 | | 2.6 | 7.9 | ||||||||||||
Other, net |
9.5 | 1.2 | | 10.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total selling, general and administrative expenses |
14.8 | 1.2 | 4.0 | 20.0 | ||||||||||||
|
|
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|
|
|
|
|
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Consolidated total |
$ | 14.8 | $ | 1.2 | $ | 4.0 | $ | 20.0 | ||||||||
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|
Included in the above estimates are $18.7 million of charges that have resulted or will result in cash outflows and $1.3 million of non-cash charges.
During the second quarter of fiscal 2012, we recognized the following pre-tax expenses associated with the Administrative Efficiency Plan:
Consumer Foods |
Commercial Foods |
Corporate | Total | |||||||||||||
Accelerated depreciation |
$ | | $ | | $ | 0.2 | $ | 0.2 | ||||||||
Severance and related costs (recoveries) |
| | (0.4 | ) | (0.4 | ) | ||||||||||
Other, net |
2.1 | 0.2 | | 2.3 | ||||||||||||
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|
|
|||||||||
Total selling, general and administrative expenses |
2.1 | 0.2 | (0.2 | ) | 2.1 | |||||||||||
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|
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Consolidated total |
$ | 2.1 | $ | 0.2 | $ | (0.2 | ) | $ | 2.1 | |||||||
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During the first half of fiscal 2012, we recognized the following pre-tax expenses associated with the Administrative Efficiency Plan:
Consumer Foods |
Commercial Foods |
Corporate | Total | |||||||||||||
Accelerated depreciation |
$ | | $ | | $ | 0.6 | $ | 0.6 | ||||||||
Severance and related costs |
5.3 | | 2.6 | 7.9 | ||||||||||||
Other, net |
4.3 | 0.6 | | 4.9 | ||||||||||||
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|
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Total selling, general and administrative expenses |
9.6 | 0.6 | 3.2 | 13.4 | ||||||||||||
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Consolidated total |
$ | 9.6 | $ | 0.6 | $ | 3.2 | $ | 13.4 | ||||||||
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15
Liabilities recorded for the various initiatives and changes therein for the second quarter of fiscal 2012 under the Administrative Efficiency Plan were as follows:
Balance
at August 28, 2011 |
Costs Incurred and Charged to Expense |
Costs Paid or Otherwise Settled |
Changes in Estimates |
Balance
at November 27, 2011 |
||||||||||||||||
Severance and related costs |
$ | 8.2 | $ | | $ | (2.7 | ) | $ | (0.4 | ) | $ | 5.1 | ||||||||
Plan implementation costs |
2.4 | 2.3 | (4.6 | ) | | 0.1 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 10.6 | $ | 2.3 | $ | (7.3 | ) | $ | (0.4 | ) | $ | 5.2 | ||||||||
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|
|
|
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|
Network Optimization Plan
During the third quarter of fiscal 2011, our Board of Directors approved a plan recommended by management designed to optimize our manufacturing and distribution networks. We refer to this plan as the Network Optimization Plan. The Network Optimization Plan consists of projects that involve, among other things, the exit of certain manufacturing facilities, the disposal of underutilized manufacturing assets, and actions designed to optimize our distribution network. The Network Optimization Plan is expected to be implemented by the end of fiscal 2013 and is intended to improve the efficiency of our manufacturing operations and reduce costs.
In connection with the Network Optimization Plan, we expect to incur pre-tax cash and non-cash charges for asset impairments, accelerated depreciation, severance, relocation, and site closure costs of $74.8 million. We have recognized, and/or expect to recognize, expenses associated with the Network Optimization Plan, including but not limited to, impairments of property, plant and equipment, accelerated depreciation, severance and related costs, and plan implementation costs (e.g., consulting and employee relocation). We anticipate that we will recognize the following pre-tax expenses associated with the Network Optimization Plan in the fiscal 2011 to 2013 timeframe (amounts include charges recognized in fiscal 2011 and in the first half of fiscal 2012):
Consumer Foods |
Commercial Foods |
Total | ||||||||||
Accelerated depreciation |
$ | 19.7 | $ | | $ | 19.7 | ||||||
Inventory write-offs and related costs |
6.8 | 0.4 | 7.2 | |||||||||
|
|
|
|
|
|
|||||||
Total cost of goods sold |
26.5 | 0.4 | 26.9 | |||||||||
|
|
|
|
|
|
|||||||
Asset impairment |
12.7 | 13.9 | 26.6 | |||||||||
Severance and related costs |
7.7 | 0.1 | 7.8 | |||||||||
Other, net |
12.0 | 1.5 | 13.5 | |||||||||
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|
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|
|
|
|||||||
Total selling, general and administrative expenses |
32.4 | 15.5 | 47.9 | |||||||||
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|
|
|
|||||||
Consolidated total |
$ | 58.9 | $ | 15.9 | $ | 74.8 | ||||||
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|
|
Included in the above estimates are $23.6 million of charges that have resulted or will result in cash outflows and $51.2 million of non-cash charges.
During the second quarter of fiscal 2012, we recognized the following pre-tax expenses associated with the Network Optimization Plan:
Consumer Foods |
Commercial Foods |
Total | ||||||||||
Accelerated depreciation |
$ | 4.9 | $ | | $ | 4.9 | ||||||
Inventory write-offs and related costs |
2.9 | | 2.9 | |||||||||
|
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|
|
|
|||||||
Total cost of goods sold |
7.8 | | 7.8 | |||||||||
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|
|
|
|
|||||||
Asset impairment |
2.0 | 0.1 | 2.1 | |||||||||
Severance and related costs |
1.1 | | 1.1 | |||||||||
Other, net |
1.4 | 1.0 | 2.4 | |||||||||
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|
|||||||
Total selling, general and administrative expenses |
4.5 | 1.1 | 5.6 | |||||||||
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|
|||||||
Consolidated total |
$ | 12.3 | $ | 1.1 | $ | 13.4 | ||||||
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|
16
During the first half of fiscal 2012, we recognized the following pre-tax expenses associated with the Network Optimization Plan:
Consumer Foods |
Commercial Foods |
Total | ||||||||||
Accelerated depreciation |
$ | 7.6 | $ | | $ | 7.6 | ||||||
Inventory write-offs and related costs |
3.3 | | 3.3 | |||||||||
|
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|
|
|
|||||||
Total cost of goods sold |
10.9 | | 10.9 | |||||||||
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|
|||||||
Asset impairment |
4.1 | 3.5 | 7.6 | |||||||||
Severance and related costs |
1.7 | | 1.7 | |||||||||
Other, net |
2.6 | 1.4 | 4.0 | |||||||||
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|
|
|
|||||||
Total selling, general and administrative expenses |
8.4 | 4.9 | 13.3 | |||||||||
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|
|
|
|||||||
Consolidated total |
$ | 19.3 | $ | 4.9 | $ | 24.2 | ||||||
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|
We recognized the following cumulative (plan inception to November 27, 2011) pre-tax expenses related to the Network Optimization Plan:
Consumer Foods |
Commercial Foods |
Total | ||||||||||
Accelerated depreciation |
$ | 12.6 | $ | | $ | 12.6 | ||||||
Inventory write-offs and related costs |
3.5 | 0.3 | 3.8 | |||||||||
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|
|||||||
Total cost of goods sold |
16.1 | 0.3 | 16.4 | |||||||||
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|
|
|
|
|||||||
Asset impairment |
12.7 | 13.9 | 26.6 | |||||||||
Severance and related costs |
6.9 | 0.1 | 7.0 | |||||||||
Other, net |
3.3 | 1.5 | 4.8 | |||||||||
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|
|||||||
Total selling, general and administrative expenses |
22.9 | 15.5 | 38.4 | |||||||||
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|
|||||||
Consolidated total |
$ | 39.0 | $ | 15.8 | $ | 54.8 | ||||||
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Liabilities recorded for the various initiatives and changes therein for the second quarter of fiscal 2012 under the Network Optimization Plan were as follows:
Balance
at August 28, 2011 |
Costs Incurred and Charged to Expense |
Costs Paid or Otherwise Settled |
Changes in Estimates |
Balance
at November 27, 2011 |
||||||||||||||||
Severance and related costs |
$ | 5.2 | $ | 0.8 | $ | (0.7 | ) | $ | 0.6 | $ | 5.9 | |||||||||
Plan implementation costs |
0.1 | 2.6 | (2.1 | ) | | 0.6 | ||||||||||||||
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|
|||||||||||
Total |
$ | 5.3 | $ | 3.4 | $ | (2.8 | ) | $ | 0.6 | $ | 6.5 | |||||||||
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2010 Restructuring Plan
During the fourth quarter of fiscal 2010, our Board of Directors approved a plan recommended by management related to the long-term production of our meat snack products. The plan provided for the closure of our meat snacks production facility in Garner, North Carolina, and the movement of production to our existing facility in Troy, Ohio.
Also in the fourth quarter of fiscal 2010, we made a decision to consolidate certain administrative functions from Edina, Minnesota, to Naperville, Illinois. We completed the transition of these functions in fiscal 2011. This plan, together with the plan to move production of our meat snacks from Garner, North Carolina to Troy, Ohio, is collectively referred to as the 2010 restructuring plan (2010 plan).
At the end of the first half of fiscal 2012, the implementation of the 2010 plan was complete.
17
In connection with the 2010 plan, we incurred pre-tax cash and non-cash expenses for asset impairments, accelerated depreciation, severance, relocation, and site closure costs of $67.3 million, of which $25.7 million was recognized in fiscal 2011 and $39.2 million was recognized in fiscal 2010. We have recognized expenses associated with the 2010 plan, including but not limited to, impairments of property, plant and equipment, accelerated depreciation, severance and related costs, and plan implementation costs (e.g., consulting and employee relocation). We recognized the following cumulative (plan inception to November 27, 2011) pre-tax expenses related to the 2010 plan:
Consumer Foods |
Corporate | Total | ||||||||||
Accelerated depreciation |
$ | 19.1 | $ | | $ | 19.1 | ||||||
Inventory write-offs |
0.7 | | 0.7 | |||||||||
|
|
|
|
|
|
|||||||
Total cost of goods sold |
19.8 | | 19.8 | |||||||||
|
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|
|
|
|
|||||||
Asset impairment |
17.5 | | 17.5 | |||||||||
Severance and related costs |
16.8 | | 16.8 | |||||||||
Other, net |
9.6 | 3.6 | 13.2 | |||||||||
|
|
|
|
|
|
|||||||
Total selling, general and administrative expenses |
43.9 | 3.6 | 47.5 | |||||||||
|
|
|
|
|
|
|||||||
Consolidated total |
$ | 63.7 | $ | 3.6 | $ | 67.3 | ||||||
|
|
|
|
|
|
Included in the above expenses are $28.1 million of expenses that have resulted in cash outflows and $39.2 million of non-cash expenses.
During the second quarter and first half of fiscal 2012, we recognized $0.9 million and $2.4 million of pre-tax expenses, respectively, for the 2010 plan.
Liabilities recorded for the various initiatives and changes therein for the second quarter of fiscal 2012 under the 2010 plan were as follows:
Balance
at August 28, 2011 |
Costs Incurred and Charged to Expense |
Costs Paid or Otherwise Settled |
Changes
in Estimates |
Balance
at November 27, 2011 |
||||||||||||||||
Severance and related costs |
$ | 1.2 | $ | | $ | (0.6 | ) | $ | (0.3 | ) | $ | 0.3 | ||||||||
Plan implementation costs |
0.1 | 0.4 | (0.5 | ) | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1.3 | $ | 0.4 | $ | (1.1 | ) | $ | (0.3 | ) | $ | 0.3 | ||||||||
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11. INCOME TAXES
Our income tax expense from continuing operations for the second quarter of fiscal 2012 and 2011 was $87.7 million and $101.4 million, respectively. Income tax expense from continuing operations for the first half of fiscal 2012 and 2011 was $131.3 million and $168.3 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) from continuing operations was approximately 33% and 34% for the second quarter and first half of fiscal 2012, respectively, and 34% and 33% for the second quarter and first half of fiscal 2011, respectively.
The amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $52.2 million as of November 27, 2011 and $56.5 million as of May 29, 2011. Included in the balance was $3.3 million as of both November 27, 2011 and May 29, 2011 for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. Any associated interest and penalties imposed would affect the tax rate. The gross unrecognized tax benefits excluded related liabilities for gross interest and penalties of $15.9 million and $14.7 million as of November 27, 2011 and May 29, 2011, respectively.
The net amount of unrecognized tax benefits at November 27, 2011 and May 29, 2011 that, if recognized, would impact the Companys effective tax rate was $32.4 million and $35.7 million, respectively. Recognition of these tax benefits would have a favorable impact on the Companys effective tax rate.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by $2 million to $7 million over the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes of limitations.
18
12. CONTINGENCIES
In fiscal 1991, we acquired Beatrice Company (Beatrice). As a result of the acquisition and the significant pre-acquisition contingencies of the Beatrice businesses and its former subsidiaries, our consolidated post-acquisition financial statements 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 us. The litigation includes 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 us have been rendered in Rhode Island, New Jersey, Wisconsin, and Ohio, we remain a defendant in active suits in Illinois and California. The Illinois suit seeks class-wide relief in the form of medical monitoring for elevated levels of lead in blood. In California, a number of cities and counties have joined in a consolidated action seeking abatement of the alleged public nuisance. We have had successful outcomes in every case decided to date and although exposure in the remaining cases is unlikely, it is reasonably possible. However, given the range of potential remedies, it is not possible to estimate this exposure.
