| • | charges totaling $165.5 million ($127.0 million after-tax) related to certain litigation matters, | | • | an income tax expense of $78.6 million associated with a change in a valuation allowance on a deferred tax asset due to the terminationimpairment of the agreement for the proposed sale of our Wesson® oil business, intangible assets, |
an income tax charge of $42.1 million associated with unusual tax items related to the repatriation of cash during the second quarter from foreign subsidiaries, the tax expense related to the earnings of foreign subsidiaries previously deemed to be permanently invested, a pension contribution, and the effect of a law change in Mexico requiring deconsolidation for tax reporting purposes,
charges totaling $34.9 million ($25.6 million after-tax) related to the early termination of an unfavorable lease contract by purchasing the property subject to the lease,
charges totaling $38.0 million ($27.0 million after-tax) in connection with our SCAE Plan (as defined below),
charges totaling $15.7 million ($10.9 million after-tax) associated with costs incurred for acquisitions and divestitures,
charges totaling $5.4 million ($3.7 million after-tax) related to pension plan lump-sum settlements and a remeasurement of our salaried and non-qualified pension plan liability,
charges totaling $4.8 million ($3.7 million after-tax) related to the impairment of other intangible assets, and
a benefit of $4.3 million ($2.9 million after-tax) related to the substantial liquidation of an international joint venture (recorded in equity method investment earnings).
Items of note impacting comparability of results from continuing operations for fiscal 2017 included the following:
charges totaling $304.2 million ($257.7 million after-tax) related to the impairment of goodwill and other intangible assets,
gains totaling $197.4 million ($68.4 million after-tax) from the sales of the Spicetec and JM Swank businesses,
charges totaling $93.3 million ($60.2 million after-tax) related to the early retirement of debt,
| • | charges totaling $139.5 million ($106.8 million after-tax) in connection with our restructuring plans, |
• | • | charges totaling $59.0 million ($55.0 million after-tax) related to the impairment of businesses held for sale, |
| • | an income tax benefit of $91.3$51.2 million associated primarily related to the reorganization of various legacy Pinnacle legal entities and state tax planning strategies, |
| • | charges totaling $42.9 million ($32.1 million after-tax) related to pension plan lump-sum settlements and a remeasurement of our hourly and non-qualified pension plan liability, |
| • | a gain of $11.9 million ($8.9 million after-tax) related to a tax adjustment of valuation allowancecontract settlement, |
| • | charges totaling $10.1 million ($7.6 million after-tax) related to legal and environmental matters, and |
| • | charges totaling $5.3 million ($3.9 million after-tax) associated with the planned divestiture of the Wesson® oil business,costs incurred for acquisitions and divestitures. |
charges totaling $63.6 million ($41.4 million after-tax) in connection with
In addition, fiscal 2020 earnings per share benefited by approximately $0.05 as a result of the SCAE Plan, | | • | charges totaling $31.4 million ($19.6 million after-tax), including an impairment charge of $27.6 million related to the production assets of the business, for the planned divestiture of the Wesson® oil business,
|
an income tax benefit of $14.6 million associated with a tax planning strategy that allowed us to utilize certain state tax attributes and certain foreign incentives,
charges totaling $13.8 million ($8.5 million after-tax) related to a pension lump sum settlement, and
a gain of $5.7 million ($3.7 million after-tax) in connection with a legacy legal matter.
fiscal year including 53 weeks.Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and economic hedging of foreign currency exchange rate risks of anticipated transactions isare discussed in the segment review below. Acquisitions
As noted above, on June 26, 2018, subsequent toDivestitures During the endfourth quarter of fiscal 2018,2021, we entered intocompleted the Merger Agreement with Pinnacle under which we will acquire all outstanding shares of Pinnacle common stock in a cash and stock transaction valued at approximately $10.9 billion, including Pinnacle's outstanding net debt. Under the terms of the Merger Agreement, Pinnacle shareholders will receive $43.11 per share in cash and 0.6494 sharessale of our common stockEgg Beaters® business for each sharenet proceeds of Pinnacle common stock held. The planned acquisition is expected to close by the end of calendar 2018 and remains subject to the approval of Pinnacle shareholders, the receipt of regulatory approvals, and other customary closing conditions. In February 2018, we acquired the Sandwich Bros. of Wisconsin® business, maker of frozen breakfast and entree flatbread pocket sandwiches, for a cash purchase price of $87.3$50.6 million, net of cash acquired. Approximately $57.8 million has been classified as goodwill, subject to final purchase price allocation, and $9.7 million and $7.1 million have been classified as non-amortizing and amortizing intangible assets, respectively.working capital adjustments. The amountresults of goodwill allocated is deductible for tax purposes. Theoperations of the divested Egg Beaters® business iswere primarily included in theour Refrigerated & Frozen segment.
In October 2017,segment, and to a lesser extent within our International and Foodservice segments, for the periods preceding the completion of the transaction.During the third quarter of fiscal 2021, we acquired Angie's Artisan Treats, LLC, makercompleted the sale of Angie'sour Peter Pan®BOOMCHICKAPOP® ready-to-eat popcorn, peanut butter business for a cash purchase pricenet proceeds of $249.8$101.5 million, net of cash acquired. Approximately $155.2 million has been classified as goodwill,including working capital adjustments but subject to final purchase price allocation,adjustments for certain tax benefits. The results of which $95.4 million is deductible for income tax purposes. Approximately $73.8 million and $10.3 millionoperations of the purchase price have been allocated to non-amortizing and amortizing intangible assets, respectively. Thedivested Peter Pan®peanut butter business iswere primarily included in the Grocery & Snacks segment.In April 2017, we acquired protein-based snacking businesses Thanasi Foods LLC, maker of Duke’s® meat snacks, and BIGS LLC, maker of BIGS® seeds, for $217.6 million in cash, net of cash acquired (the "Thanasi acquisition"). Approximately $133.3 million has been classified as goodwill, of which $70.5 million is deductible for income tax purposes. Approximately $65.1 million and $16.1 million of the purchase price have been allocated to non-amortizing and amortizing intangible assets, respectively. These businesses are primarily included in the Grocery & Snacks segment.
In September 2016, we acquired the operating assets of Frontera Foods, Inc. and Red Fork LLC, including the Frontera®, Red Fork®, and Salpica® brands (the "Frontera acquisition"). These businesses make authentic, gourmet Mexican food products and contemporary American cooking sauces. We acquired the businesses for $108.1 million in cash, net of cash acquired. Approximately $39.5 million has been classified as goodwill and $59.5 million and $7.2 million have been classified as non-amortizing and amortizing intangible assets, respectively. The amount allocated to goodwill is deductible for tax purposes. These businesses are included primarily in theour Grocery & Snacks segment, and to a lesser extent within our International and Foodservice segments, for the Refrigerated & Frozen and International segments.
Divestitures
periods preceding the completion of the transaction.During the third quarter of fiscal 2018, we signed a definitive agreement to sell our Del Monte®processedfruit and vegetable business in Canada, which is part of our International segment. The transaction was completed in the first quarter of fiscal 2019, and was valued at approximately $43.0 million Canadian dollars, which was approximately $34.0 million U.S. dollars at the exchange rate on the date of announcement. During the fourth quarter of fiscal 2017, we signed an agreement to sell our Wesson® oil business, which is part of our Grocery & Snacks segment, to The J.M. Smucker Company ("Smucker"). In the fourth quarter of fiscal 2018, Conagra Brands and Smucker terminated the agreement. This outcome followed the decision of the Federal Trade Commission, announced on March 5, 2018, to challenge the pending sale. The Company is still actively marketing the Wesson® oil business and expects to sell it within the next twelve months.
On November 9, 2016,2020, we completed the previously announced spinoff (the "Spinoff")sale of Lamb Weston Holdings, Inc. ("Lamb Weston").our Lender's® bagel business for net proceeds of $33.3 million, including working capital adjustments. The results of operations of the Lamb Westondivested Lender’s®bagel business have been reclassifiedwere primarily included in our Refrigerated & Frozen segment, and to discontinued operationsa lesser extent within our Foodservice segment, for allthe periods presented.
Inpreceding the firstcompletion of the transaction.During the second quarter of fiscal 2017,2020, we completed the salessale of our Spicetec Flavors & Seasonings businessDirect Store Delivery ("Spicetec"DSD") and our JM Swanksnacks business, for combinednet proceeds of $489.0 million. The results of operations of Spicetec and JM Swank are included in the Commercial segment.
On February 1, 2016, pursuant to the stock purchase agreement, dated as of November 1, 2015, with TreeHouse Foods, Inc. ("TreeHouse"), we completed the disposition of our Private Brands business to TreeHouse for $2.6 billion in cash on a debt-free basis.$137.5 million, including working capital adjustments. The results of operations of the Private Brandsdivested DSD snacks business have been classified as discontinued operationswere included in our Grocery & Snacks segment for allthe periods presented.
preceding the completion of the transaction.Restructuring Plans In May 2013, we announcedDecember2018, our Board approved a restructuring and integration plan related to the Supply Chain and Administrative Efficiency Plan (the "SCAE Plan"), our plan to integrate and restructureongoing integration of the operations of Pinnacle, which we acquired in October 2018 (the "Pinnacle Integration Restructuring Plan"), for the purpose of achieving significant cost synergies between the companies, as a result of which we expect to incur material charges for exit and disposal activities under U.S. generally accepted accounting principles ("U.S. GAAP"). We expect to incur approximately $358.0 million of charges ($283.5 million of cash charges and $74.5 million of non-cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan. The Board and/or our Private Brands business,senior management have authorized incurrence of these charges. We recognized charges of $31.7 million, $73.8 million, and $168.2 million in connection with the Pinnacle Integration Restructuring Plan in fiscal 2021, 2020, and 2019, respectively. We expect to incur costs related to the Pinnacle Integration Restructuring Plan over a multi-year period. In fiscal 2019, senior management initiated a restructuring plan (the "Conagra Restructuring Plan") for costs incurred in connection with actions taken to improve selling, general and administrative ("SG&A&A") expense effectiveness and efficiencies and optimize our supply chain network, manufacturing assets, dry distribution centers, and mixing centers. In fiscal 2016, we announced plans to realize efficiency benefits by reducing SG&A expenses and enhancing trade spend processes and tools, which plans were included as part of the SCAE Plan. Although we divested the Private Brands business, we have continued to implement the SCAE Plan, including by working to optimize our supply chain network, pursue cost reductions through our SG&A functions, enhance trade spend processes and tools, and improve productivity. network. Although we remain unable to make good faith estimates relating to the entire SCAEConagra Restructuring Plan, we are reporting on actions initiated through the end of fiscal 2018,2021, including the estimated amounts or range of amounts for each major type of costscost expected to be incurred, and the charges that have resulted or will result in cash outflows. As of May 27, 2018, our Board of Directors has30, 2021, we had approved the incurrence of up to $900.9$172.2 million ($45.4 million of expenses in connectioncash charges and $126.8 million of non-
cash charges) for several projects associated with the SCAE Plan, including expenses allocated for the Private Brands and Lamb Weston operations.Conagra Restructuring Plan. We have incurred or expect to incur approximately $471.6$157.3 million of charges ($322.136.9 million of cash charges and $149.5$120.4 million of non-cash charges) for actions identified to date under the SCAE Plan related to our continuing operations.Conagra Restructuring Plan. We recognized charges of $38.0$46.2 million, $63.6$64.4 million, and $281.8$2.2 million in relation toconnection with the SCAEConagra Restructuring Plan related to our continuing operations in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. We expect to incur costs related to the SCAEConagra Restructuring Plan over a multi-year period.
COVID-19 Pandemic We have continued to monitor the impact of the COVID-19 pandemic on all aspects of our business. Throughout fiscal 2021, we experienced higher net sales for our products in both of our Grocery & Snacks and Refrigerated & Frozen segments until the fourth quarter of fiscal 2021, as we began to lap the initial surge in demand at the beginning of the pandemic. We have also experienced reduced demand for our foodservice products across all of our major markets as consumer traffic in away-from-home food outlets decreased as a result of the COVID-19 pandemic. However, as states have reopened their economies during 2021, our foodservice net sales have improved compared to the initial months of the pandemic. As we progress through fiscal 2022, we generally expect retail demand levels to remain elevated versus pre-pandemic levels and we expect foodservice demand levels to return to more historical norms. However, there still remains uncertainty with the pandemic and such trends ultimately depend on the length and severity of the pandemic, inclusive of the introduction of new strains of the virus; the federal, state, and local government actions taken in response; continued vaccine availability and effectiveness; and the macroeconomic environment. In fiscal 2022, we also expect to see inflationary headwinds but anticipate that they will be partially mitigated by supply chain realized productivity and price increases that began to be introduced at the end of fiscal 2021. We also expect a decrease in costs related to the COVID-19 pandemic and a decrease in supply chain costs as we continue to recover our supply and service levels. We will continue to evaluate the extent to which the COVID-19 pandemic will impact our business, consolidated results of operations, and financial condition. During fiscal 2021, our operating margins benefitted from fixed cost leverage, reduced travel expenses, and lower trade promotional activity on certain brands. That benefit was partially offset by several factors including higher transportation and warehousing costs, employee safety and sanitation costs, and employee compensation costs, which combined accounted for an estimated $143 million of additional incremental costs in fiscal 2021. Similar incremental costs starting in the fourth quarter of fiscal 2020 were estimated to be approximately $40 million. While we expect these incremental costs to decrease in fiscal 2022, the timing and amount of such decrease is dependent upon the ultimate length and severity of the pandemic as outlined above. Beginning in February 2020 and over the course of the COVID-19 pandemic, we created COVID-19 pandemic, Return to Office, and Vaccine Preparedness teams, in order to review and assess the evolving COVID-19 pandemic, and to recommend risk mitigation actions for the health and safety of our employees. In order to enhance the safety of our employees during the COVID-19 pandemic, these teams have recommended and implemented various measures, including the installation of physical barriers between employees in production facilities, cleaning and sanitation protocols for both production and office spaces, execution of a phased return to office approach to enable in-person work for corporate personnel, implementation of work-from-home initiatives for certain office personnel, and increased access to vaccines for production facilities and corporate locations. The implementation of such safety measures has not resulted in any meaningful change to our financial control environment. All of our production facilities remain open and there has been minimal disruption to our supply chain network to date, including with respect to the supply of our ingredients, packaging, or other sourced materials. However, we cannot predict the ultimate COVID-19 impact on our suppliers, distributors, and manufacturers. SEGMENT REVIEW
We reflect our results of operations in fivefour reporting segments: Grocery & Snacks, Refrigerated & Frozen, Foodservice, International, and Commercial.
Foodservice.Grocery & Snacks The Grocery & Snacks reporting segment principally includes branded, shelf stableshelf-stable food products sold in various retail channels in the United States. The Refrigerated & Frozen reporting segment principally includes branded, temperature controlledtemperature-controlled food products sold in various retail channels in the United States.
The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States. The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces, and a variety of custom-manufactured culinary products that are packaged for sale to restaurants and other foodservice establishments primarily in the United States. Commercial
The Commercial reporting segment included commercially branded and private label food and ingredients, which were sold primarily to commercial, restaurant, foodservice, food manufacturing, and industrial customers. The segment's primary food items included a variety of vegetable, spice, and frozen bakery goods, which were sold under brands such as Spicetec Flavors & Seasonings®. The Spicetec and JM Swank businesses were sold in the first quarter of fiscal 2017. These businesses comprise the entire Commercial segment following the presentation of Lamb Weston as discontinued operations.
Presentation of Derivative Gains (Losses) from Economic Hedges of Forecasted Cash Flows in Segment Results Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives are generally recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results, immediately. The following table presents See Note 20 "Business Segments and Related Information", to the net derivative gains (losses)Consolidated Financial Statements contained in this report for further discussion.Presentation of Information Below is a detailed discussion and comparison of our results of operations for the fiscal years ended May 30, 2021 and May 31, 2020. For a discussion of changes from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions associated with continuing operations, under this methodology: | | | | | | | | | | | | | | Fiscal Years Ended | ($ in millions) | May 27, 2018 | | May 28, 2017 | | May 29, 2016 | Net derivative gains (losses) incurred | $ | (0.9 | ) | | $ | 0.6 |
| | $ | (7.4 | ) | Less: Net derivative gains (losses) allocated to reporting segments | (7.1 | ) | | 5.7 |
| | (23.8 | ) | Net derivative gains (losses) recognized in general corporate expenses | $ | 6.2 |
| | $ | (5.1 | ) | | $ | 16.4 |
| Net derivative gains (losses) allocated to Grocery & Snacks | $ | 0.2 |
| | $ | 3.4 |
| | $ | (14.4 | ) | Net derivative gains (losses) allocated to Refrigerated & Frozen | (0.3 | ) | | 0.8 |
| | (6.2 | ) | Net derivative gains (losses) allocated to International Foods | (6.9 | ) | | 1.6 |
| | (0.5 | ) | Net derivative losses allocated to Foodservice | (0.1 | ) | | — |
| | (1.0 | ) | Net derivative losses allocated to Commercial | — |
| | (0.1 | ) | | (1.7 | ) | Net derivative gains (losses) included in segment operating profit | $ | (7.1 | ) | | $ | 5.7 |
| | $ | (23.8 | ) |
As of May 27, 2018, the cumulative amount of net derivative gains from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was $3.2 million, all of which was incurred during the fiscal year ended May 27, 2018. Based26, 2019 to the fiscal year ended May 31, 2020, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on our forecasts ofForm 10-K for the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results gains of $2.5 million in fiscal 2019 and $0.7 million in fiscalyear ended May 31, 2020 and thereafter.
(filed July 24, 2020).Fiscal 20182021 compared to Fiscal 2017 2020Net Sales ($ in millions) Reporting Segment | | Fiscal 2021 Net Sales | | | Fiscal 2020 Net Sales | | | % Inc (Dec) | | Grocery & Snacks | | $ | 4,637.5 | | | $ | 4,617.1 | | | | 0 | % | Refrigerated & Frozen | | | 4,774.6 | | | | 4,559.6 | | | | 5 | % | International | | | 938.6 | | | | 925.3 | | | | 1 | % | Foodservice | | | 834.0 | | | | 952.4 | | | | (12 | )% | Total | | $ | 11,184.7 | | | $ | 11,054.4 | | | | 1 | % |
| | | | | | | | | | | | ($ in millions) Reporting Segment | Fiscal 2018 Net Sales | | Fiscal 2017 Net Sales | | % Inc (Dec) | Grocery & Snacks | $ | 3,287.0 |
| | $ | 3,208.8 |
| | 2 | % | Refrigerated & Frozen | 2,753.0 |
| | 2,652.7 |
| | 4 | % | International | 843.5 |
| | 816.0 |
| | 3 | % | Foodservice | 1,054.8 |
| | 1,078.3 |
| | (2 | )% | Commercial | — |
| | 71.1 |
| | (100 | )% | Total | $ | 7,938.3 |
| | $ | 7,826.9 |
| | 1 | % |
Overall, our net sales were $7.94 billion in fiscal 2018, an increase of 1% compared to fiscal 2017.
Grocery & Snacks net sales for fiscal 2018 were $3.29 billion,2021 included an increase of $78.2 million, or 2%, compared to fiscal 2017. Results reflected a decrease in volumes of approximately 2%4%, excluding the impact of divestitures and the 53rd week in fiscal 20182020, compared to the prior-year period. This result reflected an increase across multiple categories due to increased at-home eating and some replenishment of customer inventory levels that had been depleted in connection with the COVID-19 pandemic. Price/mix increased 2%, excluding the impact of divestitures, compared to the prior-year period excludingdue to favorable product mix, lower promotional trade activity, and the favorable impact of acquisitions.a $7.4 million change in estimate associated with our fiscal 2020 fourth quarter trade accrual. The decreaseinclusion of an additional week of results in fiscal 2020 accounted for an incremental 2% of net sales volumes reflected a reduction in promotional intensity, planned discontinuation of certain lower-performing products, retailer inventory reductions, which were higher than anticipated, and deliberate actions to optimize distribution on certain lower-margin products, consistent with the Company's value over volume strategy. Price/
mix was flat compared to the prior-year period as favorable mix improvements from recent innovationperiod. Fiscal 2021 and higher net pricing nearly offset continued investments in retailer marketing to drive brand saliency, enhanced distribution,2020 included $34.7 million and consumer trial. The acquisition$113.9 million, respectively, of Angie's Artisan Treats, LLC contributed $68.1 million to Grocery & Snacks net sales duringrelated to our Peter Pan® peanut butter business, which was sold in the third quarter of fiscal 2018. The Frontera acquisition contributed $8.62021. Fiscal 2021 and 2020 included $3.6 million and the Thanasi acquisition contributed $66.5$8.0 million, to Grocery & Snacksrespectively, of net sales duringrelated to our H.K. Anderson® business, which was sold in the second quarter of fiscal 2018 through2021. Fiscal 2020 included $23.1 million of net sales related to our private label peanut butter business, which we exited in the one-year anniversariesthird quarter of fiscal 2020. Fiscal 2020 also included $46.1 million of net sales related to our DSD snacks business, which was sold in the acquisitions. The Frontera and Thanasi acquisitions occurred in September 2016 and April 2017, respectively.
second quarter of fiscal 2020.Refrigerated & Frozen net sales for fiscal 2018 were $2.75 billion,2021 included an increase in volumes of $100.3 million, or 4%, compared to fiscal 2017. Results for fiscal 2018 reflected a 3% increase in volume compared to fiscal 2017, excluding the impact of acquisitions.divestitures and the 53rd week in fiscal 2020, compared to fiscal 2020. The increase in sales volumes was a result of brand renovation increased at-home eating
and innovation launches.some replenishment of customer inventory levels that had been depleted in connection with the COVID-19 pandemic. Price/mix was flatincreased 4% for fiscal 2021, excluding the impact of divestitures, compared to fiscal 2017, as favorability in both net2020 due to favorable mix, lower promotional trade activity, favorable pricing, and mix offset continued investmentthe favorable impact of a $7.4 million change in retailer marketing to drive brand saliency, enhanced distribution, and consumer trial.estimate associated with our fiscal 2020 fourth quarter trade accrual. The acquisitioninclusion of the Sandwich Bros.an additional week of Wisconsin® business contributed $21.3 million to Refrigerated & Frozen'sresults in fiscal 2020 accounted for an incremental 2% of net sales during fiscal 2018. The Frontera acquisition, which occurred in September 2016, and subsequent innovation in the Fronteraprior-year period. Fiscal 2021 and 2020 included $40.8 million and $41.0 million, respectively, of net sales related to our Egg Beaters® brand contributed $4.4 business, which was sold in the fourth quarter of fiscal 2021. Fiscal 2020 included $23.2 million duringof net sales related to our Lender's® bagel business, which was sold in the third quarter of fiscal 2018 through the one-year anniversary of the acquisition. 2020.International net sales for fiscal 2018 were $843.5 million,2021 included an increase in price/mix of $27.5 million, or 3%,4% compared to fiscal 2017. Results for fiscal 2018 reflected a 3% decrease in volume, a 3% increase2020 due to foreign exchange rates,lower promotional trade activity, inflation-justified pricing, favorable mix, and the favorable impact of a 3% increase$2.8 million change in price/mix,estimate associated with our fiscal 2020 fourth quarter trade accrual. Volumes, excluding the impact of divestitures and the 53rd week in each case compared to fiscal 2017. The volume decrease for fiscal 2018 was driven by strategic decisions to eliminate lower margin products and to reduce promotional intensity. The increase in price/mix2020, were flat when compared to the prior-year period was driven by improvementsperiod. The inclusion of an additional week of results in pricingfiscal 2020 accounted for an incremental 2% of net sales in the prior-year period. Fiscal 2021 and trade productivity. 2020 included $1.4 million and $5.2 million, respectively, of net sales related to our Peter Pan® peanut butter business.Foodservice net sales for fiscal 2018 were $1.05 billion,2021 included a decrease of $23.5 million, or 2%, compared to fiscal 2017. Results for fiscal 2018 reflected an 11% decrease in volume, partially offset by a 9% increase in price/mix compared to fiscal 2017. The decrease in volumes of 13%, excluding the impact of divestitures and the 53rd week in fiscal 2020, compared to the prior-year period primarilyperiod. The decline in volume reflected lower traffic in away-from-home food outlets as a result of the COVID-19 pandemic. Price/mix, excluding the impact of exiting a non-core business, the planned discontinuation of certain lower-performing businesses, and softnessdivestitures, increased 3% in certain categories. The increase in price/mix for fiscal 2018 reflected favorable product and customer mix, the impact of inflation-driven increases in2021 compared to fiscal 2020, reflecting inflation-related pricing and the executionlower trade activity. The inclusion of the segment's value over volume strategy. In the first quarteran additional week of results in fiscal 2017, we divested our Spicetec and JM Swank businesses. These businesses comprise the entire Commercial segment following the presentation2020 accounted for an incremental 1% of Lamb Weston as discontinued operations. Accordingly, there were no net sales in the Commercial segment after the first quarterprior-year period. Fiscal 2021 and 2020 included $1.0 million and $3.4 million, respectively, of fiscal 2017. These businesses had net sales related to our Peter Pan® peanut butter business. Fiscal 2021 and 2020 included $0.6 million and $2.4 million, respectively, of $71.1net sales related to our H.K. Anderson® business. Fiscal 2020 included $6.6 million in fiscal 2017 priorand $4.6 million of net sales related to the completion of the divestitures.
our Lender's® bagel and private label peanut butter businesses, respectively.SG&A Expenses (Includes general corporate expenses) SG&A expenses totaled $1.32$1.40 billion for fiscal 2018,2021, a decrease of $99.1$219.5 million compared to fiscal 2017.2020. SG&A expenses for fiscal 20182021 reflected the following: Items impacting comparability of earnings | • | expenses of $90.9 million related to the impairment of certain brand intangible assets, |
charges totaling $151.0 million related to certain litigation matters, | • | expenses of $68.7 million associated with the early extinguishment of debt, |
a charge of $34.9 million related to the early termination of an unfavorable lease contract, | • | gains totaling $65.5 million related to divestitures of certain businesses, |
expenses of $30.2 million in connection with our SCAE Plan, | • | expenses of $40.8 million in connection with our restructuring plans, |
expenses of $15.1 million associated with costs incurred for acquisitions and planned divestitures, | • | consulting expenses of $7.2 million primarily associated with securing tax benefits for a new production facility (the associated tax benefits will be recognized in future periods), |
charges of $5.4 million related to pension plan lump-sum settlements and a remeasurement of our salaried and non-qualified pension plan liability, and | • | a loss of $7.1 million related to the early exit of an unfavorable contract associated with a recent divestiture, |
charges totaling $4.8 million related to the impairment of other intangible assets. | • | expenses of $5.7 million associated with costs incurred for acquisitions and divestitures, and |
| • | a net expense of $2.6 million related to a previous legal matter. |
Other changes in expenses compared to fiscal 20172020 | • | an increase in advertising and promotion expense of $27.3 million driven by higher eCommerce investments, |
a decrease in advertising and promotion expense of $49.7 | • | a decrease in salary, wage, and fringe benefit expense of $17.3 million, largely due to achieved synergies from the Pinnacle acquisition and lower employer-related 401(k) costs, |
a decrease in pension and postretirement expense of $19.4 million (excluding the impacts of settlements and remeasurements), | • | a decrease in incentive compensation expense of $15.3 million, due to further exceeding certain performance targets in the prior year period, |
| • | a decrease in travel and entertainment expense of $14.4 million, in part due to reduced travel from the COVID-19 pandemic, |
| • | an increase in share-based payment and deferred compensation expense of $12.7 million, due to an increase in stock price and exceeding certain performance targets, |
| • | an increase of $9.9 million in foreign currency transaction gains, primarily due to the strengthening of the Canadian dollar, |
a decrease in transaction services agreement income of $18.3 | • | a decrease in depreciation expense of $5.4 million, |
a decrease in incentive compensation expense of $14.6 | • | a decrease in royalty expense of $5.3 million, in part due to the expiration of a royalty agreement, and |
a decrease in stock-based compensation expense of $10.4 million, | • | a decrease in lease expense of $4.0 million. |
a decrease in contract services of $9.4 million,
a decrease in charitable contributions of $6.7,
an increase in salaries expense of $19.4 million, and
an increase in self-insured workers' compensation and product liability expense of $7.0 million.
SG&A expenses for fiscal 20172020 included the following items impacting the comparability of earnings:charges totaling $237.1 million related to the impairment of goodwill and other intangible assets, primarily in the International segment,
gains totaling $197.4 million, from the divestiture of the Spicetec and JM Swank businesses,
charges totaling $93.3 million related to the early retirement of debt,
| | • | a chargeexpenses of $67.1$165.5 million related to the impairment of the Chef Boyardee®certain brand intangible assets, |
expenses of $46.4 million in connection with our SCAE Plan,
| • | expenses of $105.7 million in connection with our restructuring plans, |
• | | expense of $30.9$59.0 million related to the planned divestitureimpairment of our Wesson® oil business, including an impairment chargebusinesses held for sale, |
| • | a benefit of $27.6$11.9 million related to the production assetsa contract settlement, |
| • | charges totaling $10.1 million related to legal and environmental matters, |
| • | expenses of the business that were not initially included in the assets held$5.3 million associated with costs incurred for sale,acquisitions and divestitures, and |
an expense of $13.8 million in connection with a salaried pension plan lump sum settlement we completed in fiscal 2017, and
a benefit of $5.7 million in connection with a legal matter. | • | a net loss of $1.7 million related to divestitures of businesses. |
Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings) ($ in millions) Reporting Segment | | Fiscal 2021 Operating Profit | | | Fiscal 2020 Operating Profit | | | % Inc (Dec) | | Grocery & Snacks | | $ | 1,093.8 | | | $ | 915.2 | | | | 20 | % | Refrigerated & Frozen | | | 836.5 | | | | 702.2 | | | | 19 | % | International | | | 131.8 | | | | 100.6 | | | | 31 | % | Foodservice | | | 78.9 | | | | 97.6 | | | | (19 | )% |
| | | | | | | | | | | | ($ in millions) Reporting Segment | Fiscal 2018 Operating Profit | | Fiscal 2017 Operating Profit | | % Inc (Dec) | Grocery & Snacks | $ | 724.8 |
| | $ | 653.7 |
| | 11 | % | Refrigerated & Frozen | 479.4 |
| | 445.8 |
| | 8 | % | International | 86.5 |
| | (168.9 | ) | | N/A |
| Foodservice | 121.8 |
| | 105.1 |
| | 16 | % | Commercial | — |
| | 202.6 |
| | (100 | )% |
Grocery & Snacks operating profit for fiscal 2018 was $724.8 million,2021 reflected an increase in gross profits of $71.1$34.3 million or 11%, compared to fiscal 2017. Gross profits were $20.2 million lower in fiscal 2018 than in fiscal 2017.2020. The lowerhigher gross profit was driven by investmentsthe net sales growth discussed above, the benefits of supply chain realized productivity, favorable margin mix, fixed cost leverage, and cost synergies associated with retailers (i.e., trade spending reflected as a reduction of net sales), as well as higher input costs and transportation expenses,the Pinnacle acquisition, partially offset by the impact of the 53rd week of our prior fiscal year, the impacts of input cost inflation, higher transportation costs, a reduction in profit associated with the divestiture of our HK Anderson® and Peter Pan® peanut butter businesses and the exit of our private label peanut butter business, and pandemic-related costs. Pandemic-related costs included investments in employee safety protocols, bonuses paid to supply chain realized productivity. The Frontera acquisition, Thanasi acquisition,employees, and the acquisitioncosts necessary to meet elevated levels of Angie's Artisan Treats, LLC, which occurred in September 2016, April 2017, and October 2017, respectively, contributed $47.4 million to Grocery & Snacks gross profit during fiscal 2018 through the one-year anniversaries of the acquisitions (if reached). Advertising and promotion expenses for fiscal 2018 decreased by $19.5 million compared to fiscal 2017.demand. Operating profit of the Grocery & Snacks segment was impacted by charges totaling $4.0 million in fiscal 2018 for the impairmentexpense of our HK Anderson®, Red Fork®, and Salpica® brand assets and $68.3 million in fiscal 2017 primarily for the impairment of our Chef Boyardee® brand asset. Grocery & Snacks also incurred $11.4 million of expenses in fiscal 2018 related to acquisitions and divestitures, charges of $31.4 million in fiscal 2017 related to the pending divestiture of the
Wesson® oil business, and charges of $14.1$27.8 million and $25.3$58.4 million in connection withrelated to our restructuring plans in fiscal 20182021 and 2017,2020, respectively.
