ConAgra Foods, Inc.

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 20206 / July 25, 2007

SEC v. ConAgra Foods, Inc., 07cv01557-MSK-MEH

SEC Charges ConAgra Foods, Inc. in Financial Fraud and Accounting Case

ConAgra Agrees to Pay $45 Million Penalty to Settle Charges

The Securities and Exchange Commission has filed civil charges against ConAgra Foods, Inc., a diversified international food company headquartered in Omaha, Nebraska, alleging that it engaged in improper, and in certain instances fraudulent, accounting practices during its fiscal years 1999 through 2001. The fraudulent practices alleged involved the misuse of corporate reserves to manipulate reported earnings in fiscal year 1999 and a scheme at its former subsidiary, United Agri-Products (UAP), in 2000 that involved, among other things, improper and premature revenue recognition. Additionally, the complaint alleges that between fiscal years 2002 and 2005, ConAgra's corporate tax department made numerous tax errors, causing the company to improperly account for tax benefits and understate its income tax expense. Between the first quarter of fiscal year 1999 and the third quarter of fiscal year 2001 ConAgra misstated its reported income before income taxes by nearly $218.5 million. As a result of the income tax errors, ConAgra misstated its reported income tax expense by $105 million.

The complaint alleges varied misconduct that includes the following:

• During the first and second quarters of fiscal year 1999, ConAgra improperly used tens of millions of dollars of certain excess reserves to offset, dollar-for-dollar, unrelated, unplanned-for and unreserved-for losses. Separately, but at the same time as the second quarter of fiscal year 1999 reduction, ConAgra improperly transferred over $93 million of remaining excess reserves into two newly created "general" reserve accounts, using approximately $60 million of these transferred reserves to cover unrelated, unplanned-for and unreserved-for exposures related to legal and environmental matters. Additionally, from at least as early as the first quarter of fiscal year 1999, ConAgra fraudulently used an Estimated Liabilities reserve account as a "cookie jar" reserve, using it to offset millions in current period operating expenses. These reductions of excess reserves in 1999 caused ConAgra to overstate its annual reported income by 15% and its earnings per share by over 10 cents per share.
   
• ConAgra maintained excess reserves on its books in fiscal year 2000. On several occasions in that year, ConAgra offset unplanned-for and unreserved-for losses with a dollar-for-dollar reduction to excess reserves in certain of its excess reserve accounts.
   
• In fiscal year 2001, ConAgra made a reduction of $35 million to its excess legal and environmental reserves. At least $23.8 million of the $35 million was improperly taken to income for the third quarter of 2001; rather it should have been reported as a prior period adjustment as the $23.8 million should have been reduced by no later than the end of fiscal year 2000.

• In fiscal year 2000, former senior executives at UAP participated in a scheme to overstate UAP's operating results through the use of improper accounting practices including the improper recognition of revenue from deferred delivery sales and associated rebates from its suppliers, the failure to record bad debt expenses when realized and the premature recognition of revenue from advance vendor rebates.
   
• Forensic accountants retained by special counsel to the Audit Committee of ConAgra tested a sample valued at over $247 million of UAP's deferred delivery sales originally recorded from fiscal year 1998 through the second quarter of fiscal year 2001 and determined that approximately 40% of the transactions tested were fraudulent.
   
• The UAP misconduct caused ConAgra to overstate its agricultural products segment's operating profit by approximately 35% and ConAgra's reported income before income taxes by 7.85% in fiscal year 2000.

• ConAgra's disclosure in its Form 10-Q for the third quarter of fiscal year 2001 was misleading as it failed to disclose that at least $23.8 million of the $35 million reduction of excess reserves was in excess in prior periods.

• At the end of fiscal year 1999 ConAgra took an unsupported reduction of $4,658,064 to its income tax expense. Without this reduction, ConAgra would have missed the Wall Street analysts' consensus estimate.
   
• ConAgra improperly understated its income tax expense for fiscal year 2004 by a total of $84.9 million after it incorrectly calculated the stock basis following its sale of beef/pork subsidiaries and determined that it resulted in a capital loss for tax purposes.
   
• ConAgra also used an incorrect methodology to calculate its overall foreign loss in fiscal year 2003 and before, and accordingly, ConAgra's tax liability was incorrectly calculated. ConAgra failed to consider appropriate tax strategies in fiscal year 2003 when ConAgra was able to utilize foreign tax credits. As a result, ConAgra failed to record sufficient tax benefits related it its foreign tax credits and therefore, either understated or overstated its net income after income taxes in fiscal years 2003, 2004, and 2005.

The complaint alleges that, without engaging in the improper and at times fraudulent accounting practices, ConAgra would have missed the Wall Street analysts' consensus estimates of the company's earnings per share for at least six of eleven fiscal quarters in fiscal years 1999, 2000 and 2001. As a result of the conduct described above, ConAgra materially misstated its financial performance in earnings releases and in periodic reports filed with the Commission. Other financial misstatements of ConAgra during this time include a registration statement filed with the Commission. ConAgra has restated its financial results for the years 1999 through 2005.

To settle the charges, ConAgra has agreed to pay a $45 million penalty, which the SEC will seek to place into a Fair Fund for distribution to harmed investors. Without admitting or denying the allegations in the complaint, ConAgra agreed to be permanently enjoined from violating the antifraud, reporting, books and records and internal controls provisions of the federal securities laws (Sections 10(b), 13(a), 13(b(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10-b-5, 12b-20, 13a-1 and 13a-13). ConAgra also has consented to a review by an independent consultant of its policies and procedures and financial and accounting compliance functions with respect to certain reserve accounts. The settlement is subject to court approval.

Earlier this year, the Commission brought settled civil injunctive actions and settled administrative proceedings against six former ConAgra executives, including two former corporate controllers, its former chief financial offer, its former vice president of operations and control, and against two senior executives at UAP. Litigation is currently pending against a third UAP senior executive. See Litigation Release Nos. 19969 (January 17, 2007) and 20176 (June 29, 2007).

SEC Complaint in this matter