The environmental proceedings include litigation and administrative proceedings involving Beatrices status as a potentially responsible party at 37 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, 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 our best estimate of the undiscounted remediation liabilities, which estimates include evaluation of investigatory studies, extent of required clean-up, the known volumetric contribution of Beatrice and other potentially responsible parties, and its experience in remediating sites. The reserves for Beatrice-related environmental matters totaled $70.7 million as of November 27, 2011, a majority of which relates to the Superfund and state-equivalent sites referenced above. We expect expenditures for Beatrice-related environmental matters to continue for up to 19 years.
In limited situations, we will guarantee an obligation of an unconsolidated entity. At the time in which we initially provide such a guarantee, we assess the risk of financial exposure to us under these agreements. We consider the credit-worthiness of the guaranteed party, the value of any collateral pledged against the related obligation, and any other factors that may mitigate our risk. We actively monitor market and entity-specific conditions that may result in a change of our assessment of the risk of loss under these agreements.
We guarantee certain leases and other commercial obligations resulting from the 2002 divestiture of our fresh beef and pork operations. The remaining terms of these arrangements do not exceed four years and the maximum amount of future payments we have guaranteed was approximately $12.2 million as of November 27, 2011.
We have 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 divested 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. We have not established a liability for any of the fresh beef and pork divestiture-related guarantees, as we have determined that the likelihood of our required performance under the guarantees is remote.
We are a party to various potato supply agreements. Under the terms of certain such potato supply agreements, we have guaranteed repayment of short-term bank loans of the potato suppliers, under certain conditions. At November 27, 2011, the amount of supplier loans we have effectively guaranteed was approximately $41.1 million. We have not established a liability for these guarantees, as we have determined that the likelihood of our required performance under the guarantees is remote.
We are a party to a supply agreement with an onion processing company. We have guaranteed, under certain conditions, repayment of a loan of this supplier. At November 27, 2011, the term of the loan was 14 years, and the amount of our guarantee was $25.0 million. In the event of default on this loan by the supplier, we have the contractual right to purchase the loan from the lender, thereby giving us secured rights to the underlying collateral. Based on a recent review of the suppliers liquidity, we believe that a deterioration in its business environment may lead to a notice of default under the loan. However, based on our estimate of the value of the collateral, we have not established a liability in connection with this guarantee, as we believe the likelihood of financial exposure to us under this guarantee is remote.
19
Federal income tax credits were generated related to our sweet potato production facility in Delhi, Louisiana. Third parties invested in certain of these income tax credits. We have guaranteed these third parties the face value of these income tax credits over their statutory lives, a period of seven years, in the event that the income tax credits are recaptured or reduced. The face value of the income tax credits was $21.2 million as of November 27, 2011. We believe the likelihood of the recapture or reduction of the income tax credits is remote, and therefore we have not established a liability in connection with this guarantee.
We are a party to a number of lawsuits and claims arising out of the operation of our business, including lawsuits and claims related to the February 2007 recall of our peanut butter products and litigation we initiated against an insurance carrier to recover our settlement expenditures and defense costs. We recognized a charge of $24.8 million during the third quarter of fiscal 2009 in connection with the disputed coverage with this insurance carrier. During the second quarter of fiscal 2010, a Delaware state court rendered a decision on certain matters in our claim for the disputed coverage favorable to the insurance carrier. We appealed this decision and, during the fourth quarter of fiscal 2011, we received a favorable opinion related to our defense costs and the claim for disputed coverage was remanded to the state court. We continue to vigorously pursue our claim for the disputed coverage. In fiscal 2011, we received formal requests from the U.S. Attorneys office in Georgia seeking a variety of records and information related to the operations of our peanut butter manufacturing facility in Sylvester, Georgia. These requests are related to the February 2007 recall of our peanut butter products. We are cooperating with officials in regard to the requests.
In June 2009, an accidental explosion occurred at our manufacturing facility in Garner, North Carolina. This facility was the primary production facility for our Slim Jim® branded meat snacks. On June 13, 2009, the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives announced its determination that the explosion was the result of an accidental natural gas release, and not a deliberate act. During the fourth quarter of fiscal 2011, we settled our property and business interruption claims related to the Garner accident with our insurance providers. During the fourth quarter of fiscal 2011, Jacobs Engineering Group Inc., our engineer and project manager at the site, filed a declaratory judgment action against us seeking indemnity for personal injury claims brought against it as a result of the accident. In the first quarter of fiscal 2012, the Court granted our motion for summary judgment on the basis that the suit was filed prematurely. We will continue to defend this action vigorously. Any exposure in this case is expected to be limited to the applicable insurance deductible.
We are a party to several lawsuits concerning the use of diacetyl, a butter flavoring ingredient that was added to our microwave popcorn until late 2007. The cases are consumer personal injury suits claiming respiratory illness allegedly due to exposures to vapors from microwaving popcorn. We have received favorable outcomes in connection with these cases to date. We do not believe these cases possess merit and continue to vigorously defend them. Any exposure in these cases is expected to be limited to the applicable insurance deductible.
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity. It is reasonably possible that a change in one of the estimates of the foregoing matters may occur in the future. Costs of legal services associated with the foregoing matters are recognized in earnings as services are provided.
13. PENSION AND POSTRETIREMENT BENEFITS
We 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. We also sponsor postretirement plans which provide certain medical and dental benefits (other postretirement benefits) to qualifying U.S. employees.
During the second quarter of fiscal 2012, we made design changes to some of our other postretirement benefit plans. These changes resulted in plan amendments. The plan amendments also resulted in a plan remeasurement at September 8, 2011. The discount rate used to measure the other postretirement benefits obligation at September 8, 2011 was 4.3% compared to the May 29, 2011 discount rate of 4.9%. All other significant assumptions remained unchanged from the May 29, 2011 measurement date. Calculated gains as a result of the remeasurement of $27.6 million, primarily due to favorable plan amendments, were recognized as a credit to other comprehensive income.
20
As a result of these plan amendment changes, our net expense related to these plans will be reduced by approximately $5.2 million during fiscal 2012.
Components of pension benefit and other postretirement benefit costs included:
Pension Benefits | ||||||||||||||||
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||
November 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
|||||||||||||
Service cost |
$ | 17.1 | $ | 14.9 | $ | 34.2 | $ | 29.8 | ||||||||
Interest cost |
37.2 | 36.9 | 74.4 | 73.8 | ||||||||||||
Expected return on plan assets |
(44.9 | ) | (43.3 | ) | (89.8 | ) | (86.6 | ) | ||||||||
Amortization of prior service cost |
0.7 | 0.8 | 1.5 | 1.6 | ||||||||||||
Curtailment loss |
| | | 1.3 | ||||||||||||
Recognized net actuarial loss |
9.7 | 4.1 | 19.3 | 8.2 | ||||||||||||
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|||||||||
Benefit cost Company plans |
19.8 | 13.4 | 39.6 | 28.1 | ||||||||||||
Pension benefit cost multi-employer plans |
2.8 | 2.6 | 4.9 | 5.1 | ||||||||||||
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|||||||||
Total benefit cost |
$ | 22.6 | $ | 16.0 | $ | 44.5 | $ | 33.2 | ||||||||
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Postretirement Benefits | ||||||||||||||||
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||
November 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
|||||||||||||
Service cost |
$ | 0.1 | $ | 0.2 | $ | 0.3 | $ | 0.3 | ||||||||
Interest cost |
3.2 | 4.0 | 6.9 | 8.1 | ||||||||||||
Expected return on plan assets |
| | | (0.1 | ) | |||||||||||
Amortization of prior service cost |
(3.6 | ) | (2.3 | ) | (5.8 | ) | (4.7 | ) | ||||||||
Recognized net actuarial loss |
2.0 | 1.1 | 3.5 | 2.3 | ||||||||||||
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Total cost |
$ | 1.7 | $ | 3.0 | $ | 4.9 | $ | 5.9 | ||||||||
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|
During the second quarter and first half of fiscal 2012, we contributed $68.5 million and $71.5 million, respectively, to our pension plans and contributed $10.0 million and $17.5 million, respectively, to our other postretirement plans. Based upon the current funded status of the plans and the current interest rate environment, we anticipate making further contributions of approximately $15.7 million to our pension plans for the remainder of fiscal 2012. We anticipate making further contributions of $11.0 million to our other postretirement plans during the remainder of fiscal 2012. These estimates are based on current tax laws, plan asset performance, and liability assumptions, all of which are subject to change.
14. LONG-TERM DEBT
On September 15, 2011, we repaid the entire principal balance of $342.7 million of our 6.75% senior notes, which were due on that date.
We consolidate the financial statements of Lamb Weston BSW. In the first quarter of fiscal 2011, we repaid $35.4 million of bank borrowings by our Lamb Weston BSW potato processing venture.
Net interest expense consisted of:
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||
November 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
|||||||||||||
Long-term debt |
$ | 52.7 | $ | 56.3 | $ | 108.8 | $ | 116.6 | ||||||||
Short-term debt |
| | 0.1 | 0.1 | ||||||||||||
Interest income |
(0.9 | ) | (19.4 | ) | (2.2 | ) | (38.8 | ) | ||||||||
Interest capitalized |
(1.2 | ) | (3.2 | ) | (3.2 | ) | (6.9 | ) | ||||||||
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|||||||||
$ | 50.6 | $ | 33.7 | $ | 103.5 | $ | 71.0 | |||||||||
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Included in net interest expense was $18.8 million and $37.3 million of interest income in the second quarter and first half of fiscal 2011, respectively, from the payment-in-kind notes received in connection with the disposition of the trading and merchandising business in June 2008.
21
Our net interest expense for the second quarter and first half of fiscal 2012 was reduced by $2.4 million and $5.5 million, respectively, due to the impact of the interest rate swap contracts entered into in the fourth quarter of fiscal 2010. Our net interest expense for the second quarter and first half of fiscal 2011 was reduced by $3.9 million and $8.3 million, respectively, due to the impact of the interest rate swap contracts. The interest rate swaps effectively changed our interest rates on the senior long-term debt instruments maturing in fiscal 2012 and 2014 from fixed to variable. During the second quarter of fiscal 2011, we terminated the interest rate swap contracts and received proceeds of $31.5 million. The cumulative adjustment to the fair value of the debt instruments that were hedged (the effective portion of the hedge), is being amortized as a reduction of interest expense over the remaining lives of the debt instruments (through fiscal 2014).
15. STOCKHOLDERS EQUITY
The following table presents a reconciliation of our stockholders equity accounts for the twenty-six weeks ended November 27, 2011:
ConAgra Foods, Inc. Stockholders Equity | ||||||||||||||||||||||||||||||||
Common Shares |
Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Treasury Stock |
Noncontrolling Interests |
Total Equity |
|||||||||||||||||||||||||
Balance at May 29, 2011 |
567.9 | $ | 2,839.7 | $ | 899.1 | $ | 4,853.6 | $ | (222.7 | ) | $ | (3,668.2 | ) | $ | 7.0 | $ | 4,708.5 | |||||||||||||||
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|||||||||||||||||
Stock option and incentive plans |
(9.7 | ) | (1.3 | ) | 124.3 | 113.3 | ||||||||||||||||||||||||||
Currency translation adjustment |
(50.9 | ) | (50.9 | ) | ||||||||||||||||||||||||||||
Repurchase of common shares |
(95.3 | ) | (95.3 | ) | ||||||||||||||||||||||||||||
Unrealized loss on securities |
(0.2 | ) | (0.2 | ) | ||||||||||||||||||||||||||||
Derivative adjustment, net of reclassification adjustment |
(80.2 | ) | (80.2 | ) | ||||||||||||||||||||||||||||
Activities of noncontrolling interests |
(1.1 | ) | (0.2 | ) | (1.3 | ) | ||||||||||||||||||||||||||
Pension and postretirement healthcare benefits |
31.0 | 31.0 | ||||||||||||||||||||||||||||||
Dividends declared on common stock; $0.47 per share |
(194.3 | ) | (194.3 | ) | ||||||||||||||||||||||||||||
Net income attributable to ConAgra Foods, Inc. |
257.1 | 257.1 | ||||||||||||||||||||||||||||||
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Balance at November 27, 2011 |
567.9 | $ | 2,839.7 | $ | 888.3 | $ | 4,915.1 | $ | (323.0 | ) | $ | (3,639.2 | ) | $ | 6.8 | $ | 4,687.7 | |||||||||||||||
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22
16. FAIR VALUE MEASUREMENTS
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities,
Level 2 Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, and
Level 3 Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.
The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of November 27, 2011:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
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Derivative assets |
$ | 14.0 | $ | 85.5 | $ | | $ | 99.5 | ||||||||
Available-for-sale securities |
1.4 | | | 1.4 | ||||||||||||
Deferred compensation assets |
6.6 | | | 6.6 | ||||||||||||
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Total assets |
$ | 22.0 | $ | 85.5 | $ | | $ | 107.5 | ||||||||
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Liabilities: |
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Derivative liabilities |
$ | | $ | 186.9 | $ | | $ | 186.9 | ||||||||
Deferred compensation liabilities |
27.6 | | | 27.6 | ||||||||||||
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Total liabilities |
$ | 27.6 | $ | 186.9 | $ | | $ | 214.5 | ||||||||
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The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of May 29, 2011:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
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Derivative assets |
$ | 16.3 | $ | 55.2 | $ | | $ | 71.5 | ||||||||
Available-for-sale securities |
1.7 | | | 1.7 | ||||||||||||
Deferred compensation assets |
7.4 | | | 7.4 | ||||||||||||
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Total assets |
$ | 25.4 | $ | 55.2 | $ | | $ | 80.6 | ||||||||
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Liabilities: |
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Derivative liabilities |
$ | | $ | 92.2 | $ | | $ | 92.2 | ||||||||
Deferred compensation liabilities |
29.1 | | | 29.1 | ||||||||||||
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Total liabilities |
$ | 29.1 | $ | 92.2 | $ | | $ | 121.3 | ||||||||
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Certain assets and liabilities, including long-lived assets, goodwill, asset retirement obligations, and cost and equity investments are measured at fair value on a nonrecurring basis. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported.