Fiscal 2021 and 2020 included certain brand intangible impairment charges of $13.0 million and $46.4 million, respectively. Fiscal 2021 included gains totaling $55.1 million related to the divestitures of certain businesses. Fiscal 2020 also included a charge of $31.4 million related to the impairment of a business held for sale, a benefit of $11.9 million related to a contract settlement, and costs of $3.0 million related to divestitures.Refrigerated & Frozen operating profit for fiscal 2018 was $479.4 million,2021 reflected an increase in gross profits of $33.6 million, or 8%, compared to fiscal 2017. Gross profits were $3.6 million lower in fiscal 2018 than in fiscal 2017, driven by continuing increases in input costs and transportation inflation as well as investments to drive distribution, enhanced shelf presence, and trial, partially offset by increased sales volumes and supply chain realized productivity. The acquisition of the Sandwich Bros. of Wisconsin® business contributed $4.6 million to gross profit in the segment during fiscal 2018. Advertising and promotion expenses for fiscal 2018 decreased by $23.4$61.9 million compared to fiscal 2017.2020 due to the net sales growth discussed above, the benefits of supply chain realized productivity, favorable margin mix, cost synergies associated with the Pinnacle acquisition, and fixed cost leverage, partially offset by the impact of the 53rd week of our prior fiscal year, the impacts of input cost inflation, higher transportation costs, a reduction in profit associated with the divestiture of our Lender's® bagel business, and pandemic-related costs. Operating profit of the Refrigerated & Frozen segment was impacted by charges totaling approximately $7.7of $76.9 million and $110.8 million related to the impairment of certain brand intangible assets during fiscal 2021 and 2020, respectively. Fiscal 2021 and 2020 included $26.8 million and $15.8 million, respectively, of charges related to our restructuring plans. Fiscal 2021 also included a gain of $10.4 million related to the divestiture of our Egg Beater's® business, reduced by a loss of $7.1 million related to the early exit of an unfavorable contract associated with the divestiture. In addition, operating profit of the Refrigerated & Frozen segment included $27.6 million related to the impairment of a business held for sale in fiscal 2017 related2020. Advertising and promotion expenses for fiscal 2021 increased by $23.8 million compared to a product recall, as well as charges of $0.1 million and $6.2 million in connection with our restructuring plans in fiscal 2018 and 2017, respectively.2020.
International operating profit for fiscal 2018 was $86.52021 reflected an increase in gross profits of $18.3 million compared to an operating lossfiscal 2020 due to the net sales growth discussed above, the benefits of $168.9 million for fiscal 2017. The operating loss in fiscal 2017 includes charges totaling $235.9 million forsupply chain realized productivity, fixed cost leverage, and favorable product mix, partially offset by the impairment of goodwill and an intangible brand asset in our Canadian and Mexican operations. Gross profits were $18.6 million higher in fiscal 2018 than in fiscal 2017, as a result of improved price/mix, the favorable impact of the 53rd week of our prior fiscal year, the impacts of input cost inflation, higher transportation costs, and a reduction in profit associated with the divestiture of our Peter Pan® peanut butter business. International gross profits also reflected a decrease of $5.8 million due to foreign exchange andrates compared to the planned discontinuations of certain lower-performing products.prior-year period. Operating profit of the International segment was impacted by charges of $1.5$1.0 million and $0.9$8.3 million in connection with our restructuring plans, inrelated to the impairment of certain brand intangible assets during fiscal 20182021 and 2017,2020, respectively. Foodservice operating profit for fiscal 20182021 reflected a decrease in gross profits of $26.0 million compared to fiscal 2020, reflecting lower traffic in away-from-home food outlets due to the COVID-19 pandemic, input cost inflation, the impact of the 53rd week of our prior fiscal year, pandemic-related costs, and a reduction in profit associated with the divestitures of our Lender's® bagel, H.K. Anderson®, and Peter Pan® peanut butter businesses and the exit of our private label peanut butter business, partially offset by supply chain realized productivity and fixed cost leverage. Pension and Postretirement Non-service Income In fiscal 2021, pension and postretirement non-service income was $121.8$54.5 million, an increase of $16.7$44.6 million or 16%, compared to fiscal 2017. Gross profits were $13.9 million higher in fiscal 2018 than in fiscal 2017, primarily reflecting the impact2020. The increase was driven by a charge of inflation-driven increases in pricing and supply chain realized productivity, partially offset by lower sales volumes and increased input costs. Operating profit of the Foodservice segment was impacted by charges of $1.8$44.8 million in fiscal 2017 in connection with our restructuring plans. Commercial operating profit was $202.62020 compared to a charge of $0.8 million in fiscal 2017.2021 related to the year-end write-off of actuarial losses in excess of 10% of our pension liability. The Company soldincrease in losses outside of the Spicetec and JM Swank businesses10% corridor in the first quarterprior year was driven by a reduction of fiscal 2017, recognizing pre-tax gains totaling $197.4 million. The Spicetecthe discount rate used to remeasure the pension obligations to present value and JM Swank businesses comprise the entire Commercial segment following the presentation of Lamb Weston as discontinued operations. There are no further operationsa reduction in the Commercial segment.
asset values for certain plan assets.Interest Expense, Net In fiscal 2018,2021, net interest expense was $158.7$420.4 million, a decrease of $36.8$66.7 million, or 19%14%, from fiscal 2017.2020. The decrease reflects the repaymentwas driven by an overall reduction of $550.0 million aggregate principal amount of outstanding senior notes in the first quarter of fiscal 2017, $473.0 million aggregate principal amount of outstanding senior notes in the third quarter of fiscal 2017, $119.6 million aggregate principal amount of outstanding senior notes in the third quarter of fiscal 2018, $70.0 million aggregate principal amount of outstanding senior notes in the fourth quarter of fiscal 2018, as well as the exchange of $1.44 billion ofour debt in connection with the Spinoff of Lamb Weston during the second quarter of 2017. This was partially offset by the issuance of $500.0 million aggregate principal amount of floating rate notes due 2020 during the second quarter of fiscal 2018 and the borrowing of $300.0 million under our term loan agreement during the fourth quarter of fiscal 2018. For more information about the debt exchange, seebalances. See Note 4, "Long-Term Debt", to the consolidated financial statementsConsolidated Financial Statements contained in this report.report for further discussion.Income Taxes Our income tax expense was $174.6$193.8 million and $254.7$201.3 million in fiscal 20182021 and 2017,2020, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment earnings) was approximately 18%13% and 32%19% for fiscal 20182021 and 2017,2020, respectively. The Tax Act was enacted into law See Note 14, "Pre-Tax Income and Income Taxes", to the Consolidated Financial Statements contained in this report for a discussion on December 22, 2017. The changesthe change in effective tax rates.In fiscal 2021, we completed a restructuring of our ownership interest in Ardent Mills that utilized a portion of our capital loss carryforward prior to U.S. tax law include, but are not limited to: •reducing the federal statutory income tax rate from 35% to 21%, effective January 1, 2018;
•eliminating the deduction for domestic manufacturing activities, which impacts us beginningits expiration. Also in fiscal 2019;
•requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries;
repealing the exception for deductibility of performance-based compensation to covered employees, along with expanding the number of covered employees;
•allowing immediate expensing of machinery and equipment contracted for purchase after September 27, 2017; and
changing taxation of multinational companies, including a new minimum tax on Global Intangible Low-Taxed Income, a new Base Erosion Anti-Abuse Tax, and a new U.S. corporate deduction for Foreign-Derived Intangible Income, all of which are effective for us beginning in 2019.
As a result of our fiscal year end, the lower U.S. statutory federal income tax rate resulted in a blended U.S. federal statutory rate of 29.3% for the fiscal year ended May 27, 2018. The U.S. federal statutory rate is expected to be 21% for fiscal years beginning after May 27, 2018.
The effective tax rate in fiscal 2018 reflects the following:
the impact of U.S. tax reform, as noted above,
| | • | an adjustment of valuation allowance associated with the termination of the agreement for the proposed sale of our Wesson® oil business,
|
an indirect cost of the pension contribution made on February 26, 2018,
additional expense2021, we completed several other transactions related to the settlement of an audit of the impact of a law changeretained assets in Mexico,
an income tax benefit allowed upon the vesting/exercise of employee stock compensation awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of grant, and
additional expense related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made.
The effective tax rate in fiscal 2017 reflects the following:
additional tax expense associated with non-deductible goodwill sold in connectionconjunction with the divestitures of the SpicetecPeter Pan® peanut butter and JM SwankEgg Beaters® businesses
additional that we believe will utilize a portion of the remaining capital loss carryforward. These transactions are subject to certain elections and are currently under review by the Internal Revenue Service. We believe they may result in increases to the tax expense associated with non-deductible goodwillbasis in our Mexicanthose assets and Canadian businesses, for which an impairment charge was recognized,
| | • | an income tax benefit for the adjustment of a valuation allowance associated with the planned divestiture of the Wesson® oil business,
|
an income tax benefit for excessif successful would result in tax benefits allowed upon the vesting/exercise of employee stock compensation awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of grant, and
an income tax benefit associated with a tax planning strategy that allowed us to utilize certain state tax attributes and certain foreign incentives.
being realized in future periods.We expect our effective tax rate in fiscal 2019,2022, exclusive of any unusual transactions or tax events, to be approximately 23%-24%. Equity Method Investment Earnings We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates. Our most significant affiliate is the Ardent Mills joint venture. Our share of earnings from our equity method investment earnings were $97.3$84.4 million and $71.2$73.2 million for fiscal 20182021 and 2017,2020, respectively. A benefit of $4.3 million wasResults for fiscal 2020 included in the earnings of fiscal 2018 in connection with a gain onof $4.1 million from the substantial liquidationsale of an internationalassets by the Ardent Mills joint venture. In addition, Ardent Mills earnings were higher than they were in the prior-year periods due to morefor fiscal 2021 reflected favorable market conditions and continued improvement in operating effectiveness. conditions.
Results of Discontinued Operations
Our discontinued operations generated after-tax income of $14.3 million and $102.0 million in fiscal 2018 and 2017, respectively. During fiscal 2018, a $14.5 million income tax benefit was recorded due to an adjustment of the estimated deductibility of the costs incurred associated with effecting the Spinoff of Lamb Weston. The prior-year period results reflected the operations of Lamb Weston through the date of its Spinoff in November 2016. We incurred significant costs associated with effecting the Spinoff of Lamb Weston. These costs are included in results of discontinued operations.
Diluted earnings per share in fiscal 20182021 and 2020 were $1.98, including earnings of $1.95 per$2.66 and $1.72, respectively. The increase in diluted share from continuing operations and $0.03 per diluted share from discontinued operations. Diluted earnings per share in fiscal 2017 were $1.46, including earnings of $1.25 per diluted share from continuing operations and $0.21 per diluted share from discontinued operations. See reflected higher net income. In addition, see "Items Impacting Comparability" above as several significant items affected the comparability of year-over-year results of operations.Fiscal 2017 compared to Fiscal 2016
Net Sales
| | | | | | | | | | | | ($ in millions) Reporting Segment | Fiscal 2017 Net Sales | | Fiscal 2016 Net Sales | | % Inc (Dec) | Grocery & Snacks | $ | 3,208.8 |
| | $ | 3,377.1 |
| | (5 | )% | Refrigerated & Frozen | 2,652.7 |
| | 2,867.8 |
| | (8 | )% | International | 816.0 |
| | 846.6 |
| | (4 | )% | Foodservice | 1,078.3 |
| | 1,104.5 |
| | (2 | )% | Commercial | 71.1 |
| | 468.1 |
| | (85 | )% | Total | $ | 7,826.9 |
| | $ | 8,664.1 |
| | (10 | )% |
Overall, our net sales were $7.83 billion in fiscal 2017, a decrease of 10% compared to fiscal 2016.
Grocery & Snacks net sales for fiscal 2017 were $3.21 billion, a decrease of $168.3 million, or 5%, compared to fiscal 2016. Results reflected a decrease in volumes of approximately 5% in fiscal 2017 compared to the prior-year period. The decrease in sales volumes was the result of reduced trade promotions and the planned exit of certain lower-performing products. Price/mix was flat as the continued progress in pricing and trade productivity was fully offset by unfavorable sales mix. The reduced trade promotions and selective base price increases are actions that are intended to build a higher quality revenue base. The Frontera acquisition and the Thanasi acquisition collectively contributed $36.5 million, or 1%, to segment net sales during fiscal 2017.
Refrigerated & Frozen net sales for fiscal 2017 were $2.65 billion, a decrease of $215.1 million, or 8%, compared to fiscal 2016. Results for fiscal 2017 reflected a 9% decrease in volume and a 1% increase in price/mix compared to fiscal 2016. The decrease in sales volumes and improvements in price/mix reflected reduced trade promotions and selective base price increases, together with stock-keeping unit rationalization, which actions were intended to build a higher quality revenue base. Net sales growth was also negatively affected by a transitory increase in the volume of Egg Beaters® in fiscal 2016 as the Company's egg supply was not negatively impacted by the avian influenza outbreak in fiscal 2015.
International net sales for fiscal 2017 were $816.0 million, a decrease of $30.6 million, or 4%, compared to fiscal 2016. Results for fiscal 2017 reflected a 3% decrease in volume, a 3% decrease due to foreign exchange rates, and a 2% increase in price/mix compared to fiscal 2016. The volume decrease for fiscal 2017 was driven by significant shipments in early fiscal 2016 due to recovery from the West Coast port disruptions during fiscal 2015, aggressive pricing actions, reduced trade promotions, and the planned discontinuation of certain lower-margin products.
Foodservice net sales for fiscal 2017 were $1.08 billion, a decrease of $26.2 million, or 2%, compared to fiscal 2016. Results for fiscal 2017 reflected a 4% decrease in volume offset by a 2% increase in price/mix compared to fiscal 2016. The decrease in volumes primarily reflected the impact of exiting a non-core business.
In the first quarter of fiscal 2017, we divested our Spicetec and JM Swank businesses. These businesses comprise the entire Commercial segment following the presentation of Lamb Weston as discontinued operations. Accordingly, there were no net sales in the Commercial segment after the first quarter of fiscal 2017. These businesses had net sales of $71.1 million in fiscal 2017 prior to the completion of the divestitures. Net sales in the Commercial segment were $468.1 million in fiscal 2016.
SG&A Expenses (Includes general corporate expenses)
SG&A expenses totaled $1.42 billion for fiscal 2017, a decrease of $607.5 million compared to fiscal 2016. SG&A expenses for fiscal 2017 reflected the following:
Items impacting comparability of earnings
charges totaling $237.1 million related to the impairment of goodwill and other intangible assets, primarily in the International segment,
gains totaling $197.4 million from the divestiture of the Spicetec and JM Swank businesses,
| | • | a charge of $67.1 million related to the impairment of the Chef Boyardee® brand intangible,
|
charges totaling $93.3 million related to the early retirement of debt,
expenses of $46.4 million in connection with our SCAE Plan,
| | • | charges of $30.9 million related to the planned divestiture of our Wesson® oil business, including an impairment charge of $27.6 million related to the production assets of the business that initially were not included in the assets held for sale,
|
an expense of $13.8 million in connection with a salaried pension plan lump sum settlement we completed in fiscal 2017, and
a benefit of $5.7 million in connection with a legal matter.
Other changes in expenses compared to fiscal 2016
a decrease in salaries expenses of $104.3 million,
a decrease in incentive compensation expense of $38.3 million,
a decrease in pension and postretirement expense of $19.8 million (excluding items impacting the comparability of earnings),
a decrease in advertising and promotion spending of $18.9 million,
a decrease in broker commission expense of $18.3 million,
an increase in stock-based compensation expense of $15.2 million,
an increase in charitable contributions of $6.3 million, and
a decrease in self-insured healthcare expenses of $5.7 million.
SG&A expenses for fiscal 2016 included the following items impacting the comparability of earnings:
a charge of $348.5 million reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability,
expenses totaling $232.8 million in connection with our SCAE Plan,
| | • | a charge of $50.1 million related to the impairment of the Chef Boyardee® brand intangible,
|
charges of $23.9 million related to the repurchase of certain senior notes, and
a charge of $5.0 million in connection with a legal matter.
Operating Profit (Earnings before general corporate expenses, interest expense, net, income taxes, and equity method investment earnings)
| | | | | | | | | | | | ($ in millions) Reporting Segment | Fiscal 2017 Operating Profit | | Fiscal 2016 Operating Profit | | % Inc (Dec) | Grocery & Snacks | $ | 653.7 |
| | $ | 592.9 |
| | 10 | % | Refrigerated & Frozen | 445.8 |
| | 420.4 |
| | 6 | % | International | (168.9 | ) | | 66.7 |
| | N/A |
| Foodservice | 105.1 |
| | 97.7 |
| | 8 | % | Commercial | 202.6 |
| | 45.4 |
| | 346 | % |
Grocery & Snacks operating profit for fiscal 2017 was $653.7 million, an increase of $60.8 million, or 10%, compared to fiscal 2016. Gross profits were $36.5 million higher in fiscal 2017 than in fiscal 2016. The higher gross profit was driven by reduced trade promotions, improved plant productivity, and lower commodity input costs, partially offset by lower sales volumes, due in part to pricing actions on certain products. SG&A expenses decreased by $24.3 million in fiscal 2017, as compared to fiscal 2016, largely as a result of cost reductions achieved through our restructuring plans, as well as a $5.6 million reduction in advertising and promotion expenses. Operating profit of the Grocery & Snacks segment was impacted by charges totaling $68.3 million and $50.1 million, primarily for the impairment of our Chef Boyardee® brand asset in fiscal 2017 and 2016, respectively, $31.4 million in charges in fiscal 2017 related to the pending divestiture of the Wesson® oil business, and charges of $25.3 million and $51.8 million in connection with our restructuring plans in fiscal 2017 and 2016, respectively.
Refrigerated & Frozen operating profit for fiscal 2017 was $445.8 million, an increase of $25.4 million, or 6%, compared to fiscal 2016. Gross profits were $24.7 million lower in fiscal 2017 than in fiscal 2016, driven by decreased sales volumes primarily associated with the transitory increase in the volume of Egg Beaters® in fiscal 2016, discussed above, partially offset by the impact of lower commodity input costs, increased net pricing primarily as a result of reduced trade promotions, and improved plant productivity. SG&A expenses decreased by $50.1 million in fiscal 2017, as compared to fiscal 2016, largely as a result of cost reductions achieved through our restructuring plans, as well as a $8.9 million reduction in advertising and promotion expenses. Operating profit of the Refrigerated & Frozen segment was impacted by charges totaling approximately $7.7 million in fiscal 2017 related to a product recall, as well as charges of $6.2 million and $21.1 million in connection with our restructuring plans in fiscal 2017 and 2016, respectively.
International incurred an operating loss for fiscal 2017 of $168.9 million and earned an operating profit of $66.7 million in fiscal 2016. The operating loss in fiscal 2017 includes charges totaling $235.9 million for the impairment of goodwill and an intangible brand asset in our Canadian and Mexican operations. Gross profits were $8.5 million lower in fiscal 2017 than in fiscal 2016, driven by the impact of foreign exchange rates. Operating profits were negatively impacted by $9.9 million from the impact of foreign exchange rates in fiscal 2017 relative to fiscal 2016.
Foodservice operating profit for fiscal 2017 was $105.1 million, an increase of $7.4 million, or 8%, compared to fiscal 2016. Gross profits were $5.6 million lower in fiscal 2017 than in fiscal 2016, driven by volume declines and product supply shortfalls. This was offset by an inventory write-down in fiscal 2016 at a foreign non-core popcorn business that we have since exited. Operating profit of the Foodservice segment was impacted by charges of $1.8 million in fiscal 2017 in connection with our restructuring plans.
Commercial operating profit was $202.6 million in fiscal 2017 and $45.4 million in fiscal 2016. The Company sold the Spicetec and JM Swank businesses in the first quarter of fiscal 2017, recognizing pre-tax gains totaling $197.4 million. The Spicetec and JM Swank businesses comprise the entire Commercial segment following the presentation of Lamb Weston as discontinued operations. There are no further operations in the Commercial segment.
Interest Expense, Net
In fiscal 2017, net interest expense was $195.5 million, a decrease of $100.3 million, or 34%, from fiscal 2016. The decrease reflects the repayment of $2.15 billion, $550 million, and $473 million of debt in the third quarter of fiscal 2016, the first quarter of fiscal 2017, and the third quarter of fiscal 2017, respectively, as well as the exchange of $1.44 billion of debt in connection with the Spinoff of Lamb Weston during the second quarter of 2017.
Income Taxes
Our income tax expense was $254.7 million and $46.4 million in fiscal 2017 and 2016, 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 32% for fiscal 2017 and 27% for fiscal 2016.
The effective tax rate in fiscal 2017 reflects the following:
additional tax expense associated with non-deductible goodwill sold in connection with the divestitures of the Spicetec and JM Swank businesses,
additional tax expense associated with non-deductible goodwill in our Mexican and Canadian businesses, for which an impairment charge was recognized,
| | • | an income tax benefit for the adjustment of a valuation allowance associated with the planned divestiture of the Wesson® oil business,
|
an income tax benefit for excess tax benefits allowed upon the vesting/exercise of employee stock compensation awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of grant, and
an income tax benefit associated with a tax planning strategy that allowed us to utilize certain state tax attributes and certain foreign incentives.
The effective tax rate in fiscal 2016 reflects the following:
additional tax expense related to legal entity changes for a business retained from the Private Brands business,
a charge for the prior year implementation of a new tax position, and
an income tax benefit of normal, recurring, income tax credits and deductions combined with a lower pre-tax level of earnings (due in large part to the impact of the write-off of $348.5 million of actuarial losses under our method of accounting for pension benefits).
Equity Method Investment Earnings
We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates. Our most significant affiliate is the Ardent Mills joint venture. Our share of earnings from our equity method investment earnings were $71.2 million and $66.1 million for fiscal 2017 and 2016, respectively. The increases are reflective of higher profits from the Ardent Mills joint venture due to more favorable wheat market conditions as well as improved operational effectiveness.
Results of Discontinued Operations
Our discontinued operations generated after-tax income of $102.0 million in fiscal 2017 and an after-tax loss of $794.4 million in fiscal 2016. Results reflected the operations of Lamb Weston through the date of its Spinoff in November 2016, as well as the results of the Private Brands business prior to its divestiture in the second half of fiscal 2016. We incurred significant costs associated with effecting the Spinoff. These costs are included in results of discontinued operations. We recognized a pre-tax charge of $1.92 billion ($1.44 billion after-tax) in fiscal 2016 to write down the goodwill and long-lived assets of the Private Brands business to the final sales price, less costs to sell, and to recognize the final loss.
Earnings (Loss) Per Share
Diluted earnings per share in fiscal 2017 were $1.46, including earnings of $1.25 per diluted share from continuing operations and $0.21 per diluted share from discontinued operations. Diluted loss per share in fiscal 2016 was $1.56, including earnings of $0.29 per diluted share from continuing operations and a loss of $1.85 per diluted share from discontinued operations. See "Items Impacting Comparability" above as several significant items affected the comparability of year-over-year results of operations.
LIQUIDITY AND CAPITAL RESOURCES Sources of Liquidity and Capital The primary objective of our financing strategy is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives. If necessary, weWe use a combination of equity and short and long-term debt. We use short-term debt principally to finance ongoing operations, including our seasonal requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts payable, accrued payroll, and other accrued liabilities), and a combination of equity and long-term debt to finance both our base working capital needs and our non-current assets.. We are committed to maintaining ansolid investment grade credit rating. ratings.Management believes that existing cash balances, cash flows from operations, existing credit facilities, our commercial paper program, and access to capital markets will provide sufficient liquidity to meet our debt obligations, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months. Borrowing Facilities and Long-Term Debt At May 27, 2018,30, 2021, we had a revolving credit facility (the "Facility""Revolving Credit Facility") with a syndicate of financial institutions that provides for a maximum aggregate principal amount outstanding at any one time of $1.25 billion (subject to increase to a maximum aggregate principal amount of $1.75 billion with the consent of the lenders). We have historically used a credit facility principally as a back-up for our commercial paper program. As of May 27, 2018, there were no outstanding borrowings under the Facility. On July 11, 2018, subsequent to our fiscal year end, we entered into an amended and restated revolving credit agreement with a syndicate of financial institutions providing for a revolving credit facility in a maximum aggregate principal amount outstanding at any one time of $1.6 billion (subject to increase to a maximum aggregate principal amount of $2.1 billion)billion with the consent of the lenders). It replacesThe Revolving Credit Facility matures on July 11, 2024 and is unsecured. The term of the existingRevolving Credit Facility and generally requires our ratio of EBITDA (earnings before interest, taxes, depreciation and amortization) to interest expense tomay be not less than 3.0 to 1.0 and our ratio of funded debt to EBITDA to not exceed certain specified levels, with each ratio to be calculated on a rolling four-quarter basis. Duringextended for additional one-year or two-year periods from the fourth quarter of fiscal 2018, we repaid the remaining principal balance of $70.0 million of our 2.1% senior notes on thethen-applicable maturity date of March 15, 2018.
During the third quarter of fiscal 2018, we entered intoon an annual basis. We have historically used a term loan agreement (the "Term Loan Agreement") withcredit facility principally as a financial institution. The Term Loan Agreement providesback-up for term loans to the Company in an aggregate principal amount not in excess of $300.0 million. During the fourth quarter of fiscal 2018, we borrowed the full amount of the $300.0 million provided for under the Term Loan Agreement. The proceeds from this borrowing were used to make a voluntary pension plan contribution in the amount of $300.0 million. The Term Loan Agreement matures on February 26, 2019. The term loan bears interest at a rate equal to three-month LIBOR plus 0.75% per annum and is fully prepayable without penalty.
During the third quarter of fiscal 2018, we repaid the remaining principal balance of $119.6 million of our 1.9% senior notes on the maturity date of January 25, 2018.
During the third quarter of fiscal 2018, we repaid the remaining capital lease liability balance of $28.5 million in connection with the early exit of an unfavorable lease contract.
During the second quarter of fiscal 2018, we issued $500.0 million aggregate principal amount of floating rate notes due October 9, 2020. The notes bear interest at a rate equal to three-month LIBOR plus 0.50% per annum.
commercial paper program. As of May 27, 2018, we30, 2021, there were no outstanding borrowings under the Revolving Credit Facility.We had $277.0$705.7 million outstanding under our commercial paper program.program as of May 30, 2021, and no amounts outstanding as of May 31, 2020. The highest level of borrowings during fiscal 20182021 was $469.7 million. $1.05 billion. During the fourth quarter of fiscal 2021, we repaid the remaining outstanding $195.9 million aggregate principal amount of our 9.75% subordinated notes on their maturity date of March 1, 2021. The repayment was primarily funded by the issuance of commercial paper. A s summary of our long-term debt balances as of May 28, 2017, we had $26.2 million30, 2021 can be found in Note 4, "Long-Term Debt", to the Consolidated Financial Statements contained in this report. The weighted-average coupon interest rate of the long-term debt obligations outstanding underas of May 30, 2021, was approximately 4.6%.We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt upon maturity, from operating cash flows, our commercial paper program. program, access to the capital markets, and our Revolving Credit Facility. We continuously evaluate opportunities to refinance our debt; however, any refinancing is subject to market conditions and other factors, including financing options that may be available to us from time to time, and there can be no assurance that we will be able to successfully refinance any debt on commercially acceptable terms at all.As of the end of fiscal 2018,2021, our senior long-term debt ratings were all investment grade. A significant downgrade in our credit ratings would not affect our ability to borrow amounts under the Revolving Credit Facility, although borrowing costs would increase. A downgrade of our short-term credit ratings would impact our ability to borrow under our commercial paper program by negatively impacting borrowing costs and causing shorter durations, as well as making access to commercial paper more difficult. difficult, or impossible.Our most restrictive debt agreement (the Revolving Credit Facility) generally requires our ratio of EBITDA to interest expense not be less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to exceed certain decreasing specified levels, ranging from 4.75 through the first quarter of fiscal 2022 to 3.75 from the second quarter of fiscal 2023 and thereafter. Each ratio is to be calculated on a rolling four-quarter basis. As of May 30, 2021, we were in compliance with all financial covenants.
The Company has secured $9.0 billion in fully committed bridge financing from affiliates of Goldman Sachs Group, Inc. in connection with the Merger. The commitments under the committed bridge financing were subsequently reduced by the amounts of a term loan agreementOn July 13, 2021, subsequent to our fiscal year end, we entered into an amendment to the Revolving Credit Facility. The amendment modifies the ratio of funded debt to EBITDA financial covenant to require a ratio of not greater than 4.50 on July 11, 2018 with a syndicate of financial institutions providing for term loans to us in an aggregate principal amount of up to $1.3 billion. The funding under the term loan agreement is anticipated to occur simultaneously with the closing date of the acquisition. In connection with the merger, we expect to incur up to $8.3 billion of long-term debt (which includes any funding under the new term loan agreement), including for the payment of the cash portion of the merger consideration, the repayment of Pinnacle debt, the refinancing of certain Conagra debt,rolling four-quarter basis. Equity and the payment of related fees and expenses. The permanent financing is also expected to include approximately $600 million of incremental cash proceeds from the issuance of equity and/or divestitures. DividendsWe repurchase shares of our common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board of Directors. The share repurchase authorization has no expiration date.Board. Under the share repurchase authorization, we may repurchase our shares periodically over several years, depending on market conditions and other factors, and may do so in open market purchases or privately negotiated transactions. The share repurchase authorization has no expiration date. During fiscal 2018,2021, we repurchased 27.48.8 million shares of our common stock under this authorization for an aggregate of $967.3$298.1 million. In May 2018, our Board of Directors approved an additional $1.0 billion of share repurchases. The Company'sCompany’s total remaining share repurchase authorization as of May 27, 2018,30, 2021, was $1.41$1.12 billion. In the fourth quarter of fiscal 2018, we suspended share repurchase activity in light of the pending acquisition of Pinnacle. The Company plans to repurchase shares under its authorized program only at times and in amounts as is consistent with the prioritization of achieving its leverage targets. On April 20, 2018, the16, 2021, we announced that our Board of Directorshad authorized a quarterly dividend payment of $0.2125$0.275 per share, which was paid on May 31, 2018June 2, 2021, to stockholders of record as of the close of business on April 30, 2018. Subject2021. Subsequent to market and other conditions and the approval ofour fiscal year end, our Board of Directors, we intendapproved a 14% increase to maintain our annualized dividend rate. The Board approved a quarterly dividend at the current annual rate of $0.85$0.3125 per share during fiscal 2019. In the future, we expect modest dividend increases while we focusto be paid on deleveraging, subjectSeptember 2, 2021 to the approvalstockholders of our Board of Directors. During the third quarter of fiscal 2018, we entered into an agreement to sell our Del Monte® processed fruit and vegetable business in Canada to Bonduelle Group. The transaction was completed in the first quarter of fiscal 2019, and was valued at approximately $43.0 million Canadian dollars, which was approximately $34.0 million U.S. dollars at the exchange rate on the date of announcement.
During the fourth quarter of fiscal 2017, we signed an agreement to sell our Wesson® oil business to Smucker for $285 million. During the fourth quarter of fiscal 2018, Conagra Brands and Smucker terminated the agreement. This outcome followed the decisionrecord as of the Federal Trade Commission, announcedclose of business on March 5, 2018, to challenge the pending transaction. The Company is still actively marketing the Wesson® oil business and expects to sell it within the next twelve months.
We have access to the $1.25 billion Facility, our commercial paper program, and the capital markets. We believe we also have access to additional bank loan facilities, if needed.
We expect to maintain or have access to sufficient liquidity to finance the cash portion of the merger consideration as well as to either retire or refinance senior debt upon maturity, as market conditions warrant, from operating cash flows, our commercial paper program, proceeds from any divestitures and other disposition transactions, access to capital markets, and our $1.25 billion Facility.
Cash Flows
In fiscal 2018, we used $123.4 million of cash, which was the net result of $954.2 million generated from operating activities, $576.2 million used in investing activities, $506.9 million used in financing activities, and an increase of $5.5 million due to the effects of changes in foreign currency exchange rates.
Cash generated from operating activities of continuing operations totaled $919.7 million in fiscal 2018, as compared to $1.14 billion generated in fiscal 2017. The decrease in operating cash flows was primarily the net result of increased pension plan payments and changes in working capital, offset by reduced income tax and interest payments. Pension plan payments mainly consisted of voluntary contributions totaling $300.0 million and $150.0 million for fiscal 2018 and 2017, respectively. Year-over-year increases in receivables, higher inventory build, and payments made to terminate an unfavorable operating lease negatively impacted operating cash flows for fiscal 2018 compared to fiscal 2017. Income tax payment reductions were driven by the impact of corporate tax rate reductions resulting from the Tax Act signed into law during the third quarter of
fiscal 2018. Significant debt repayments during fiscal 2017 contributed to decreased interest payments in fiscal 2018. Payments related to incentive compensation and our restructuring plans were also reduced for fiscal 2018 compared to fiscal 2017.
Cash generated from operating activities of discontinued operations was $34.5 million and $34.7 million in fiscal 2018 and fiscal 2017, respectively. This primarily reflects the activities of the Lamb Weston business that was spun off on November 9, 2016 and, to a lesser extent, other divested businesses. Operating cash flows of discontinued operations in fiscal 2017 were also impacted by expenses related to the Spinoff.
Cash used in investing activities of continuing operations totaled $576.2 million in fiscal 2018 compared to $65.6 million in fiscal 2017. Investing activities of continuing operations of fiscal 2018 consisted primarily of capital expenditures of $251.6 million and the purchases of the Sandwich Bros. of Wisconsin®business and Angie's Artisan Treats, LLC for a total of $337.1 million, net of cash acquired. Investing activities of continuing operations in fiscal 2017 included the proceeds from the divestitures of the Spicetec and JM Swank businesses totaling $489.0 million in the aggregate, partially offset by capital expenditures of $242.1 million, and acquisitions totaling $325.7 million, including the operating assets of Frontera Foods, Inc. and Red Fork LLC, and the protein-based snacking businesses Thanasi Foods LLC and BIGS LLC.
Cash used in investing activities of discontinued operations in fiscal 2017 resulted primarily from capital expenditures.
Cash used for financing activities of continuing operations totaled $506.9 million in fiscal 2018 compared to $2.41 billion in fiscal 2017. Financing activities of continuing operations for fiscal 2018 consisted primarily of common stock repurchases of $967.3 million, net proceeds from the issuance of long-term debt of $797.0 million, cash dividend payments of $342.3 million, long-term debt repayments totaling $242.3 million, and net short-term borrowings of $249.1 million. Cash used in financing activities of continuing operations in fiscal 2017 reflected debt repayments of $1.06 billion, common stock repurchases totaling $1.0 billion, and dividends paid of $415.0 million, partially offset by employee stock option exercises and the issuance of other stock awards of $73.8 million.
Cash provided by financing activities of discontinued operations principally comprises borrowings by Lamb Weston which were transferred in connection with the Spinoff.
The Company had cash and cash equivalents of $128.0 million at May 27, 2018, and $251.4 million at May 28, 2017, of which $121.6 million at May 27, 2018, and $244.9 million at May 28, 2017, was held in foreign countries. During the second quarter of fiscal 2018, the Company repatriated $151.3 million of cash balances previously deemed to be permanently reinvested outside the U.S. Refer to Note 15 "Pre-tax Income and Income Taxes" to the consolidated financial statements contained in this report for more information related to this repatriation of cash and related adjustments to deferred tax liability, as well as the impacts of the Tax Act on remaining unremitted earnings of our foreign subsidiaries.
Our preliminary estimate of capital expenditures for fiscal 2019 is approximately $350 million, excluding any incremental amounts resulting from the pending acquisition of Pinnacle.
Management believes that the Company's sources of liquidity will be adequate finance the cash portion of the merger consideration, to satisfy working capital needs, repurchase shares of our common stock from time to time, make payments of anticipated quarterly dividends, complete planned capital expenditures, and make any required debt repayments, including by retiring or refinancing senior debt upon maturity (as market conditions warrant), for the foreseeable future.
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 "August 3, 2021.Contractual Obligations and Commitments ," below.Variable Interest Entities Not Consolidated
We lease or leased 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. The lease agreements also contain contingent put options (the "lease put options") that allow or allowed the lessors to require us to purchase the buildings at the greater of original construction cost, or fair market value, without a lease agreement in place (the "put price") in certain limited circumstances. As a result of substantial impairment charges related to our divested Private Brands operations, these
lease put options became exercisable. During fiscal 2016, we entered into a series of related transactions in which we exchanged a warehouse we owned in Indiana for two buildings and parcels of land that we leased as part of our Omaha corporate offices. Concurrent with the asset exchange, the leases on the two Omaha corporate buildings, which were subject to contingent put options, were canceled. We recognized aggregate charges of $55.6 million for the early termination of these leases. We also entered into a lease for the warehouse in Indiana and we recorded a financing lease obligation of $74.2 million. During fiscal 2017, one of these lease agreements expired. As a result of this expiration, we reversed the applicable accrual and recognized a benefit of $6.7 million in SG&A expenses. During the third quarter of fiscal 2018, we purchased two buildings that were subject to lease put options and recognized net losses totaling $48.2 million for the early exit of unfavorable lease contracts.
As of May 27, 2018, there was one remaining leased building subject to a lease put option for which the put option price exceeded the estimated fair value of the property by $8.2 million, of which we had accrued $1.2 million. We are amortizing the difference between the put price and the estimated fair value (without a lease agreement in place) of the property over the remaining lease term within SG&A expenses. This lease is accounted for as an operating lease, and accordingly, there are no material assets and liabilities, other than the accrued portion of the put price, associated with this entity included in the Consolidated Balance Sheets. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of this entity. In making this determination, we have considered, among other items, the terms of the lease agreement, the expected remaining useful life of the asset leased, and the capital structure of the lessor entity.
OBLIGATIONS AND COMMITMENTS
As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments. These obligations impact our liquidity and capital resource needs. In addition to principal and interest payments under contracts suchon our outstanding long-term debt and notes payable balances, discussed above, our contractual obligations primarily consist of leases payments, income taxes, pension and postretirement benefits, and unconditional purchase obligations. A summary of our operating and finance lease obligations as lease agreements, debt agreements,of May 30, 2021 can be found in Note 15, "Leases", to the Consolidated Financial Statements contained in this report. The liability for gross unrecognized tax benefits related to uncertain tax positions was $33.0 million as of May 30, 2021. See Note 14, "Pre-Tax Income and Income Taxes", to the Consolidated Financial Statements contained in this report for information related to income taxes. As of May 30, 2021, we had an aggregate funded pension asset of $109.6 million and an aggregate unfunded postretirement benefit obligation totaling $78.2 million. We expect to make payments totaling approximately $12.3 million and $9.0 million in fiscal 2022 to fund our pension and postretirement plans, respectively. See Note 18, "Pension and Postretirement Benefits", to the Consolidated Financial Statements and "Critical Accounting Estimates – Employment-Related Benefits" contained in this report for further discussion of our pension obligation and factors that could affect estimates of these obligations. As of May 30, 2021, our unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-pay" contracts). The unconditional purchase obligation arrangements totaled approximately $2.51 billion. Approximately $1.82 billion of this balance is due in fiscal 2022. Included in this amount are entered into in our normal course of business in order to ensure adequate levels of sourced product are available. Of these items, debt, notes payable, and capital lease obligations, which totaled $3.80 billion as of May 27, 2018, were recognized as liabilities in our Consolidated Balance Sheets. Operating lease obligations and unconditional purchase obligations, which totaled $1.26 billion as of May 27, 2018, were not recognized as liabilities in our Consolidated Balance Sheets, in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").A summary of our contractual obligations as of May 27, 2018, was as follows:
| | | | | | | | | | | | | | | | | | | | | | Payments Due by Period (in millions) | Contractual Obligations | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | Long-term debt | $ | 3,431.7 |
| | $ | 300.0 |
| | $ | 822.6 |
| | $ | 1,087.0 |
| | $ | 1,222.1 |
| Capital lease obligations | 94.7 |
| | 7.1 |
| | 13.5 |
| | 13.5 |
| | 60.6 |
| Operating lease obligations | 199.1 |
| | 35.6 |
| | 47.5 |
| | 33.7 |
| | 82.3 |
| Purchase obligations1 and other contracts | 1,127.0 |
| | 966.7 |
| | 121.3 |
| | 37.6 |
| | 1.4 |
| Notes payable | 277.3 |
| | 277.3 |
| | — |
| | — |
| | — |
| Total | $ | 5,129.8 |
| | $ | 1,586.7 |
| | $ | 1,004.9 |
| | $ | 1,171.8 |
| | $ | 1,366.4 |
|
1 Amount includes open purchase orders and other supply agreements some oftotaling approximately $1.53 billion, which are not legally binding and/or may be cancellable. Such agreements are generally settleable in the ordinary course of business in less than one year.
Some are not legally binding and/or may be cancellable. Warehousing service agreements totaling approximately $400 million and obligations for leases that have not yet commenced totaling $272.2 million as of May 30, 2021, make up a majority of our remaining unconditional purchase obligations with various terms of up to 20 years.Capital Expenditures We arecontinue to make investments in our business and operating facilities. Our preliminary estimate of capital expenditures for fiscal 2022 is approximately $475 million. Supplier Arrangements In fiscal 2017, we began a program to offer certain suppliers access to a third-party service that allows them to view our scheduled payments online. The third-party service also contractually obligatedallows suppliers to pay interestfinance advances on our long-term debt and capital lease obligations. The weighted-average coupon interest ratescheduled payments at the sole discretion of the long-term debt obligations outstanding as of May 27, 2018, was approximately 4.9%. The operating lease obligations notedsupplier and the third party. We have no economic interest in the table above have not been reduced by non-cancellable sublease rentals of $0.5 million.
As of May 27, 2018, we had aggregate unfunded pension obligations totaling $68.5 million. This amount is not included in the table above. In the fourth quarter of fiscal 2018, we made a voluntary pension plan contribution in the amount of $300.0 million. We do not expect to be required to make additional payments to fund these amounts in the foreseeable future. Based on current statutory requirements, we are not obligated to fund any amount to our qualified pension plans during the next financing arrangements and no direct
twelve months. We estimate that we will make payments of approximately $19.6 million overrelationship with the next twelve months to fund our pension plans. See Note 19 " Pension and Postretirement Benefits" to the consolidated financial statements and "Critical Accounting Estimates - Employment Related Benefits" contained in this report for further discussion of our pension obligations and factors that could affect estimates of this liability.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 shouldsuppliers, the third party, be unableor any financial institutions concerning this service. All balances remain as obligations to perform). In accordance with U.S. GAAP, the following commercial commitmentsour suppliers as stated in our supplier agreements and are not recognized as liabilitiesreflected in accounts payable within our Consolidated Balance Sheets. A summary of our commitments, including commitmentsThe associated with equity method investments, as of May 27, 2018, was as follows:
| | | | | | | | | | | | | | | | | | | | | | Amount of Commitment Expiration Per Period (in millions) | Other Commercial Commitments | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | Standby repurchase obligations | $ | 0.9 |
| | $ | 0.6 |
| | $ | 0.3 |
| | $ | — |
| | $ | — |
| Other commitments | 6.1 |
| | 4.1 |
| | 2.0 |
| | — |
| | — |
| Total | $ | 7.0 |
| | $ | 4.7 |
| | $ | 2.3 |
| | $ | — |
| | $ | — |
|
In addition to the commitmentspayments are included in the table above, as of May 27, 2018, we had $32.4 million of standby letters of credit issued on our behalf. These standby letters of credit are primarily related to our self-insured workers compensation programs and are not reflected innet cash flows from operating activities within our Consolidated Balance Sheets.
In certain limited situations, we will guarantee an obligationStatements of an unconsolidated entity. We guarantee certain leases resulting from the divestiture of the JM Swank business completed in the first quarter of fiscal 2017.Cash Flows. As of May 27, 2018,30, 2021 and May 31, 2020, $279.3 million and $258.7 million, respectively, of our total accounts payable was payable to suppliers who utilize this third-party service. The program commenced at about the remainingsame time that we began an initiative to negotiate extended payment terms with our suppliers. Although difficult to predict, we generally expect the incremental cash flow benefits associated with these extended payment terms to increase at a slower rate in the future. A number of these arrangementsfactors may impact our future payment terms, including our relative creditworthiness, overall market liquidity, and changes in interest rates and other general economic conditions. Cash Flows In fiscal 2021, we used $474.1 million of cash, which was the net result of $1.47 billion generated from operating activities, $340.3 million used in investing activities, $1.61 billion used in financing activities, and an increase of $7.7 million due to the effects of changes in foreign currency exchange rates. Cash generated from operating activities totaled $1.47 billion in fiscal 2021, as compared to $1.84 billion generated in fiscal 2020. Operating cash flows for fiscal 2021 reflected increased net sales in our retail segments from COVID-19 pandemic-related demand as well as decreased interest payments. This was partially offset by increased tax payments compared to fiscal 2020. Tax payments for fiscal 2021 included approximately $47.0 million of fourth quarter fiscal 2020 tax payments, which were deferred due to the extension of the deadline for certain federal cash tax payments. Comparative changes in working capital balances were most notably impacted by inventory rebuilding in fiscal 2021, as certain brands had previously been on allocation due to high demand through the pandemic. Further, our inventory balances also have experienced recent input cost inflation which is giving rise to larger inventory amounts period over period. Operating cash flows benefited from the continued deferral of employer payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act, which totaled $33.9 million for fiscal 2021. Payment of such amounts will occur in fiscal 2022 and 2023. Cash used in investing activities totaled $340.3 million in fiscal 2021 compared to $153.8 million in fiscal 2020. Investing activities in fiscal 2021 consisted primarily of capital expenditures totaling $506.4 million, partially offset by net proceeds totaling $160.9 million from the sale of our Egg Beaters®, Peter Pan® peanut butter, and H.K. Anderson® businesses. Investing activities in fiscal 2020 consisted mainly of capital expenditures of $369.5 million and the net proceeds from divestitures totaling $194.6 million, including the sales of our DSD snacks and Lender's® bagel businesses. Cash used in financing activities totaled $1.61 billion in fiscal 2021 compared to $1.37 billion in fiscal 2020. Financing activities in fiscal 2021 principally reflect repayments of long-term debt of $2.51 billion, the issuance of long-term debt totaling $988.2 million, net short-term borrowings of $706.3 million, cash dividends paid of $474.6 million, and common stock repurchases of $298.1 million. Financing activities in fiscal 2020 consisted principally of the repayment of long-term debt totaling $947.5 million and cash dividends paid of $413.6 million. Cash Held by International Subsidiaries The Company had cash and cash equivalents of $79.2 million at May 30, 2021, and $553.3 million at May 31, 2020, of which $72.4 million at May 30, 2021, and $80.5 million at May 31, 2020, was held in foreign countries. We believe that our foreign subsidiaries have invested or will invest any undistributed earnings indefinitely, or that any undistributed earnings will be remitted in a tax-neutral transaction, and, therefore, do not exceed five years and the maximum amount of future payments we have guaranteed was $2.6 million. In addition, we guarantee a certain lease resulting from an exited facility. As of May 27, 2018, the remaining term of this arrangement does not exceed nine years and the maximum amount of future payments we have guaranteed was $21.7 million. In certain limited situations, we also guarantee obligations of the Lamb Weston business pursuant to guarantee arrangements that existed prior to the Spinoff and remained in place following completion of the Spinoff until such guarantee obligations are substituted for guarantees issued by Lamb Weston. Such guarantee arrangements are described below. Pursuant to the separation and distribution agreement, dated as of November 8, 2016 (the "Separation Agreement"), between us and Lamb Weston, these guarantee arrangements are deemed liabilities of Lamb Weston that were transferred to Lamb Weston as part of the Spinoff. Accordingly, in the event that we are required to make any payments as a result of these guarantee arrangements, Lamb Weston is obligated to indemnify us for any such liability, reduced by any insurance proceeds received by us, in accordance with the terms of the indemnification provisions under the Separation Agreement.
Lamb Weston is a party to a warehouse services agreement with a third-party warehouse provider through July 2035. Under this agreement, Lamb Weston is required to make payments for warehouse services basedprovide deferred taxes on the quantity of goods stored and other service factors. We have guaranteed the warehouse provider that we will make the payments required under the agreement in the event that Lamb Weston fails to perform. Minimum payments of $1.5 million per month are required under this agreement. It is not possible to determine the maximum amount of the payment obligations under this agreement. Upon completion of the Spinoff, we recognized a liability for the estimated fair value of this guarantee. As of May 27, 2018, the amount of this guarantee, recorded in other noncurrent liabilities, was $28.1 million.
Lamb Weston is a party to an agricultural sublease agreement with a third party for certain farmland through 2020 (subject, at Lamb Weston's option, to extension for two additional five-year periods). Under the terms of the sublease agreement, Lamb Weston is required to make certain rental payments to the sublessor. We have guaranteed Lamb Weston's performance and the payment of all amounts (including indemnification obligations) owed by Lamb Weston under the sublease agreement, up to a maximum of $75.0 million. We believe the farmland associated with this sublease agreement is readily marketable for lease to other area farming operators. As such, we believe that any financial exposure to the company, in the event that we were required to perform under the guaranty, would be largely mitigated.
The obligations and commitments tables above do not include any reserves for uncertainties in income taxes, as we are unable to reasonably estimate the ultimate amount or timing of settlementcumulative undistributed earnings of our reserves for income taxes. The liability for gross unrecognized tax benefits at May 27, 2018, was $32.5 million. The net amount of unrecognized tax benefits at May 27,
2018, that, if recognized, would favorably impact our effective tax rate was $27.8 million. Recognition of these tax benefits would have a favorable impact on our effective tax rate.
foreign subsidiaries.CRITICAL ACCOUNTING ESTIMATES The process of preparing financial statements requires the use of estimates on the part of management. The estimates used by management are based on our historical experiences combined with management's understanding of current facts and circumstances. Certain of our accounting estimates are considered critical as they are both important to the portrayal of our financial condition and results and require significant or complex judgment on the part of management. The following is a summary of certain accounting estimates considered critical by management. Our Audit/Finance Committee has reviewed management's development, selection, and disclosure of the critical accounting estimates.
Marketing Costs —We incur certainoffer various forms of trade promotions which are mostly recorded as a reduction in revenue. The methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. Our promotional activities are conducted either through the retail trade or directly with consumers and included activities such as in-store displays and events, feature price discounts, consumer coupons, and loyalty programs. The costs to promote our products through marketing programs, which include advertising, customer incentives, and consumer incentives. We recognize the cost of each of these typesactivities are recognized as a reduction of marketing activities as incurred in accordance with U.S. GAAP.revenue at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment required in determining marketing costs can be significant. For volume-based incentives provided to customers, management must continually assessregarding the likelihoodvolume of the customer achieving the specified targets. Similarly, for consumer coupons, management must estimate the level at which couponspromotional offers that will be redeemed by consumerseither the retail trade or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and actual redemptions are recognized as a change in the future. Estimates made by management estimate in accounting for marketing costs are based primarily on our historical experience with marketing programs with consideration given to current circumstances and industry trends. As these factors change, management's estimates could change and we could recognize different amounts of marketing costs over different periods of time.a subsequent period.We have recognized reservestrade promotion liabilities of $100.5$146.8 million for these marketing costs as of May 27, 2018.30, 2021. Changes in the assumptions used in estimating the cost of any individual customer marketing program (including amounts classified as a revenue reduction) would not result in a material change in our results of operations or cash flows. Advertising and promotion expenses totaled $278.6 million, $328.3 million, and $347.2 million in fiscal 2018, 2017, and 2016, respectively.
Income Taxes —Our income tax expense is based on our income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our income tax expense and in evaluating our tax positions, including evaluating uncertainties. Management reviews tax positions at least quarterly and adjusts the balances as new information becomes available. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the tax bases of assets and liabilities and their carrying amounts in our consolidated balance sheets, as well as from net operating loss and tax credit carryforwards. Management evaluates the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These estimates of future taxable income inherently require significant judgment. Management uses historical experience and short and long-range business forecasts to develop such estimates. Further, we employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the extent management does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.Further information on income taxes is provided in Note 15 14, "Pre-tax Income and Income Taxes", to the consolidated financial statements.Consolidated Financial Statements contained in this report.Environmental Liabilities —Environmental liabilities are accrued when it is probable that obligations have been incurred and the associated amounts can be reasonably estimated. Management works with independent third-party specialists in order to effectively assess our environmental liabilities. Management estimates our environmental liabilities based on evaluation of investigatory studies, extent of required clean-up, our known volumetric contribution, other potentially responsible parties, and our experience in remediating sites. Environmental liability estimates may be affected by changing governmental or other external determinations of what constitutes an environmental liability or an acceptable level of clean-up. Management's estimate as to our potential liability is independent of any potential recovery of insurance proceeds or indemnification arrangements. Insurance companies and other indemnitors are notified of any potential claims and periodically updated as to the general status of known claims. We do not discount our environmental liabilities as the timing of the anticipated cash
payments is not fixed or readily determinable. To the extent that there are changes in the evaluation factors identified above, management's estimate of environmental liabilities may also change. We have recognized a reserve of approximately $57.8$61.5 million for environmental liabilities as of May 27, 2018.30, 2021. The reserve for each site is determined based on an assessment of the most likely required remedy and a related estimate of the costs required to effect such remedy. Employment-Related Benefits —We incur certain employment-related expenses associated with pensions and postretirement health care benefits, and workers' compensation.benefits. In order to measure the annual expense associated with these employment-related benefits, management must make a variety of estimates including, but not limited to, discount rates used to measure the present value of certain liabilities, assumed rates of return on assets set aside to fund these expenses, compensation increases, employee turnover rates, anticipated mortality rates, and anticipated health care costs, and employee accidents incurred but not yet reported to us.costs. The estimates used by management are based on our historical experience as well as current facts and circumstances. We use third-party specialists to assist management in appropriately measuring the expense associated with these employment-related benefits. Different estimates used by management could result in us recognizing different amounts of expense over different periods of time.
Beginning in fiscal 2017, theThe Company has elected to useuses a split discount rate (the "spot-rate approach") for the U.S. plans and certain foreign plans. Historically, a single weighted-average discount rate was used in the calculation of service and interest costs, both of which are components of pension benefit costs. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost. This change is considered a change in accounting estimate and has been applied prospectively. The pre-tax reduction in total pension benefit cost associated with this change in fiscal 2017 was approximately $27.0 million. We have recognized a pension liability of $171.5$135.4 million and $582.2$254.5 million and a postretirement liability of $118.2$81.2 million and $156.9 million, and a workers' compensation liability of $39.4 million and $41.5$89.3 million as of the end of fiscal 20182021 and 2017,2020, respectively. We also have recognized a pension asset of $103.0$245.0 million and $17.1$202.4 million as of the end of fiscal 20182021 and 2017,2020, respectively, as certain individual plans of the Company had a positive funded status. We recognize cumulative changes in the fair value of pension plan assets and net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation ("the corridor") in current period expense annually as of our measurement date, which is our fiscal year-end, or when measurement is required otherwise under U.S. GAAP. We recognized pension expense (benefit), including activities of discontinued operations, from Company plans of $(56.1)$(38.3) million, $(12.9)$5.9 million, and $370.8$(22.7) million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. Such amounts reflect the year-end write-off of actuarial losses in excess of 10% of our pension liability of $3.4$0.8 million, $1.2$44.8 million, and $348.5$5.1 million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. This also reflected expected returns on plan assets of $218.3$140.0 million, $207.4$170.2 million, and $259.9$174.4 million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. We contributed $312.6$27.6 million, $163.0$17.5 million, and $11.5$14.7 million to the pension plans of our continuing operations in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. We anticipate contributing approximately $19.6$12.3 million to our pension plans in fiscal 2019. 2022.One significant assumption for pension plan accounting is the discount rate. Historically, we have selected a discount rate each year (as of our fiscal year-end measurement date) for our plans based upon a high-quality corporate bond yield curve for which the cash flows from coupons and maturities match the year-by-year projected benefit cash flows for our pension plans. The corporate bond yield curve is comprised of high-quality fixed income debt instruments (usually Moody's Aa) available at the measurement date. At May 29, 2016, the Company changed toWe use a spot-rate approach, discussed above. This alternative approach focuses on measuring the service cost and interest cost components of net periodic benefit cost by using individual spot rates derived from a high-quality corporate bond yield curve and matched with separate cash flows for each future year instead of a single weighted-average discount rate approach. Based on this information, the discount rate selected by us for determination of pension expense was 3.90%2.98% for fiscal 2018, 3.83%2021, 3.88% for fiscal 2017,2020, and 4.10%4.15% for fiscal 2016.2019. We selected a weighted-average discount rate of 4.21%3.50% and 3.83%2.29% for determination of service and interest expense, respectively, for fiscal 2019.2022. A 25 basis25-basis point increase in our discount rate assumption as of the end of fiscal 20182021 would have resulted in an increase of $3.9 million in our annual pension expense for our pension plans in fiscal 2018.2022 by $5.2 million. A 25 basis25-basis point decrease in our discount rate assumption as of the end of fiscal 20182021 would have resulted in an decrease of $3.0 million in our annual pension expense for our pension plans in fiscal 2018.2022 by $5.7 million. For our year-end pension obligation determination, we selected discount rates of 4.14%3.04% and 3.90%2.98% for fiscal years 20182021 and 2017,2020, respectively.
Another significant assumption used to account for our pension plans is the expected long-term rate of return on plan assets. In developing the assumed long-term rate of return on plan assets for determining pension expense, we consider long-term historical returns (arithmetic average) of the plan's investments, the asset allocation among types of investments, estimated long-term returns by investment type from external sources, and the current economic environment. Based on this information, we selected 7.50%3.74% for the weighted-average expected long-term rate of return on plan assets for determining our fiscal 20182021 pension expense. A 25 basis25-basis point increase/decrease in our weighted-average expected long-term rate of return assumption as of the beginning of fiscal 2021 would decrease/increase annual pension expense for our pension plans by $9.3 million. We selected a weighted-average expected rate of return on plan assets of 3.87% to be used to determine our pension expense for fiscal 2022. A 25-basis point increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 20182022 would decrease/increase annual pension expense for our pension plans by $7.3$9.4 million. During fiscal 2018, we approved an amendment of our salaried and non-qualified pension plans. The amendment froze the compensation and service periods used to calculate pension benefits for active employees who participate in those plans. As a result of this amendment, we have changed our salaried and non-qualified pension asset investment strategy to align our related pension plan assets with our projected benefit obligation to reduce volatility. We selected a weighted-average expected rate of return on plan assets of 5.17% to be used to determine our pension expense for fiscal 2019. A 25 basis point increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2019 would decrease/increase annual pension expense for our pension plans by $8.2 million.
The rate of compensation increase is another significant assumption used in the development of accounting information for pension plans. Due to the amendment discussed above, this assumption is no longer applicable for any of our pension plans in fiscal 2019 and thereafter. We selected 3.63% for the rate of compensation increase for determination of pension expense for fiscal year 2018, 3.66% for fiscal 2017, and 3.70% for fiscal 2016. A 25 basis point increase in our rate of compensation increase assumption as of the beginning of fiscal 2018 would increase pension expense for our pension plans by $0.5 million for the year. A 25 basis point decrease in our rate of compensation increase assumption as of the beginning of fiscal 2018 would decrease pension expense for our pension plans by $0.5 million for the year.
In October 2016, The Society of Actuaries' Retirement Plan Experience Committee published updated mortality improvement scales and recommended their use with base mortality tables for the measurement of U.S. pension plan obligations. With the assistance of our third-party actuary, in measuring our pension obligations as of May 28, 2017, we incorporated a revised improvement scale to be used with our current base mortality tables that generally reflect the mortality improvement inherent in these new tables.
During 2018, we conducted a mortality experience study and, with the assistance of our third-party actuary, adopted new company-specific mortality tables used in measuring our pension obligations as of May 27, 2018. In addition, we incorporated a revised mortality improvement scale to be used with the new company-specific mortality tables that reflects the mortality improvement inherent in these tables.
We also provide certain postretirement health care benefits. We recognized postretirement benefit expense (benefit)income of $0.7$4.4 million, $(1.2)$4.2 million, and $0.2$1.3 million in fiscal 2018, 2017,2021, 2020, and 2016, respectively. We reflected liabilities of $118.2 million and $156.9 million in our balance sheets as of May 27, 2018 and May 28, 2017,2019, respectively. We anticipate contributing approximately $16.2$9.0 million to our postretirement health care plans in fiscal 2019. 2022.The postretirement benefit expense and obligation are also dependent on our assumptions used for the actuarially determined amounts. These assumptions include discount rates (discussed above), health care cost trend rates, inflation rates, retirement rates, mortality rates (also discussed above), and other factors. The health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends. Assumed inflation rates are based on an evaluation of external market indicators. Retirement and mortality rates are based primarily on actual plan experience. The discount rate we selected for determination of postretirement expense was 3.33%2.39% for fiscal 2018, 3.18%2021, 3.48% for fiscal 2017,2020, and 3.50%3.81% for fiscal 2016.2019. We have selected a weighted-average discount rate of 3.81%2.51% for determination of postretirement expense for fiscal 2019.2022. A 25 basis25-basis point increase/decrease in our discount rate assumption as of the beginning of fiscal 2018 would not have resulted in a material change to postretirement expense for our plans. We have assumed the initial year increase in cost of health care to be 7.87%6.53%, with the trend rate decreasing to 4.5%4.44% by 2024. A one percentage point change in the assumed health care cost trend rate would have the following effects: | | | | | | | | | | ($ in millions) | | One Percent Increase | | One Percent Decrease | Effect on total service and interest cost | | $ | 0.3 |
| | $ | (0.3 | ) | Effect on postretirement benefit obligation | | 3.9 |
| | (3.5 | ) |
2029.
We provide workers' compensation benefits to our employees. The measurement of the liability for our cost of providing these benefits is largely based upon actuarial analysis of costs. One significant assumption we make is the discount rate used to calculate the present value of our obligation. The weighted-average discount rate used at May 27, 2018 was 2.88%. A 25 basis point increase/decrease in the discount rate assumption would not have a material impact on workers' compensation expense or the liability.
Business Combinations, Impairment of Long-Lived Assets (including property, plant and equipment), Identifiable Intangible Assets, and Goodwill —We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the closing of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of significant acquisitions we normally obtain the assistance of a third-party valuation specialist in estimating fair values of tangible and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants. While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.We reduce the carrying amounts of long-lived assets (including property, plant and equipment) to their fair values when their carrying amount is determined to not be recoverable. We generally compare undiscounted estimated future cash flows of an asset or asset group to the carrying values of the asset or asset group. If the undiscounted estimated future cash flows exceed the carrying values of the asset or asset group, no impairment is recognized. If the undiscounted estimated future cash flows are less than the carrying values of the asset or asset group, we write-down the asset or assets to their estimated fair values. The estimates of fair value are generally in the form of appraisal, or by discounting estimated future cash flows of the asset or asset group. Determining the useful lives of intangible assets also requires management judgment. Certain brand intangibles are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands, while other acquired intangible assets (e.g., customer relationships) are expected to have determinable useful lives. Our estimates of the useful lives of definite-lived intangible assets are primarily based upon historical experience, the competitive and macroeconomic environment, and our operating plans. The costs of definite-lived intangibles are amortized to expense over their estimated life. We reduce the carrying amounts of indefinite-lived intangible assets, and goodwill to their fair values when the fair value of such assets is determined to be less than their carrying amounts (i.e., assets are deemed to be impaired). Fair value is typically estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to be generated by the particular asset being tested for impairment as well as to select a discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. Estimating future cash flows requires significant judgment by management in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different impairment amounts (or none at all) for long-lived assets and identifiable intangible assets. In assessing other intangible assets not subject to amortization for impairment, we have the option to perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of such an intangible asset is less than its carrying amount. If we determine that it is not more likely than not that the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform any additional tests for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment, then we are required to perform a quantitative impairment test that involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If we perform a quantitative impairment test in evaluating impairment of our indefinite lived brands/trademarks, we utilize a "relief from royalty" methodology. The methodology determines the fair value of each brand through use of a discounted cash flow model that incorporates an estimated "royalty rate" we would be able to charge a third party for the use of the particular brand. When determining the future cash flow estimates, we must estimate future net sales and a fair market royalty rate for each applicable brand and an appropriate discount rate to measure the present value of the anticipated cash flows.