The carrying amount of long-term debt (including current installments) was $2.9 billion as of November 27, 2011 and $3.2 billion as of May 29, 2011. Based on current market rates provided primarily by outside investment bankers, the fair value of this debt at November 27, 2011 and May 29, 2011, was estimated at $3.4 billion and $3.6 billion, respectively.
17. BUSINESS SEGMENTS AND RELATED INFORMATION
We report our operations in two reporting segments: Consumer Foods and Commercial Foods. The Consumer Foods reporting segment includes branded, private label, and customized food products, which are sold in various retail and foodservice channels, principally in North America. The products include a variety of categories (meals, entrees, condiments, sides, snacks, and desserts) across frozen, refrigerated, and shelf-stable temperature classes. The Commercial Foods reporting segment includes commercially branded foods and ingredients, which are sold principally to foodservice, food manufacturing, and industrial customers. The Commercial Foods segments primary products include: specialty potato products, milled grain ingredients, a variety of vegetable
23
products, seasonings, blends, and flavors which are sold under brands such as Lamb Weston®, ConAgra Mills®, and Spicetec Flavors & SeasoningsTM. We do not aggregate operating segments when determining our reporting segments.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each of the segments is based on net sales less all identifiable operating expenses. General corporate expense, net interest expense, and income taxes have been excluded from segment operations. In the first quarter of fiscal 2012, we changed the manner in which the expenses associated with certain administrative functions are recognized in segment results. Accordingly, segment results of the prior periods have been reclassified to reflect these changes.
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||
November 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
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Net sales |
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Consumer Foods |
$ | 2,178.2 | $ | 2,091.4 | $ | 4,069.9 | $ | 3,902.9 | ||||||||
Commercial Foods |
1,225.7 | 1,056.1 | 2,406.0 | 2,048.9 | ||||||||||||
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Total net sales |
$ | 3,403.9 | $ | 3,147.5 | $ | 6,475.9 | $ | 5,951.8 | ||||||||
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Operating profit |
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Consumer Foods |
$ | 256.3 | $ | 278.5 | $ | 452.5 | $ | 486.2 | ||||||||
Commercial Foods |
160.8 | 127.4 | 258.3 | 240.5 | ||||||||||||
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Total operating profit |
$ | 417.1 | $ | 405.9 | $ | 710.8 | $ | 726.7 | ||||||||
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Equity method investment earnings |
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Consumer Foods |
$ | 1.9 | $ | 1.3 | $ | 2.9 | $ | 2.4 | ||||||||
Commercial Foods |
9.6 | 3.3 | 14.8 | 8.4 | ||||||||||||
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Total equity method investment earnings |
$ | 11.5 | $ | 4.6 | $ | 17.7 | $ | 10.8 | ||||||||
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Operating profit plus equity method investment earnings |
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Consumer Foods |
$ | 258.2 | $ | 279.8 | $ | 455.4 | $ | 488.6 | ||||||||
Commercial Foods |
170.4 | 130.7 | 273.1 | 248.9 | ||||||||||||
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Total operating profit plus equity method investment earnings |
$ | 428.6 | $ | 410.5 | $ | 728.5 | $ | 737.5 | ||||||||
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General corporate expenses |
$ | 115.6 | $ | 74.2 | $ | 233.5 | $ | 153.7 | ||||||||
Interest expense, net |
50.6 | 33.7 | 103.5 | 71.0 | ||||||||||||
Income tax expense |
87.7 | 101.4 | 131.3 | 168.3 | ||||||||||||
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Income from continuing operations |
$ | 174.7 | $ | 201.2 | $ | 260.2 | $ | 344.5 | ||||||||
Less: Net income attributable to noncontrolling interests |
2.9 | 0.9 | 3.2 | 0.8 | ||||||||||||
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Income from continuing operations attributable to ConAgra Foods, Inc. |
$ | 171.8 | $ | 200.3 | $ | 257.0 | $ | 343.7 | ||||||||
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Presentation of Derivative Gains (Losses) for 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 (except those related to our milling operations, see Note 6 to our condensed consolidated financial statements) are recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings.
24
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||
November 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
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Net derivative gains (losses) incurred |
$ | (20.2 | ) | $ | 6.6 | $ | (32.6 | ) | $ | (1.2 | ) | |||||
Less: Net derivative gains (losses) allocated to reporting segments |
7.0 | (2.5 | ) | 28.1 | (4.5 | ) | ||||||||||
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Net derivative gains (losses) recognized in general corporate expenses |
$ | (27.2 | ) | $ | 9.1 | $ | (60.7 | ) | $ | 3.3 | ||||||
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Net derivative gains (losses) allocated to Consumer Foods |
$ | 6.7 | $ | (1.9 | ) | $ | 24.8 | $ | (3.7 | ) | ||||||
Net derivative gains (losses) allocated to Commercial Foods |
0.3 | (0.6 | ) | 3.3 | (0.8 | ) | ||||||||||
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Net derivative gains (losses) included in segment operating profit |
$ | 7.0 | $ | (2.5 | ) | $ | 28.1 | $ | (4.5 | ) | ||||||
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Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify losses of $10.3 million and $18.1 million to segment operating results in fiscal 2012 and 2013 and thereafter, respectively. Amounts allocated, or to be allocated, to segment operating results during fiscal 2012 and thereafter include $32.3 million of gains recognized prior to fiscal 2012, which had not been allocated to segment operating results.
Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 18% of consolidated net sales in both the second quarter and first half of fiscal 2012, and 18% and 19% of consolidated net sales in the second quarter and first half of fiscal 2011, respectively, primarily in the Consumer Foods segment.
Wal-Mart Stores, Inc. and its affiliates accounted for approximately 16% and 15% of consolidated net receivables as of both November 27, 2011 and May 29, 2011, respectively, primarily in the Consumer Foods segment.
25
ConAgra Foods, Inc. and Subsidiaries
Part I Financial Information
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report, including Managements Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on managements current views and assumptions of future events and financial performance and are subject to uncertainty and changes in circumstances. We undertake no responsibility for updating these statements. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements, including those set forth in this report. These factors include, among other things: availability and prices of raw materials, including any negative effects caused by inflation; the effectiveness of our product pricing, including any pricing actions and promotional changes; future economic circumstances; industry conditions; our ability to execute our operating and restructuring plans; the success of our innovation, marketing, and cost-saving initiatives; the competitive environment and related market conditions; operating efficiencies; the ultimate impact of any product recalls; our success in efficiently and effectively integrating our acquisitions; access to capital; actions of governments and regulatory factors affecting our businesses, including the Patient Protection and Affordable Care Act; the amount and timing of repurchases of our common stock, if any; and other risks described in our reports filed with the Securities and Exchange Commission. We caution readers not to place undue reliance on any forward-looking statements included in this report, which speak only as of the date of this report.
The following discussion should be read together with our financial statements and related notes contained in this report and with the financial statements, related notes, and Managements Discussion and Analysis in our annual report on Form 10-K for the fiscal year ended May 29, 2011. Results for the second quarter and first half of fiscal 2012 are not necessarily indicative of results that may be attained in the future.
Fiscal 2012 Second Quarter Executive Overview
ConAgra Foods, Inc. (NYSE: CAG) is one of North Americas leading food companies, with brands in 97% of Americas households. Consumers find Banquet®, Chef Boyardee®, Egg Beaters®, Healthy Choice®, Hebrew National®, Hunts®, Marie Callenders®, Orville Redenbachers®, PAM®, Peter Pan®, Reddi-wip®, and many other ConAgra Foods brands and products in grocery, convenience, mass merchandise, and club stores. We also have a strong business-to-business presence, supplying frozen potato products, as well as other vegetable, spice, and grain products to a variety of well-known restaurants, foodservice operators, and industrial customers.
Diluted earnings per share in the second quarter of fiscal 2012 were $0.41. Diluted earnings per share in the second quarter of fiscal 2011 were $0.45. Diluted earnings per share were $0.61 and $0.78 (including earnings of $0.77 per diluted share from continuing operations and $0.01 per diluted share from discontinued operations) in the first half of fiscal 2012 and 2011, respectively. Several significant items affect the comparability of year-over-year results of continuing operations (see Items Impacting Comparability below).
Items Impacting Comparability
Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and economic hedging of foreign currency exchange rate risks of anticipated transactions is discussed in the segment review below.
Results for the second quarter and first half of fiscal 2012 included charges totaling $16 million ($10 million after-tax) and $40 million ($25 million after-tax), respectively, for restructuring costs incurred. Results for the second quarter and first half of fiscal 2011 included charges totaling $5 million ($3 million after-tax) and $13 million ($8 million after-tax), respectively, for restructuring costs incurred.
26
Acquisitions
In the first quarter of fiscal 2011, we acquired the assets of American Pie, LLC (American Pie), a manufacturer of frozen fruit pies, thaw and serve pies, fruit cobblers, and pie crusts under the licensed Marie Callenders® and Claim Jumper® trade names, as well as frozen dinners, pot pies, and appetizers under the Claim Jumper® trade name. We paid approximately $131 million in cash for this business.
In the first quarter of fiscal 2012, we acquired the Marie Callenders® brand trademarks for approximately $58 million in cash.
Divestitures
During the first quarter of fiscal 2011, we completed the sale of substantially all of the assets of Gilroy Foods & Flavors dehydrated garlic, onion, capsicum and Controlled Moisture, GardenFrost®, Redi-Made, and fresh vegetable operations for $246 million in cash. We reflected the results of these operations as discontinued operations for all periods presented.
During the fourth quarter of fiscal 2011, we completed the sale of substantially all of the assets of our frozen handhelds operations for approximately $9 million. We reflected the results of these operations as discontinued operations for all periods presented.
Restructuring Plans
In August 2011, we made a decision to reorganize our Consumer Foods sales function and certain other administrative functions within our Commercial Foods and Corporate reporting segments. These actions, collectively referred to as the Administrative Efficiency Restructuring Plan (the Administrative Efficiency Plan), are intended to improve the efficiency and effectiveness of the affected sales and administrative functions. In connection with the Administrative Efficiency Plan, we currently estimate we will incur approximately $20 million of charges ($19 million of which are cash charges), primarily for severance and costs of employee relocation. In the second quarter and first half of fiscal 2012, we recognized charges of approximately $2 million and $13 million, respectively, in relation to the Administrative Efficiency Plan.
In February 2011, our Board of Directors approved a plan recommended by executive management designed to optimize our manufacturing and distribution networks (the Network Optimization Plan). The Network Optimization Plan consists of projects that involve, among other things, the exit of certain manufacturing facilities, the disposal of underutilized manufacturing assets, and actions designed to optimize our distribution network. Implementation of the Network Optimization Plan is expected to continue through fiscal 2013 and is intended to improve the efficiency of our manufacturing operations and reduce costs.
In connection with the Network Optimization Plan, we currently estimate we will incur aggregate pre-tax costs of approximately $75 million, including approximately $24 million of cash charges. In the second quarter and first half of fiscal 2012, we recognized charges of $13 million and $24 million, respectively, in relation to the Network Optimization Plan.
In March 2010, we announced a plan, authorized by our Board of Directors, related to the long-term production of our meat snack products. The plan provided for the closure of our meat snacks production facility in Garner, North Carolina, and the movement of production to our existing facility in Troy, Ohio. Upon completion of the plans implementation, which occurred in the second quarter of fiscal 2012, the Troy facility became our primary meat snacks production facility.
In May 2010, we made a decision to consolidate certain administrative functions from Edina, Minnesota, to Naperville, Illinois. The transition of these functions was completed in the first half of fiscal 2011. This plan, together with the plan to move production of our meat snacks from Garner, North Carolina to Troy, Ohio, are collectively referred to as the 2010 restructuring plan (the 2010 plan). In connection with the 2010 plan, which was completed in the first half of fiscal 2012, we incurred pre-tax cash and non-cash charges of $67 million. In the second quarter and first half of fiscal 2012, we recognized charges of approximately $1 million and $2 million, respectively, in relation to the 2010 plan.
27
The Administrative Efficiency Plan, the Network Optimization Plan, and the 2010 Plan are collectively referred to as our restructuring plans.
Management continues to evaluate our manufacturing footprint and potential opportunities to generate cost savings. If such opportunities are identified, the Network Optimization Plan will be amended accordingly, which could lead to significant additional restructuring expenses.
Capital Allocation
During the first half of fiscal 2012, we repurchased approximately 4 million shares of our common stock for $95 million, and we repaid the entire principal balance of $343 million of our 6.75% senior notes, which were due September 15, 2011.
During the first half of fiscal 2011, we repurchased approximately 9 million shares of our common stock for $200 million, and we repaid the entire principal balance of $248 million of our 7.875% senior notes, which were due September 15, 2010.
Segment Review
We report our operations in two reporting segments: Consumer Foods and Commercial Foods. In the first quarter of fiscal 2012, we changed the manner in which the expenses associated with certain administrative functions are recognized in segment results. Accordingly, segment results of prior periods have been reclassified to reflect these changes.
Consumer Foods
The Consumer Foods reporting segment includes branded and private label food products that are sold in various retail and foodservice channels, principally in North America. The products include a variety of categories (meals, entrees, condiments, sides, snacks, and desserts) across frozen, refrigerated, and shelf-stable temperature classes.
As discussed above, we reflected the results of our frozen handhelds operations as discontinued operations for all periods presented.
Commercial Foods
The Commercial Foods 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, and a variety of vegetable products, seasonings, blends, and flavors, which are sold under brands such as ConAgra Mills®, Lamb Weston®, and Spicetec Flavors & SeasoningsTM.
As discussed above, we reflected the results of the Gilroy Foods & FlavorsTM operations as discontinued operations for the period prior to divestiture.
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 (except those related to our milling operations, see Note 6 to our condensed consolidated financial statements) are recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings.
28
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||
($ in millions) | November 27, 2011 |
November 28, 2010 |
November 27, 2011 |
November 28, 2010 |
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Net derivative gains (losses) incurred |
$ | (20 | ) | $ | 7 | $ | (33 | ) | $ | (1 | ) | |||||
Less: Net derivative gains (losses) allocated to reporting segments |
7 | (2 | ) | 28 | (4 | ) | ||||||||||
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Net derivative gains (losses) recognized in general corporate expenses |
$ | (27 | ) | $ | 9 | $ | (61 | ) | $ | 3 | ||||||
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Net derivative gains (losses) allocated to Consumer Foods |
$ | 7 | $ | (2 | ) | $ | 25 | $ | (4 | ) | ||||||
Net derivative gains (losses) allocated to Commercial Foods |
| | 3 | | ||||||||||||
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Net derivative gains (losses) included in segment operating profit |
$ | 7 | $ | (2 | ) | $ | 28 | $ | (4 | ) | ||||||
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Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify losses of $10 million and $18 million to segment operating results in fiscal 2012 and 2013 and thereafter, respectively. Amounts allocated, or to be allocated, to segment operating results during fiscal 2012 and thereafter include $32 million of gains recognized prior to fiscal 2012, which had not been allocated to segment operating results.
Net Sales
Net Sales | ||||||||||||||||||||||||
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||||||||||
($ in millions) Reporting Segment |
November 27, 2011 |
November 28, 2010 |
% Inc (Dec) |
November 27, 2011 |
November 28, 2010 |
% Inc (Dec) |
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Consumer Foods |
$ | 2,178 | $ | 2,092 | 4 | % | $ | 4,070 | $ | 3,903 | 4 | % | ||||||||||||
Commercial Foods |
1,226 | 1,056 | 16 | % | 2,406 | 2,049 | 17 | % | ||||||||||||||||
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Total |
$ | 3,404 | $ | 3,148 | 8 | % | $ | 6,476 | $ | 5,952 | 9 | % | ||||||||||||
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Net sales for the second quarter of fiscal 2012 were $3.40 billion, an increase of $256 million, or 8%, from the second quarter of fiscal 2011. Net sales for the first half of fiscal 2012 were $6.48 billion, an increase of $524 million, or 9%, from the first half of fiscal 2011.
Consumer Foods net sales for the second quarter of fiscal 2012 were $2.18 billion, an increase of $87 million, or 4%, compared to the second quarter of fiscal 2011. Consumer Foods net sales for the first half of fiscal 2012 were $4.07 billion, an increase of $167 million, or 4%, compared to the first half of fiscal 2011. Consumer Foods net sales for the second quarter and first half of fiscal 2012 reflected a 5% increase in net sales from net pricing and mix, partially offset by 1% lower sales volume. Increased pricing in the second quarter and first half of fiscal 2012 was necessitated by increased commodity input costs. The increased pricing led to a slight reduction in volume.
Sales of products associated with some of our most significant brands, including Banquet®, Blue Bonnet®, Chef Boyardee®, Hunts®, Libbys®, Marie Callenders®, Orville Redenbachers®, PAM®, Peter Pan®, Reddi-wip®, Slim Jim®, Snack Pack®, Swiss Miss®, Van Camps®, and Wesson® grew in the second quarter of fiscal 2012, as compared to the second quarter of fiscal 2011. Significant brands whose products experienced sales declines in the second quarter of fiscal 2012 include ACT II®, DAVID®, Egg Beaters®, Healthy Choice®, Hebrew National®, and Ro*Tel®.
Commercial Foods net sales were $1.23 billion for the second quarter of fiscal 2012, an increase of $170 million, or 16%, compared to the second quarter of fiscal 2011. Commercial Foods net sales were $2.41 billion for the first half of fiscal 2012, an increase of 17% compared to the first half of fiscal 2011. Commercial Foods net sales in the second quarter and first half of fiscal 2012 reflected the pass-through of $95 million and $221 million, respectively, of higher wheat prices in the segments flour milling operations. Results for the second quarter of fiscal 2012 also reflected increased volume of approximately 3% and increased net pricing and mix of 7% in the segments Lamb Weston® specialty potato products business. Results for the first half of fiscal 2012 also reflected higher sales volumes of approximately 3% and improved net pricing and mix of approximately 6% in our Lamb Weston® specialty potato products business.
29
Selling, General and Administrative Expenses (Includes general corporate expenses)
Selling, general and administrative expenses totaled $456 million for the second quarter of fiscal 2012, an increase of $28 million, as compared to the second quarter of fiscal 2011. Selling, general and administrative expenses for the second quarter of fiscal 2012 reflected the following:
| an increase in incentive compensation expense of $16 million, |
| an increase in consulting expense of $13 million (resulting from merger and acquisition activities, ongoing information technology projects, and our customer connectivity initiatives), and |
| expenses totaling $9 million in connection with our restructuring plans. |
Selling, general and administrative expenses for the second quarter of fiscal 2011 included a loss of $12 million resulting from a hedge of the fair value of a portion of our outstanding debt and economic hedges of the foreign currency risk of certain financial assets.
Selling, general and administrative expenses totaled $879 million for the first half of fiscal 2012, an increase of $40 million, or 5%, as compared to the first half of fiscal 2011. Selling, general and administrative expenses for the first half of fiscal 2012 reflected the following:
| expenses of $29 million related to the execution of our restructuring plans, |
| an increase in incentive compensation expense of $15 million, |
| an increase in consulting expense of $14 million (resulting from merger and acquisition activities, ongoing information technology projects, and our customer connectivity initiatives), |
| an increase in pension expense of $12 million, and |
| a decrease in advertising and promotion expenses of $10 million. |
Selling, general and administrative expenses for the first half of fiscal 2011 included the following:
| losses totaling $8 million resulting from a hedge of the fair value of a portion of our outstanding debt and economic hedges of the foreign currency risk of certain financial assets, and |
| expenses totaling $6 million in connection with our restructuring plans. |
Operating Profit (Earnings before general corporate expenses, interest expense, net, income taxes, and equity method investment earnings)
Operating Profit | ||||||||||||||||||||||||
Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||||||||||
($ in millions) Reporting Segment |
November 27, 2011 |
November 28, 2010 |
% Inc (Dec) |
November 27, 2011 |
November 28, 2010 |
% Inc (Dec) |
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Consumer Foods |
$ | 256 | $ | 279 | (8 | )% | $ | 453 | $ | 486 | (7 | )% | ||||||||||||
Commercial Foods |
161 | 127 | 26 | % | 258 | 241 | 7 | % |
Consumer Foods operating profit for the second quarter of fiscal 2012 was $256 million, a decrease of $22 million, or 8%, compared to the second quarter of fiscal 2011. Gross profits in Consumer Foods were $5 million lower for the second quarter of fiscal 2012 than for the second quarter of fiscal 2011, driven by the impact of higher input costs (particularly for proteins, vegetable oil, and packaging) not fully offset by increased selling prices, partially offset by the benefit of supply chain cost savings initiatives. Consumer Foods operating profit also included charges of $15 million and $5 million in the second quarter of fiscal 2012 and 2011, respectively, related to our restructuring plans.
30
Consumer Foods operating profit for the first half of fiscal 2012 was $453 million, a decrease of $34 million, or 7%, compared to the first half of fiscal 2011. Gross profits were $18 million lower in the first half of fiscal 2012 than in the first half of fiscal 2011 driven by the impact of higher input costs, not fully offset by higher net sales prices, discussed above, partially offset by the supply chain cost savings initiatives. Other items that significantly impacted Consumer Foods operating profit in the first half of fiscal 2012 included charges totaling $31 million related to the execution of our restructuring plans, and a decrease in advertising and promotion expenses of $8 million.
Consumer Foods operating profit in the first half of fiscal 2011 included $13 million of charges related to our restructuring plans.
For the second quarter of fiscal 2012, operating profit for the Commercial Foods segment was $161 million, an increase of $34 million, or 26%, from the second quarter of fiscal 2011. Gross profits in the Commercial Foods segment were $39 million higher in the second quarter of fiscal 2012 than in the second quarter of fiscal 2011, driven by higher sales volume and improved pricing in the Lamb Weston® specialty potato business, as well as improved product mix and favorable market conditions within our flour milling operations.
For the first half of fiscal 2012, operating profit for the Commercial Foods segment was $258 million, an increase of $17 million, or 7%, driven by higher gross profit in the Lamb Weston® specialty potato operations due to increased volume and net pricing. Commercial Foods operating profit included $6 million of charges in the first half of fiscal 2012 related to the execution of our restructuring plans.
Interest Expense, Net
Net interest expense was $51 million and $34 million for the second quarter of fiscal 2012 and 2011, respectively. Included in net interest expense was $19 million of interest income in the second quarter of fiscal 2011, principally from the notes received in connection with the disposition of the trading and merchandising business in June 2008. Net interest expense for the second quarter of fiscal 2012 also reflects the repayment of $343 million of our 6.75% senior notes in September 2011, upon maturity.
Net interest expense was $104 million and $71 million for the first half of fiscal 2012 and 2011, respectively. Included in net interest expense was $38 million of interest income in the first half of fiscal 2011, principally from the notes received in connection with the disposition of the trading and merchandising business in June 2008.
Income Taxes
In the second quarters of fiscal 2012 and 2011, our income tax expense was $88 million and $101 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 33% and 34% for the second quarters of fiscal 2012 and 2011, respectively. In the first half of fiscal 2012 and 2011, our income tax expense was $131 million and $168 million, respectively. The effective tax rate was approximately 34% and 33% for the first half of fiscal 2012 and 2011, respectively. The lower effective tax rate for the first half of fiscal 2011 reflected the benefit of favorable audit settlements, changes in estimates, and certain income tax credits and deductions identified in fiscal 2011 that related to prior periods.
Equity Method Investment Earnings
Equity method investment earnings were $12 million and $5 million for the second quarter of fiscal 2012 and 2011, respectively, while equity method investment earnings were $18 million and $11 million for the first half of fiscal 2012 and 2011, respectively. Increased equity method investment earnings in the second quarter and first half of fiscal 2012 were the result of more profitable operations of a foreign potato processing venture.
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Discontinued Operations
Our discontinued operations generated after-tax income of $1 million in the second quarter of fiscal 2011, and after-tax income of $4 million in the first half of fiscal 2011. Operating results from discontinued operations for the first half of fiscal 2011 include the impact of a favorable resolution of a foreign tax matter relating to a divested business.
Earnings Per Share
Our diluted earnings per share in the second quarter of fiscal 2012 were $0.41. Diluted earnings per share in the second quarter of fiscal 2011 were $0.45. Diluted earnings per share were $0.61 and $0.78 (including earnings of $0.77 per diluted share from continuing operations and $0.01 per diluted share from discontinued operations) in the first half of fiscal 2012 and 2011, respectively.
Liquidity and Capital Resources
Sources of Liquidity and Capital
Our primary financing objective is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives. If necessary, we use short-term debt principally to finance ongoing operations, including our seasonal requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts payable, accrued payroll, and other accrued liabilities) and a combination of equity and long-term debt to finance both our base working capital needs and our noncurrent assets.
On September 14, 2011, we entered into a new $1.5 billion revolving credit facility. The new facility is scheduled to mature in September 2016. Borrowings under this facility will bear interest at 1.1% over LIBOR and may be prepaid without penalty. The facility, like its predecessor facility, has historically been used principally as a back-up facility for our commercial paper program. As of November 27, 2011, there were no outstanding borrowings under the facility. We did not draw upon our revolving credit facility or the commercial paper program during the second quarter or first half of fiscal 2012 or fiscal 2011. The new facility requires that our consolidated funded debt not exceed 65% of our consolidated capital base, and that our fixed charges coverage ratio be greater than 1.75 to 1.0. As of November 27, 2011, we were in compliance with these financial covenants.
As of the end of the second quarter of fiscal 2012, 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.
On September 15, 2011, we repaid the entire principal balance of $343 million of our 6.75% senior notes, due on that date.
We repurchase our shares of common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board of Directors. We repurchased approximately 4 million shares of our common stock for $95 million under this program in the second quarter of fiscal 2012. In December 2012, subsequent to the end of our second quarter of fiscal 2012, the Companys board of directors approved a $750 million increase to our share repurchase authorization, with no expiration date. The Companys total remaining share repurchase authorization after this recently approved increase was $784 million. 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 authorization has no time limit, and may be suspended or discontinued at any time.