Estimating future net sales requires significant judgment by management in such areas as future economic conditions, product pricing, and consumer trends. In determining an appropriate discount rate to apply to the estimated future cash flows, we consider the current interest rate environment and our estimated cost of capital. Goodwill is tested annually for impairment of value and whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or
declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. Under the qualitative assessment, various events and circumstances that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). Furthermore, management considers the results of the most recent two-step quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital between the current and prior years for each reporting unit. Under the quantitative impairment test, the evaluation involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. Fair value is typically estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to be generated by the reporting unit being tested for impairment as well as to select a risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. We estimate cash flows for the reporting unit over a discrete period (typically four or five years) and the terminal period (considering expected long term growth rates and trends). Estimating future cash flows requires significant judgment by management in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows or significant changes in risk-adjusted discount rates due to changes in market conditions could produce substantially different estimates of the fair value of the reporting unit. Prior to the fourth quarterAs of fiscal 2017, if the carrying valueMay 30, 2021, we have goodwill of a reporting unit exceeded its fair value, we completed a second step$11.37 billion, indefinite-lived intangibles of the test to determine the$3.30 billion and definite-lived intangibles of $856.4 million. The amount of goodwill impairment loss, if any, to be recognized. In the second step, we estimated an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The impairment loss was equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill. Asintangibles increased significantly during fiscal 2019 as a result of adopting Accounting Standards Update ("ASU") 2017-04, Simplifying the Test for Goodwill Impairment, beginning in the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit.Pinnacle acquisition. In the first quarter of fiscal 2017, in anticipation of the Spinoff,2020, we changedreorganized our reporting segments. In accordance with applicable accounting guidance, we were requiredsegments to determine newincorporate the Pinnacle business into our legacy reporting units at a lower level (atsegments, to reflect how the operating segment or one level lower, as applicable). When such a determination was made, we were required to perform a goodwill impairment analysis for each of the old and new reporting units. business is now being managed. We performed an assessment of impairment oftested goodwill for the new Canadian reporting unit within the new International reporting segment. Estimating the fair value of individual reporting units requires usimpairment both prior to make assumptions and estimates regarding our future plans and future industry and economic conditions. We estimated the future cash flows of the Canadian reporting unit and calculated the net present value of those estimated cash flows using a risk adjusted discount rate in order to estimate the fair value of each reporting unit from the perspective of a market participant. We used discount rates and terminal growth rates of 7.5% and 2%, respectively, to calculate the present value of estimated future cash flows. We then compared the estimated fair value of the reporting unitsubsequent to the historical carrying value (including allocated assetsreallocation of Pinnacle goodwill and liabilities of certain shared and Corporate functions), and determined that the fair value of the reporting unit was less than the carrying value in the first quarter of fiscal 2017. With the assistance of a third-party valuation specialist, we estimated the fair value of the assets and liabilities of this reporting unit in order to determine the implied fair valuethere were no impairments of goodwill. We recognized an impairment charge for the difference between the implied fair value ofHistorically, we have experienced impairments in brand intangibles and goodwill and the carrying value of goodwill. Accordingly,
during the first quarter of fiscal 2017, we recorded charges totaling $139.2 million for the impairment of goodwill. The remaining goodwill balance of the Canadian reporting unit as of May 27, 2018 was $37.6 million.
As part of the assessment of the fair value of each asset and liability within the Canadian reporting unit, with the assistance of the third-party valuation specialist, we estimated the fair value of a Canadian brand to be less than its carrying value. In accordance with applicable accounting guidance, we recognized an impairment charge of $24.4 million to write down the intangible asset to its estimated fair value.
We also performed an assessment of impairment of goodwill for the new Mexican reporting unit within the International reporting segment using similar methods to those described above. We used discount rates and terminal growth rates of 8.5% and 3%, respectively, to calculate the present value of estimated future cash flows. We determined that the estimated fair value of this reporting unit exceeded the carrying value of its net assets by approximately 5%. Accordingly, we did not recognize an impairment of the goodwill in the Mexican reporting unit.
During the second quarter of fiscal 2017, as a result of further deterioration in forecasteddeclining sales and profitsother economic conditions. For instance, in fiscal 2021 and 2020, we recorded total intangibles impairments of $90.9 million and $165.5 million respectively, primarily duerelated to foreign exchange rates,our recently acquired Pinnacle brands. In fiscal 2019, we performed an additional assessmentrecorded total intangibles impairments of $89.6 million, primarily related to our Chef Boyardee® brand intangible. With the addition of Pinnacle intangibles that were recorded at fair value in fiscal 2019, we continue to be more susceptible to impairment of goodwill forcharges in the new Mexican reporting unit. We used discountfuture if our long-term sales forecasts, royalty rates, and terminal growth rates of 8.5% and 3%, respectively, to calculate the present value of estimated future cash flows. We then compared the estimated fair value of the reporting unit to the historical carrying value (including allocated assets and liabilities of certain shared and Corporate functions), and determined that the fair value of the reporting unit was less than the carrying value in the second quarter of fiscal 2017. With the assistance of a third-party valuation specialist, we estimated the fair value of the assets and liabilities of this reporting unit in order to determine the implied fair value of goodwill. We recognized an impairment charge for the difference between the implied fair value of goodwill and the carrying value of goodwill. Accordingly, during the second quarter of fiscal 2017, we recorded charges totaling $43.9 million for the impairment of goodwill. During the fourth quarter of fiscal 2017, in conjunction with our annual impairment testing, we adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment. Asother assumptions change as a result of further deterioration in forecastedlower than expected performance or other economic conditions. We will monitor these assumptions as management continues to achieve expected synergies, gross margin improvement, and long-term sales and profits, we performed an additional assessment of impairment of goodwill for the new Mexican reporting unit. We used discount rates and terminal growth rates of 9.0% and 3.0%, respectively, to calculate the present value of estimated future cash flows. We then compared the estimated fair value of the reporting unit to the historical carrying value (including allocated assets and liabilities ofon certain shared and Corporate functions), and determined that the fair value of the reporting unit was less than the carrying valuekey brands acquired in the fourth quarter of fiscal 2017. With the assistance of a third-party valuation specialist, we estimated the fair value of the reporting unit. We recognized an impairment charge of $15.8 million, equalacquisition including, but not limited to, the difference between the carrying value and estimated fair value of the reporting unit. The remaining goodwill balance of the Mexican reporting unit as of May 27, 2018 was $118.5 million.
In fiscal 2018, we elected to perform a quantitative impairment test for indefinite lived intangibles. During fiscal 2018, we recognized impairment charges of $4.0 million for our HK AndersonBirds Eye®, Red ForkDuncan Hines®, and SalpicaGardein® brands in our Grocery & Snacks segment. We also recognized an impairment charge of $0.8 million for our Aylmerand Vlasic® brand in our International segment.
In fiscal 2017, we elected to perform a quantitative impairment test for indefinite lived intangibles. During fiscal 2017, we recognized impairment charges of $7.1 million for our Del Monte®brand and $5.5 million for our Aylmer® brand in our International segment. We also recognized impairment charges of $67.1 million for our Chef Boyardee® brand and $1.1 million for our Fiddle Faddle® brand in our Grocery & Snacks segment.
In fiscal 2016, we elected to perform a quantitative impairment test for indefinite lived intangibles. During fiscal 2016, we recognized impairment charges of $50.1 million in our Grocery & Snacks segment for our Chef Boyardee® brand.
We completed the divestiture of our Private Brands operations in the third quarter of fiscal 2016. In fiscal 2016, we recognized charges of $1.92 billion ($1.44 billion after-tax) to write-down the goodwill and long-lived assets of the Private Brands business.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP. On July 9, 2015, the FASB deferred the effective date of the new revenue recognition standard by one year. The updated
standard is effective for fiscal years beginning after December 15, 2017. Based on the FASB's ASU, we will apply the new revenue standard in our fiscal year 2019. Entities will have the option to adopt the ASU using either the full retrospective or modified retrospective transition method. We have concluded our assessment of the new standard and will be adopting the provisions of the ASU utilizing the modified retrospective transition method. The adoption of ASU 2014-09 will not have a material impact on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The effective date for this standard is for fiscal years beginning after December 31, 2017. We do not expect ASU 2016-01 to have a material impact to our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, Topic 842, which requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that this standard will have on our consolidated financial statements and related disclosures. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The effective date for the standard is for fiscal years beginning after December 15, 2017. We do not expect ASU 2016-15 to have a material impact to our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which provides amendments to current guidance to address the classifications and presentation of changes in restricted cash in the statement of cash flows. The effective date for the standard is for fiscal years beginning after December 15, 2017. We do not expect ASU 2016-18 to have a material impact to our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The effective date for the standard is for fiscal years beginning after December 15, 2017. We do not expect ASU 2017-01 to have a material impact to our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires companies to present the service cost component of net benefit cost in the same line items in which they report compensation cost. Companies will present all other components of net benefit cost outside a subtotal of operating income, if presented, or disclosed separately. Also, only the service cost component may be eligible for capitalization where applicable. The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of service cost components. The effective date for the standard is for fiscal years beginning after December 15, 2017. We will adopt ASU 2017-07 in our fiscal 2019. The estimated impact is a reclassification of a benefit of $80.4 million, a benefit of $55.2 million, and a charge of $303.8 million to non-operating income (expense) for fiscal 2018, 2017, and 2016, respectively.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP. The amendments in this update better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The effective date for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. We plan to early adopt this ASU at the beginning of our fiscal 2019. We do not expect ASU 2017-12 to have a material impact to our consolidated financial statements.
.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The principal market risks affecting us during fiscal 20182021 and 20172020 were exposures to price fluctuations of commodity and energy inputs, interest rates, and foreign currencies.
We purchase commodity inputs such as wheat, corn, oats, soybean meal, soybean oil, meat, dairy products, nuts, 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.
We may 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. As of May 27, 201830, 2021 and May 28, 2017,31, 2020, the fair value of our long-term debt (including current installments) was estimated at $3.76$9.76 billion and $3.32$11.35 billion, respectively, based on current market rates. As of May 27, 201830, 2021 and May 28, 2017,31, 2020, a 1% increase in interest rates would decrease the fair value of our fixed rate debt by approximately $168.1$682.2 million and $197.8$704.8 million, respectively, while a 1% decrease in interest rates would increase the fair value of our fixed rate debt by approximately $185.7$779.8 million and $219.4$809.5 million, respectively. 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. 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 positions at a given point in time based on recent changes in market prices. Our model uses a 95% confidence level. Accordingly, in any given one dayone-day time period, losses greater than the amounts included in the table below are expected to occur only 5% 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 foreign exchange positions (including discontinued operations) for fiscal 20182021 and 2017.2020. | | Fair Value Impact | | In Millions | | Average During the Fiscal Year Ended May 30, 2021 | | | Average During the Fiscal Year Ended May 31, 2020 | | Processing Activities | | | | | | | | | Energy commodities | | $ | 0.6 | | | $ | 0.4 | | Agriculture commodities | | | 0.5 | | | | 0.5 | | Other commodities | | | — | | | | 0.1 | | Foreign exchange | | | 1.0 | | | | 0.8 | |
| | | | | | | | | | Fair Value Impact | In Millions | Average During the Fiscal Year Ended May 27, 2018 | | Average During the Fiscal Year Ended May 28, 2017 | Processing Activities | | | | Energy commodities | $ | 0.2 |
| | $ | 0.4 |
| Agriculture commodities | 0.4 |
| | 0.5 |
| Foreign exchange | 0.7 |
| | 0.3 |
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Conagra Brands, Inc. and Subsidiaries Consolidated Statements of Operations Earnings(in millions, except per share amounts) | | For the Fiscal Years Ended May | | | | 2021 | | | 2020 | | | 2019 | | Net sales | | $ | 11,184.7 | | | $ | 11,054.4 | | | $ | 9,538.4 | | Costs and expenses: | | | | | | | | | | | | | Cost of goods sold | | | 8,005.5 | | | | 7,984.8 | | | | 6,885.4 | | Selling, general and administrative expenses | | | 1,403.0 | | | | 1,622.5 | | | | 1,473.4 | | Pension and postretirement non-service income | | | (54.5 | ) | | | (9.9 | ) | | | (35.1 | ) | Interest expense, net | | | 420.4 | | | | 487.1 | | | | 391.4 | | Income from continuing operations before income taxes and equity method investment earnings | | | 1,410.3 | | | | 969.9 | | | | 823.3 | | Income tax expense | | | 193.8 | | | | 201.3 | | | | 218.8 | | Equity method investment earnings | | | 84.4 | | | | 73.2 | | | | 75.8 | | Income from continuing operations | | | 1,300.9 | | | | 841.8 | | | | 680.3 | | Loss from discontinued operations, net of tax | | | 0 | | | | 0 | | | | (1.9 | ) | Net income | | $ | 1,300.9 | | | $ | 841.8 | | | $ | 678.4 | | Less: Net income attributable to noncontrolling interests | | | 2.1 | | | | 1.7 | | | | 0.1 | | Net income attributable to Conagra Brands, Inc. | | $ | 1,298.8 | | | $ | 840.1 | | | $ | 678.3 | | Earnings per share — basic | | | | | | | | | | | | | Income from continuing operations attributable to Conagra Brands, Inc. common stockholders | | $ | 2.67 | | | $ | 1.72 | | | $ | 1.53 | | Income from discontinued operations attributable to Conagra Brands, Inc. common stockholders | | | 0 | | | | 0 | | | | 0 | | Net income attributable to Conagra Brands, Inc. common stockholders | | $ | 2.67 | | | $ | 1.72 | | | $ | 1.53 | | Earnings per share — diluted | | | | | | | | | | | | | Income from continuing operations attributable to Conagra Brands, Inc. common stockholders | | $ | 2.66 | | | $ | 1.72 | | | $ | 1.53 | | Loss from discontinued operations attributable to Conagra Brands, Inc. common stockholders | | | 0 | | | | 0 | | | | (0.01 | ) | Net income attributable to Conagra Brands, Inc. common stockholders | | $ | 2.66 | | | $ | 1.72 | | | $ | 1.52 | |
| | | | | | | | | | | | | | For the Fiscal Years Ended May | | 2018 | | 2017 | | 2016 | Net sales | $ | 7,938.3 |
| | $ | 7,826.9 |
| | $ | 8,664.1 |
| Costs and expenses: | | | | | | Cost of goods sold | 5,586.8 |
| | 5,484.8 |
| | 6,234.9 |
| Selling, general and administrative expenses | 1,318.0 |
| | 1,417.1 |
| | 2,024.6 |
| Interest expense, net | 158.7 |
| | 195.5 |
| | 295.8 |
| Income from continuing operations before income taxes and equity method investment earnings | 874.8 |
| | 729.5 |
| | 108.8 |
| Income tax expense | 174.6 |
| | 254.7 |
| | 46.4 |
| Equity method investment earnings | 97.3 |
| | 71.2 |
| | 66.1 |
| Income from continuing operations | 797.5 |
| | 546.0 |
| | 128.5 |
| Income (loss) from discontinued operations, net of tax | 14.3 |
| | 102.0 |
| | (794.4 | ) | Net income (loss) | $ | 811.8 |
| | $ | 648.0 |
| | $ | (665.9 | ) | Less: Net income attributable to noncontrolling interests | 3.4 |
| | 8.7 |
| | 11.1 |
| Net income (loss) attributable to Conagra Brands, Inc. | $ | 808.4 |
| | $ | 639.3 |
| | $ | (677.0 | ) | Earnings (loss) per share — basic | | | | | | Income from continuing operations attributable to Conagra Brands, Inc. common stockholders | $ | 1.97 |
| | $ | 1.26 |
| | $ | 0.29 |
| Income (loss) from discontinued operations attributable to Conagra Brands, Inc. common stockholders | 0.03 |
| | 0.22 |
| | (1.86 | ) | Net income (loss) attributable to Conagra Brands, Inc. common stockholders | $ | 2.00 |
| | $ | 1.48 |
| | $ | (1.57 | ) | Earnings (loss) per share — diluted | | | | | | Income from continuing operations attributable to Conagra Brands, Inc. common stockholders | $ | 1.95 |
| | $ | 1.25 |
| | $ | 0.29 |
| Income (loss) from discontinued operations attributable to Conagra Brands, Inc. common stockholders | 0.03 |
| | 0.21 |
| | (1.85 | ) | Net income (loss) attributable to Conagra Brands, Inc. common stockholders | $ | 1.98 |
| | $ | 1.46 |
| | $ | (1.56 | ) |
The accompanying Notes are an integral part of the consolidated financial statements.
Conagra Brands, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (in millions) | | For the Fiscal Years Ended May | | | | 2021 | | | 2020 | | | 2019 | | | | Pre-Tax Amount | | | Tax (Expense) Benefit | | | After -Tax Amount | | | Pre-Tax Amount | | | Tax (Expense) Benefit | | | After-Tax Amount | | | Pre-Tax Amount | | | Tax (Expense) Benefit | | | After- Tax Amount | | Net income | | $ | 1,494.7 | | | $ | (193.8 | ) | | $ | 1,300.9 | | | $ | 1,043.1 | | | $ | (201.3 | ) | | $ | 841.8 | | | $ | 900.0 | | | $ | (221.6 | ) | | $ | 678.4 | | Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized derivative adjustments | | | 0.4 | | | | (1.8 | ) | | | (1.4 | ) | | | (7.1 | ) | | | 1.8 | | | | (5.3 | ) | | | 45.5 | | | | (11.4 | ) | | | 34.1 | | Reclassification for derivative adjustments included in net income | | | (1.6 | ) | | | 1.0 | | | | (0.6 | ) | | | (3.3 | ) | | | 0.9 | | | | (2.4 | ) | | | (1.9 | ) | | | 0.5 | | | | (1.4 | ) | Currency translation adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized currency translation gains (losses) | | | 53.3 | | | | (1.5 | ) | | | 51.8 | | | | (42.7 | ) | | | 1.4 | | | | (41.3 | ) | | | (10.2 | ) | | | 0 | | | | (10.2 | ) | Reclassification for currency translation losses included in net income | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 10.4 | | | | 0 | | | | 10.4 | | Pension and postretirement benefit obligations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized pension and postretirement benefit obligations | | | 95.1 | | | | (23.6 | ) | | | 71.5 | | | | 63.2 | | | | (15.9 | ) | | | 47.3 | | | | (43.8 | ) | | | 10.9 | | | | (32.9 | ) | Reclassification for pension and postretirement benefit obligations included in net income | | | (3.6 | ) | | | 0.9 | | | | (2.7 | ) | | | (5.5 | ) | | | 1.4 | | | | (4.1 | ) | | | (1.5 | ) | | | 0.4 | | | | (1.1 | ) | Comprehensive income | | | 1,638.3 | | | | (218.8 | ) | | | 1,419.5 | | | | 1,047.7 | | | | (211.7 | ) | | | 836.0 | | | | 898.5 | | | | (221.2 | ) | | | 677.3 | | Comprehensive income (loss) attributable to noncontrolling interests | | | 6.1 | | | | (0.8 | ) | | | 5.3 | | | | (3.9 | ) | | | (0.9 | ) | | | (4.8 | ) | | | (1.7 | ) | | | (0.1 | ) | | | (1.8 | ) | Comprehensive income attributable to Conagra Brands, Inc. | | $ | 1,632.2 | | | $ | (218.0 | ) | | $ | 1,414.2 | | | $ | 1,051.6 | | | $ | (210.8 | ) | | $ | 840.8 | | | $ | 900.2 | | | $ | (221.1 | ) | | $ | 679.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Fiscal Years Ended May | | 2018 | | 2017 | | 2016 | | Pre-Tax Amount | Tax (Expense) Benefit | After-Tax Amount | | Pre-Tax Amount | Tax (Expense) Benefit | After-Tax Amount | | Pre-Tax Amount | Tax (Expense) Benefit | After-Tax Amount | Net income (loss) | $ | 972.3 |
| $ | (160.5 | ) | $ | 811.8 |
| | $ | 989.2 |
| $ | (341.2 | ) | $ | 648.0 |
| | $ | (1,033.6 | ) | $ | 367.7 |
| $ | (665.9 | ) | Other comprehensive income (loss): | | | | | | | | | | | | Derivative adjustments: | | | | | | | | | | | | Unrealized derivative adjustments | 2.9 |
| (0.9 | ) | 2.0 |
| | (1.0 | ) | 0.4 |
| (0.6 | ) | | — |
| — |
| — |
| Reclassification for derivative adjustments included in net income | 0.1 |
| — |
| 0.1 |
| | (0.2 | ) | 0.1 |
| (0.1 | ) | | (2.1 | ) | 0.8 |
| (1.3 | ) | Unrealized gains on available-for-sale securities | 1.1 |
| (0.3 | ) | 0.8 |
| | 0.5 |
| (0.2 | ) | 0.3 |
| | 0.1 |
| — |
| 0.1 |
| Currency translation adjustment: | | | | | | | | | | | | Unrealized currency translation gains (losses) | 0.8 |
| (0.1 | ) | 0.7 |
| | (13.6 | ) | 0.2 |
| (13.4 | ) | | (58.9 | ) | — |
| (58.9 | ) | Reclassification for currency translation losses included in net income | — |
| — |
| — |
| | — |
| — |
| — |
| | 73.4 |
| — |
| 73.4 |
| Pension and post-employment benefit obligations: | | | | | | | | | | | | Unrealized pension and post-employment benefit obligations | 157.3 |
| (45.0 | ) | 112.3 |
| | 209.2 |
| (80.6 | ) | 128.6 |
| | (37.7 | ) | 14.8 |
| (22.9 | ) | Reclassification for pension and post-employment benefit obligations included in net income | 0.9 |
| (0.2 | ) | 0.7 |
| | 10.4 |
| (4.0 | ) | 6.4 |
| | (14.5 | ) | 4.9 |
| (9.6 | ) | Comprehensive income (loss) | 1,135.4 |
| (207.0 | ) | 928.4 |
| | 1,194.5 |
| (425.3 | ) | 769.2 |
| | (1,073.3 | ) | 388.2 |
| (685.1 | ) | Comprehensive income attributable to noncontrolling interests | 0.7 |
| (1.2 | ) | (0.5 | ) | | 12.6 |
| (0.7 | ) | 11.9 |
| | 7.8 |
| (0.9 | ) | 6.9 |
| Comprehensive income (loss) attributable to Conagra Brands, Inc. | $ | 1,134.7 |
| $ | (205.8 | ) | $ | 928.9 |
| | $ | 1,181.9 |
| $ | (424.6 | ) | $ | 757.3 |
| | $ | (1,081.1 | ) | $ | 389.1 |
| $ | (692.0 | ) |
The accompanying Notes are an integral part of the consolidated financial statements.
Conagra Brands, Inc. and Subsidiaries Consolidated Balance Sheets (in millions, except share data) | | May 30, 2021 | | | May 31, 2020 | | ASSETS | | | | | | | | | Current assets | | | | | | | | | Cash and cash equivalents | | $ | 79.2 | | | $ | 553.3 | | Receivables, less allowance for doubtful accounts of $3.2 and $2.6 | | | 793.9 | | | | 860.8 | | Inventories | | | 1,734.0 | | | | 1,364.8 | | Prepaid expenses and other current assets | | | 95.0 | | | | 93.9 | | Current assets held for sale | | | — | | | | 13.1 | | Total current assets | | | 2,702.1 | | | | 2,885.9 | | Property, plant and equipment | | | | | | | | | Land and land improvements | | | 156.5 | | | | 139.2 | | Buildings, machinery and equipment | | | 4,492.7 | | | | 4,088.6 | | Furniture, fixtures, office equipment and other | | | 674.4 | | | | 656.2 | | Construction in progress | | | 301.1 | | | | 243.8 | | | | | 5,624.7 | | | | 5,127.8 | | Less accumulated depreciation | | | (3,016.2 | ) | | | (2,762.4 | ) | Property, plant and equipment, net | | | 2,608.5 | | | | 2,365.4 | | Goodwill | | | 11,373.5 | | | | 11,361.5 | | Brands, trademarks and other intangibles, net | | | 4,157.6 | | | | 4,302.4 | | Other assets | | | 1,349.3 | | | | 1,273.4 | | Noncurrent assets held for sale | | | 4.6 | | | | 115.4 | | | | $ | 22,195.6 | | | $ | 22,304.0 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | Current liabilities | | | | | | | | | Notes payable | | $ | 707.4 | | | $ | 1.1 | | Current installments of long-term debt | | | 23.1 | | | | 845.5 | | Accounts payable | | | 1,655.9 | | | | 1,507.1 | | Accrued payroll | | | 175.2 | | | | 189.4 | | Other accrued liabilities | | | 744.6 | | | | 725.8 | | Current liabilities held for sale | | | — | | | | 18.5 | | Total current liabilities | | | 3,306.2 | | | | 3,287.4 | | Senior long-term debt, excluding current installments | | | 8,275.2 | | | | 8,900.8 | | Other noncurrent liabilities | | | 1,982.8 | | | | 2,165.1 | | Total liabilities | | | 13,564.2 | | | | 14,353.3 | | Commitments and contingencies (Note 16) | | | | | | | | | Common stockholders' equity | | | | | | | | | Common stock of $5 par value, authorized 1,200,000,000 shares; issued 584,219,229 | | | 2,921.2 | | | | 2,921.2 | | Additional paid-in capital | | | 2,342.1 | | | | 2,323.2 | | Retained earnings | | | 6,262.6 | | | | 5,471.2 | | Accumulated other comprehensive income (loss) | | | 5.8 | | | | (109.6 | ) | Less treasury stock, at cost, 103,934,839 and 97,057,311 common shares | | | (2,979.9 | ) | | | (2,729.9 | ) | Total Conagra Brands, Inc. common stockholders' equity | | | 8,551.8 | | | | 7,876.1 | | Noncontrolling interests | | | 79.6 | | | | 74.6 | | Total stockholders' equity | | | 8,631.4 | | | | 7,950.7 | | | | $ | 22,195.6 | | | $ | 22,304.0 | |
| | | | | | | | | | May 27, 2018 | | May 28, 2017 | ASSETS | | | | Current assets | | | | Cash and cash equivalents | $ | 128.0 |
| | $ | 251.4 |
| Receivables, less allowance for doubtful accounts of $2.0 and $3.1 | 582.6 |
| | 563.4 |
| Inventories | 997.1 |
| | 927.9 |
| Prepaid expenses and other current assets | 186.8 |
| | 228.7 |
| Current assets held for sale | 44.4 |
| | 41.8 |
| Total current assets | 1,938.9 |
| | 2,013.2 |
| Property, plant and equipment | | | | Land and land improvements | 108.6 |
| | 103.2 |
| Buildings, machinery and equipment | 3,238.8 |
| | 3,140.9 |
| Furniture, fixtures, office equipment and other | 628.9 |
| | 724.2 |
| Construction in progress | 85.9 |
| | 124.9 |
| | 4,062.2 |
| | 4,093.2 |
| Less accumulated depreciation | (2,442.1 | ) | | (2,460.1 | ) | Property, plant and equipment, net | 1,620.1 |
| | 1,633.1 |
| Goodwill | 4,502.5 |
| | 4,295.3 |
| Brands, trademarks and other intangibles, net | 1,284.5 |
| | 1,223.7 |
| Other assets | 906.3 |
| | 790.6 |
| Noncurrent assets held for sale | 137.2 |
| | 140.4 |
| | $ | 10,389.5 |
| | $ | 10,096.3 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current liabilities | | | | Notes payable | $ | 277.3 |
| | $ | 28.2 |
| Current installments of long-term debt | 307.0 |
| | 199.0 |
| Accounts payable | 915.1 |
| | 773.1 |
| Accrued payroll | 163.9 |
| | 167.6 |
| Other accrued liabilities | 672.9 |
| | 552.6 |
| Total current liabilities | 2,336.2 |
| | 1,720.5 |
| Senior long-term debt, excluding current installments | 3,035.6 |
| | 2,573.3 |
| Subordinated debt | 195.9 |
| | 195.9 |
| Other noncurrent liabilities | 1,065.2 |
| | 1,528.8 |
| Total liabilities | 6,632.9 |
| | 6,018.5 |
| Commitments and contingencies (Note 17) |
| |
| Common stockholders' equity | | | | 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 | 1,180.0 |
| | 1,171.9 |
| Retained earnings | 4,744.9 |
| | 4,247.0 |
| Accumulated other comprehensive loss | (110.5 | ) | | (212.9 | ) | Less treasury stock, at cost, 177,078,193 and 151,387,209 common shares | (4,977.9 | ) | | (4,054.9 | ) | Total Conagra Brands, Inc. common stockholders' equity | 3,676.2 |
| | 3,990.8 |
| Noncontrolling interests | 80.4 |
| | 87.0 |
| Total stockholders' equity | 3,756.6 |
| | 4,077.8 |
| | $ | 10,389.5 |
| | $ | 10,096.3 |
|
The accompanying Notes are an integral part of the consolidated financial statements.
Conagra Brands, Inc. and Subsidiaries Consolidated Statements of Common Stockholders' Equity (in millions) | | Conagra Brands, 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 27, 2018 | | | 567.9 | | | $ | 2,839.7 | | | $ | 1,180.0 | | | $ | 4,744.9 | | | $ | (110.5 | ) | | $ | (4,977.9 | ) | | $ | 80.4 | | | $ | 3,756.6 | | Stock option and incentive plans | | | | | | | | | | | (6.7 | ) | | | 0.1 | | | | | | | | 39.6 | | | 0.1 | | | | 33.1 | | Adoption of ASU 2016-01 | | | | | | | | | | | | | | | 0.6 | | | | (0.6 | ) | | | | | | | | | | | — | | Adoption of ASU 2014-09 | | | | | | | | | | | | | | | 0.5 | | | | | | | | | | | | | | | | 0.5 | | Currency translation adjustments | | | | | | | | | | | | | | | | | | | 2.1 | | | | | | | | (1.9 | ) | | | 0.2 | | Issuance of treasury shares | | | | | | | | | | 638.2 | | | | | | | | | | | | 2,178.1 | | | | | | | | 2,816.3 | | Issuance of common stock | | 16.3 | | | 81.5 | | | 474.2 | | | | | | | | | | | | | | | | | | | | 555.7 | | Derivative adjustments | | | | | | | | | | | | | | | | | | | 32.7 | | | | | | | | | | | | 32.7 | | Activities of noncontrolling interests | | | | | | | | | | | 0.3 | | | | | | | | | | | | | | | | 0.5 | | | | 0.8 | | Pension and postretirement healthcare benefits | | | | | | | | | | | | | | | | | | | (34.0 | ) | | | | | | | | | | | (34.0 | ) | Dividends declared on common stock; $0.85 per share | | | | | | | | | | | | | | | (376.5 | ) | | | | | | | | | | | | | | | (376.5 | ) | Net income attributable to Conagra Brands, Inc. | | | | | | | | | | | | | | | 678.3 | | | | | | | | | | | | | | | | 678.3 | | Balance at May 26, 2019 | | | 584.2 | | | | 2,921.2 | | | | 2,286.0 | | | | 5,047.9 | | | | (110.3 | ) | | | (2,760.2 | ) | | | 79.1 | | | | 7,463.7 | | Stock option and incentive plans | | | | | | | | | | | 37.2 | | | | (2.9 | ) | | | | | | | 30.3 | | | | | | | | 64.6 | | Currency translation adjustments | | | | | | | | | | | | | | | | | | | (34.8 | ) | | | | | | | (6.5 | ) | | | (41.3 | ) | Derivative adjustments | | | | | | | | | | | | | | | | | | | (7.7 | ) | | | | | | | | | | | (7.7 | ) | Activities of noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | 2.0 | | | | 2.0 | | Pension and postretirement healthcare benefits | | | | | | | | | | | | | | | | | | | 43.2 | | | | | | | | | | | | 43.2 | | Dividends declared on common stock; $0.85 per share | | | | | | | | | | | | | | | (413.9 | ) | | | | | | | | | | | | | | | (413.9 | ) | Net income attributable to Conagra Brands, Inc. | | | | | | | | | | | | | | | 840.1 | | | | | | | | | | | | | | | | 840.1 | | Balance at May 31, 2020 | | | 584.2 | | | | 2,921.2 | | | | 2,323.2 | | | | 5,471.2 | | | | (109.6 | ) | | | (2,729.9 | ) | | | 74.6 | | | | 7,950.7 | | Stock option and incentive plans | | | | | | | | | | | 18.9 | | | | (3.1 | ) | | | | | | | 48.1 | | | | 0.2 | | | | 64.1 | | Adoption of ASU 2016-13 | | | | | | | | | | | | | | | (1.1 | ) | | | | | | | | | | | | | | | (1.1 | ) | Currency translation adjustments | | | | | | | | | | | | | | | | | | | 48.6 | | | | | | | | 3.2 | | | | 51.8 | | Repurchase of common shares | | | | | | | | | | | | | | | | | | | | | | | (298.1 | ) | | | | | | | (298.1 | ) | Derivative adjustments | | | | | | | | | | | | | | | | | | | (2.0 | ) | | | | | | | | | | | (2.0 | ) | Activities of noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | | | | | 1.6 | | | | 1.6 | | Pension and postretirement healthcare benefits | | | | | | | | | | | | | | | | | | | 68.8 | | | | | | | | | | | | 68.8 | | Dividends declared on common stock; $1.0375 per share | | | | | | | | | | | | | | | (503.2 | ) | | | | | | | | | | | | | | | (503.2 | ) | Net income attributable to Conagra Brands, Inc. | | | | | | | | | | | | | | | 1,298.8 | | | | | | | | | | | | | | | | 1,298.8 | | Balance at May 30, 2021 | | | 584.2 | | | $ | 2,921.2 | | | $ | 2,342.1 | | | $ | 6,262.6 | | | $ | 5.8 | | | $ | (2,979.9 | ) | | $ | 79.6 | | | $ | 8,631.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conagra Brands, 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 31, 2015 | | 567.9 |
| | $ | 2,839.7 |
| | $ | 1,049.4 |
| | $ | 4,331.1 |
| | $ | (329.5 | ) | | $ | (3,364.7 | ) | | $ | 84.0 |
| | $ | 4,610.0 |
| Stock option and incentive plans | | | | | | 91.7 |
| | (1.2 | ) | | | | 228.5 |
| | | | 319.0 |
| Currency translation adjustment | | | | | | | | | | 18.7 |
| | | | (4.2 | ) | | 14.5 |
| Unrealized gain on securities | | | | | | | | | | 0.1 |
| | | | | | 0.1 |
| Derivative adjustment, net of reclassification adjustment | | | | | | | | | | (1.3 | ) | | | | | | (1.3 | ) | Activities of noncontrolling interests | | | | | | (4.8 | ) | | | | | | | | 1.4 |
| | (3.4 | ) | Pension and postretirement healthcare benefits | | | | | | | | | | (32.5 | ) | | | | | | (32.5 | ) | Dividends declared on common stock; $1.00 per share | | | | | | | | (434.6 | ) | | | | | | | | (434.6 | ) | Net loss attributable to Conagra Brands, Inc. | | | | | | | | (677.0 | ) | | | | | | | | (677.0 | ) | Balance at May 29, 2016 | | 567.9 |
| | 2,839.7 |
| | 1,136.3 |
| | 3,218.3 |
| | (344.5 | ) | | (3,136.2 | ) | | 81.2 |
| | 3,794.8 |
| Stock option and incentive plans | | | | | | 36.4 |
| | (1.3 | ) | | | | 81.3 |
| | | | 116.4 |
| Adoption of ASU 2016-09 | | | | | | | | (3.9 | ) | | | | | | | | (3.9 | ) | Spinoff of Lamb Weston | | | | | | | | 783.3 |
| | 13.6 |
| | | | | | 796.9 |
| Currency translation adjustment, net | | | | | | | | | | (16.6 | ) | | | | 3.2 |
| | (13.4 | ) | Repurchase of common shares | | | | | | | | | | | | (1,000.0 | ) | | | | (1,000.0 | ) | Unrealized gain on securities | | | | | | | | | | 0.3 |
| | | | | | 0.3 |
| Derivative adjustment, net of reclassification adjustment | | | | | | | | | | (0.7 | ) | | | | | | (0.7 | ) | Activities of noncontrolling interests | | | | | | (0.8 | ) | | | | | | | | 2.6 |
| | 1.8 |
| Pension and postretirement healthcare benefits | | | | | | | | | | 135.0 |
| | | | | | 135.0 |
| Dividends declared on common stock; $0.90 per share | | | | | | | | (388.7 | ) | | | | | | | | (388.7 | ) | Net income attributable to Conagra Brands, Inc. | | | | | | | | 639.3 |
| | | | | | | | 639.3 |
| Balance at May 28, 2017 | | 567.9 |
| | 2,839.7 |
| | 1,171.9 |
| | 4,247.0 |
| | (212.9 | ) | | (4,054.9 | ) | | 87.0 |
| | 4,077.8 |
| Stock option and incentive plans | | | | | | 10.0 |
| | (0.8 | ) | | | | 44.3 |
| | 0.2 |
| | 53.7 |
| Spinoff of Lamb Weston | | | | | | | | 14.8 |
| | | | | | | | 14.8 |
| Adoption of ASU 2018-02 | | | | | | | | 17.4 |
| | (17.4 | ) | | | | | | — |
| Currency translation adjustment, net | | | | | | | | | | 4.6 |
| | | | (3.9 | ) | | 0.7 |
| Repurchase of common shares | | | | | | | | | | | | (967.3 | ) | | | | (967.3 | ) | Unrealized gain on securities | | | | | | | | | | 0.8 |
| | | | | | 0.8 |
| Derivative adjustment, net of reclassification adjustment | | | | | | | | | | 2.1 |
| | | | | | 2.1 |
| Activities of noncontrolling interests | | | | | | (1.9 | ) | | | | (0.7 | ) | | | | (2.9 | ) | | (5.5 | ) | Pension and postretirement healthcare benefits | | | | | | | | | | 113.0 |
| | | | | | 113.0 |
| Dividends declared on common stock; $0.85 per share | | | | | | | | (341.9 | ) | | | | | | | | (341.9 | ) | Net income attributable to Conagra Brands, Inc. | | | | | | | | 808.4 |
| | | | | | | | 808.4 |
| Balance at May 27, 2018 | | 567.9 |
| | $ | 2,839.7 |
| | $ | 1,180.0 |
| | $ | 4,744.9 |
| | $ | (110.5 | ) | | $ | (4,977.9 | ) | | $ | 80.4 |
| | $ | 3,756.6 |
|
The accompanying Notes are an integral part of the consolidated financial statements.