On November 30, 2011, subsequent to the end of the second quarter of fiscal 2012, we completed the acquisition of National Pretzel Company for approximately $296 million in cash.
Cash Flows
During the first half of fiscal 2012, we used $266 million of cash, which was the net result of $490 million generated from operating activities, $212 million used in investing activities, $533 million used in financing activities, and a decrease of $11 million in cash due to the effect of changes in foreign currency exchange rates.
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Cash generated from operating activities of continuing operations totaled $488 million in the first half of fiscal 2012, as compared to $314 million generated in the first half of fiscal 2011. Increased cash flows from operations reflected lower incentive compensation payments paid in the first half of fiscal 2012 (earned in fiscal 2011) than in the first half of fiscal 2011 (earned in fiscal 2010). Increased cash from operating activities in the first half of fiscal 2012 also reflected increased accounts payable balances in the first half of fiscal 2012, as well as a greater build-up of inventory in the first half of fiscal 2011 than in the first half of fiscal 2012, reflecting unusually low inventory levels in our Consumer Foods business at the beginning of fiscal 2011. Also impacting the year-over-year operating cash flows were contributions of $112 million to our pension plans in the first half of fiscal 2011 versus contributions of only $72 million in the first half of fiscal 2012.
Cash used in investing activities from continuing operations totaled $212 million in the first half of fiscal 2012, versus cash used in investing activities of $332 million in the first half of fiscal 2011. Investing activities of continuing operations in the first half of fiscal 2012 consisted primarily of capital expenditures of $161 million and the acquisition of an intangible asset (the Marie Callenders® license) for $58 million. Investing activities of continuing operations in the first half of fiscal 2011 included capital expenditures of $211 million and the acquisition of businesses and intangible assets (principally the American Pie business) for $136 million. We generated $246 million of cash from investing activities of discontinued operations in the first half of fiscal 2011 primarily from the disposition of the Gilroy Foods & Flavors business.
Cash used in financing activities of continuing operations totaled $533 million and $644 million in the first half of fiscal 2012 and 2011, respectively. During the first half of fiscal 2012 and 2011, we paid dividends of $190 million and $176 million, respectively. In the first half of fiscal 2012 and 2011, we repurchased $84 million (shares repurchased totaled $95 million, but a portion of the share repurchase transactions had not settled as of November 27, 2011) and $200 million, respectively, of our common stock as part of our share repurchase program. During the first half of fiscal 2012, we paid $343 million upon maturity of our 6.75% senior notes. During the first half of fiscal 2011, we decreased our debt by $289 million, including the repayment of $248 million of our 7.875% senior notes, as well as the repayment of $35 million of bank borrowings by our Lamb Weston BSW potato processing venture.
We estimate our capital expenditures in fiscal 2012 will be approximately $450 million.
Management believes that existing cash balances, cash flows from operations, existing credit facilities, and access to capital markets will provide sufficient liquidity to meet our working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months.
Off-Balance Sheet Arrangements
We use off-balance sheet arrangements (e.g., leases accounted for as operating leases) where sound business principles warrant their use. We also periodically enter into guarantees and other similar arrangements as part of transactions in the ordinary course of business. These are described further in Obligations and Commitments, below.
Variable Interest Entities Not Consolidated
We have variable interests in certain entities that we have determined to be variable interest entities, but for which we are not the primary beneficiary. We do not consolidate the financial statements of these entities.
We hold a 50% interest in Lamb Weston RDO, a potato processing venture. We provide all sales and marketing services to Lamb Weston RDO. We receive a fee for these services based on a percentage of the net sales of the venture. We reflect the value of our ownership interest in this venture in other assets in our condensed consolidated balance sheets, based upon the equity method of accounting. The balance of our investment was $14 million at both November 27, 2011 and May 29, 2011, representing our maximum exposure to loss as a result of our involvement with this venture. The capital structure of Lamb Weston RDO includes owners equity of $27 million and term borrowings from banks of $43 million as of November 27, 2011. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of this venture.
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We lease certain office buildings from entities that we have determined to be variable interest entities. The lease agreements with these entities include fixed-price purchase options for the assets being leased, representing our only variable interest in these lessor entities. These leases are accounted for as operating leases, and accordingly, there are no material assets or liabilities associated with these entities included in our condensed consolidated balance sheets. We have no material exposure to loss from our variable interests in these entities. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of these entities. In making this determination, we have considered, among other items, the terms of the lease agreements, the expected remaining useful lives of the assets leased, and the capital structure of the lessor entities.
Obligations and Commitments
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as lease agreements, debt agreements, and unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as take-or-pay contracts). The unconditional purchase obligation arrangements are entered into in our normal course of business in order to ensure adequate levels of sourced product are available. Of these items, debt and capital lease obligations, which totaled $3.0 billion as of November 27, 2011, were recognized as liabilities in our condensed consolidated balance sheet. Operating lease obligations and unconditional purchase obligations, which totaled $867 million as of November 27, 2011, in accordance with generally accepted accounting principles, were not recognized as liabilities in our condensed consolidated balance sheet.
A summary of our contractual obligations as of November 27, 2011 was as follows (including obligations of discontinued operations):
Payments Due by Period (in millions) |
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Contractual Obligations |
Total | Less than 1 Year |
1-3 Years | 3-5 Years | After 5 Years |
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Long-term debt |
$ | 2,891.3 | $ | 42.1 | $ | 578.3 | $ | 1.3 | $ | 2,269.6 | ||||||||||
Capital lease obligations |
65.0 | 6.2 | 10.1 | 6.2 | 42.5 | |||||||||||||||
Operating lease obligations |
353.8 | 68.0 | 100.8 | 61.6 | 123.4 | |||||||||||||||
Purchase obligations |
513.5 | 441.0 | 36.6 | 9.4 | 26.5 | |||||||||||||||
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Total |
$ | 3,823.6 | $ | 557.3 | $ | 725.8 | $ | 78.5 | $ | 2,462.0 | ||||||||||
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We are also contractually obligated to pay interest on our long-term debt and capital lease obligations. The weighted average interest rate of the long-term debt obligations outstanding as of November 27, 2011 was approximately 7.0%.
The purchase obligations noted in the table above do not reflect $644 million of open purchase orders or $332 million of agreements for goods and services, some of which are not legally binding. These purchase orders and agreements are generally settleable in the ordinary course of business in less than one year.
We own a 49.99% interest in Lamb Weston BSW, LLC (Lamb Weston BSW), a potato processing venture with Ochoa Ag Unlimited Foods, Inc. (Ochoa). We provide all sales and marketing services to Lamb Weston BSW. Under certain circumstances, we could be required to compensate the other equity owner of Lamb Weston BSW for lost profits resulting from significant production shortfalls. Commencing on June 1, 2018, or on an earlier date under certain circumstances, we have a contractual right to purchase the remaining equity interest in Lamb Weston BSW from Ochoa (the call option). We are subject to a contractual obligation to purchase all of Ochoas equity investment in Lamb Weston BSW at the option of Ochoa (the put option). The purchase prices under the call option and the put option (the options) are based on the book value of Ochoas equity interest at the date of exercise, as modified by an agreed-upon rate of return for the holding period of the investment balance. The agreed-upon rate of return varies depending on the circumstances under which any of the options are exercised. As of November 27, 2011, the price at which Ochoa had the right to put its equity interest to us was $35 million. This amount, which is presented within other liabilities in our condensed consolidated balance sheet, is not included in the Contractual Obligations table, above, as the payment is contingent upon the exercise of the put option by Ochoa, and the eventual occurrence and timing of such exercise is uncertain.
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As part of our ongoing operations, we also enter into arrangements that obligate us to make future cash payments only upon the occurrence of a future event (e.g., guarantees of debt or lease payments of a third party should the third party be unable to perform). In accordance with generally accepted accounting principles, the following commercial commitments are not recognized as liabilities in our condensed consolidated balance sheet. A summary of our commitments, including commitments associated with equity method investments, as of November 27, 2011 was as follows:
Amount of Commitment Expiration Per
Period (in millions) |
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Other Commercial Commitments |
Total | Less than 1 Year |
1-3 Years | 3-5 Years | After 5 Years |
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Guarantees |
$ | 99.5 | $ | 46.5 | $ | 10.9 | $ | 10.6 | $ | 31.5 | ||||||||||
Other commitments |
0.7 | 0.7 | | | | |||||||||||||||
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Total |
$ | 100.2 | $ | 47.2 | $ | 10.9 | $ | 10.6 | $ | 31.5 | ||||||||||
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In certain limited situations, we will guarantee an obligation of an unconsolidated entity. We guarantee certain leases and other commercial obligations resulting from the 2002 divestiture of our fresh beef and pork operations. The remaining terms of these arrangements do not exceed four years and the maximum amount of future payments we have guaranteed was $12 million, included in the table above, as of November 27, 2011.
We have also guaranteed the performance of the divested business with respect to a hog purchase contract. The hog purchase contract requires the divested 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.
We are a party to various potato supply agreements. Under the terms of certain such potato supply agreements, we have guaranteed repayment of short-term bank loans of the potato suppliers, under certain conditions. At November 27, 2011, the amount of supplier loans effectively guaranteed by us was $41 million, included in the table above. We have not established a liability for these guarantees, as we have determined that the likelihood of our required performance under the guarantees is remote.
We are a party to a supply agreement with an onion processing company. We have guaranteed repayment of a loan of this supplier, under certain conditions. At November 27, 2011, the amount of this loan was $25 million, included in the table above. In the event of default on this loan by the supplier, we have the contractual right to purchase the loan from the lender, thereby giving us the rights to underlying collateral. Based on a recent review of the suppliers liquidity, we believe that deterioration in its business environment may lead to a notice of default under the loan. However, based on our estimate of the value of the collateral, we have not established a liability in connection with this guarantee, as we believe the likelihood of financial exposure to us under this agreement is remote.
Federal income tax credits were generated related to the construction of our sweet potato production facility in Delhi, Louisiana. Third parties invested in certain of these income tax credits. We have guaranteed these third parties the face value of these income tax credits over their statutory lives, a period of seven years, in the event that the income tax credits are recaptured or reduced. The face value of the income tax credits was $21 million as of November 27, 2011. We believe the likelihood of the recapture or reduction of the income tax credits is remote, and therefore we have not established a liability in connection with this guarantee.
The obligations and commitments tables, above, do not include any reserves for income taxes, as we are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes. The liability for gross unrecognized tax benefits at November 27, 2011 was $52 million. The net amount of unrecognized tax benefits at November 27, 2011, that, if recognized, would impact our effective tax rate was $32 million. Recognition of these tax benefits would have a favorable impact on our effective tax rate.
Critical Accounting Estimates
A discussion of our critical accounting estimates can be found in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of our annual report on Form 10-K for the fiscal year ended May 29, 2011.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks affecting us are exposures to price fluctuations of commodity and energy inputs, interest rates, and foreign currencies.
Other than the changes noted below, there have been no material changes in our market risk during the twenty-six weeks ended November 27, 2011. For additional information, refer to the Quantitative and Qualitative Disclosures about Market Risk in Item 7A of our annual report on Form 10-K for the fiscal year ended May 29, 2011.
Commodity Market Risk
We purchase commodity inputs such as wheat, corn, oats, soybean meal, soybean oil, meat, dairy products, sugar, natural gas, electricity, and packaging materials to be used in our operations. These commodities are subject to price fluctuations that may create price risk. We enter into commodity hedges to manage this price risk using physical forward contracts or derivative instruments. We have policies governing the hedging instruments our businesses may use. These policies include limiting the dollar risk exposure for each of our businesses. We also monitor the amount of associated counter-party credit risk for all non-exchange-traded transactions.
Interest Rate Risk
From time to time, we use interest rate swaps to manage the effect of interest rate changes on the fair value of our existing debt as well as the forecasted interest payments for the anticipated issuance of debt. During the fourth quarter of fiscal 2010, we entered into interest rate swap contracts used to effectively convert the interest rates of certain outstanding debt instruments from fixed to variable. During the second quarter of fiscal 2011, we terminated these interest rate swap contracts. As a result of this termination, we received proceeds of $32 million. The cumulative adjustment to the fair value of the debt instruments that were hedged, $35 million, was included in long-term debt and is being amortized as a reduction of interest expense over the remaining lives of the debt instruments (through fiscal 2014). At November 27, 2011, the unamortized amount was $22 million.
We have entered into interest rate swap contracts to hedge the interest rate risk related to our forecasted issuance of long-term debt in 2014 (based on the anticipated refinancing of the senior long-term debt maturing at that time). The net notional amount of these interest rate derivatives at November 27, 2011 was $500 million. The maximum potential pre-tax loss associated with these interest rate swap contracts from a hypothetical decrease of 1% in interest rates is approximately $146 million. Any such gain or loss would be deferred in accumulated other comprehensive income and recognized in earnings over the life of the forecasted interest payments associated with the anticipated debt refinancing. At November 27, 2011, we had recognized an unrealized loss of $139 million in accumulated other comprehensive income for these derivative instruments.
The carrying amount of long-term debt (including current installments) was $2.9 billion as of November 27, 2011. Based on current market rates provided primarily by outside investment bankers, the fair value of this debt at November 27, 2011 was estimated at $3.4 billion. As of November 27, 2011, a one percentage point increase in interest rates would decrease the fair value of our fixed rate debt by approximately $214 million, while a one percentage point decrease in interest rates would increase the fair value of our fixed rate debt by approximately $231 million.