Conagra Brands, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in millions) | | For the Fiscal Years Ended May | | | | 2021 | | | 2020 | | | 2019 | | Cash flows from operating activities: | | | | | | | | | | | | | Net income | | $ | 1,300.9 | | | $ | 841.8 | | | $ | 678.4 | | Loss from discontinued operations | | | 0 | | | | 0 | | | | (1.9 | ) | Income from continuing operations | | | 1,300.9 | | | | 841.8 | | | | 680.3 | | Adjustments to reconcile income from continuing operations to net cash flows from operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 387.7 | | | | 388.9 | | | | 333.0 | | Asset impairment charges | | | 95.5 | | | | 259.9 | | | | 93.8 | | Loss (gain) on divestitures | | | (65.5 | ) | | | 2.2 | | | | (69.4 | ) | Loss on extinguishment of debt | | | 68.7 | | | | 1.0 | | | | 5.5 | | Significant litigation accruals | | | 0 | | | | 0 | | | | (39.3 | ) | Proceeds from the settlement of interest rate swaps | | | 0 | | | | 0 | | | | 47.5 | | Novation of a legacy guarantee | | | 0 | | | | 0 | | | | (27.3 | ) | Equity method investment earnings in excess of distributions | | | (27.9 | ) | | | (21.8 | ) | | | (20.8 | ) | Stock-settled share-based payments expense | | | 63.9 | | | | 59.2 | | | | 33.7 | | Contributions to pension plans | | | (27.6 | ) | | | (17.5 | ) | | | (14.7 | ) | Pension expense (benefit) | | | (38.3 | ) | | | 5.9 | | | | (22.7 | ) | Other items | | | 9.1 | | | | 10.3 | | | | 12.3 | | Change in operating assets and liabilities excluding effects of business acquisitions and dispositions: | | | | | | | | | | | | | Receivables | | | 66.1 | | | | (43.8 | ) | | | (69.1 | ) | Inventories | | | (364.3 | ) | | | 163.5 | | | | 78.0 | | Deferred income taxes and income taxes payable, net | | | (92.5 | ) | | | 23.1 | | | | 83.7 | | Prepaid expenses and other current assets | | | (8.5 | ) | | | (13.6 | ) | | | (19.1 | ) | Accounts payable | | | 141.4 | | | | 234.4 | | | | 38.2 | | Accrued payroll | | | (14.3 | ) | | | 15.9 | | | | 0.1 | | Other accrued liabilities | | | (60.2 | ) | | | (66.8 | ) | | | (9.4 | ) | Deferred employer payroll taxes | | | 33.9 | | | | 0 | | | | 0 | | Net cash flows from operating activities - continuing operations | | | 1,468.1 | | | | 1,842.6 | | | | 1,114.3 | | Net cash flows from operating activities - discontinued operations | | | 0 | | | | 0 | | | | 11.2 | | Net cash flows from operating activities | | | 1,468.1 | | | | 1,842.6 | | | | 1,125.5 | | Cash flows from investing activities: | | | | | | | | | | | | | Additions to property, plant and equipment | | | (506.4 | ) | | | (369.5 | ) | | | (353.1 | ) | Sale of property, plant and equipment | | | 2.5 | | | | 14.0 | | | | 22.5 | | Purchase of business, net of cash acquired | | | 0 | | | | 0 | | | | (5,119.2 | ) | Proceeds from divestitures, net of cash divested | | | 160.9 | | | | 194.6 | | | | 281.5 | | Purchase of marketable securities | | | (11.8 | ) | | | (46.8 | ) | | | (61.0 | ) | Sales of marketable securities | | | 14.5 | | | | 53.8 | | | | 52.2 | | Other items | | | 0 | | | | 0.1 | | | | 11.1 | | Net cash flows from investing activities | | | (340.3 | ) | | | (153.8 | ) | | | (5,166.0 | ) | Cash flows from financing activities: | | | | | | | | | | | | | Issuances of commercial paper, maturities greater than 90 days | | | 298.6 | | | | 0 | | | | 0 | | Repayments of commercial paper, maturities greater than 90 days | | | (298.6 | ) | | | 0 | | | | 0 | | Net issuances (repayments) of other short-term borrowings | | | 706.3 | | | | 0.1 | | | | (277.3 | ) | Issuance of long-term debt | | | 988.2 | | | | 0 | | | | 8,310.5 | | Repayment of long-term debt | | | (2,514.5 | ) | | | (947.5 | ) | | | (3,972.7 | ) | Debt issuance costs and bridge financing fees | | | (6.2 | ) | | | 0 | | | | (95.2 | ) | Payment of intangible asset financing arrangement | | | (12.9 | ) | | | (13.6 | ) | | | (14.0 | ) | Issuance of Conagra Brands, Inc. common shares, net | | | 0 | | | | 0 | | | | 555.7 | | Repurchase of Conagra Brands, Inc. common shares | | | (298.1 | ) | | | 0 | | | | 0 | | Cash dividends paid | | | (474.6 | ) | | | (413.6 | ) | | | (356.2 | ) | Exercise of stock options and issuance of other stock awards, including tax withholdings | | | (0.1 | ) | | | 4.8 | | | | (1.6 | ) | Other items | | | 2.3 | | | | (0.6 | ) | | | 0.6 | | Net cash flows from financing activities | | | (1,609.6 | ) | | | (1,370.4 | ) | | | 4,149.8 | | Effect of exchange rate changes on cash and cash equivalents and restricted cash | | | 7.7 | | | | (1.7 | ) | | | (0.7 | ) | Net change in cash and cash equivalents and restricted cash | | | (474.1 | ) | | | 316.7 | | | | 108.6 | | Cash and cash equivalents and restricted cash at beginning of year | | | 554.3 | | | | 237.6 | | | | 129.0 | | Cash and cash equivalents and restricted cash at end of year | | $ | 80.2 | | | $ | 554.3 | | | $ | 237.6 | |
| | | | | | | | | | | | | | For the Fiscal Years Ended May | | 2018 | | 2017 | | 2016 | Cash flows from operating activities: | | | | | | Net income (loss) | $ | 811.8 |
| | $ | 648.0 |
| | $ | (665.9 | ) | Income (loss) from discontinued operations | 14.3 |
| | 102.0 |
| | (794.4 | ) | Income from continuing operations | 797.5 |
| | 546.0 |
| | 128.5 |
| Adjustments to reconcile income from continuing operations to net cash flows from operating activities: | | | | | | Depreciation and amortization | 257.0 |
| | 268.0 |
| | 278.5 |
| Asset impairment charges | 14.7 |
| | 343.3 |
| | 62.6 |
| Gain on divestitures | — |
| | (197.4 | ) | | — |
| Lease cancellation expense | 48.2 |
| | — |
| | 55.6 |
| Loss on extinguishment of debt | — |
| | 93.3 |
| | 23.9 |
| Significant litigation accruals | 151.0 |
| | — |
| | — |
| Earnings of affiliates in excess of distributions | (34.8 | ) | | (3.0 | ) | | (25.7 | ) | Stock-settled share-based payments expense | 37.9 |
| | 36.1 |
| | 41.8 |
| Contributions to pension plans | (312.6 | ) | | (163.0 | ) | | (11.5 | ) | Pension expense (benefit) | (56.1 | ) | | (21.4 | ) | | 358.1 |
| Other items | (34.0 | ) | | 39.9 |
| | 53.6 |
| Change in operating assets and liabilities excluding effects of business acquisitions and dispositions: | | | | | | Receivables | (4.7 | ) | | 104.7 |
| | (156.8 | ) | Inventories | (62.8 | ) | | 123.3 |
| | 66.1 |
| Deferred income taxes and income taxes payable, net | 10.5 |
| | 52.3 |
| | (264.9 | ) | Prepaid expenses and other current assets | 3.2 |
| | 15.0 |
| | 10.8 |
| Accounts payable | 144.9 |
| | 71.0 |
| | (118.3 | ) | Accrued payroll | (8.0 | ) | | (52.4 | ) | | 68.9 |
| Other accrued liabilities | (32.2 | ) | | (114.9 | ) | | 54.3 |
| Net cash flows from operating activities - continuing operations | 919.7 |
| | 1,140.8 |
| | 625.5 |
| Net cash flows from operating activities - discontinued operations | 34.5 |
| | 34.7 |
| | 633.7 |
| Net cash flows from operating activities | 954.2 |
| | 1,175.5 |
| | 1,259.2 |
| Cash flows from investing activities: | | | | | | Additions to property, plant and equipment | (251.6 | ) | | (242.1 | ) | | (277.5 | ) | Sale of property, plant and equipment | 8.0 |
| | 13.2 |
| | 35.7 |
| Proceeds from divestitures | — |
| | 489.0 |
| | — |
| Purchase of business and intangible assets | (337.1 | ) | | (325.7 | ) | | (10.4 | ) | Other items | 4.5 |
| | — |
| | 0.3 |
| Net cash flows from investing activities - continuing operations | (576.2 | ) | | (65.6 | ) | | (251.9 | ) | Net cash flows from investing activities - discontinued operations | — |
| | (123.7 | ) | | 2,379.3 |
| Net cash flows from investing activities | (576.2 | ) | | (189.3 | ) | | 2,127.4 |
| Cash flows from financing activities: | | | | | | Net short-term borrowings | 249.1 |
| | 14.3 |
| | 9.5 |
| Issuance of long-term debt, net of debt issuance costs | 797.0 |
| | — |
| | — |
| Repayment of long-term debt | (242.3 | ) | | (1,064.5 | ) | | (2,523.2 | ) | Payment of intangible asset financing arrangement | (14.4 | ) | | (14.9 | ) | | — |
| Repurchase of Conagra Brands, Inc. common shares | (967.3 | ) | | (1,000.0 | ) | | — |
| Sale of Conagra Brands, Inc. common shares | — |
| | — |
| | 8.6 |
| Cash dividends paid | (342.3 | ) | | (415.0 | ) | | (432.5 | ) | Exercise of stock options and issuance of other stock awards, including tax withholdings | 14.9 |
| | 73.8 |
| | 208.4 |
| Other items | (1.6 | ) | | (1.9 | ) | | — |
| Net cash flows from financing activities - continuing operations | (506.9 | ) | | (2,408.2 | ) | | (2,729.2 | ) | Net cash flows from financing activities - discontinued operations | — |
| | 839.1 |
| | (4.0 | ) | Net cash flows from financing activities | (506.9 | ) | | (1,569.1 | ) | | (2,733.2 | ) | Effect of exchange rate changes on cash and cash equivalents | 5.5 |
| | (0.2 | ) | | (2.0 | ) | Net change in cash and cash equivalents | (123.4 | ) | | (583.1 | ) | | 651.4 |
| Add: Cash balance included in assets held for sale and discontinued operations at beginning of period | — |
| | 36.4 |
| | 49.0 |
| Less: Cash balance included in assets held for sale and discontinued operations at end of period | — |
| | — |
| | 36.4 |
| Cash and cash equivalents at beginning of year | 251.4 |
| | 798.1 |
| | 134.1 |
| Cash and cash equivalents at end of year | $ | 128.0 |
| | $ | 251.4 |
| | $ | 798.1 |
|
The accompanying Notes are an integral part of the consolidated financial statements.
42
Notes to Consolidated Financial Statements Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year — The fiscal year of Conagra Brands, Inc. ("Conagra Brands", "Company", "we", "us", or "our") ends the last Sunday in May. The fiscal years for the consolidated financial statements presented consist of a 52-week periodsperiod for fiscal years 2018, 2017,2021, a 53-week period for fiscal 2020, and 2016.a 52-week period for fiscal year 2019.Basis of Consolidation — The consolidated financial statements include the accounts of Conagra Brands, 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 consolidated financial statements from the date such determination is made. All significant intercompany investments, accounts, and transactions have been eliminated. On November 9, 2016, we completed the spinoff of Lamb Weston Holdings, Inc. ("Lamb Weston") through a distribution of 100% of our interest in Lamb Weston to holders of shares of our common stock as of November 1, 2016 (the "Spinoff"). In accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), the results of operations of the Lamb Weston operations are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented (see Note 6 for additional discussion).
Investments in Unconsolidated Affiliates — The investments in, and the operating results of, 50%-or-less-owned entities not required to be consolidated are included in the consolidated financial statements on the basis of the equity method of accounting or the cost method of accounting, depending on specific facts and circumstances.accounting.We review our investments in unconsolidated affiliates for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investments may not be fully recoverable. Evidence of a loss in value that is other than temporary includes, but is not limited to, the absence of an ability to recover the carrying amount of the investment, the inability of the investee to sustain an earnings capacity which would justify the carrying amount of the investment, or, where applicable, estimated sales proceeds which are insufficient to recover the carrying amount of the investment. Management's assessment as to whether any decline in value is other than temporary is based on our ability and intent to hold the investment and whether evidence indicating the carrying value of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Management generally considers our investments in equity method investees to be strategic long-term investments. Therefore, management completes its assessments with a long-term viewpoint. If the fair value of the investment is determined to be less than the carrying value and the decline in value is considered to be other than temporary, an appropriate write-down is recorded based on the excess of the carrying value over the best estimate of fair value of the investment. Cash and Cash Equivalents — Cash and all highly liquid investments with an original maturity of three months or less at the date of acquisition, including short-term time deposits and government agency and corporate obligations, are classified as cash and cash equivalents.Receivables — Receivables from customers generally do not bear interest. Terms and collection vary by location and channel. The allowance for doubtful accounts represents our estimate of probable non-payments and credit losses in our existing receivables, as determined based on a review of past due balances and other specific account data. Account balances are written off against the allowance when we deem them uncollectible.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The following table details the balances of our allowance for doubtful accounts and changes therein: | | Balance at Beginning of Period | | | Additions Charged to Costs and Expenses | | | Other1 | | | Deductions from Reserves2 | | | Balance at Close of Period | | Year ended May 30, 2021 | | $ | 2.6 | | | | 0.6 | | | | 0.7 | | | | 0.7 | | | $ | 3.2 | | Year ended May 31, 2020 | | $ | 2.2 | | | | 1.2 | | | | 0.1 | | | | 0.9 | | | $ | 2.6 | | Year ended May 26, 2019 | | $ | 1.7 | | | | 0.6 | | | | 0.5 | | | | 0.6 | | | $ | 2.2 | |
| | | | | | | | | | | | | | | | | | | | | Balance at Beginning of Period | | Additions Charged to Costs and Expenses | | Other | | Deductions from Reserves | | Balance at Close of Period | Year ended May 27, 2018 | | $ | 3.1 |
| | 0.8 |
| | — |
| | 1.9 |
| (2) | $ | 2.0 |
| Year ended May 28, 2017 | | $ | 3.2 |
| | 1.0 |
| | — |
| | 1.1 |
| (2) | $ | 3.1 |
| Year ended May 29, 2016 | | $ | 3.0 |
| | 1.1 |
| | (0.1 | ) | (1) | 0.8 |
| (2) | $ | 3.2 |
|
| | (1)
| Primarily translation incurred during fiscal 2016. |
| | (2)
| Bad debts charged off and adjustments to previous reserves, less recoveries. |
1 Primarily relates to translation, the adoption of Accounting Standards Update ("ASU") 2016-13, and the acquisition of Pinnacle Foods Inc. ("Pinnacle"). 2Bad debts charged off and adjustments to previous reserves, less recoveries. 43
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018 (columnar dollars in millions except per share amounts) Inventories — We use the lower of cost (determined using the first-in, first-out method) or market for valuing inventories.Property, Plant and Equipment — Property, plant and equipment are carried at cost. Depreciation has been calculated using the straight-line method over the estimated useful lives of the respective classes of assets as follows: | | | | | | | Land improvements | | 1 - 40 years | Buildings | | 15 - 40 years | Machinery and equipment | | 3 - 20 years | Furniture, fixtures, office equipment and other | | 5 - 15 years |
We review property, plant and equipment for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Recoverability of an asset considered "held-and-used" is determined by comparing the carrying amount of the asset to the undiscounted net cash flows expected to be generated from the use of the asset. If the carrying amount is greater than the undiscounted net cash flows expected to be generated by the asset, the asset's carrying amount is reduced to its estimated fair value. An asset considered "held-for-sale" is reported at the lower of the asset's carrying amount or fair value. During fiscal 2021, 2020, and 2019 our capital expenditures totaled $506.4 million, $369.5 million, and $353.1 million, respectively. Accrued and unpaid capital expenditures as of May 30, 2021, May 31, 2020, May 26, 2019, and May 27, 2018 totaled $123.7 million, $112.9 million, $64.4 million, and $40.6 million, respectively. Goodwill and Other Identifiable Intangible Assets — Goodwill and other identifiable intangible assets with indefinite lives (e.g., brands or trademarks) are not amortized and are tested annually for impairment of value and whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill and other intangible assets.In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). Furthermore, management considers the results of the most recent quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital between the current and prior years for each reporting unit. Under the goodwill quantitative impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. We estimate the fair value using level 3 inputs as defined by the fair value hierarchy. Refer to Note 2019 for the definition of the levels in the fair value hierarchy. The inputs used to calculate
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
the fair value include a number of subjective factors, such as estimates of future cash flows, estimates of our future cost structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time horizon of cash flow forecasts. Prior to the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeded its fair value, we completed a second step of the test to determine the amount of goodwill impairment loss, if any, to be recognized. In the second step, we estimated an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The impairment loss was equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill. Beginning in the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit. In assessing other intangible assets not subject to amortization for impairment, we have the option to perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of such an intangible asset is less than its carrying amount. If we determine that it is not more likely than not that the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform any additional 44
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) tests for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment, then we are required to perform a quantitative impairment test that involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. In fiscal 2018, 2017,2021, 2020, and 20162019 we elected to perform a quantitative impairment test for other intangible assets not subject to amortization. The estimates of fair value of intangible assets not subject to amortization are determined using a "relief from royalty" methodology, which is used in estimating the fair value of our brands/trademarks. Discount rate assumptions are based on an assessment of the risk inherent in the projected future cash flows generated by the respective intangible assets. Also subject to judgment are assumptions about royalty rates. Identifiable intangible assets with definite lives (e.g., licensing arrangements with contractual lives or customer relationships) are amortized over their estimated useful lives and tested for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. Identifiable intangible assets with definite lives are evaluated for impairment using a process similar to that used in evaluating elements of property, plant and equipment. If impaired, the asset is written down to its fair value. Refer to Note 98 for discussion of the impairment charges related to goodwill and intangible assets in fiscal 2018, 2017,2021, 2020, and 2016. 2019.Fair Values of Financial Instruments — Unless otherwise specified, we believe the carrying value of financial instruments approximates their fair value. Environmental Liabilities — Environmental liabilities are accrued when it is probable that obligations have been incurred and the associated amounts can be reasonably estimated. We use third-party specialists to assist management in appropriately measuring the obligations associated with environmental liabilities. Such liabilities are adjusted as new information develops or circumstances change. We do not discount our environmental liabilities as the timing of the anticipated cash payments is not fixed or readily determinable. Management's estimate of our potential liability is independent of any potential recovery of insurance proceeds or indemnification arrangements. We do not reduce our environmental liabilities for potential insurance recoveries.Employment-Related Benefits — Employment-related benefits associated with pensions, postretirement health care benefits, and workers' compensation are expensed as such obligations are incurred. The recognition of expense is impacted by estimates made by management, such as discount rates used to value these liabilities, future health care costs, and employee accidents incurred but not yet reported. We use third-party specialists to assist management in appropriately measuring the obligations associated with employment-related benefits.We recognize changes in the fair value of pension plan assets and net actuarial gains or losses in excess of 10% of the greater of the market-related value of plan assets or the plan's projected benefit obligation (the "corridor") in current period expense annually as of our measurement date, which is our fiscal year-end, or when measurement is required otherwise under U.S. generally accepted accounting principles.
principles ("GAAP").Revenue Recognition — Our revenues primarily consist of the sale of food products that are sold to retailers and foodservice customers through direct sales forces, broker, and distributor arrangements. These revenue contracts generally have single performance obligations. Revenue, which includes shipping and handling charges billed to the customer, is reported net of variable consideration and consideration payable to our customers, including applicable discounts, returns, allowances, trade promotion, consumer coupon redemption, unsaleable product, and other costs. Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis and, therefore, we do not have any significant financing components. We recognize revenue when (or as) performance obligations are satisfied by transferring control of the goods to customers. Control is transferred upon delivery of the goods to the customer. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. We assess the goods 45
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
Revenue Recognition — Revenueand services promised in our customers' purchase orders and identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is recognized when titledistinct. We offer various forms of trade promotions and risk of lossthe methodologies for determining these provisions are transferreddependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to customers upon deliveryprovisions based on termsactual occurrence or performance. Our promotional activities are conducted either through the retail trade or directly with consumers and include activities such as in-store displays and events, feature price discounts, consumer coupons, and loyalty programs. The costs of salethese activities are recognized at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by either the retail trade or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and collectability is reasonably assured. Revenue isactual redemptions are recognized as the net amount to be received after deducting estimated amounts for discounts, trade allowances, and returns of damaged and out-of-date products. Shipping and Handling — Amounts billed to customers related to shipping and handling are includeda change in net sales. Shipping and handling costs are includedmanagement estimate in cost of goods sold.
Marketinga subsequent period.Advertising Costs — We promote our products with advertising, consumer incentives, and trade promotions. Such programs include, but are not limited to, discounts, coupons, rebates, and volume-based incentives. Advertising costs are expensed as incurred. Consumer incentives and trade promotion activities are recorded as a reduction of revenue or as a component of cost of goods sold based on amounts estimated as being due to customers and consumers at the end of the period, based principally on historical utilization and redemption rates. Advertising and promotion expenses totaled $278.6$258.0 million, $328.3$230.7 million, and $347.2$253.4 million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively, and are included in selling, general and administrative ("SG&A") expenses.Research and Development — We incurred expenses of $47.3$51.3 million, $44.6$56.4 million, and $59.6$56.1 million for research and development activities in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively.Comprehensive Income — Comprehensive income includes net income, currency translation adjustments, certain derivative-related activity, changes in the value of available-for-sale investments (prior to the adoption of ASU 2016-01), and changes in prior service cost and net actuarial gains (losses) from pension (for amounts not in excess of the 10% "corridor") and postretirement health care plans. On foreign investments we deem to be essentially permanent in nature, we do not provide for taxes on currency translation adjustments arising from converting an 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 will be provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.The following table details the accumulated balances for each component of other comprehensive income (loss), net of tax: | | 2021 | | | 2020 | | | 2019 | | Currency translation losses, net of reclassification adjustments | | $ | (77.1 | ) | | $ | (125.7 | ) | | $ | (90.9 | ) | Derivative adjustments, net of reclassification adjustments | | | 24.3 | | | | 26.3 | | | | 34.0 | | Pension and postretirement benefit obligations, net of reclassification adjustments | | | 58.6 | | | | (10.2 | ) | | | (53.4 | ) | Accumulated other comprehensive income (loss)1 | | $ | 5.8 | | | $ | (109.6 | ) | | $ | (110.3 | ) |
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Currency translation losses, net of reclassification adjustments | $ | (94.7 | ) | | $ | (98.6 | ) | | $ | (95.2 | ) | Derivative adjustments, net of reclassification adjustments | 1.0 |
| | (1.1 | ) | | (0.4 | ) | Unrealized gains (losses) on available-for-sale securities | 0.6 |
| | (0.3 | ) | | (0.6 | ) | Pension and post-employment benefit obligations, net of reclassification adjustments | (17.4 | ) | | (112.9 | ) | | (248.3 | ) | Accumulated other comprehensive loss 1 | $ | (110.5 | ) | | $ | (212.9 | ) | | $ | (344.5 | ) |
1 Net of stranded tax effects from change in tax rateunrealized gains on available-for-sale securities reclassified to retained earnings as a result of the early adoption of ASU 2018-022016-01 in fiscal 2019 in the amount of $17.4 million which has been reclassified to retained earnings.
$0.6 million.46
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
The following table summarizes the reclassifications from accumulated other comprehensive lossincome (loss) into income (loss): income: | | | | | | | | | | | | | | Affected Line Item in the Consolidated Statement of Earnings1 | | | 2021 | | | 2020 | | | 2019 | | | | Net derivative adjustments: | | | | | | | | | | | | | | | Cash flow hedges | | $ | (3.2 | ) | | $ | (3.3 | ) | | $ | (1.9 | ) | | Interest expense, net | Cash flow hedges | | | (0.5 | ) | | | 0 | | | | 0 | | | Selling, general and administrative expenses | Cash flow hedges | | | 2.1 | | | | 0 | | | | 0 | | | Equity method investment earnings | | | | (1.6 | ) | | | (3.3 | ) | | | (1.9 | ) | | Total before tax | | | | 1.0 | | | | 0.9 | | | | 0.5 | | | Income tax expense | | | $ | (0.6 | ) | | $ | (2.4 | ) | | $ | (1.4 | ) | | Net of tax | Amortization of pension and postretirement benefit obligations: | | | | | | | | | | | | | | | Net prior service cost | | $ | 0.2 | | | $ | 0.6 | | | $ | 0.9 | | | Pension and postretirement non-service income | Net actuarial gain | | | (3.5 | ) | | | (4.6 | ) | | | (1.4 | ) | | Pension and postretirement non-service income | Pension settlement | | | 0 | | | | (2.1 | ) | | | 0 | | | Pension and postretirement non-service income | Postretirement healthcare settlement | | | (0.5 | ) | | | (0.2 | ) | | | (1.0 | ) | | Pension and postretirement non-service income | Curtailment | | | 0.2 | | | | 0.8 | | | | 0 | | | Pension and postretirement non-service income | | | | (3.6 | ) | | | (5.5 | ) | | | (1.5 | ) | | Total before tax | | | | 0.9 | | | | 1.4 | | | | 0.4 | | | Income tax expense | | | $ | (2.7 | ) | | $ | (4.1 | ) | | $ | (1.1 | ) | | Net of tax | Currency translation losses | | $ | 0 | | | $ | 0 | | | $ | 10.4 | | | Selling, general and administrative expenses | | | | 0 | | | | 0 | | | | 10.4 | | | Total before tax | | | | 0 | | | | 0 | | | | 0 | | | Income tax expense | | | $ | 0 | | | $ | 0 | | | $ | 10.4 | | | Net of tax |
| | | | | | | | | | | | | | | | | | | | | | Affected Line Item in the Consolidated Statement of Operations1 | | 2018 | | 2017 | | 2016 | | | Net derivative adjustment, net of tax: | | | | | | | | Cash flow hedges | $ | 0.1 |
| | $ | (0.2 | ) | | $ | (2.1 | ) | | Interest expense, net | | 0.1 |
| | (0.2 | ) | | (2.1 | ) | | Total before tax | | — |
| | 0.1 |
| | 0.8 |
| | Income tax expense | | $ | 0.1 |
| | $ | (0.1 | ) | | $ | (1.3 | ) | | Net of tax | Amortization of pension and postretirement healthcare liabilities: | | | | | | | | Net prior service benefit | $ | (0.4 | ) | | $ | (3.9 | ) | | $ | (5.1 | ) | | Selling, general and administrative expenses | Divestiture of Private Brands | — |
| | — |
| | (4.3 | ) | | Income (loss) from discontinued operations, net of tax | Pension settlement of equity method investee | — |
| | — |
| | (5.2 | ) | | Equity method investment earnings | Pension settlement | 1.3 |
| | 13.8 |
| | — |
| | Selling, general and administrative expenses | Net actuarial loss | — |
| | 0.5 |
| | 0.1 |
| | Selling, general and administrative expenses | | 0.9 |
| | 10.4 |
| | (14.5 | ) | | Total before tax | | (0.2 | ) | | (4.0 | ) | | 4.9 |
| | Income tax expense | | $ | 0.7 |
| | $ | 6.4 |
| | $ | (9.6 | ) | | Net of tax | Currency translation losses | $ | — |
| | $ | — |
| | $ | 73.4 |
| | Income (loss) from discontinued operations, net of tax | | — |
| | — |
| | 73.4 |
| | Total before tax | | — |
| | — |
| | — |
| | Income tax expense | | $ | — |
| | $ | — |
| | $ | 73.4 |
| | Net of tax |
1 Amounts in parentheses indicate income recognized in the Consolidated Statements of Operations.Earnings.Foreign Currency Transaction Gains and Losses — We recognized net foreign currency transaction losses from continuing operationsgains of $1.4 million, $1.5 million, and $5.1$8.2 million in fiscal 2018, 2017,2021 and 2016,net foreign currency transaction losses of $1.7 million and $2.3 million in fiscal 2020 and 2019, respectively, in SG&A expenses. Business Combinations — We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.Reclassifications and other changes — 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 principlesU.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets, liabilities, revenues, and expenses as reflected in the consolidated financial statements. Actual results could differ from these estimates.Accounting Changes — In July 2015,June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards UpdateASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU"ASU 2016-13") 2015-11, Inventory, which requires an entityto update the methodology used to measure inventory within the scopecurrent expected credit losses. This ASU applies to financial assets measured at the lower ofamortized cost, including loans, net investments in leases, and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal,trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments and transportation.guarantees. We adopted this ASU prospectively in the first quarter of fiscal 2018.2021 using the modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The adoption of this guidanceASU did not have a material impact to our consolidated financial statements.
statements and related disclosures.47
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from "An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018" (the "Act") that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. This ASU, however, does not change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. We elected to early adopt this ASU for the period ended February 25, 2018. The amount of the reclassification was $17.4 million.
Recently Issued Accounting Standards — In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP. On July 9, 2015, the FASB deferred the effective date of the new revenue recognition standard by one year. The updated standard is effective for fiscal years beginning after December 15, 2017. Based on the FASB's ASU, we will apply the new revenue standard in our fiscal year 2019. Early adoption in our fiscal year 2018 is permitted. Entities will have the option to adopt the ASU using either the full retrospective or modified retrospective transition method. We have concluded our assessment of the new standard and will be adopting the provisions of the ASU utilizing the modified retrospective transition method. The adoption of ASU 2014-09 will not have a material impact on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The effective date for this standard is for fiscal years beginning after December 31, 2017. We do not expect ASU 2016-01 to have a material impact to our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases,, Topic 842, which requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective dateWe adopted this ASU in the first quarter of fiscal 2020 using the optional transition method provided under ASU 2018-11, Leases, Topic 842: Targeted Improvement, issued in July 2018, allowing for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that this standard will have on our consolidated financial statements and related disclosures. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.In August 2016,standard at adoption date, with recognition of a cumulative-effect adjustment to the FASB issued ASU 2016-15, Statementopening balance of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash paymentsretained earnings in the statementperiod of cash flows.adoption. We also elected certain practical expedients permitted under the transition guidance, including not reassessing whether existing contracts contain leases and carrying forward the historical classification of leases. The effective date for the standard is for fiscal years beginning after December 15, 2017. We do not expect ASU 2016-15 to have a materialmost significant impact toof adoption on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which provides amendments to current guidance to address the classifications and presentation of changes in restricted cash in the statement of cash flows. The effective date for the standard is for fiscal years beginning after December 15, 2017. We do not expect ASU 2016-18 to have a material impact to our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The effective date for the standard is for fiscal years beginning after December 15, 2017. We do not expect ASU 2017-01 to have a material impact to our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires companies to present the service cost component of net benefit cost in the same line items in which they report compensation cost. Companies will present all other components of net benefit cost outside a subtotal of operating income, if presented, or disclosed separately. Also, only the service cost component may be eligible for capitalization where applicable. The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of service cost components. The effective date for the standard is for fiscal years beginning after December 15, 2017. We will adopt ASU 2017-07 in our fiscal 2019. The estimated impact is a reclassification of a benefit of $80.4 million, a benefit of $55.2 million, and a charge of $303.8 million to non-operating income (expense) for fiscal 2018, 2017, and 2016, respectively.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017,was the recognition of right-of-use ("ROU") assets and May 29, 2016
(columnar dollars in millions except per share amounts)
In August 2017,lease liabilities for operating leases. Our accounting for finance leases remained substantially unchanged. Upon adoption, we had total lease assets of $238.4 million and total lease liabilities of $267.0 million. The difference is primarily due to prepaid and deferred rent balances that were reclassified to the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which improves the financial reportingROU asset value. The adoption of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP. The amendments in this update better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The effective date for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. We plan to early adopt this ASU atdid not result in a cumulative-effect adjustment to the beginningopening balance of retained earnings and did not impact our fiscal 2019. We do not expect ASU 2017-12 to have a material impactConsolidated Statements of Earnings or our Consolidated Statements of Cash Flows. See Note 15 for additional information related to our consolidated financial statements.
lease arrangements.2. ACQUISITIONS On October 26, 2018, we acquired Pinnacle, a branded packaged foods company specializing in shelf-stable and frozen foods. Pursuant to the Agreement and Plan of Merger, dated as of June 26, 2018 subsequent(the "Merger Agreement"), among the Company, Pinnacle, and Patriot Merger Sub Inc., a wholly-owned subsidiary of the Company that ceased to exist at the endeffective time of fiscal 2018, we entered into a definitivethe merger, agreement with Pinnacle Foods Inc. ("Pinnacle") under which we will acquire alleach outstanding sharesshare of Pinnacle common stock in a cash and stock transaction valued at approximately $10.9 billion, including Pinnacle's outstanding net debt. Underwas converted into the terms of the transaction, Pinnacle shareholders willright to receive $43.11 per share in cash and 0.6494 shares of our common stock, for eachpar value $5.00 per share, of Pinnacle.the Company ("Company Shares") (together, the "Merger Consideration"), with cash payable in lieu of fractional shares of Company Shares. The implied pricetotal amount of $68.00 perconsideration paid in connection with the acquisition was approximately $8.03 billion and consisted of: (1) cash of $5.17 billion ($5.12 billion net of cash acquired); (2) 77.5 million Company Shares, with an approximate value of $2.82 billion, issued out of the Company's treasury; and (3) replacement awards issued to former Pinnacle share is based onemployees representing the volume-weighted average pricefair value attributable to pre-combination service (see Note 13) of our stock for$51.1 million. In connection with the five days ended June 21, 2018. The planned acquisition, is expected to close by the endwe issued long-term debt of calendar 2018$8.33 billion (see Note 4) (which included funding under a new term loan agreement) and remains subject to the approvalreceived cash proceeds of Pinnacle shareholders, the receipt of regulatory approvals, and other customary closing conditions. In February 2018, we acquired the Sandwich Bros. of Wisconsin® business, maker of frozen breakfast and entree flatbread pocket sandwiches, for a cash purchase price of $87.3$575.0 million ($555.7 million net of cash acquired, including working capital adjustments. Approximately $57.8 million has been classified as goodwill pending determinationrelated fees) from the issuance of common stock in an underwritten public offering. We used such proceeds for the payment of the final purchase price allocation,cash portion of the Merger Consideration, the repayment of Pinnacle debt acquired, the refinancing of certain Conagra Brands debt, and $9.7the payment of related fees and expenses.As a result of the Pinnacle acquisition, we recognized a total of $7.03 billion of goodwill and $3.52 billion of brands, trademarks and other intangibles. Of the total goodwill, $236.7 million and $7.1 million have been classified as non-amortizing and amortizing intangible assets, respectively. The amount allocated to goodwill is deductible for tax purposes. The business is included in the Refrigerated & Frozen segment. In October 2017, we acquired Angie's Artisan Treats, LLC, maker of Angie's®BOOMCHICKAPOP® ready-to-eat popcorn, for a cash purchase price of $249.8 million, net of cash acquired, including working capital adjustments. Approximately $155.2 million has been classified as goodwill pending determination of the final purchase price allocation, of which $95.4 million is deductible for income tax purposes. Approximately $73.8 million and $10.3 million of the purchase price have been allocated to non-amortizing and amortizing intangible assets, respectively. The business is primarily included in the Grocery & Snacks segment.
In April 2017, we acquired protein-based snacking businesses Thanasi Foods LLC, maker of Duke’s® meat snacks, and BIGS LLC, maker of BIGS® seeds, for $217.6 million, net of cash acquired, including working capital adjustments. Approximately $133.3 million has been classified as goodwill, of which $70.5 million is deductible for income tax purposes. Approximately $65.1 million and $16.1 million of the purchase price have been allocated to non-amortizing and amortizing intangible assets, respectively. These businesses are primarily included in the Grocery & Snacks segment.
In September 2016, we acquired the operating assets of Frontera Foods, Inc. and Red Fork LLC, including the Frontera®, Red Fork®, and Salpica® brands. These businesses make authentic, gourmet Mexican food products and contemporary American cooking sauces. We acquired the business for $108.1 million, net of cash acquired, including working capital adjustments. Approximately $39.5 million has been classified as goodwill and $59.5 million and $7.2 million have been classified as non-amortizing and amortizing intangible assets, respectively. The amount allocated to goodwill is deductible for tax purposes. These businesses are reflected principally within the Grocery & Snacks segment, and to a lesser extent within the Refrigerated & Frozen and International segments.
These acquisitions collectively contributed $214.3 million and $36.5 million to net sales during fiscal 2018 and 2017, respectively.
For each of these acquisitions, the amounts allocated to goodwill were primarily attributable to anticipated synergies, product portfolios,Amortizable brands, trademarks and other intangibles that do not qualify for separate recognition.
Undertotaled $668.7 million and have a weighted average estimated useful life of 25 years. Goodwill represents the acquisition methodexcess of accounting,the consideration transferred over the fair values of the assets acquired and liabilities assumed in these acquisitions were recorded at their respective estimated fair valuesand is primarily attributable to synergies and intangible assets such as assembled workforce which are not separately recognizable.The following unaudited pro forma financial information presents the combined results of operations as if the acquisition of Pinnacle had occurred at the datebeginning of acquisition.the year acquired, fiscal 2019. These unaudited pro forma results may not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations. | | 2019 | | Pro forma net sales | | $ | 10,788.1 | | Pro forma net income from continuing operations attributable to Conagra Brands, Inc. | | $ | 803.8 | |
The pro forma results include adjustments for amortization of acquired intangible assets, depreciation, and interest expense on debt issued to finance the acquisition as well as the related income taxes. The pro forma results also include the following material nonrecurring adjustments, along with the related income tax effect of the adjustments: | • | Acquisition related costs incurred by the Company and Pinnacle of $62.7 million and $66.8 million, respectively, during fiscal 2019 were excluded from the pro forma results. |
| • | Non-recurring expense of $53.0 million for fiscal 2019 related to the fair value adjustment to acquisition-date inventory estimated to have been sold was excluded from the pro forma results. |
48
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts) | • | Non-recurring expense of $45.7 million for fiscal 2019 related to securing bridge financing for the acquisition were excluded from the pro forma results. |
3. RESTRUCTURING ACTIVITIES Supply ChainPinnacle Integration Restructuring Plan In December2018, our Board of Directors (the "Board") approved a restructuring and Administrative Efficiency Plan In May 2013, we announcedintegration plan related to the Supply Chain and Administrative Efficiency Plan (the "SCAE Plan"), our plan to integrate and restructureongoing integration of the operations of Pinnacle, which we acquired in October 2018 (the "Pinnacle Integration Restructuring Plan"), for the purpose of achieving significant cost synergies between the companies, as a result of which we expect to incur material charges for exit and disposal activities under U.S. GAAP. We expect to incur approximately $358.0 million ($283.5 million of cash charges and $74.5 million of non-cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan. The Board and/or our Private Brands business,senior management have authorized incurrence of these charges. We recognized charges of $31.7 million, $73.8 million, and $168.2 million in connection with the Pinnacle Integration Restructuring Plan in fiscal 2021, 2020, and 2019, respectively. We expect to incur costs related to the Pinnacle Integration Restructuring Plan over a multi-year period.We anticipate that we will recognize the following pre-tax expenses in association with the Pinnacle Integration Restructuring Plan (amounts include charges recognized from plan inception through the end of fiscal 2021): | | Grocery & Snacks | | | Refrigerated & Frozen | | | International | | | Corporate | | | Total | | Accelerated depreciation | | $ | 7.6 | | | $ | 5.2 | | | $ | — | | | $ | — | | | $ | 12.8 | | Other cost of goods sold | | | 3.8 | | | | 7.4 | | | | 0.7 | | | | — | | | | 11.9 | | Total cost of goods sold | | | 11.4 | | | | 12.6 | | | | 0.7 | | | | — | | | | 24.7 | | Severance and related costs | | | — | | | | 4.3 | | | | 1.5 | | | | 112.4 | | | | 118.2 | | Asset impairment (net of gains on disposal) | | | 30.3 | | | | 4.0 | | | | — | | | | 2.6 | | | | 36.9 | | Accelerated depreciation | | | — | | | | — | | | | — | | | | 7.4 | | | | 7.4 | | Contract/lease termination | | | 7.7 | | | | 8.2 | | | | 0.8 | | | | 15.9 | | | | 32.6 | | Consulting/professional fees | | | 1.0 | | | | — | | | | 0.8 | | | | 104.7 | | | | 106.5 | | Other selling, general and administrative expenses | | | 5.8 | | | | 4.6 | | | | 0.3 | | | | 21.0 | | | | 31.7 | | Total selling, general and administrative expenses | | | 44.8 | | | | 21.1 | | | | 3.4 | | | | 264.0 | | | | 333.3 | | Consolidated total | | $ | 56.2 | | | $ | 33.7 | | | $ | 4.1 | | | $ | 264.0 | | | $ | 358.0 | |
During fiscal 2021, we recognized the following pre-tax expenses for the Pinnacle Integration Restructuring Plan: | | Grocery & Snacks | | | Refrigerated & Frozen | | | Corporate | | | Total | | Accelerated depreciation | | $ | — | | | $ | 2.5 | | | $ | — | | | $ | 2.5 | | Other cost of goods sold | | | 0.5 | | | | 1.4 | | | | — | | | | 1.9 | | Total cost of goods sold | | | 0.5 | | | | 3.9 | | | | — | | | | 4.4 | | Severance and related costs | | | — | | | | (0.9 | ) | | | (2.7 | ) | | | (3.6 | ) | Asset impairment (net of gains on disposal) | | | 0.1 | | | | 0.2 | | | | (0.3 | ) | | | — | | Contract/lease termination | | | 1.8 | | | | — | | | | 0.8 | | | | 2.6 | | Consulting/professional fees | | | 0.5 | | | | — | | | | 22.2 | | | | 22.7 | | Other selling, general and administrative expenses | | | 2.8 | | | | 1.0 | | | | 1.8 | | | | 5.6 | | Total selling, general and administrative expenses | | | 5.2 | | | | 0.3 | | | | 21.8 | | | | 27.3 | | Consolidated total | | $ | 5.7 | | | $ | 4.2 | | | $ | 21.8 | | | $ | 31.7 | |
Included in the above results are $28.5 million of charges that have resulted or will result in cash outflows and $3.2 million in non-cash charges. 49
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) We recognized the following cumulative (plan inception to May 30, 2021) pre-tax expenses for the Pinnacle Integration Restructuring Plan in our Consolidated Statements of Earnings: | | Grocery & Snacks | | | Refrigerated & Frozen | | | International | | | Corporate | | | Total | | Accelerated depreciation | | $ | 0.6 | | | $ | 4.6 | | | $ | — | | | $ | — | | | $ | 5.2 | | Other cost of goods sold | | | 2.3 | | | | 2.9 | | | | 0.7 | | | | — | | | | 5.9 | | Total cost of goods sold | | | 2.9 | | | | 7.5 | | | | 0.7 | | | | — | | | | 11.1 | | Severance and related costs | | | — | | | | 3.4 | | | | 1.5 | | | | 112.4 | | | | 117.3 | | Asset impairment (net of gains on disposal) | | | 0.3 | | | | 4.0 | | | | — | | | | 2.6 | | | | 6.9 | | Accelerated depreciation | | | — | | | | — | | | | — | | | | 7.4 | | | | 7.4 | | Contract/lease termination | | | 1.8 | | | | — | | | | 0.8 | | | | 15.9 | | | | 18.5 | | Consulting/professional fees | | | 0.7 | | | | — | | | | 0.8 | | | | 89.5 | | | | 91.0 | | Other selling, general and administrative expenses | | | 2.8 | | | | 1.1 | | | | 0.3 | | | | 17.3 | | | | 21.5 | | Total selling, general and administrative expenses | | | 5.6 | | | | 8.5 | | | | 3.4 | | | | 245.1 | | | | 262.6 | | Consolidated total | | $ | 8.5 | | | $ | 16.0 | | | $ | 4.1 | | | $ | 245.1 | | | $ | 273.7 | |
Included in the above results are $240.9 million of charges that have resulted or will result in cash outflows and $32.8 million in non-cash charges. Liabilities recorded for the Pinnacle Integration Restructuring Plan and changes therein for fiscal 2021 were as follows: | | Balance at May 31, 2020 | | | Costs Incurred and Charged to Expense | | | Costs Paid or Otherwise Settled | | | Changes in Estimates | | | Balance at May 30, 2021 | | Severance and related costs | | $ | 23.6 | | | $ | 0.1 | | | $ | (14.9 | ) | | $ | (3.7 | ) | | $ | 5.1 | | Contract/lease termination | | | 0.5 | | | | 2.6 | | | | (3.1 | ) | | | — | | | | — | | Consulting/professional fees | | | 7.5 | | | | 22.7 | | | | (26.3 | ) | | | — | | | | 3.9 | | Other costs | | | — | | | | 6.8 | | | | (6.8 | ) | | | — | | | | — | | Total | | $ | 31.6 | | | $ | 32.2 | | | $ | (51.1 | ) | | $ | (3.7 | ) | | $ | 9.0 | |
Conagra Restructuring Plan In fiscal 2019, senior management initiated a restructuring plan (the "Conagra Restructuring Plan") for costs incurred in connection with actions taken to improve SG&A expense effectiveness and efficiencies and optimize our supply chain network, manufacturing assets, dry distribution centers, and mixing centers. In fiscal 2016, we announced plans to realize efficiency benefits by reducing SG&A expenses and enhancing trade spend processes and tools, which plans were included as part of the SCAE Plan. Although we divested the Private Brands business, we have continued to implement the SCAE Plan, including by working to optimize our supply chain network, pursue cost reductions through our SG&A functions, enhance trade spend processes and tools, and improve productivity. network. Although we remain unable to make good faith estimates relating to the entire SCAEConagra Restructuring Plan, we are reporting on actions initiated through the end of fiscal 2018,2021, including the estimated amounts or range of amounts for each major type of costs expected to be incurred, and the charges that have resulted or will result in cash outflows. As of May 27, 2018, our Board of Directors has30, 2021, we had approved the incurrence of up to $900.9$172.2 million ($45.4 million of expenses in connectioncash charges and $126.8 million of non-cash charges) for several projects associated with the SCAE Plan, including expenses allocated for the Private Brands and Lamb Weston operations.Conagra Restructuring Plan. We have incurred or expect to incur approximately $471.6$157.3 million of charges ($322.136.9 million of cash charges and $149.5$120.4 million of non-cash charges) for actions identified to date under the SCAE Plan related to our continuing operations.Conagra Restructuring Plan. We recognized charges of $38.0$46.2 million, $63.6$64.4 million, and $281.8$2.2 million in relation toconnection with the SCAEConagra Restructuring Plan related to our continuing operations in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. We expect to incur costs related to the SCAEConagra Restructuring Plan over a multi-year period. 50
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) We anticipate that we will recognize the following pre-tax expenses in association with the SCAEConagra Restructuring Plan related to our continuing operations (amounts include charges recognized from plan inception to May 27, 2018)through the end of fiscal 2021): | | Grocery & Snacks | | | Refrigerated & Frozen | | | International | | | Corporate | | | Total | | Accelerated depreciation | | $ | 34.7 | | | $ | 49.7 | | | $ | — | | | $ | — | | | $ | 84.4 | | Other cost of goods sold | | | 8.9 | | | | 2.1 | | | | — | | | | — | | | | 11.0 | | Total cost of goods sold | | | 43.6 | | | | 51.8 | | | | — | | | | — | | | | 95.4 | | Severance and related costs | | | 12.0 | | | | 2.2 | | | | 1.1 | | | | 2.1 | | | | 17.4 | | Asset impairment (net of gains on disposal) | | | 27.1 | | | | 0.3 | | | | 0.1 | | | | — | | | | 27.5 | | Contract/lease termination | | | 0.1 | | | | — | | | | — | | | | 0.1 | | | | 0.2 | | Consulting/professional fees | | | — | | | | — | | | | — | | | | 0.7 | | | | 0.7 | | Other selling, general and administrative expenses | | | 10.7 | | | | 4.6 | | | | — | | | | 0.2 | | | | 15.5 | | Total selling, general and administrative expenses | | | 49.9 | | | | 7.1 | | | | 1.2 | | | | 3.1 | | | | 61.3 | | Total | | $ | 93.5 | | | $ | 58.9 | | | $ | 1.2 | | | $ | 3.1 | | | $ | 156.7 | | Pension and postretirement non-service income | | | | | | | | | | | | | | | | | | | 0.6 | | Consolidated total | | | | | | | | | | | | | | | | | | $ | 157.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Grocery & Snacks | | Refrigerated & Frozen | | International | | Foodservice | | Corporate | | Total | Pension costs | $ | 33.4 |
| | $ | 1.5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 34.9 |
| Accelerated depreciation | 37.0 |
| | 18.6 |
| | — |
| | — |
| | 1.2 |
| | 56.8 |
| Other cost of goods sold | 11.9 |
| | 2.1 |
| | — |
| | — |
| | — |
| | 14.0 |
| Total cost of goods sold | 82.3 |
| | 22.2 |
| | — |
| | — |
| | 1.2 |
| | 105.7 |
| Severance and related costs, net | 27.5 |
| | 10.3 |
| | 3.7 |
| | 7.9 |
| | 102.6 |
| | 152.0 |
| Fixed asset impairment (net of gains on disposal) | 6.1 |
| | 6.9 |
| | — |
| | — |
| | 11.2 |
| | 24.2 |
| Accelerated depreciation | — |
| | — |
| | — |
| | — |
| | 4.1 |
| | 4.1 |
| Contract/lease cancellation expenses | 1.0 |
| | 0.6 |
| | 0.9 |
| | — |
| | 84.4 |
| | 86.9 |
| Consulting/professional fees | 1.0 |
| | 0.4 |
| | 0.1 |
| | — |
| | 54.0 |
| | 55.5 |
| Other selling, general and administrative expenses | 16.4 |
| | 3.3 |
| | — |
| | — |
| | 23.5 |
| | 43.2 |
| Total selling, general and administrative expenses | 52.0 |
| | 21.5 |
| | 4.7 |
| | 7.9 |
| | 279.8 |
| | 365.9 |
| Consolidated total | $ | 134.3 |
| | $ | 43.7 |
| | $ | 4.7 |
| | $ | 7.9 |
| | $ | 281.0 |
| | $ | 471.6 |
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
During fiscal 2018,2021, we recognized the following pre-tax expenses for the SCAE Plan related to our continuing operations:Conagra Restructuring Plan: | | Grocery & Snacks | | | Refrigerated & Frozen | | | International | | | Corporate | | | Total | | Accelerated depreciation | | $ | 7.9 | | | $ | 22.5 | | | $ | — | | | $ | — | | | $ | 30.4 | | Other cost of goods sold | | | 2.3 | | | | — | | | | — | | | | — | | | | 2.3 | | Total cost of goods sold | | | 10.2 | | | | 22.5 | | | | — | | | | — | | | | 32.7 | | Severance and related costs | | | 5.7 | | | | — | | | | (0.1 | ) | | | 1.4 | | | | 7.0 | | Asset impairment (net of gains on disposal) | | | 2.1 | | | | 0.1 | | | | — | | | | — | | | | 2.2 | | Other selling, general and administrative expenses | | | 4.1 | | | | — | | | | — | | | | 0.2 | | | | 4.3 | | Total selling, general and administrative expenses | | | 11.9 | | | | 0.1 | | | | (0.1 | ) | | | 1.6 | | | | 13.5 | | Total | | $ | 22.1 | | | $ | 22.6 | | | $ | (0.1 | ) | | $ | 1.6 | | | $ | 46.2 | |
| | | | | | | | | | | | | | | | | | | | | | Grocery & Snacks | | Refrigerated & Frozen | | International | | Corporate | | Total | Pension costs | $ | 0.5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 0.5 |
| Accelerated depreciation | 2.0 |
| | — |
| | — |
| | — |
| | 2.0 |
| Other cost of goods sold | 5.3 |
| | — |
| | — |
| | — |
| | 5.3 |
| Total cost of goods sold | 7.8 |
| | — |
| | — |
| | — |
| | 7.8 |
| Severance and related costs, net | 2.6 |
| | — |
| | 1.2 |
| | 0.7 |
| | 4.5 |
| Fixed asset impairment (net of gains on disposal) | (1.2 | ) | | — |
| | — |
| | 4.4 |
| | 3.2 |
| Accelerated depreciation | — |
| | — |
| | — |
| | 1.5 |
| | 1.5 |
| Contract/lease cancellation expenses | 0.2 |
| | — |
| | 0.3 |
| | 13.0 |
| | 13.5 |
| Consulting/professional fees | 0.1 |
| | — |
| | — |
| | 1.0 |
| | 1.1 |
| Other selling, general and administrative expenses | 4.6 |
| | 0.1 |
| | — |
| | 1.7 |
| | 6.4 |
| Total selling, general and administrative expenses | 6.3 |
| | 0.1 |
| | 1.5 |
| | 22.3 |
| | 30.2 |
| Consolidated total | $ | 14.1 |
| | $ | 0.1 |
| | $ | 1.5 |
| | $ | 22.3 |
| | $ | 38.0 |
|
Included in the above tableresults are $30.6$11.3 million of charges that have resulted or will result in cash outflows and $7.4$34.9 million in non-cash charges. We recognized the following cumulative (plan inception to May 27, 2018)30, 2021) pre-tax expenses for the SCAEConagra Restructuring Plan related to our continuing operations in our Consolidated Statements of Operations:Earnings: | | Grocery & Snacks | | | Refrigerated & Frozen | | | International | | | Corporate | | | Total | | Accelerated depreciation | | $ | 32.0 | | | $ | 26.7 | | | $ | — | | | $ | — | | | $ | 58.7 | | Other cost of goods sold | | | 4.8 | | | | 0.2 | | | | — | | | | — | | | | 5.0 | | Total cost of goods sold | | | 36.8 | | | | 26.9 | | | | — | | | | — | | | | 63.7 | | Severance and related costs | | | 10.4 | | | | 1.8 | | | | 1.1 | | | | 2.1 | | | | 15.4 | | Asset impairment (net of gains on disposal) | | | 27.1 | | | | 0.3 | | | | 0.1 | | | | — | | | | 27.5 | | Contract/lease termination | | | — | | | | — | | | | — | | | | 0.1 | | | | 0.1 | | Other selling, general and administrative expenses | | | 5.0 | | | | 0.3 | | | | — | | | | 0.2 | | | | 5.5 | | Total selling, general and administrative expenses | | | 42.5 | | | | 2.4 | | | | 1.2 | | | | 2.4 | | | | 48.5 | | Total | | $ | 79.3 | | | $ | 29.3 | | | $ | 1.2 | | | $ | 2.4 | | | $ | 112.2 | | Pension and postretirement non-service income | | | | | | | | | | | | | | | | | | | 0.6 | | Consolidated total | | | | | | | | | | | | | | | | | | $ | 112.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Grocery & Snacks | | Refrigerated & Frozen | | International | | Foodservice | | Corporate | | Total | Pension costs | $ | 33.4 |
| | $ | 1.5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 34.9 |
| Accelerated depreciation | 33.0 |
| | 18.6 |
| | — |
| | — |
| | 1.2 |
| | 52.8 |
| Other cost of goods sold | 10.3 |
| | 2.1 |
| | — |
| | — |
| | — |
| | 12.4 |
| Total cost of goods sold | 76.7 |
| | 22.2 |
| | — |
| | — |
| | 1.2 |
| | 100.1 |
| Severance and related costs, net | 26.5 |
| | 10.3 |
| | 3.7 |
| | 7.9 |
| | 102.2 |
| | 150.6 |
| Fixed asset impairment (net of gains on disposal) | 6.1 |
| | 6.9 |
| | — |
| | — |
| | 11.2 |
| | 24.2 |
| Accelerated depreciation | — |
| | — |
| | — |
| | — |
| | 4.1 |
| | 4.1 |
| Contract/lease cancellation expenses | 1.0 |
| | 0.6 |
| | 0.9 |
| | — |
| | 84.3 |
| | 86.8 |
| Consulting/professional fees | 1.0 |
| | 0.4 |
| | 0.1 |
| | — |
| | 52.2 |
| | 53.7 |
| Other selling, general and administrative expenses | 15.8 |
| | 3.3 |
| | — |
| | — |
| | 21.7 |
| | 40.8 |
| Total selling, general and administrative expenses | 50.4 |
| | 21.5 |
| | 4.7 |
| | 7.9 |
| | 275.7 |
| | 360.2 |
| Consolidated total | $ | 127.1 |
| | $ | 43.7 |
| | $ | 4.7 |
| | $ | 7.9 |
| | $ | 276.9 |
| | $ | 460.3 |
|
51
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) Included in the above results are $316.1$24.1 million of charges that have resulted or will result in cash outflows and $144.2$88.7 million in non-cash charges. Not included in Liabilities recorded for the above table are $130.2 million of pre-tax expenses ($84.5 million of cash chargesConagra Restructuring Plan and $45.7 million of non-cash charges) related to the Private Brands operations which we sold in the third quarter ofchanges therein for fiscal 2016 and $2.1 million of pre-tax expenses (all resulting in cash charges) related to Lamb Weston.2021 were as follows: | | Balance at May 31, 2020 | | | Costs Incurred and Charged to Expense | | | Costs Paid or Otherwise Settled | | | Changes in Estimates | | | Balance at May 30, 2021 | | Severance and related costs | | $ | 6.5 | | | $ | 7.4 | | | $ | (3.8 | ) | | $ | (0.4 | ) | | $ | 9.7 | | Other costs | | | — | | | | 4.3 | | | | (4.3 | ) | | | — | | | | — | | Total | | $ | 6.5 | | | $ | 11.7 | | | $ | (8.1 | ) | | $ | (0.4 | ) | | $ | 9.7 | |
4. LONG-TERM DEBT | | May 30, 2021 | | | May 31, 2020 | | 5.4% senior debt due November 2048 | | $ | 1,000.0 | | | $ | 1,000.0 | | 4.65% senior debt due January 2043 | | | 176.7 | | | | 176.7 | | 6.625% senior debt due August 2039 | | | 91.4 | | | | 91.4 | | 5.3% senior debt due November 2038 | | | 1,000.0 | | | | 1,000.0 | | 8.25% senior debt due September 2030 | | | 300.0 | | | | 300.0 | | 4.85% senior debt due November 2028 | | | 1,300.0 | | | | 1,300.0 | | 7.0% senior debt due October 2028 | | | 382.2 | | | | 382.2 | | 1.375% senior debt due November 2027 | | | 1,000.0 | | | | — | | 6.7% senior debt due August 2027 | | | 9.2 | | | | 9.2 | | 7.125% senior debt due October 2026 | | | 262.5 | | | | 262.5 | | 4.6% senior debt due November 2025 | | | 1,000.0 | | | | 1,000.0 | | 4.3% senior debt due May 2024 | | | 1,000.0 | | | | 1,000.0 | | 3.2% senior debt due January 2023 | | | 437.0 | | | | 837.0 | | 3.25% senior debt due September 2022 | | | 250.0 | | | | 250.0 | | 3.8% senior debt due October 2021 | | | — | | | | 1,200.0 | | 9.75% subordinated debt due March 2021 | | | — | | | | 195.9 | | LIBOR plus 0.50% senior debt due October 2020 | | | — | | | | 500.0 | | 4.95% senior debt due August 2020 | | | — | | | | 126.6 | | 0.45% to 9.59% lease financing obligations due on various dates through 2035 | | | 139.1 | | | | 155.1 | | Other indebtedness | | | 0.1 | | | | 0.1 | | Total face value of debt | | | 8,348.2 | | | | 9,786.7 | | Unamortized fair value adjustment | | | 19.9 | | | | 21.2 | | Unamortized discounts | | | (25.8 | ) | | | (17.2 | ) | Unamortized debt issuance costs | | | (44.0 | ) | | | (44.6 | ) | Adjustment due to hedging activity | | | — | | | | 0.2 | | Less current installments | | | (23.1 | ) | | | (845.5 | ) | Total long-term debt | | $ | 8,275.2 | | | $ | 8,900.8 | |
52
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
Liabilities recorded for the SCAE Plan related to our continuing operations and changes therein for fiscal 2018 were as follows:
| | | | | | | | | | | | | | | | | | | | | | Balance at May 28, 2017 | | Costs Incurred and Charged to Expense | | Costs Paid or Otherwise Settled | | Changes in Estimates | | Balance at May 27, 2018 | Pension costs | $ | 31.8 |
| | $ | — |
| | $ | — |
| | $ | 0.5 |
| | $ | 32.3 |
| Severance and related costs | 13.8 |
| | 5.7 |
| | (12.0 | ) | | (1.2 | ) | | 6.3 |
| Consulting/professional fees | 0.6 |
| | 1.1 |
| | (1.6 | ) | | — |
| | 0.1 |
| Contract/lease cancellation | 11.6 |
| | 13.7 |
| | (20.2 | ) | | (0.2 | ) | | 4.9 |
| Other costs | 1.9 |
| | 11.0 |
| | (12.7 | ) | | — |
| | 0.2 |
| Total | $ | 59.7 |
| | $ | 31.5 |
| | $ | (46.5 | ) | | $ | (0.9 | ) | | $ | 43.8 |
|
4. LONG-TERM DEBT
| | | | | | | | | | May 27, 2018 | | May 28, 2017 | 4.65% senior debt due January 2043 | $ | 176.7 |
| | $ | 176.7 |
| 6.625% senior debt due August 2039 | 91.4 |
| | 91.4 |
| 8.25% senior debt due September 2030 | 300.0 |
| | 300.0 |
| 7.0% senior debt due October 2028 | 382.2 |
| | 382.2 |
| 6.7% senior debt due August 2027 | 9.2 |
| | 9.2 |
| 7.125% senior debt due October 2026 | 262.5 |
| | 262.5 |
| 3.2% senior debt due January 2023 | 837.0 |
| | 837.0 |
| 3.25% senior debt due September 2022 | 250.0 |
| | 250.0 |
| 9.75% subordinated debt due March 2021 | 195.9 |
| | 195.9 |
| LIBOR plus 0.50% senior debt due October 2020 | 500.0 |
| | — |
| 4.95% senior debt due August 2020 | 126.6 |
| | 126.6 |
| LIBOR plus 0.75% term loan due February 2019 | 300.0 |
| | — |
| 2.1% senior debt due March 2018 | — |
| | 70.0 |
| 1.9% senior debt due January 2018 | — |
| | 119.6 |
| 2.00% to 9.59% lease financing obligations due on various dates through 2033 | 94.7 |
| | 131.2 |
| Other indebtedness | 0.2 |
| | 0.2 |
| Total face value of debt | 3,526.4 |
| | 2,952.5 |
| Unamortized fair value adjustment | 27.6 |
| | 30.8 |
| Unamortized discounts | (5.8 | ) | | (6.4 | ) | Unamortized debt issuance costs | (11.3 | ) | | (10.9 | ) | Adjustment due to hedging activity | 1.6 |
| | 2.2 |
| Less current installments | (307.0 | ) | | (199.0 | ) | Total long-term debt | $ | 3,231.5 |
| | $ | 2,769.2 |
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years following May 27, 2018,30, 2021, are as follows: 2022 | | $ | 23.1 | | 2023 | | | 706.8 | | 2024 | | | 1,015.8 | | 2025 | | | 14.3 | | 2026 | | | 1,020.8 | |
| | | | | 2019 | $ | 307.1 |
| 2020 | 6.7 |
| 2021 | 829.4 |
| 2022 | 6.9 |
| 2023 | 1,093.6 |
|
DuringPinnacle Acquisition Financing In the fourthfirst quarter of fiscal 2018,2019, in connection with the announcement of the acquisition of Pinnacle, we repaidsecured $9.0 billion in fully committed bridge financing. Prior to the acquisition, we capitalized financing costs related to the bridge financing of $45.7 million to be amortized over the commitment period. Our net interest expense included $11.9 million for fiscal 2019 as a result of this amortization. The bridge facility was terminated in connection with the acquisition, and we recognized $33.8 million of expense within SG&A expenses in fiscal 2019 for the remaining principal balance of $70.0 million of our 2.1% senior notes on the maturity date of March 15, 2018. unamortized financing costs.During the thirdsecond quarter of fiscal 2018,2019, to finance a portion of our acquisition of Pinnacle, we issued senior unsecured notes in an aggregate principal amount of $7.025 billion. During the second quarter of fiscal 2019, to finance a portion of our acquisition of Pinnacle, we also entered into a term loan agreement (the "Term Loan Agreement") with a syndicate of financial institution. The Term Loan Agreement providesinstitutions providing for term loans to the Company in an aggregate principal amount not in excess of $300.0 million. During the fourth quarter of fiscal 2018, we borrowed the full amount of the $300.0 million provided forup to $1.30 billion. Our borrowings under the Term Loan Agreement.Agreement consisted of a $650.0 million tranche of three-year term loans maturing on October 26, 2021 and a $650.0 million tranche of five-year term loans maturing on October 26, 2023. During fiscal 2019, we repaid $900.0 million under the Term Loan Agreement and we repaid the remaining $400.0 million outstanding under the Term Loan Agreement during fiscal 2020. The Term Loan Agreement matures on February 26, 2019. The term loan bears interest at a rate equal to three-month LIBOR plus 0.75% per annum and is fully prepayable without penalty. During the third quarter of fiscal 2018, we repaid the remaining principal balance of $119.6 million of our 1.9% senior notes on the maturity date of January 25, 2018.