Foreign Currency Risk
In order to reduce exposures for our processing activities related to changes in foreign currency exchange rates, we may enter into forward exchange or option contracts for transactions denominated in a currency other than the functional currency for certain of our operations. This activity primarily relates to economically hedging against foreign currency risk in purchasing inventory and capital equipment, sales of finished goods, and future settlement of foreign denominated assets and liabilities.
Value-at-Risk (VaR)
We employ various tools to monitor our derivative risk, including value-at-risk (VaR) models. We perform simulations using historical data to estimate potential losses in the fair value of current derivative positions. We use price and volatility information for the prior 90 days in the calculation of VaR that is used to monitor our daily risk. The purpose of this measurement is to provide a single view of the potential risk of loss associated with derivative
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positions at a given point in time based on recent changes in market prices. Our model uses a 95 percent confidence level. Accordingly, in any given one day time period, losses greater than the amounts included in the table, below, are expected to occur only 5 percent of the time. We include commodity swaps, futures, and options and foreign exchange forwards, swaps, and options in this calculation. The following table provides an overview of our average daily VaR for our energy, agriculture, and other commodities over the twenty-six week period ending November 27, 2011 as well as the average daily foreign exchange VaR. Other commodities (included in the table below) consist primarily of forward and option contracts for a commodities index, the market price of which is closely correlated with that of our commodity inputs. This index includes items such as agricultural commodities, energy commodities, and metals. The other commodities category below may also include items such as packaging and/or livestock.
Fair Value Impact | ||||||||
In Millions |
Average During Twenty-six Weeks Ended November 27, 2011 |
Average During Twenty-six Weeks Ended November 28, 2010 |
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Energy commodities |
$ | 2.8 | $ | 1.4 | ||||
Agriculture commodities |
$ | 4.2 | $ | 2.2 | ||||
Other commodities |
$ | 1.3 | $ | | ||||
Foreign exchange |
$ | 1.3 | $ | 1.4 |
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Companys management carried out an evaluation, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of November 27, 2011. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures are effective.
Internal Control Over Financial Reporting
The Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, evaluated any change in the Companys internal control over financial reporting that occurred during the quarter covered by this report and determined that there was no change in the Companys internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
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We are party to a number of lawsuits and claims arising out of the operation of our business, including lawsuits and claims related to the February 2007 recall of our peanut butter products. After taking into account liabilities recorded for these matters, we believe the ultimate resolution of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents the total number of shares of common stock purchased during the second quarter of fiscal 2012, the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase program, and the approximate dollar value of the maximum number of shares that may yet be purchased under the share repurchase program:
Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number
of Shares Purchased as Part of Publicly Announced Programs |
Approximate Dollar Value of Shares that may yet be Purchased under the Programs (1) (2) |
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August 29 through September 25, 2011 |
975,221 | $ | 23.21 | 975,221 | $ | 106,645,000 | ||||||||||
September 26 through October 23, 2011 |
2,282,462 | $ | 24.19 | 2,282,462 | $ | 51,429,000 | ||||||||||
October 24 through November 27, 2011 |
722,979 | $ | 24.14 | 722,979 | $ | 33,975,000 | ||||||||||
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Total Fiscal 2012 Second Quarter Activity |
3,980,662 | $ | 23.94 | 3,980,662 | $ | 33,975,000 | ||||||||||
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(1) | Pursuant to publicly announced share repurchase programs since December 2003, we have repurchased approximately 150.7 million shares at a cost of $3.5 billion through November 27, 2011. The current program has no expiration date. |
(2) | On December 14, 2011, our board of directors announced a $750 million increase to our share repurchase authorization, with no expiration date. |
All exhibits as set forth on the Exhibit Index, which is incorporated herein by reference.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CONAGRA FOODS, INC. | ||
By: | /s/ JOHN F. GEHRING | |
John F. Gehring | ||
Executive Vice President and Chief Financial Officer | ||
By: | /s/ PATRICK D. LINEHAN | |
Patrick D. Linehan | ||
Senior Vice President and Corporate Controller |
Dated this 30th day of December, 2011.
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EXHIBIT |
DESCRIPTION | |
10.1* | Form of Agreement between ConAgra Foods and its executives (post September 2011) | |
10.2 | Credit Agreement, dated as of September 14, 2011, by and among ConAgra Foods, Inc., JP Morgan Chase Bank, N.A., as administrative agent and a lender, Bank of America, N.A., as syndication agent and a lender, and the other financial institutions party thereto, incorporated herein by reference to Exhibit 10.1 of ConAgra Foods current report on Form 8-K filed on September 15, 2011 (File No. 001-07275). | |
12 | Statement regarding computation of ratio of earnings to fixed charges | |
31.1 | Section 302 Certificate of Chief Executive Officer | |
31.2 | Section 302 Certificate of Chief Financial Officer | |
32.1 | Section 906 Certificates | |
101.1 | The following materials from ConAgra Foods Quarterly Report on Form 10-Q for the quarter ended November 27, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) Notes to Condensed Consolidated Financial Statements, and (vi) document and entity information. |
* | Management contract or compensatory plan. |
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CHANGE OF CONTROL AGREEMENT
This CHANGE OF CONTROL AGREEMENT (Agreement) is made this , 20 , between ConAgra Foods, Inc., a Delaware Corporation (the Company), and (the Employee).
WHEREAS, as is the case with most, if not all, publicly traded businesses, it is expected that the Company from time to time may consider or need to consider the possibility of an acquisition by another company or other Change of Control of the ownership of the Company. The Board of Directors of the Company (the Board) recognizes that such considerations can be a distraction to Employee and can cause the Employee to consider alternative employment opportunities or to be influenced by the impact of a possible Change of Control of the ownership of the Company on Employees personal circumstances in evaluating such opportunities. The Board has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication and objectivity of Employee, notwithstanding the possibility, threat or occurrence of a Change of Control of the Company.
WHEREAS, the Board believes that it is in the best interests of the Company and its shareholders to provide Employee with an incentive to continue Employees employment and to motivate Employee to maximize the value of the Company upon a Change of Control for the benefit of its shareholders.
WHEREAS, the Board believes that it is important to provide Employee with certain benefits upon Employees termination of employment in certain instances upon or following a Change of Control that provide Employee with enhanced financial security and incentive and encouragement to remain with the Company notwithstanding the possibility of a Change of Control.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows:
1. Definitions. For all purposes of this Agreement, the following terms shall have the meanings specified in this Section unless the context clearly otherwise requires:
(a) Affiliate and Associate shall have the respective meanings ascribed to such terms in Rule 12b-2 of Regulation 12B under the Exchange Act.
(b) Change of Control shall mean:
(i) Individuals who constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or
(ii) Consummation of a reorganization, merger or consolidation, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated companys then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of its assets.
(c) Cause shall mean (i) the willful and continued failure by Employee to substantially perform Employees duties with the Company (other than any such failure resulting from termination by the Employee for Good Reason) after a demand for substantial performance is delivered to the Employee that specifically identifies the manner in which the Company believes that the Employee has not substantially
performed Employees duties, and the Employee has failed to resume substantial performance of the Employees duties on a continuous basis within five (5) days of receiving such demand, (ii) the willful engaging by the Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (iii) the Employees conviction of a felony or conviction of a misdemeanor which impairs the Employees ability substantially to perform the Employees duties with the Company. For purposes of this subsection, no act, or failure to act, on the Employees part shall be deemed willful unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that the Employees action or omission was in the best interest of the Company.
(d) Code shall mean the Internal Revenue Code of 1986, as amended.
(e) Continuation Period means the two (2) year period beginning on the Employees Termination Date.
(f) Exchange Act means the Securities Exchange Act of 1934, as amended.
(g) Good Reason Termination shall mean a termination of employment initiated by the Employee upon one or more of the following occurrences:
(i) any failure of the Company to comply with and satisfy any of the terms of this Agreement;
(ii) any significant involuntary reduction of the authority, duties or responsibilities held by the Employee immediately prior to the Change of Control;
(iii) any involuntary removal of the Employee from an officer position which the Employee holds with the Company or, if the Employee is employed by a Subsidiary or Affiliate, with the Subsidiary or Affiliate, held by the Employee immediately prior to the Change of Control, except in connection with promotions to higher office;
(iv) any involuntary reduction in the aggregate compensation level of the Employee including, but not limited to, base salary, annual and long term incentive opportunity, and supplemental executive retirement plans, as in effect immediately prior to the Change of Control;
(v) requiring the Employee to become based at any office or location more than the minimum number of miles required by the Code for the Employee to claim a moving expense deduction, from the office or location at which the Employee was based immediately prior to such Change of Control, except for travel reasonably required in the performance of the Employees responsibilities; and
(vi) the Employee being required to undertake business travel to an extent substantially greater than the Employees business travel obligations immediately prior to the Change of Control.
(h) Related Company shall mean (i) any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b)) that includes the Company; and (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c)) with the Company. For purposes of applying Code §§ 414(b) and (c), 25% is substituted for the 80% ownership level.
(i) Separation from Service, shall mean the date that Employee separates from service within the meaning of Code Section 409A. Generally, Employee separates from service if Employee dies, retires, or otherwise has a termination of employment with the Company, determined in accordance with the following:
(i) Leaves of Absence. The employment relationship is treated as continuing intact while Employee is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six (6) months, or, if longer, so long as Employee retains a right to reemployment with the Company under an applicable statute or by contract (including but not limited to this Agreement). A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that
Employee will return to perform services for the Company. If the period of leave exceeds six (6) months and Employee does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six (6) month period. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, where such impairment causes Employee to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a twenty nine (29) month period of absence shall be substituted for such six (6) month period.
(ii) Dual Status. Generally, if Employee performs services both as an employee and an independent contractor, Employee must separate from service both as an employee, and as an independent contractor pursuant to standards set forth in Treasury Regulations, to be treated as having a separation from service. However, if Employee provides services to the Company as an employee and as a member of the Board, and if any plan in which such person participates as a Board member is not aggregated with this Agreement pursuant to Treasury Regulation section 1.409A 1(c)(2)(ii), then the services provided as a director are not taken into account in determining whether Employee has a separation from service as an employee for purposes of this Agreement.
(iii) Termination of Employment. Whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the Company and Employee reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services Employee would perform after such date (whether as an employee or as an independent contractor except as provided in clause (ii) above) would permanently decrease to no more than twenty (20) percent of the average level of bona fide services performed (whether as an employee or an independent contractor, except as provided in clause (ii) above) over the immediately preceding thirty six (36) month period (or the full period of services to the Company if Employee has been providing services to the Company less than thirty six (36) months). For periods during which Employee is on a paid bona fide leave of absence and has not otherwise terminated employment as described above, for purposes of this clause (iii) Employee is treated as providing bona fide services at a level equal to the level of services that Employee would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which Employee is on an unpaid bona fide leave of absence and has not otherwise terminated employment are disregarded for purposes of this clause (iii) (including for purposes of determining the applicable thirty six (36) month (or shorter) period).
(j) Subsidiary shall mean any corporation in which the Company, directly or indirectly, owns at least a fifty percent (50%) interest or an unincorporated entity of which the Company, directly or indirectly, owns at least fifty percent (50%) of the profits or capital interests.
(k) Termination Date shall mean the effective date of the Employees Separation from Service.
2. Notice of Termination. Any Separation from Service upon or following a Change of Control shall be communicated by a Notice of Termination to Employee (or from Employee to the Company with respect to a Good Reason Termination) given in accordance with Section 16 hereof. For purposes of this Agreement, a Notice of Termination means a written notice which (i) indicates the specific provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for Employees Separation from Service under the provision so indicated, and (iii) if the Termination Date is other than the date of receipt of such notice, specifies the Termination Date (which date shall not be more than 15 days after the giving of such notice).
3. Severance Compensation upon Separation from Service.
(a) Subject to the provisions of Sections 9 and 10 hereof and further subject to Employee executing and not revoking a release of claims substantially in the form set forth as Exhibit A to this Agreement and the period to revoke such release expiring within sixty (60) days following Employees Separation from Service, in the event of Employees involuntary Separation from Service initiated by the Company or a Subsidiary or
Affiliate for any reason other than Cause or in the event of a Good Reason Termination, in either event upon or within three years after a Change of Control, Employee shall receive the following amounts in lieu of any severance compensation and benefits under the Companys severance plan:
(i) The Company shall pay to Employee a lump sum cash payment equal to [one (1)/two (2)] multiplied by the sum of (1) Employees annual base salary plus (2) the greater of (x) the highest annual cash bonus paid to Employee for the three (3) full fiscal years of the Company preceding the fiscal year in which the Change of Control occurs or (y) % [enter Employees target bonus as % of salary] of Employees annual base salary for the fiscal year in which the Change of Control occurs. The annual base salary for purposes of item (1) in the preceding sentence shall be Employees highest annual base salary as of or after the Change of Control.
(ii) During the Continuation Period, the Employee shall continue to be entitled to participate in the medical and dental, disability, basic life insurance and supplemental life insurance plans of the Company or Subsidiary or Affiliate (to the extent such benefits remain in effect for other executives of the Company from time to time during the Continuation Period) based upon the amount of benefit provided to the Employee as of the Employees Separation from Service. The Employee shall be responsible for making required contributions, on an after-tax basis, at the rate required of all executive employees at the time of the Employees Separation from Service or thereafter, except for the medical and dental coverage. For the medical and dental coverage, the Employee shall be required to contribute, on an after-tax basis, the premium (COBRA Premium) determined for the plan under Section 4980B(f) of the Code. The Company shall pay to the Employee a single lump sum payment equal to the present value of the cost of the medical and dental coverage for the Continuation Period (assuming family coverage and a reasonable increase in the COBRA Premium). If it is not possible to continue the disability, basic life and supplemental life insurance coverage without violation of or noncompliance with tax (including Code Section 409A), legal or insurance requirements, the Company shall pay to the Employee a single lump sum payment equal to the present value of the cost of such coverage for the Continuation Period on the first day on which severance compensation is paid pursuant to subsection (b) below; provided that if payment in a lump sum would cause taxation under Code Section 409A, the Company shall pay the cost of such coverage for each calendar year (or portion thereof) that falls within the Continuation Period on the first business day during each such calendar year (or portion thereof) on which payment can be made without causing taxation under Code Section 409A.
(iii) If the Employee participates in the qualified and/or nonqualified ConAgra Foods Retirement Income Savings Plan (CRISP), the Employee shall receive a supplemental credit to his nonqualified CRISP Account equal to the maximum employer contribution that the Employee could have received under the qualified and nonqualified CRISP (or any successor plan) in the year that includes the Termination Date.
(iv) Subject to Section 11, the Company, at its expense, shall provide reasonable outplacement assistance to the Employee through the end of the second calendar year beginning after the Termination Date from a professional outplacement assistant firm which is reasonably suitable to the Employee and commensurate with the Employees position and responsibilities. In no event shall the amount expended with outplacement assistance for the Employee exceed Thirty Thousand Dollars ($30,000).
(b) Except as otherwise set forth in Sections 9 and 10, (1) the amounts described in subsections 3(a) (i) and (ii) above shall be paid, and (2) the supplemental credit in subsection 3(a)(iii) shall be allocated (with payment governed by the terms of CRISP), on the 61st day after the Termination Date.
4. Other Payments. Upon any Separation from Service entitling the Employee to payments under this Agreement, the Employee shall receive all accrued but unpaid salary and all benefits (other than severance benefits) accrued and payable under any plans, policies and programs of the Company and its Subsidiaries or Affiliates.
5. Interest; Enforcement.
(a) If payment of the amounts described in Section 3 or Section 10 is delayed pursuant to Section 409A of the Code, the Company shall pay interest at the rate described below on the postponed payments from the 61st day after Employees Termination Date to the date on which such amounts are paid. If the Company shall fail or refuse to pay any amounts due the Employee under Section 3 or 10 on the applicable due date, the Company shall pay interest at the rate described below on the unpaid payments from the applicable due date to the date on which such amounts are paid. Interest shall be credited at an annual rate equal to the rate announced by Wells Fargo & Company (or its successor) as its prime rate as of the Employees Termination Date, plus one percent (1%), compounded annually.
(b) The Employee shall not be required to incur any expenses associated with the enforcement of the Employees rights under this Agreement by arbitration, litigation or other legal action, because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Employee hereunder. Accordingly, the Company shall pay the Employee on demand the amount necessary to reimburse the Employee in full for all reasonable expenses (including all attorneys fees and legal expenses) incurred by the Employee in enforcing any of the obligations of the Company under this Agreement. The Employee shall notify the Company of the expenses for which the Employee demands reimbursement within sixty (60) days after the Employee receives an invoice for such expenses, and the Company shall pay the reimbursement amount within fifteen (15) days after receipt of such notice, subject to Section 11.
6. No Mitigation. The Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by other employment or otherwise.
7. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the Employees continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by the Company, or any of its Subsidiaries or Affiliates, and for which the Employee may qualify, except as provided in this Agreement.
8. No Set Off. The Companys obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Employee or others.
9. Taxation.
(a) Notwithstanding anything contained in this Agreement to the contrary, if the Employee is a specified employee (determined in accordance with Code Section 409A and Treasury Regulation Section 1.409A-3(i)(2)) as of the date of Separation from Service (other than a Separation from Service due to death) and if the Employee is entitled under this Agreement to any payment, benefit or entitlement upon Separation from Service that constitutes deferred compensation subject to Code Section 409A, then (i) any such payment, benefit or entitlement (the Postponed Benefit) that is payable during the first six months following the date of Separation from Service shall be paid or provided to the Employee, together with accrued interest as described in Section 5, in a lump sum cash payment to be made on the earlier of (a) the Employees death or (b) the first business day (or within 30 days after such first business day) of the seventh calendar month immediately following the month in which the date of Separation from Service occurs (the Postponement Period); and (ii) unless doing so would violate Code section 409A(b), an amount equal to the Postponed Benefit plus an estimate of the interest to be paid shall be deposited, as of the date the Postponed Benefit would have been paid but for this section, in a trust in the form of the model grantor trust contained in IRS Revenue Procedure 92-64, which trust is incorporated by reference. If Code section 409A(b) initially prevents the funding described in the prior sentence, but it is possible to carry out such funding without violating Code section 409A(b) at a later date that precedes when payment is made (409A(b) Date), such funding shall occur at the earliest possible 409A(b) Date. If the Employee dies during the Postponement Period prior to the payment of benefits, the amounts withheld on account of Section 409A of the Code, with
accrued interest as described in Section 5, shall be paid to the personal representative of the Employees estate within sixty (60) days after the date of the Employees death. Payments under this Agreement shall be made by mail to the last address provided for notices to the Employee pursuant to Section 16 of this Agreement.
(b) Further notwithstanding anything in this Agreement to the contrary, the Company shall attempt in good faith not to take any action, or refrain from taking any action that would result in the imposition of tax, interest and/or penalties upon the Employee under Code Section 409A. The parties acknowledge that the requirements of Code Section 409A are ambiguous in certain respects. The parties further acknowledge that this Agreement shall be interpreted and administered to maximize the exemptions from Code Section 409A and, to the extent this Agreement provides for deferred compensation subject to Code Section 409A, to comply with Code Section 409A and to avoid the imposition of additional taxes upon the Employee under Code Section 409A. Accordingly, to comply with Code Section 409A, if Employee is entitled to any payment or benefit under this Agreement (i) following a Change in Control that does not qualify under Code Section 409A as a change in ownership, change in effective control or change in ownership of a substantial portion of the assets, in each case with respect to the Company, or (ii) due to a Separation from Service that occurs more than two years after the date of the Change in Control, and if Employee is a party to another agreement, offer letter or other arrangement providing for severance benefits in connection with a Separation from Service other than in connection with a Change in Control, payments under this Agreement up to the total payments required under such other agreement shall be paid in the same manner and at the same time as payments would be paid under such other agreement, and any additional amounts shall be paid as provided in Section 3(b) above. If the Company has acted or refrained from acting in good faith as required by this Section 9, it will not be responsible for any consequences of failure to comply with Code Section 409A.
(c) All payments under this Agreement shall be subject to all requirements of the law with regard to tax withholding and reporting and filing requirements, and the Company shall use its best efforts to satisfy promptly all such requirements.
10. Limitation on Payment.
(a) Except as otherwise provided in subsection (b) below, in the event that it shall be determined that any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a Payment), would constitute an excess parachute payment within the meaning of Section 280G of the Code, the aggregate present value of the Payments under the Agreement shall be reduced (but not below zero) to the Safe Harbor Amount (as defined below). Any required reduction in the Payments pursuant to the foregoing shall be done only to the extent such reduction of the Payment can contribute to avoiding the Excise Tax and Expenses (as defined below), and it shall be accomplished first by reducing the lump sum severance payment payable pursuant to Section 3(a)(i) of the Agreement, and then (to the extent reduction of the Section 3(a)(i) payment is not adequate) by reducing the additional NQ CRISP credit provided pursuant to Section 3(a)(iii). The Safe Harbor Amount is the maximum dollar amount of payments in the nature of compensation that are contingent on a Change of Control (as described in Section 280G of the Code) and that may be paid or distributed to the Employee without imposition of the Excise Tax and Expenses. The term Excise Tax and Expenses means the excise tax imposed under Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.
(b) Notwithstanding the foregoing, the Company shall not reduce the Payments as described in subsection (a) if the net amount of the unreduced Payments that would be retained by the Employee after deduction of any Excise Tax and Expenses exceeds the Safe Harbor Amount.
(c) All determinations to be made under this Section 10 shall be made by an independent registered public accounting firm selected by the Company immediately prior to the Change of Control (the Accounting Firm), which shall provide its determinations and any supporting calculations both to the Company and the Employee within ten (10) days of the Change of Control. Any such determination by the Accounting Firm shall be binding upon the Company and the Employee.
(d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section shall be borne solely by the Company. The Company agrees to indemnify and hold harmless the Accounting Firm of and from any and all claims, damages and expenses resulting from or relating to its determinations pursuant to this Section, except for claims, damages or expenses resulting from the gross negligence or willful misconduct of the Accounting Firm.
11. Reimbursements. Any reimbursements or in-kind benefits to be provided pursuant to this Agreement (including but not limited to Sections 3(a)(iv) and 5(b)) that are taxable to Employee shall be subject to the following restrictions: (a) each reimbursement must be paid no later than the last day of the Employees tax year following the Employees tax year during which the expense was incurred or in-kind benefit was received, as the case may be; (b) the amount of expenses eligible for reimbursement, or in kind benefits provided, during a tax year of the Employee may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other tax year of the Employee; (c) the period during which any expenses that are eligible for reimbursement may be paid or in-kind benefit may be provided is ten years after termination of this Agreement; and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
12. Term. This Agreement shall commence on the date hereof and, unless there is a Change of Control, shall continue until the earliest of (a) the Employees termination of employment as a full-time employee of the Company, (b) the date the Employee enters into a written separation agreement with the Company; or (c) the date when this Agreement is terminated by the Company in accordance with the next sentence. If a Change of Control has not occurred, then the Company shall have the right at any time to terminate this Agreement by giving the Employee six (6) months prior written notice of termination of this Agreement. If a Change of Control occurs at any time prior to the termination of this Agreement pursuant to the preceding, this Agreement shall terminate on the third anniversary of such Change of Control.
13. Confidentiality. The Employee acknowledges that during the Employees employment with the Company or any of its Affiliates, the Employee will acquire, be exposed to and have access to, non-public material, data and information of the Company and its Affiliates and/or their customers or clients that is confidential, proprietary, and/or a trade secret (Confidential Information). At all times, both during and after the Term, the Employee shall keep and retain in confidence and shall not disclose, except as required and authorized in the course of the Employees employment with the Company or any of its Affiliates, to any person, firm or corporation, or use for his or her own purposes, any Confidential Information. For purposes of this Agreement, such Confidential Information shall include, but shall not be limited to: sales methods, information concerning principals or customers, advertising methods, financial affairs or methods of procurement, marketing and business plans, strategies (including risk strategies), projections, business opportunities, inventions, designs, drawings, research and development plans, client lists, sales and cost information and financial results and performance. Notwithstanding the foregoing, Confidential Information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Employee or by the Company or its Affiliates). The Employee acknowledges that the obligations pertaining to the confidentiality and non-disclosure of Confidential Information shall remain in effect for a period of five (5) years after the Employees Separation from Service, or until the Company or its Affiliates has released any such information into the public domain, in which case the Employees obligation hereunder shall cease with respect only to such information so released into the public domain. The Employees obligation under this Section 13 shall survive any Separation from Service. If the Employee receives a subpoena or other judicial process requiring that he or she produce, provide or testify about Confidential Information, the Employee shall notify the Company and cooperate fully with the Company in resisting disclosure of the Confidential Information. The Employee acknowledges that the Company has the right either in the name of the Employee or in its own name to oppose or move to quash any subpoena or other legal process directed to the Employee regarding Confidential Information.
14. Incentive Payments Upon Change of Control. Upon a Change of Control that qualifies under 409A as a change in ownership, change in effective control or change in ownership of a substantial portion of the assets, in each case with respect to the Company, the Company may, at the Boards, or the Human Resources Committees, as the case may be, sole and absolute discretion, pay the Employee all or a portion of the Employees Short and/or Long Term Incentive for the Company fiscal year in which the Change of
Control occurs (to the extent that such compensation is not deferred compensation subject to Code section 409A). The amounts paid may be based upon (a) a proration of the Employees target incentives for the fiscal year, (b) a proration of the projected incentives at the time of the Change of Control, or (c) a pro rata amount computed at the end of the fiscal year. Any proration shall be based upon the number of completed months elapsed in the fiscal year since the Change of Control.
15. Successor Company. The Company shall require any successor or successors (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Employee, to acknowledge expressly that this Agreement is binding upon and enforceable against the Company in accordance with the terms hereof, and to become jointly and severally obligated with the Company to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or successions had taken place. Failure of the Company to notify the Employee in writing as to such successorship, to provide the Employee the opportunity to review and agree to the successors assumption of this Agreement or to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, the Company shall mean the Company as defined above and any such successor or successors to its business or assets, jointly and severally.
16. Notice. All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service, as follows:
If to the Company, to:
ConAgra Foods, Inc.