During the third quarter of fiscal 2018, we repaid the remaining capital lease liability balance of $28.5 million inwas terminated following these repayments.In connection with the early exitour acquisition of an unfavorable lease contract (see Note 8). During the second quarterPinnacle, we prepaid in full $2.40 billion of fiscal 2018, we issued $500.0obligations and liabilities of Pinnacle under or in respect of Pinnacle's credit agreement and other debt agreements. We also redeemed $350.0 million in aggregate principal amount of floating rate notes due October 9, 2020. The notes bear interest at a rate equal to three-month LIBOR plus 0.50% per annum.
During the third quarter of fiscal 2017, we repaid the remaining principal balance of $224.8 million of our 5.819%Pinnacle's outstanding 5.875% senior notes due 2017January 15, 2024 and $248.2recognized a charge of $3.9 million principal amount of our 7.0% senior notes duein fiscal 2019 in each case prior to maturity, resulting in a net loss on early retirement of debt of $32.7 million.
In connection with the Spinoff of Lamb Weston (see Note 6), Lamb Weston issued to us $1.54 billion aggregate principal amount of senior notes (the "Lamb Weston notes"). On November 9, 2016, we exchanged the Lamb Weston notes for $250.2 million aggregate principal amount of our 5.819% senior notes due 2017, $880.4 million aggregate principal amount of our 1.9% senior notes due 2018, $154.9 million aggregate principal amount of our 2.1% senior notes due 2018, $86.9 million aggregate principal amount of our 7.0% senior notes due 2019, and $71.1 million aggregate principal amount of our 4.95% senior notes due 2020 (collectively, the "Conagra notes"), which had been purchased in the open market by certain investment banks prior to the Spinoff. Following the exchange, we cancelled the Conagra notes. These actions resulted in a net loss of $60.6 million as a cost of early retirement of debt.
DuringIn the first quarter of fiscal 2017,2019, we entered into deal-contingent forward starting interest rate swap contracts (see Note 17) to hedge a portion of the interest rate risk related to our anticipated issuance of long-term debt to help finance the Pinnacle acquisition. During the second quarter of fiscal 2019, we terminated the interest rate swap contracts and received proceeds of $47.5 million. This gain was deferred in accumulated other comprehensive income and is being amortized as a reduction of interest expense over the lives of the related debt instruments. Our net interest expense was reduced by $3.3 million, $3.5 million and $2.0 million in fiscal 2021, fiscal 2020, and fiscal 2019, respectively, due to the impact of these interest rate swap contracts. General During the fourth quarter of fiscal 2021, we repaid the remaining outstanding $195.9 million aggregate principal amount of our 9.75% subordinated notes on the maturity date of March 1, 2021. During the third quarter of fiscal 2021, we redeemed $400.0 million aggregate principal amount of our 3.20% senior notes due January 25, 2023, prior to maturity, resulting in a loss of $24.4 million within SG&A expenses as a cost of early extinguishment of debt. During the second quarter of fiscal 2021, we issued $1.0 billion aggregate principal amount of 1.375% senior notes due November 1, 2027 (the "2027 Senior Notes"). We also redeemed the entire outstanding $1.20 billion aggregate principal balanceamount of $550.0our 3.80% senior notes prior to their maturity date of October 22, 2021, resulting in a net loss of $44.3 million within SG&A expenses as a cost of early extinguishment of debt. This redemption was primarily funded using the net proceeds from the issuance of the 2027 Senior Notes. 53
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) During the second quarter of fiscal 2021, we also repaid the entire outstanding $500.0 million aggregate principal amount of our floating rate notes on the maturity date of July 21, 2016. October 9, 2020.During the thirdfirst quarter of fiscal 2016,2021, we repurchased $560.3repaid the remaining outstanding $126.6 million aggregate principal amount of our 4.95% senior notes due 2043, $341.8on their maturity date of August 15, 2020. In fiscal 2020, we redeemed the entire outstanding $525.0 million aggregate principal amount of seniorour floating rate notes due 2039, $139.9October 22, 2020 in two separate redemptions totaling $250.0 million aggregate principal amountand $275.0 million in the third and fourth quarters of senior notes due 2019, $110.0 million aggregate principal amount of senior notes due 2026, $85.0 million aggregate principal amount of senior notes duefiscal 2020, and $163.0 million of aggregate principal amount of senior notes due 2023, in each case prior to maturity in a tender offer, resulting in a net loss of $23.9 million as a cost of early retirement of debt. Duringrespectively.In the thirdfourth quarter of fiscal 2016,2020, we repaid the entire principal balance of $750.0 million of our 1.30% senior notes on the maturity date of January 25, 2016.entered into an unsecured term loan agreement (the "Credit Agreement") with a financial institution. The repayment was primarily funded through the issuance ofCredit Agreement provided for delayed draw term loans totaling $600.0 million, which were repaid into the third quarter of fiscal 2016 with the proceeds from the divestiture of our Private Brands business.See Note 6 for repayment of senior notes issued by Ralcorp Holdings, Inc. ("Ralcorp")Company in an aggregate principal amount not to exceed $600.0 million (subject to increase to a maximum aggregate principal amount of $33.9 million$750.0 million) through October 9, 2020. We did not borrow under the Credit Agreement, and it was terminated in the third quarter of fiscal 2016.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
During the second quarter of fiscal 2016, we repaid the entire principal balance of $250.0 million of our 1.35% senior notes on the maturity date of September 10, 2015.
Our most restrictive debt agreements (the Facility (as defined in Note 5) and the Term Loan Agreement) generally require our ratio of EBITDA (earnings before interest, taxes, depreciation and amortization) to interest expense to be not less than 3.0 to 1.0 and our ratio of funded debt to EBITDA to be not greater than 3.75 to 1.0 (provided that such ratio may be increased at the option of the Company in connection with a material transaction), witheach ratio to be calculated on a rolling four-quarter basis. As of May 27, 2018, we were in compliance with all financial covenants.
2021.Net interest expense consists of: | | 2021 | | | 2020 | | | 2019 | | Long-term debt | | $ | 430.0 | | | $ | 495.9 | | | $ | 385.9 | | Short-term debt | | | 2.5 | | | | 0.9 | | | | 15.0 | | Interest income | | | (1.9 | ) | | | (3.1 | ) | | | (6.8 | ) | Interest capitalized | | | (10.2 | ) | | | (6.6 | ) | | | (2.7 | ) | | | $ | 420.4 | | | $ | 487.1 | | | $ | 391.4 | |
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Long-term debt | $ | 161.2 |
| | $ | 203.6 |
| | $ | 302.9 |
| Short-term debt | 4.8 |
| | 0.6 |
| | 1.9 |
| Interest income | (3.8 | ) | | (3.7 | ) | | (1.2 | ) | Interest capitalized | (3.5 | ) | | (5.0 | ) | | (7.8 | ) | | $ | 158.7 |
| | $ | 195.5 |
| | $ | 295.8 |
|
Interest paid from continuing operations was $164.5$445.6 million, $223.7$494.6 million, and $322.0$375.6 million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. In connection with the planned acquisition of Pinnacle (see Note 2),5. CREDIT FACILITIES AND BORROWINGS At May 30, 2021, we have secured $9.0 billion in fully committed bridge financing from affiliates of Goldman Sachs Group, Inc. The commitments under the committed bridge financing were subsequently reduced by the amounts ofhad a term loan agreement we entered into on July 11, 2018revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial institutions providing for term loans to us in an aggregate principal amount of up to $1.3 billion. The term loan agreement generally requires our ratio of EBITDA to interest expense to be not less than 3.0 to 1.0 and our ratio of funded debt to EBITDA to not exceed certain specified levels, with each ratio to be calculated on a rolling four-quarter basis. The funding under the term loan agreement is anticipated to occur simultaneously with the closing date of the acquisition. In connection with the acquisition, we expect to incur an aggregate of up to $8.3 billion of long-term debt, including for the payment of the cash portion of the merger consideration, the repayment of Pinnacle debt, the refinancing of certain Conagra debt, and the payment of related fees and expenses. The permanent financing is also expected to include approximately $600 million of incremental cash proceeds from the issuance of equity and/or divestitures.
5. CREDIT FACILITIES AND BORROWINGS
At May 27, 2018, we had a revolving credit facility (the "Facility") with a syndicate of financial institutions that provides for a maximum aggregate principal amount outstanding at any one time of $1.25$1.6 billion (subject to increase to a maximum aggregate principal amount of $1.75$2.1 billion with the consent of the lenders). The Revolving Credit Facility matures on February 16, 2022.July 11, 2024 and is unsecured. The term of the Revolving Credit Facility may be extended for additional one-year or two-year periods from the then-applicable maturity date on an annual basis. As of May 27, 2018,30, 2021, there were no0 outstanding borrowings under the Revolving Credit Facility.
The Revolving Credit Facility contains events of default customary for unsecured investment grade credit facilities with corresponding grace periods. The Revolving Credit Facility contains customary affirmative and negative covenants for unsecured investment grade credit facilities of this type. It generally requires our ratio of EBITDA to interest expense not to be not less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to be not greater thanexceed certain decreasing specified levels, ranging from 4.75 through the first quarter of fiscal 2022 to 3.75 to 1.0 (provided that such ratio may be increased atfrom the optionsecond quarter of the Company in connectionfiscal 2023 and thereafter, with a material transaction) , witheach ratio to be calculated on a rolling four-quarter basis. As of May 27, 2018,30, 2021, we were in compliance with all financial covenants under the Facility's financial covenants.
Revolving Credit Facility.On July 11, 2018,13, 2021, subsequent to our fiscal year end, we entered into an amended and restated revolving credit agreement with a syndicate of financial institutions providing for a revolving credit facility in a maximum aggregate principal amount outstanding at any one time of $1.6 billion (subjectamendment to increase to a maximum aggregate principal amount of $2.1 billion). It replaces the existing Facility and generally requires our ratio of EBITDA to interest expense to be not less than 3.0 to 1.0 and ourRevolving Credit Facility. The amendment modifies the ratio of funded debt to EBITDA financial covenant to require a ratio of not exceed certain specified levels, with each ratio to be calculatedgreater than 4.50 on a rolling four-quarter basis.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
We finance our short-term liquidity needs with bank borrowings,existing cash balances, cash flows from operations, and commercial paper borrowings, and bankers' acceptances.borrowings. As of May 27, 2018,30, 2021, we had $277.0$705.7 million outstanding under our commercial paper program at an average weighted interest rate of 2.08%0.36%. As of May 28, 2017, we had $26.2 millionThere were 0 outstanding borrowings under our commercial paper program atas of May 31, 2020. 54
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) 6. DIVESTITURES AND ASSETS HELD FOR SALE Divestitures During the fourth quarter of fiscal 2021, we completed the sale of our Egg Beaters®business for net proceeds of $50.6 million, subject to final working capital adjustments. The business results were previously reported primarily within our Refrigerated & Frozen segment, and to a lesser extent within our International and Foodservice segments. We recognized a gain on the sale of $10.4 million, included within SG&A expenses. In connection with the sale of our Egg Beaters® business, we also recognized a loss of $7.1 million within SG&A expenses related to the early exit of an average weighted interest rateunfavorable contract. The assets and liabilities classified as held for sale reflected in our Consolidated Balance Sheets related to the Egg Beaters®business were as follows: | | May 31, 2020 | | Current assets | | $ | 3.0 | | Noncurrent assets (including goodwill of $27.5 million) | | | 48.1 | | Current liabilities | | | 13.1 | |
During the third quarter of 1.23%fiscal 2021, we completed the sale of our Peter Pan® peanut butter business for net proceeds of $101.5 million, including working capital adjustments but subject to final adjustments for certain tax benefits. The business results were previously reported primarily within our Grocery & Snacks segment, and to a lesser extent within our International and Foodservice segments.We recognized a gain on the sale of $49.8 million, included within SG&A expenses. The assets and liabilities classified as held for sale reflected in our Consolidated Balance Sheets related to the Peter Pan® peanut butter business were as follows: | | May 31, 2020 | | Current assets | | $ | 8.8 | | Noncurrent assets (including goodwill of $44.9 million) | | | 55.3 | | Current liabilities | | | 5.4 | |
During the second quarter of fiscal 2021, we completed the sale of our H.K. Anderson® business for net proceeds of $8.7 million, including working capital adjustments. The business results were previously reported in our Grocery & Snacks segment, and to a lesser extent within our Foodservice segment. We recognized a gain on the sale of $5.3 million, included within SG&A expenses. The assets classified as held for sale reflected in our Consolidated Balance Sheets related to the H.K. Anderson® business were as follows: | | May 31, 2020 | | Current assets | | $ | 1.3 | | Noncurrent assets (including goodwill of $2.4 million) | | | 2.6 | |
6. DISCONTINUED OPERATIONS AND OTHER DIVESTITURES
During the third quarter of fiscal 2020, we completed the sale of our Lender's® bagel business for net proceeds of $33.3 million, including working capital adjustments. The business results were previously reported primarily in our Refrigerated & Frozen segment, and to a lesser extent within our Foodservice segment. In connection with the sale of our Lender's® bagel business, we recognized an impairment charge of $27.6 million within SG&A expenses in the second quarter of fiscal 2020. During the second quarter of fiscal 2020, we completed the sale of our Direct Store Delivery ("DSD") snacks business for net proceeds of $137.5 million, including final working capital adjustments. The business results were previously reported in our Grocery & Snacks segment. In connection with the sale of our DSD snacks business, we recognized an impairment charge of $31.4 million within SG&A expenses in the first quarter of fiscal 2020. 55
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) During the third quarter of fiscal 2020, we completed the sale of our peanut butter manufacturing facility in Streator, Illinois. The sale was part of a broader initiative to optimize the Company's peanut butter business, which also included the decision to exit the manufacture and sale of private label peanut butter. The business results were previously reported primarily in our Grocery & Snacks segment, and to a lesser extent within our Foodservice segment. We received net proceeds of $24.8 million, including working capital adjustments. In connection with this divestiture, we recognized impairment charges of $23.0 million within SG&A expenses in the first half of fiscal 2020. These charges have been included in restructuring activities. During the fourth quarter of fiscal 2019, we completed the sale of our Italian-based frozen pasta business, Gelit, for proceeds net of cash divested of $80.1 million, including final working capital adjustments. The business results were previously reported primarily in our Refrigerated & Frozen segment. We recognized a gain on the sale of $23.1 million, included within SG&A expenses. During the fourth quarter of fiscal 2019, we completed the sale of our Wesson® oil business for net proceeds of $168.3 million, including final working capital adjustments. The business results were previously reported primarily in our Grocery & Snacks segment, and to a lesser extent within the Foodservice and International segments. We recognized a gain on the sale of $33.1 million, included within SG&A expenses. During the first quarter of fiscal 2019, we completed the sale of our Del Monte® processed fruit and vegetable business in Canada, which was previously reported in our International segment, for combined proceeds of $32.2 million. We recognized a gain on the sale of $13.2 million, included within SG&A expenses. Lamb Weston Spinoff On November 9, 2016, we completed the Spinoffspinoff of our Lamb Weston business.Holdings, Inc. ("Lamb Weston"). As of such date, we did not beneficially own any equity interest in Lamb Weston and no longer consolidated Lamb Weston into our financial results. The business results were previously reported in the Commercial segment. We reflected the results of this business as discontinued operations for all periods presented. The summary comparative financial results of the Lamb Weston business through the date of the Spinoff, includedIncluded within discontinued operations were as follows:
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Net sales | $ | — |
| | $ | 1,407.9 |
| | $ | 2,975.0 |
| Income (loss) from discontinued operations before income taxes and equity method investment earnings | $ | (0.3 | ) | | $ | 172.3 |
| | $ | 474.8 |
| Income (loss) before income taxes and equity method investment earnings | (0.3 | ) | | 172.3 |
| | 474.8 |
| Income tax expense (benefit) | (14.6 | ) | | 87.5 |
| | 178.9 |
| Equity method investment earnings | — |
| | 15.9 |
| | 71.7 |
| Income from discontinued operations, net of tax | 14.3 |
| | 100.7 |
| | 367.6 |
| Less: Net income attributable to noncontrolling interests | — |
| | 6.8 |
| | 9.2 |
| Net income from discontinued operations attributable to Conagra Brands, Inc. | $ | 14.3 |
| | $ | 93.9 |
| | $ | 358.4 |
|
Duringduring fiscal 2017, we incurred $74.82019 was an after-tax loss of $2.8 million of expenses in connection with the Spinoffdue primarily related to professional fees and contract services associated with preparation of regulatory filings and separation activities. These expenses are reflected in income from discontinued operations. During fiscal 2018, a $14.5 millionan income tax benefit was recorded due to an adjustment of the estimated deductibility of these costs.
In connection with the Spinoff, total assets of $2.28 billion and total liabilities of $2.98 billion (including debt of $2.46 billion) were transferred to Lamb Weston. As part of the consideration for the Spinoff, the Company received a cash payment from Lamb Weston in the amount of $823.5 million. See Note 4 for discussion of the debt-for-debt exchange related to the Spinoff.
We entered into a transition services agreement in connection with the Lamb Weston Spinoff and recognized $2.2 million and $4.2 million of income for the performance of services during fiscal 2018 and 2017, respectively, classified within SG&A expenses.
adjustment.Private Brands Operations On February 1, 2016, pursuant to the Stock Purchase Agreement, dated as of November 1, 2015, we completed the disposition of our Private Brands operations to TreeHouse Foods, Inc. ("Treehouse") for $2.6 billion in cash on a debt-free basis.
NotesIncluded within discontinued operations during fiscal 2019 was after-tax income of $0.9 million related to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
As a result of the disposition, we recognized a pre-tax charge of $1.92 billion ($1.44 billion after-tax) in fiscal 2016 to write-down the goodwill and long-lived assets to the final sales price, less costs to sell, and to recognize the final loss of the Private Brands business. We reflected the results of this business as discontinued operationsoperations.Other Assets Held for all periods presented. In fiscal 2016,SaleFrom time to time, we repaid senior notes issued by Ralcorp in an aggregate principal amount of $33.9 million, consisting of 4.95% senior notes due August 15, 2020 in an aggregate principal amount of $17.2 million (with an effective interest rate of 2.83%) and 6.625% senior notes due August 15, 2039 in total an aggregate principal amount of $16.7 million (with an effective interest rate of 4.82%), in each case, prior to maturity, resulting in a loss $5.4 million as a cost of early retirement of debt, which is reflected in discontinued operations. The summary comparative financial results of the Private Brands business, included within discontinued operations, were as follows:
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Net sales | $ | — |
| | $ | — |
| | $ | 2,490.6 |
| Loss on sale of business | $ | — |
| | $ | (1.6 | ) | | $ | — |
| Long-lived asset impairment charges | — |
| | — |
| | (1,923.0 | ) | Income from operations of discontinued operations before income taxes | 0.4 |
| | 3.9 |
| | 168.0 |
| Income (loss) before income taxes and equity method investment earnings | 0.4 |
| | 2.3 |
| | (1,755.0 | ) | Income tax expense (benefit) | 0.5 |
| | (0.3 | ) | | (593.1 | ) | Income (loss) from discontinued operations, net of tax | $ | (0.1 | ) | | $ | 2.6 |
| | $ | (1,161.9 | ) |
We entered into a transition services agreement with TreeHouse and recognized $2.2 million, $16.9actively market certain other assets. Balances totaling $4.6 million and $8.3$9.4 million of income for the performance of services during fiscal 2018, 2017,at May 30, 2021 and 2016,May 31, 2020, respectively, classified within SG&A expenses.
ConAgra Mills Operations
On May 29, 2014, the Company, Cargill, Incorporated ("Cargill"), and CHS, Inc. ("CHS") completed the formation of the Ardent Mills joint venture. In connection with the formation, we contributed to Ardent Mills all of the assets of ConAgra Mills, our milling operations. Our equity in the earnings of Ardent Mills is reflected in our continuing operations.
In fiscal 2017, we adjusted a multi-employer pension withdrawal liability related to our former milling operations by $2.0 million ($1.3 million after-tax). This expense was recognized within discontinued operations.
Other Divestitures
During the third quarter of fiscal 2018, we entered into an agreement to sell our Del Monte® processed fruit and vegetable business in Canada, which is part of our International segment, to Bonduelle Group. The transaction was completed in the first quarter of fiscal 2019 and was valued at approximately $43.0 million Canadian dollars, which was approximately $34.0 million U.S. dollars at the exchange rate on the date of announcement. The assets of this business have been reclassified as noncurrent assets held for sale within our Consolidated Balance Sheets for all periods presented.
The assets classified as held for sale reflected in our Consolidated Balance Sheets relatedprior to the Del Monte® processed fruit and vegetable business in Canada were as follows:
| | | | | | | | | | May 27, 2018 | | May 28, 2017 | Current assets | $ | 6.1 |
| | $ | 6.3 |
| Noncurrent assets (including goodwill of $5.8 million) | 11.5 |
| | 11.4 |
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
During the fourth quarter of fiscal 2017, we signed an agreement to sell our Wesson® oil business, which is part of our Grocery & Snacks segment, to The J.M. Smucker Company ("Smucker"). During the fourth quarter of fiscal 2018, Conagra Brands and Smucker terminated the agreement. This outcome followed the decision of the Federal Trade Commission, announced on March 5, 2018, to challenge the pending sale. The Company is still actively marketing the Wesson® oil business and expects to sell it within the next twelve months. The assets of this business have been reclassified as assets held for sale within our Consolidated Balance Sheets for all periods presented.
In connection with the initial pending sale of the Wesson® oil business, we recognized an impairment charge of $27.6 million within SG&A expenses in fiscal 2017, as a production facility was not initially included in the assets to be sold, and we did not expect to recover the carrying value of this facility through future associated cash flows. Subsequent to the terminated agreement with Smucker, this production facility has been included in noncurrent assets held for sale.
The assets classified as held for sale reflected in our Consolidated Balance Sheets related to the Wesson® oil business were as follows:
| | | | | | | | | | May 27, 2018 | | May 28, 2017 | Current assets | $ | 37.7 |
| | $ | 35.5 |
| Noncurrent assets (including goodwill of $74.5 million) | 101.0 |
| | 102.8 |
|
During the first quarter of fiscal 2017, we completed the sales of our Spicetec Flavors & Seasonings business ("Spicetec") and our JM Swank business, each of which was part of our Commercial segment, for $329.7 million and $159.3 million, respectively, in cash, net of cash included in the dispositions. We recognized pre-tax gains from the sales of $144.8 million and $52.6 million, respectively. We entered into transition services agreements in connection with the salesdisposal of these businesses and recognized $0.2 million and $1.9 million of income during fiscal 2018 and fiscal 2017, respectively, classified within SG&A expenses.
In addition, we are actively marketing certain other assets. These assets have been reclassified as assets held for sale within our Consolidated Balance Sheets for all periods presented. The balance of these assets classified as held for sale was $10.4 million and $14.9 million in our Corporate and Grocery & Snacks segments, respectively, at May 27, 2018 and $11.6 million and $14.6 million in our Corporate and Grocery & Snacks segments, respectively, at May 28, 2017.
individual asset groups.7. INVESTMENTS IN JOINT VENTURES The total carrying value of our equity method investments at the end of fiscal 20182021 and 20172020 was $776.2$841.8 million and $741.3$798.7 million, respectively. These amounts are included in other assets and reflect our 44% ownership interest in Ardent Mills and a 50% ownership interestsinterest in one other joint ventures.venture. Due to differences in fiscal reporting periods, we recognized the equity method investment earnings on a lag of approximately one month. In fiscal 2018,2021, we had purchases from our equity method invest ees of $34.9$28.7 million. Total dividends received from equity method investments in fiscal 20182021 were $62.5$56.5 million.In fiscal 2017,2020, we had purchases from our equity method investees of$41.8 $32.5 million. Total dividends received from equity method investments in fiscal 20172020 were $68.2$51.4 million.In fiscal 2016,2019, we had sales to and purchases from our equity method investees of $1.6 million and $61.2 million, respectively.$39.4 million. Total dividends received from equity method investments in fiscal 20162019 were $40.4$55.0 million. We entered into transition services agreements in connection with the Ardent Mills formation and recognized $0.1 million and $9.7 million of income for the performance of transition services during fiscal 2017 and 2016, respectively, classified within SG&A expenses.
56
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
Summarized combined financial information for our equity method investments on a 100% basis is as follows: | | 2021 | | | 2020 | | | 2019 | | Net sales: | | | | | | | | | | | | | Ardent Mills | | $ | 3,407.6 | | | $ | 3,393.9 | | | $ | 3,476.0 | | Other | | | 238.8 | | | | 225.0 | | | | 195.4 | | Total net sales | | $ | 3,646.4 | | | $ | 3,618.9 | | | $ | 3,671.4 | | Gross margin: | | | | | | | | | | | | | Ardent Mills | | $ | 360.6 | | | $ | 313.1 | | | $ | 281.9 | | Other | | | 47.3 | | | | 49.4 | | | | 45.5 | | Total gross margin | | $ | 407.9 | | | $ | 362.5 | | | $ | 327.4 | | Earnings after income taxes: | | | | | | | | | | | | | Ardent Mills | | $ | 169.6 | | | $ | 144.5 | | | $ | 151.9 | | Other | | | 19.5 | | | | 19.3 | | | | 18.1 | | Total earnings after income taxes | | $ | 189.1 | | | $ | 163.8 | | | $ | 170.0 | |
| | May 30, 2021 | | | May 31, 2020 | | Ardent Mills: | | | | | | | | | Current assets | | $ | 1,101.5 | | | $ | 1,010.6 | | Noncurrent assets | | | 1,848.2 | | | | 1,720.2 | | Current liabilities | | | 524.1 | | | | 454.8 | | Noncurrent liabilities | | | 563.0 | | | | 503.4 | | Other: | | | | | | | | | Current assets | | $ | 95.0 | | | $ | 87.1 | | Noncurrent assets | | | 36.8 | | | | 24.5 | | Current liabilities | | | 39.9 | | | | 44.1 | | Noncurrent liabilities | | | 10.6 | | | | 8.3 | |
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Net Sales: | | | | | | Ardent Mills | $ | 3,344.1 |
| | $ | 3,180.0 |
| | $ | 3,395.3 |
| Others | 198.8 |
| | 177.7 |
| | 167.2 |
| Total net sales | $ | 3,542.9 |
| | $ | 3,357.7 |
| | $ | 3,562.5 |
| Gross margin: | | | | |
|
| Ardent Mills | $ | 386.5 |
| | $ | 340.3 |
| | $ | 339.2 |
| Others | 34.8 |
| | 34.6 |
| | 32.8 |
| Total gross margin | $ | 421.3 |
| | $ | 374.9 |
| | $ | 372.0 |
| Earnings after income taxes: | | | | |
|
| Ardent Mills | $ | 197.0 |
| | $ | 152.0 |
| | $ | 142.9 |
| Others | 10.1 |
| | 10.1 |
| | 6.4 |
| Total earnings after income taxes | $ | 207.1 |
| | $ | 162.1 |
| | $ | 149.3 |
|
| | | | | | | | | | May 27, 2018 | | May 28, 2017 | Ardent Mills: | | | | Current assets | $ | 974.6 |
| | $ | 937.2 |
| Noncurrent assets | 1,675.7 |
| | 1,694.2 |
| Current liabilities | 355.6 |
| | 388.9 |
| Noncurrent liabilities | 510.9 |
| | 518.0 |
| Others: | | | | Current assets | $ | 76.4 |
| | $ | 75.5 |
| Noncurrent assets | 15.5 |
| | 12.2 |
| Current liabilities | 37.5 |
| | 44.5 |
| Noncurrent liabilities | 0.1 |
| | — |
|
8. VARIABLE INTEREST ENTITIES Variable Interest Entities Not Consolidated
We lease or leased 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. The lease agreements also contain contingent put options (the "lease put options") that allow or allowed the lessors to require us to purchase the buildings at the greater of original construction cost, or fair market value, without a lease agreement in place (the "put price") in certain limited circumstances. As a result of substantial impairment charges related to our divested Private Brands operations, these lease put options became exercisable. During fiscal 2016, we entered into a series of related transactions in which we exchanged a warehouse we owned in Indiana for two buildings and parcels of land that we leased as part of our Omaha corporate offices. Concurrent with the asset exchange, the leases on the two Omaha corporate buildings, which were subject to contingent put options, were canceled. We recognized aggregate charges of $55.6 million for the early termination of these leases. We also entered into a lease for the warehouse in Indiana and we recorded a financing lease obligation of $74.2 million. During fiscal 2017, one of these lease agreements expired. As a result of this expiration, we reversed the applicable accrual and recognized a benefit of $6.7 million in SG&A expenses. During the third quarter of fiscal 2018, we purchased two buildings that were subject to lease put options and recognized net losses totaling $48.2 million for the early exit of unfavorable lease contracts.