One ConAgra Drive
Omaha, NE 68102-5094
Attention: Corporate Secretary
If to the Employee, to the most recent address provided by the Employee to the Company or a Subsidiary or Affiliate for payroll purposes, or to such other address as the Company or the Employee, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section; provided, however, that if no such notice is given by the Company following a Change of Control, notice at the last address of the Company or any successor pursuant to Section 15 shall be deemed sufficient for the purposes hereof. Any such notice shall be deemed delivered and effective when received in the case of personal delivery, five (5) days after deposit, postage prepaid, with the U.S. Postal Service in the case of registered or certified mail, or on the next business day in the case of overnight express courier service.
17. Contents of Agreement; Amendment. This Agreement supersedes all prior agreements with respect to the subject matter hereof and sets forth the entire understanding between the parties hereto with respect to the subject matter hereof. This Agreement cannot be amended except pursuant to approval by the Human Resources Committee of the Companys Board of Directors and a written amendment executed by the Employee and the Chair of the Companys Board of Directors or his delegee. The provisions of this Agreement may require a variance from the terms and conditions of certain compensation or bonus plans under circumstances where such plans would not provide for payment thereof in order to obtain the maximum benefits for the Employee. The parties intend that, to the extent permitted under Code Section 409A, the provisions of this Agreement shall supersede any provisions to the contrary in such plans, and such plans shall be deemed to have been amended to correspond with this Agreement without further action by the Company or the Human Resources Committee of the Companys Board of Directors.
18. No Right to Continued Employment. Nothing in this Agreement shall be construed as giving the Employee any right to be retained in the employ of the Company or a Subsidiary or Affiliate.
19. Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Delaware without giving effect to any conflict of laws provisions.
20. Successors and Assigns. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Employee and the Company hereunder shall not be assignable in whole or in part.
21. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions or applications of this Agreement which can be given effect without the invalid or unenforceable provision or application.
22. Remedies Cumulative; No Waiver. No right conferred upon the Employee by this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by the Employee in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof.
23. Miscellaneous. All Section headings are for convenience only. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
EMPLOYEE: | CONAGRA FOODS, INC. | |||
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[INSERT NAME] | [INSERT NAME] |
EXHIBIT A
WAIVER AND RELEASE OF CLAIMS
In consideration of, and subject to, the payment to be made to me by (the Employer) of the payments and benefits provided by Change of Control Agreement, dated as of , entered into between me and the Company (the Agreement), I hereby waive any claims I may have for employment or re-employment by the Employer or any parent or subsidiary of the Employer after the date hereof, and I further agree to and do release and forever discharge the Employer and any parent or subsidiary of the Employer, and their respective past and present officers, directors, shareholders, insurers, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with the Employer or any parent or subsidiary of the Employer, or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Acts, the Age Discrimination in Employment Act, the Employee Retirement Income Security Acts, the Americans with Disabilities Act, the Family and Medical Leave Act, the Older Workers Benefit Protection Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment or otherwise.
Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims shall adversely affect (i) my rights to payment and benefits under the Agreement; (ii) my rights to benefits other than severance payments or benefits under plans, programs and arrangements of the Employer or any parent or subsidiary of the Employer; or (iii) my rights to indemnification under any indemnification agreement, applicable law or the certificates of incorporation or bylaws of the Employer or any parent or subsidiary of the Employer, (iv) my rights under any directors and officers liability insurance policy covering me, (v) my workers compensation rights, or (vi) my unemployment insurance rights.
I acknowledge that I have signed this Waiver and Release of Claims voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and the Employers acknowledgment of my rights reserved under the second paragraph above.
I understand that this release will be deemed to be an application for benefits under the Agreement and that my entitlement thereto shall be governed by the terms and conditions of the Agreement and any applicable plan. I expressly hereby consent to such terms and conditions.
I acknowledge that I have been given not less than forty-five (45) days to review and consider this Waiver and Release of Claims (unless I have signed a written waiver of such review and consideration period), and that I have had the opportunity to consult with an attorney or other advisor of my choice and have been advised by the Company to do so if I choose. I may revoke this Waiver and Release of Claims seven (7) days or less after its execution by providing written notice to the Employer.
I acknowledge that it is my intention and the intention of the Employer in executing this Waiver and Release of Claims that the same shall be effective as a bar to each and every claim, demand and cause of action hereinabove specified. In furtherance of this intention, I hereby expressly waive any and all rights and benefits conferred upon me by the provisions of SECTION 1542 OF THE CALIFORNIA CIVIL CODE, to the extent applicable to me, and expressly I consent that this Waiver and Release of Claims shall be given full force and effect according to each and all of its express terms and provisions, including as well those related to unknown and unsuspected claims, demands and causes of action, if any, as well as those relating to any other claims, demands and causes of action hereinabove specified. SECTION 1542 provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
I acknowledge that I may hereafter discover claims or facts in addition to or different from those which I now know or believe to exist with respect to the subject matter of this Waiver and Release of Claims and which, if known or suspected at the time of executing this Waiver and Release of Claims, may have materially affected this settlement.
Finally, I acknowledge that I have read this Waiver and Release of Claims and understand all of its terms.
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Signature of Employee |
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Printed Name |
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Date Signed |
ConAgra Foods, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
($ in millions)
Twenty-six weeks ended November 27, 2011 |
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Earnings: |
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Income from continuing operations before income taxes and equity method investment earnings |
$ | 373.8 | ||
Add (deduct): |
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Fixed charges |
130.9 | |||
Distributed income of equity method investees |
6.4 | |||
Capitalized interest |
(3.2 | ) | ||
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Earnings available for fixed charges (a) |
$ | 507.9 | ||
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Fixed charges: |
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Interest expense |
$ | 105.7 | ||
Capitalized interest |
3.2 | |||
One third of rental expense (1) |
22.0 | |||
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Total fixed charges (b) |
$ | 130.9 | ||
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Ratio of earnings to fixed charges (a/b) |
3.9 |
(1) | Considered to be representative of interest factor in rental expense. |
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Gary M. Rodkin, certify that:
1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended November 27, 2011 of ConAgra Foods, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: December 30, 2011 |
/s/ GARY M. RODKIN |
Gary M. Rodkin |
Chief Executive Officer |
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, John F. Gehring, certify that:
1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended November 27, 2011 of ConAgra Foods, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: December 30, 2011 |
/s/ JOHN F. GEHRING |
John F. Gehring |
Executive Vice President and Chief Financial Officer |
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Gary M. Rodkin, Chief Executive Officer of ConAgra Foods, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that ConAgra Foods, Inc.s Quarterly Report on Form 10-Q for the quarter ended November 27, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and that the information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of ConAgra Foods, Inc. as of and for the periods presented.
December 30, 2011 |
/s/ GARY M. RODKIN |
Gary M. Rodkin |
Chief Executive Officer |
I, John F. Gehring, Executive Vice President and Chief Financial Officer of ConAgra Foods, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that ConAgra Foods, Inc.s Quarterly Report on Form 10-Q for the quarter ended November 27, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and that the information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of ConAgra Foods, Inc. as of and for the periods presented.
December 30, 2011 |
/s/ JOHN F. GEHRING |
John F. Gehring |
Executive Vice President and Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to ConAgra Foods, Inc. and will be retained by ConAgra Foods, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Summary of Significant Accounting Policies (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Nov. 27, 2011
|
Nov. 28, 2010
|
Nov. 27, 2011
|
Nov. 28, 2010
|
|
Summary of income tax expense (benefit) on components of other comprehensive income (loss) | ||||
Net derivative adjustment | $ (28.5) | $ 0.1 | $ (47.3) | $ 0.1 |
Unrealized gains (losses) on available-for-sale securities | 0.1 | (0.1) | ||
Pension and postretirement healthcare liabilities | 14.4 | 1.4 | 18.1 | 2.9 |
Other Comprehensive Income (Loss), Tax, Total | $ (14.1) | $ 1.6 | $ (29.3) | $ 3.0 |
Inventories (Details) (USD $)
In Millions, unless otherwise specified |
Nov. 27, 2011
|
May 29, 2011
|
---|---|---|
Inventories [Abstract] | ||
Raw materials and packaging | $ 687.6 | $ 639.5 |
Work in process | 143.7 | 83.1 |
Finished goods | 1,109.5 | 992.9 |
Supplies and other | 91.2 | 87.9 |
Total | $ 2,032.0 | $ 1,803.4 |
Business Segments and Related Information (Details Textual) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Nov. 27, 2011
|
Nov. 28, 2010
|
Nov. 27, 2011
Segment
|
Nov. 28, 2010
|
May 29, 2011
|
|
Business Segments and Related Information (Textual) [Abstract] | |||||
Derivative gain to be reclassified to segment operating results in fiscal year 2012 | $ 10.3 | ||||
Derivative loss to be reclassified to segment operating results in fiscal year 2013 | 18.1 | ||||
Derivative gain (loss) of previous year to be reclassified to segment operating results | $ 32.3 | ||||
Percentage of consolidated net sales in consumer food segment accounted by Wal-Mart Stores, Inc. and its affiliates | 18.00% | 18.00% | 18.00% | 19.00% | |
Percentage of consolidated net receivables in commercial foods accounted by Wal-Mart Stores, Inc. and its affiliates | 16.00% | 16.00% | 15.00% | ||
Number of reportable segment | 2 |
Goodwill and Other Identifiable Intangible Assets (Details Textual) (USD $)
In Millions, unless otherwise specified |
6 Months Ended | |
---|---|---|
Nov. 27, 2011
Year
|
Aug. 28, 2011
|
|
Goodwill and Other Identifiable Intangible Assets (Textual) [Abstract] | ||
Weighted average life in years of amortizing intangible assets | 13 | |
Recognized amortization expense | $ 16.5 | |
Estimated amortization expenses, fiscal year 2012 | 16.5 | |
Estimated amortization expenses, fiscal year 2013 | 16.5 | |
Estimated amortization expenses, fiscal year 2014 | 16.5 | |
Estimated amortization expenses, fiscal year 2015 | 16.5 | |
Estimated amortization expenses, fiscal year 2016 | 16.5 | |
Acquired Marie Callender's brand trademarks | $ 57.5 |
Restructuring (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 27, 2011
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Restructuring [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of expected realization and incurred restructuring pre tax expenses |
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Liability for initiatives and changes |
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Summary of Significant Accounting Policies (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 27, 2011
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Summary of Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of income tax expense (benefit) on components of other comprehensive income (loss) |
|
Share-Based Payments (Details)
|
6 Months Ended |
---|---|
Nov. 27, 2011
Year
|
|
Weighted average Black-Scholes assumptions for stock options granted | |
Expected volatility (%) | 22.89% |
Dividend yield (%) | 3.97% |
Risk-free interest rate (%) | 1.38% |
Expected life of stock option (years) | 4.75 |
Discontinued Operations and Divestitures (Details Textual) (USD $)
In Millions, unless otherwise specified |
6 Months Ended | 3 Months Ended | |
---|---|---|---|
Nov. 27, 2011
|
May 29, 2011
Frozen Handhelds Operations [Member]
|
Aug. 29, 2010
Gilroy Foods & Flavors [Member]
|
|
Discontinued Operations and Divestitures (Textual) [Abstract] | |||
Consideration for divestiture of business, subject to final working capital adjustment | $ 8.8 | $ 245.7 | |
Additional Discontinued Operations and Divestitures (Textual) [Abstract] | |||
Period of agreements to purchase certain ingredients from the divested business | 5 years | ||
Reversal of accrual related to legal matters of divested businesses | $ 3.0 |
Fair Value Measurements (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 27, 2011
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Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of assets and liabilities measured on recurring basis |
|
Contingencies (Details 1) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended |
---|---|---|
Feb. 22, 2009
|
Nov. 27, 2011
Hogs
|
|
Additional Contingencies (Textual) [Abstract] | ||
Maximum period of guarantee under leases and other commercial obligations guarantee agreement | four years | |
Minimum quantity of hogs to be purchased under hog purchase agreement through 2014 | 1,200,000 | |
Guaranteed period to third parties for income tax credits over their statutory lives | 7 years | |
Face value of federal income tax credits | $ 21.2 | |
Dispute coverage charge with insurance carrier | $ 24.8 | |
Term of loan under certain agreement years | 14 years |
Discontinued Operations and Divestitures
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Nov. 27, 2011
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Discontinued Operations and Divestitures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DISCONTINUED OPERATIONS AND DIVESTITURES |
3. DISCONTINUED OPERATIONS AND DIVESTITURES Discontinued Operations Frozen Handhelds Operations During the fourth quarter of fiscal 2011, we completed the sale of substantially all of the assets of our frozen handhelds operations for $8.8 million in cash. We reflected the results of these operations as discontinued operations for all periods presented. Gilroy Foods & Flavors TM Operations During the first quarter of fiscal 2011, we completed the sale of substantially all of the assets of Gilroy Foods & Flavors™ dehydrated garlic, onion, capsicum and Controlled Moisture™, GardenFrost®, Redi-Made™, and fresh vegetable operations for $245.7 million in cash. We reflected the results of these operations as discontinued operations for all periods presented. In connection with the sale of this business, we entered into agreements to purchase certain ingredients, at prices approximating market rates, from the divested business for a period of five years. The continuing cash flows related to these agreements are not significant, and, accordingly, are not deemed to be direct cash flows of the divested business. Summary of Operational Results The summary comparative financial results of the discontinued operations were as follows:
Operating results from discontinued operations for the second quarter and first half of fiscal 2011 reflect the impact of favorable resolutions of foreign tax matters. Operating results for the first half of fiscal 2011 also include the reversal of an accrual of $3.0 million related to certain legal matters of divested businesses. There were no assets and liabilities classified as held for sale as of November 27, 2011 and May 29, 2011. |
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