As of May 27, 2018, there was one remaining leased building subject to a lease put option for which the put option price exceeded the estimated fair value of the property by $8.2 million, of which we had accrued $1.2 million. We are amortizing the difference between the put price and the estimated fair value (without a lease agreement in place) of the property over the remaining lease term within SG&A expenses. This lease is accounted for as an operating lease, and accordingly, there are no material assets and liabilities, other than the accrued portion of the put price, associated with this entity included in the
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
Consolidated Balance Sheets. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of this entity. In making this determination, we have considered, among other items, the terms of the lease agreement, the expected remaining useful life of the asset leased, and the capital structure of the lessor entity.
9. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for fiscal 20182021 and 20172020, excluding amounts classified as held for sale (see Note 6), was as follows: | | Grocery & Snacks | | | Refrigerated & Frozen | | | International | | | Foodservice | | | Total | | Balance as of May 26, 2019 | | $ | 4,694.7 | | | $ | 5,619.2 | | | $ | 299.0 | | | $ | 747.7 | | | $ | 11,360.6 | | Purchase accounting adjustments | | | 3.5 | | | | 5.9 | | | | 0.7 | | | | 0 | | | | 10.1 | | Currency translation | | | 0 | | | | 0 | | | | (9.2 | ) | | | 0 | | | | (9.2 | ) | Balance as of May 31, 2020 | | $ | 4,698.2 | | | $ | 5,625.1 | | | $ | 290.5 | | | $ | 747.7 | | | $ | 11,361.5 | | Currency translation | | | 0 | | | | 0 | | | | 12.0 | | | | 0 | | | | 12.0 | | Balance as of May 30, 2021 | | $ | 4,698.2 | | | $ | 5,625.1 | | | $ | 302.5 | | | $ | 747.7 | | | $ | 11,373.5 | |
| | | | | | | | | | | | | | | | | | | | | | Grocery & Snacks | | Refrigerated & Frozen | | International | | Foodservice | | Total | Balance as of May 29, 2016 | $ | 2,273.1 |
| | $ | 1,028.9 |
| | $ | 442.8 |
| | $ | 571.1 |
| | $ | 4,315.9 |
| Impairment | — |
| | — |
| | (198.9 | ) | | — |
| | (198.9 | ) | Acquisitions | 166.0 |
| | 8.3 |
| | — |
| | — |
| | 174.3 |
| Currency translation | — |
| | 0.1 |
| | 3.9 |
| | — |
| | 4.0 |
| Balance as of May 28, 2017 | $ | 2,439.1 |
| | $ | 1,037.3 |
| | $ | 247.8 |
| | $ | 571.1 |
| | $ | 4,295.3 |
| Acquisitions | 155.2 |
| | 57.8 |
| | — |
| | — |
| | 213.0 |
| Purchase accounting adjustments | (1.5 | ) | | — |
| | — |
| | — |
| | (1.5 | ) | Currency translation | — |
| | 0.6 |
| | (4.9 | ) | | — |
| | (4.3 | ) | Balance as of May 27, 2018 | $ | 2,592.8 |
| | $ | 1,095.7 |
| | $ | 242.9 |
| | $ | 571.1 |
| | $ | 4,502.5 |
|
57
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) Other identifiable intangible assets, wereexcluding amounts classified as follows: | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | Non-amortizing intangible assets | $ | 918.3 |
| | $ | — |
| | $ | 829.7 |
| | $ | — |
| Amortizing intangible assets | 579.4 |
| | 213.2 |
| | 573.5 |
| | 179.5 |
| | $ | 1,497.7 |
| | $ | 213.2 |
| | $ | 1,403.2 |
| | $ | 179.5 |
|
During fiscal 2018, we reclassified $3.0 million and $9.2 million of goodwill and other identifiable intangible assets, respectively, to noncurrent assets held for sale, were as follows: | | 2021 | | | 2020 | | | | Gross Carrying Amount | | | Accumulated Amortization | | | Gross Carrying Amount | | | Accumulated Amortization | | Non-amortizing intangible assets | | $ | 3,301.2 | | | $ | — | | | $ | 3,388.7 | | | $ | — | | Amortizing intangible assets | | | 1,235.3 | | | | 378.9 | | | | 1,232.1 | | | | 318.4 | | | | $ | 4,536.5 | | | $ | 378.9 | | | $ | 4,620.8 | | | $ | 318.4 | |
In the first quarter of fiscal 2021, management changed its reporting of certain brands within 2 reporting units in our Refrigerated & Frozen segment. The total goodwill in our Refrigerated & Frozen segment remains unchanged, but we reassigned goodwill between the two reporting units. We evaluated goodwill for all periods presented in conjunctionimpairment both prior to and subsequent to the change, and there were 0 impairments. For the Sides, Components, Enhancers reporting unit that was impacted by the management change, based upon a quantitative impairment test, the excess fair value over the carrying value was approximately 20%, which remained relatively consistent with our prior year quantitative impairment test. Fair value is typically estimated using a discounted cash flow analysis which requires us to estimate the then pending divestituresfuture cash flows as well as to select a risk-adjusted discount rate to measure the present value of the Del Monte® processed fruitanticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and vegetable businessanticipated operating conditions. We estimate cash flows for a reporting unit over a discrete period (typically five years) and a terminal period (considering expected long-term growth rates and trends). We used a discount rate for our Sides, Components, Enhancers reporting unit of 6.25% and a terminal growth rate slightly in Canadaexcess of 1%. Estimating the fair value of individual reporting units requires us to make assumptions and estimates in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows, discount rates, or terminal growth rates could produce substantially different estimates of the fair value of the reporting units.In the fourth quarter of fiscal 2021, we performed our Wesson® oil business.annual goodwill impairment assessment on all of our reporting units and found no indicators of impairment. We completed a qualitative assessment which considered, among other things, an increase in our market capitalization from our previous testing date, the current interest rate environment, and recent events which have had a positive impact on our financial results for most of our reporting units. However, we will continue to evaluate the impact of any significant changes in consumer purchasing behaviors, government restrictions, input cost inflation, or other macroeconomic conditions which could change certain assumptions that result in future impairments. While retail sales have increased due to higher than anticipated consumer demand for our products throughout the COVID-19 pandemic, our Foodservice segment has experienced a negative impact with decreased away-from-home eating occasions. We continue to believe this is a temporary decline as seen with improving trends in our Foodservice segment in the fourth quarter of fiscal 2021. As such, we have determined that there was no impairment triggering event as it was not more likely than not that the fair value of this reporting unit is less than its carrying amount. Amortizing intangible assets, carrying a remaining weighted-average life of approximately 19 years, are principally composed of customer relationships and acquired intellectual property. For fiscal 2021, 2020, and 2019, we recognized amortization expense of $59.7 million, $59.8 million, and $49.1 million, respectively. Based on amortizing assets recognized in our Consolidated Balance Sheet as of May 30, 2021, amortization expense for the next five years is estimated to be as follows: 2022 | | $ | 59.5 | | 2023 | | | 57.2 | | 2024 | | | 53.9 | | 2025 | | | 53.9 | | 2026 | | | 43.8 | |
For our non-amortizing intangible assets, which are comprised of brands and trademarks, we use a "relief from royalty" methodology in estimating fair value. During fiscal 2018,2021, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment charges in SG&A expenses of $4.0$90.9 million, primarily within our Grocery & Snacks and Refrigerated 58
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) & Frozen segments. Udi’s® was the most notable brand with impairment in fiscal 2021 largely due to lower than expected sales and profit margins which resulted in a reduction to our assumed royalty rate. During the first quarter of fiscal 2020, we recorded impairment charges totaling $19.3 million within our Refrigerated & Frozen segment and Grocery & Snacks segment for certain brands for which management changed its business strategy and that continued to have lower than expected sales and profit margins. This impairment was included within SG&A expenses. During fiscal 2020, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment charges in SG&A expenses of $146.2 million, primarily within our Grocery & Snacks and Refrigerated & Frozen segments, largely associated with brands that were recorded at fair value in recent acquisitions. The more notable brands with impairments included Frontera®, Gardein®, Glutino®, Hungry Man®, and Udi’s®. While most of our recently acquired brands continue to remain on track with previous assumptions, these brands have had lower than expected sales or profit margins which have led to some revisions in our original assumptions (most notably declines in our assumed royalty rates). During fiscal 2019, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment charges in SG&A expenses of $76.5 million for our HK AndersonChef Boyardee®, and Red Fork®, and Salpica® brands in our Grocery & Snacks segment. We also recognized an impairment chargecharges of $0.8$13.1 million for our Aylmer® brand and Sundrop® brands in our International segment.In the first quarter of fiscal 2017, in anticipation of the Spinoff, we changed our reporting segments. In accordance with applicable accounting guidance, we were required to determine new reporting units at a lower level (at the operating segment or one level lower, as applicable). When such a determination was made, we were required to perform a goodwill impairment analysis for each of the new reporting units.
We performed an assessment of impairment of goodwill for the new Canadian reporting unit within the new International reporting segment. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans and future industry and economic conditions. We estimated the future cash flows of the Canadian reporting unit and calculated the net present value of those estimated cash flows using a risk adjusted discount rate, in order to estimate the fair value of each reporting unit from the perspective of a market participant. We used discount rates and terminal growth rates of 7.5% and 2%, respectively, to calculate the present value of estimated future cash flows. We then compared the estimated fair value of the reporting unit to the historical carrying value (including allocated assets and liabilities of certain shared and Corporate functions), and determined that the fair value of the reporting unit was less than the carrying
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
value in the first quarter of fiscal 2017. With the assistance of a third-party valuation specialist, we estimated the fair value of the assets and liabilities of this reporting unit in order to determine the implied fair value of goodwill. We recognized an impairment charge for the difference between the implied fair value of goodwill and the carrying value of goodwill. Accordingly, during the first quarter of fiscal 2017, we recorded charges totaling $139.2 million for the impairment of goodwill.
As part of the assessment of the fair value of each asset and liability within the Canadian reporting unit, with the assistance of the third-party valuation specialist, we estimated the fair value of our Canadian Del Monte® brand to be less than its carrying value. In accordance with applicable accounting guidance, we also recognized an impairment charge during the first quarter of fiscal 2017 of $24.4 million to write-down the intangible asset to its estimated fair value.
We also performed an assessment of impairment of goodwill for the new Mexican reporting unit within the International reporting segment using similar methods to those described above. We used discount rates and terminal growth rates of 8.5% and 3%, respectively, to calculate the present value of estimated future cash flows. We determined that the estimated fair value of this reporting unit exceeded the carrying value of its net assets by approximately 5%. Accordingly, we did not recognize an impairment of the goodwill in the Mexican reporting unit.
During the second quarter of fiscal 2017, as a result of further deterioration in forecasted sales and profits primarily due to foreign exchange rates, we performed an additional assessment of impairment of goodwill for the new Mexican reporting unit. We used discount rates and terminal growth rates of 8.5% and 3%, respectively, to calculate the present value of estimated future cash flows. We then compared the estimated fair value of the reporting unit to the historical carrying value (including allocated assets and liabilities of certain shared and Corporate functions), and determined that the fair value of the reporting unit was less than the carrying value in the second quarter of fiscal 2017. With the assistance of a third-party valuation specialist, we estimated the fair value of the assets and liabilities of this reporting unit in order to determine the implied fair value of goodwill. We recognized an impairment charge for the difference between the implied fair value of goodwill and the carrying value of goodwill. Accordingly, during the second quarter of fiscal 2017, we recorded charges totaling $43.9 million for the impairment of goodwill.
During the fourth quarter of fiscal 2017, in conjunction with our annual impairment testing, we adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment. As a result of further deterioration in forecasted sales and profits, we performed an additional assessment of impairment of goodwill for the new Mexican reporting unit. We used discount rates and terminal growth rates of 9.0% and 3%, respectively, to calculate the present value of estimated future cash flows. We then compared the estimated fair value of the reporting unit to the historical carrying value (including allocated assets and liabilities of certain shared and Corporate functions), and determined that the fair value of the reporting unit was less than the carrying value in the fourth quarter of fiscal 2017. With the assistance of a third-party valuation specialist, we estimated the fair value of the reporting unit. We recognized an impairment charge of $15.8 million, equal to the difference between the carrying value and estimated fair value of the reporting unit.
In fiscal 2017, due to declining sales of certain brands, we elected to perform a quantitative impairment test for indefinite lived intangibles of those brands. During fiscal 2017, we recognized impairment charges of $7.1 million for our Del Monte®brand and $5.5 million for our Aylmer® brand in our International segment. We also recognized impairment charges of $67.1 million for our Chef Boyardee® brand and $1.1 million for our Fiddle Faddle® brand in our Grocery & Snacks segment.
During fiscal 2016, we also elected to perform a quantitative impairment test for indefinite lived intangibles and recognized an impairment charge of $50.1 million in our Grocery & Snacks segment for our Chef Boyardee® brand.
See Note 6 for a discussion of impairments related to discontinued operations.
Non-amortizing intangible assets are comprised of brands and trademarks.
Amortizing intangible assets, carrying a remaining weighted average life of approximately 14 years, are principally composed of customer relationships, licensing arrangements, and acquired intellectual property. For fiscal 2018, 2017, and 2016, we recognized amortization expense of $34.9 million, $33.6 million, and $34.6 million, respectively. Based on amortizing assets recognized in our Consolidated Balance Sheet as of May 27, 2018, amortization expense is estimated to average $32.8 million for each of the next five years, with a high expense of $33.3 million in fiscal year 2019 and decreasing to a low expense of $30.9 million in fiscal year 2023.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
In the first quarter of fiscal 2016, we entered into an agreement for the use of certain intellectual property and recorded an amortizing intangible asset of $92.8 million, for which cash payments of $14.4 million, $14.9 million, and $10.4 million were made in the first quarter of fiscal 2018, 2017, and 2016, respectively. Remaining payments will be made over a four-year period.
10.9. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is calculated on the basis of weighted average outstanding shares of common stock. Diluted earnings (loss) per share is computed on the basis of basic weighted average outstanding shares of common stock adjusted for the dilutive effect of stock options, restricted stock unit awards, and other dilutive securities. During the second quarter of fiscal 2019, we issued 77.5 million shares of our common stock out of treasury to the former stockholders of Pinnacle pursuant to the terms of the Merger Agreement. In addition, we issued 16.3 million shares of our common stock, par value $5.00 per share, in an underwritten public offering in connection with the financing of the Pinnacle acquisition, with net proceeds of $555.7 million (see Note 2).The following table reconciles the income and average share amounts used to compute both basic and diluted earnings (loss) per share: | | 2021 | | | 2020 | | | 2019 | | Net income attributable to Conagra Brands, Inc. common stockholders: | | | | | | | | | | | | | Income from continuing operations attributable to Conagra Brands, Inc. common stockholders | | $ | 1,298.8 | | | $ | 840.1 | | | $ | 680.2 | | Loss from discontinued operations, net of tax, attributable to Conagra Brands, Inc. common stockholders | | | — | | | | — | | | | (1.9 | ) | Net income attributable to Conagra Brands, Inc. common stockholders | | $ | 1,298.8 | | | $ | 840.1 | | | $ | 678.3 | | Weighted average shares outstanding: | | | | | | | | | | | | | Basic weighted average shares outstanding | | | 485.8 | | | | 487.3 | | | | 444.0 | | Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities | | | 2.0 | | | | 1.3 | | | | 1.6 | | Diluted weighted average shares outstanding | | | 487.8 | | | | 488.6 | | | | 445.6 | |
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Net income (loss) available to Conagra Brands, Inc. common stockholders: | | | | | | Income from continuing operations attributable to Conagra Brands, Inc. common stockholders | $ | 794.1 |
| | $ | 544.1 |
| | $ | 126.6 |
| Income (loss) from discontinued operations, net of tax, attributable to Conagra Brands, Inc. common stockholders | 14.3 |
| | 95.2 |
| | (803.6 | ) | Net income (loss) attributable to Conagra Brands, Inc. common stockholders | $ | 808.4 |
| | $ | 639.3 |
| | $ | (677.0 | ) | Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated | — |
| | 0.8 |
| | 4.8 |
| Net income (loss) available to Conagra Brands, Inc. common stockholders | $ | 808.4 |
| | $ | 638.5 |
| | $ | (681.8 | ) | Weighted average shares outstanding: | | | | | | Basic weighted average shares outstanding | 403.9 |
| | 431.9 |
| | 434.4 |
| Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities | 3.5 |
| | 4.1 |
| | 4.1 |
| Diluted weighted average shares outstanding | 407.4 |
| | 436.0 |
| | 438.5 |
|
For fiscal 2018, 2017,2021, 2020, and 2016,2019, there were 1.30.4 million, 0.81.9 million, and 0.42.0 million stock options outstanding, respectively, that were excluded from the computation of diluted weighted average shares because the effect was antidilutive.
11. INVENTORIES
The major classes of inventories were as follows:
| | | | | | | | | | May 27, 2018 | | May 28, 2017 | Raw materials and packaging | $ | 206.2 |
| | $ | 182.1 |
| Work in process | 92.4 |
| | 91.9 |
| Finished goods | 651.1 |
| | 606.6 |
| Supplies and other | 47.4 |
| | 47.3 |
| Total | $ | 997.1 |
| | $ | 927.9 |
|
59
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts) 10. INVENTORIES The major classes of inventories were as follows: | | May 30, 2021 | | | May 31, 2020 | | Raw materials and packaging | | $ | 290.7 | | | $ | 291.6 | | Work in process | | | 125.1 | | | | 125.2 | | Finished goods | | | 1,238.1 | | | | 874.7 | | Supplies and other | | | 80.1 | | | | 73.3 | | Total | | $ | 1,734.0 | | | $ | 1,364.8 | |
12.11. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities consisted of: | | May 30, 2021 | | | May 31, 2020 | | Postretirement health care and pension obligations | | $ | 197.3 | | | $ | 324.9 | | Noncurrent income tax liabilities | | | 1,271.4 | | | | 1,330.1 | | Noncurrent lease liabilities (see Note 15) | | | 188.3 | | | | 206.1 | | Self-insurance liabilities | | | 30.5 | | | | 37.5 | | Asset retirement obligations | | | 42.4 | | | | 13.4 | | Environmental liabilities (see Note 16) | | | 59.0 | | | | 61.5 | | Legal settlement costs (see Note 16) | | | 52.0 | | | | 63.1 | | Technology agreement liability | | | — | | | | 14.6 | | Other | | | 141.9 | | | | 113.9 | | | | $ | 1,982.8 | | | $ | 2,165.1 | |
| | | | | | | | | | May 27, 2018 | | May 28, 2017 | Postretirement health care and pension obligations | $ | 261.7 |
| | $ | 709.8 |
| Noncurrent income tax liabilities | 490.4 |
| | 466.5 |
| Self-insurance liabilities | 27.1 |
| | 29.0 |
| Environmental liabilities (see Note 17) | 56.0 |
| | 54.7 |
| Technology agreement liability (see Note 9) | 42.7 |
| | 56.4 |
| Other | 187.3 |
| | 212.4 |
| | $ | 1,065.2 |
| | $ | 1,528.8 |
|
The total number of shares we are authorized to issue is 1,218,050,000 shares, which shares may be issued as follows: 1,200,000,000 shares of common stock, par value $5.00 per share; 150,000 shares of Class B Preferred Stock, par value $50.00 per share; 250,000 shares of Class C Preferred Stock, par value $100.00 per share; 1,100,000 shares of Class D Preferred Stock, no par value per share; and 16,550,000 shares of Class E Preferred Stock, no par value per share. There were no0 preferred shares issued or outstanding as of May 27, 2018.30, 2021.We have repurchased 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. In October 2016, our Board of Directors approved a $1.25 billion increase to our share repurchase authorization. The Board of Directors approved further increases to the share repurchase program of $1.0 billion each in May 2017 and May 2018. WeBoard. During fiscal 2021, we repurchased 27.48.8 million shares of our common stock for approximately $967.3 million and 25.1 million shares of our common stock for approximately $1.0 billion in fiscal 2018 and 2017, respectively, under this program.
14.$298.1 million.13. SHARE-BASED PAYMENTS In accordance with stockholder-approved equity incentive plans, we issue share-based payments under variousgrant stock-based compensation arrangements,awards, including stock options, restricted stock units, cash-settled restricted stock units, performance shares, performance-based restricted stock units, stock options, and other share-based awards.stock appreciation rights. The shares to be delivered upon vesting or lapse of restriction under the planany such arrangement may consist, in whole or part, of treasury stock or authorized but unissued stock, not reserved for any other purpose. On September 19, 2014, theour stockholders approved the Conagra Brands, Inc. 2014 Stock Plan (the "Plan"), which was(as amended oneffective December 11, 2017. As amended,2017, the "Plan"). The Plan authorizedauthorizes the issuance of up to 40.3 million shares of Conagra Brands common stock as well asstock. In addition to the shares under the 2014 Stock Plan, certain shares of Conagra Brands common stock subject to outstanding awards under predecessor stock plans that expire, lapse, are cancelled, terminated, forfeited, or otherwise become unexercisable.unexercisable, or are settled for cash are available for issuance. At May 27, 2018,30, 2021, approximately 42.539.5 million shares were reserved for granting additional options,new share-based awards.60
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) Share Unit Awards In accordance with stockholder-approved equity incentive plans, we grant awards of restricted stock units and cash-settled restricted stock units performance shares, or other share-based awards. All amounts below are of continuing and discontinued operations.
Share Unit Plans
In accordance with stockholder-approved plans, we issue stock under various stock-based compensation arrangements, including restricted stock units, cash-settled restricted stock units, and other share-based awards ("share units") . to employees and directors. These awards generally have requisite service periods of three years. Under each arrangement,such award, stock or cash (as applicable) is issued without direct cost to the employee. We estimate the fair value of the share units based upon the market price of our stock at the date of grant. Certain share unit grants do not provide for the payment of dividend equivalents to the participant during the requisite service period (vesting period)(the "vesting period"). For those grants, the value of the grants is reduced by the net present value of the foregone dividend equivalent payments. We recognize compensation expense for share unit awards on a straight-line basis over the requisite service period, accounting for forfeitures as they occur. All cash-settled restricted stock units arewere marked-to-market and presented within
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
other current and noncurrent liabilities in our Consolidated Balance Sheets.Sheets prior to final payout in fiscal 2021. The compensation expense for our stock-settled share unit awards totaled $21.8$28.1 million, $18.2 million, and $25.1 million for fiscal 2018, 2017, and 2016, respectively, including discontinued operations of $1.4$24.5 million, and $3.9$23.9 million for fiscal 20172021, 2020, and 2016,2019, respectively. The tax benefit related to the stock-settled share unit award compensation expense for fiscal 2018, 2017,2021, 2020, and 20162019 was $7.2$6.1 million, $7.0$5.3 million,, and $9.6$6.0 million,, respectively.The compensation expense for our cash-settled share unit awards totaled $5.8$1.0 million, $20.9$4.2 million, and $33.9 million for fiscal 2018, 2017, and 2016, respectively, including discontinued operations of $2.6 million and $7.4$17.5 million for fiscal 20172021, 2020, and 2016,2019, respectively. The tax benefit related to the cash-settled share unit award compensation expense for fiscal 2018, 2017,2021, 2020, and 20162019 was $1.9$0.3 million, $8.0$1.1 million, and $13.0$4.4 million,, respectively. NoDuring the second quarter of fiscal 2019, in connection with the completion of the Pinnacle acquisition, we granted 2.0 million cash-settled share unit awards at a grant date fair value of $36.37 per share unit to Pinnacle employees in replacement of their unvested restricted share unit awards that were outstanding as of the closing date. Included in the compensation expense described above for fiscal 2020 and 2019 is expense of $1.0 million and $18.9 million, respectively, for accelerated vesting of awards related to Pinnacle integration restructuring activities, net of the impact of marking-to-market these awards based on a lower market price of shares of Conagra Brands common stock. Approximately $36.3 million of the fair value of the replacement share unit awards granted to Pinnacle employees was attributable to pre-combination service and was included in the purchase price and established as a liability. Included in the fiscal 2018. 2020 and 2019 expense for cash-settled share unit awards above is expense of $0.2 million and income of $6.7 million, respectively, related to the mark-to-market of this liability. As of May 30, 2021, there were 0 remaining cash-settled share unit awards.The following table summarizes the nonvested share units as of May 27, 201830, 2021 and changes during the fiscal year then ended: | | Stock-Settled | | | Cash-Settled | | Share Units | | Share Units (in Millions) | | | Weighted Average Grant-Date Fair Value | | | Share Units (in Millions) | | | Weighted Average Grant-Date Fair Value | | Nonvested share units at May 31, 2020 | | | 2.38 | | | $ | 31.76 | | | | 0.12 | | | $ | 36.37 | | Granted | | | 0.93 | | | $ | 36.72 | | | | — | | | $ | — | | Vested/Issued | | | (0.68 | ) | | $ | 33.77 | | | | (0.12 | ) | | $ | 36.37 | | Forfeited | | | (0.14 | ) | | $ | 32.69 | | | | — | | | $ | — | | Nonvested share units at May 30, 2021 | | | 2.49 | | | $ | 33.00 | | | | — | | | $ | — | |
| | | | | | | | | | | | | | | | Stock-settled | | Cash-settled | Share Units | Share Units (in Millions) | | Weighted Average Grant-Date Fair Value | | Share Units (in Millions) | | Weighted Average Grant-Date Fair Value | Nonvested share units at May 28, 2017 | 1.56 |
| | $ | 31.59 |
| | 1.21 |
| | $ | 30.52 |
| Granted | 0.87 |
| | $ | 34.16 |
| | — |
| | $ | — |
| Vested/Issued | (0.53 | ) | | $ | 26.58 |
| | (0.42 | ) | | $ | 22.86 |
| Forfeited | (0.12 | ) | | $ | 33.77 |
| | (0.08 | ) | | $ | 34.60 |
| Nonvested share units at May 27, 2018 | 1.78 |
| | $ | 34.20 |
| | 0.71 |
| | $ | 34.58 |
|
During fiscal 2018, 2017,2021, 2020, and 2016,2019, we granted 0.9 million, 0.61.3 million, and 1.00.9 million stock-settled share units, respectively, with a weighted average grant date fair value of $34.16, $46.79,$36.72, $28.32, and $43.64,$35.43 per share unit, respectively. During fiscal 2017 and 2016, we granted 0.4 million and 0.8 millionNaN cash-settled share units, respectively, with a weighted average grant date value of $48.07 and $44.48, respectively. unit awards were granted in fiscal 2021 or 2020.The total intrinsic value of stock-settled share units vested was $18.5$24.6 million, $27.0$14.2 million, and $48.8$24.6 million during fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. The total intrinsic value of cash-settled share units vested was $14.2$4.3 million, $24.0$24.3 million, and $44.9$50.5 million during fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. At May 27, 2018,30, 2021, we had $22.8 million and $5.2$28.2 million of total unrecognized compensation expense that will be recognized over a weighted average period of 1.81.7 years and 1.0 year, related to stock-settled share unit awardsawards. 61
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and cash-settledMay 26, 2019 (columnar dollars in millions except per share unit awards, respectively. Performance-Basedamounts)Performance Share Plan PerformanceAwardsIn accordance with stockholder-approved equity incentive plans, we grant performance shares are granted to selected executives and other key employees with vesting contingent upon meeting various Company-wide performance goals. The performance goal for one-third of the target number of performance sharesgoals for the three-year performance periodperiods ending in fiscal 20182021 (the "2018"2021 performance period") isand fiscal 2022 ("2022 performance period") are based on our fiscal 2016 EBITDA return on capital, subject to certain adjustments. Another one-third of the target number of performance shares granted for the 2018 performance period is based on our fiscal 2017 EBITDA return on capital, subject to certain adjustments. The fiscal 2017 EBITDA return on capital target, when set, excluded the results of Lamb Weston. The performance goal for the last one-third of the target number of performance shares granted for the 2018 performance period is based on our fiscal 2018 diluted earnings per share ("EPS") compound annual growth rate ("CAGR"), subject to certain adjustments. In addition, for certain participants, alladjustments, measured over the defined performance shares for the 2018 performance period are subject to an overarching EPS goal that must be met in each fiscal year of the 2018 performance period before any pay out can be made to such participants on the performance shares. periods. The performance goal for one-third of the target number of performance shares for the three-year performance period ending in fiscal 20192023 (the "2019"2023 performance period") is based on our fiscal 2017 EBITDA return on capital,2021 diluted EPS CAGR, subject to certain adjustments. The fiscal 2017 EBITDA return on capital target, when set, excluded the results of Lamb Weston. The performance goal for the final two-thirds of the target number of performance shares granted for the 20192023 performance period is based on our diluted EPS CAGR, subject to certain adjustments, measured over the two-year period ending in fiscal 2019. In addition,
Notes2023. For each of the 2021 performance period, 2022 performance period, and 2023 performance period, the awards actually earned will range from 0 to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
for certain participants, alltwo hundred percent of the targeted number of performance shares for the 2019such performance periodperiod. Dividend equivalents are subject to an overarching EPS goal that must be met in each fiscal year of the 2019 performance period before any pay out can be made to such participantspaid on the performance shares.
The performance goal for the three-year performance period ending in fiscal 2020 is based on our diluted EPS CAGR, subject to certain adjustments, measured over the defined performance period. In addition, for certain participants, allportion of performance shares for the 2020 performance period are subject to an overarching EPS goal that must be metactually earned at our regular dividend rate in each fiscal yearadditional shares of the 2020 performance period before any pay out can be made to such participants on the performance shares.
common stock.Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in theour performance share plan, any shares earned will be distributed after the end of the performance period, and generally only if the participant continues to be employed with the Company through the date of distribution. For awards where performance against the performance target has not been certified, the value of the performance shares is adjusted based upon the market price of our common stock and current forecasted performance against the performance targets at the end of each reporting period and amortized as compensation expense over the vesting period. Forfeitures are accounted for as they occur. A summary of the activity for performance share awards as of May 27, 201830, 2021 and changes during the fiscal year then ended is presented below: Performance Shares | | Share Units (in Millions) | | | Weighted Average Grant-Date Fair Value | | Nonvested performance shares at May 31, 2020 | | | 1.49 | | | $ | 32.27 | | Granted | | | 0.48 | | | $ | 36.82 | | Adjustments for performance results attained and dividend equivalents | | | 0.48 | | | $ | 33.82 | | Vested/Issued | | | (0.93 | ) | | $ | 33.82 | | Forfeited | | | (0.01 | ) | | $ | 33.43 | | Nonvested performance shares at May 30, 2021 | | | 1.51 | | | $ | 33.25 | |
| | | | | | | | Performance Shares | Share Units (in Millions) | | Weighted Average Grant-Date Fair Value | Nonvested performance shares at May 28, 2017 | 0.86 |
| | $ | 29.23 |
| Granted | 0.48 |
| | $ | 33.82 |
| Adjustments for performance results attained and dividend equivalents | 0.01 |
| | $ | 22.98 |
| Vested/Issued | (0.33 | ) | | $ | 24.08 |
| Forfeited | (0.02 | ) | | $ | 33.69 |
| Nonvested performance shares at May 27, 2018 | 1.00 |
| | $ | 33.40 |
|
The compensation expense for our performance share awards totaled $11.8$34.9 million, $13.3$31.8 million, and $14.2$8.2 million for fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. The tax benefit related to the compensation expense for fiscal 2018, 2017,2021, 2020, and 20162019 was $3.9$3.6 million, $5.1$2.9 million, and $5.4$2.1 million, respectively. The total intrinsic value of share unitsperformance shares vested (including shares paid in lieu of dividends) during fiscal 2018, 2017,2021, 2020, and 20162019 was $11.2$33.9 million, $2.8$8.4 million, and $12.7$15.7 million, respectively. Based on estimates at May 27, 2018, the Company30, 2021, we had $15.6$19.8 million of total unrecognized compensation expense related to performance shares that will be recognized over a weighted average period of 1.81.7 years. Performance-Based Restricted Stock Unit Awards On April 15, 2019 (the "grant date"), we made grants of performance-based restricted stock unit ("PBRSU") awards to the Company's named executive officers and a limited group of other senior officers of the Company. A total of 0.2 million PBRSU awards were granted with a grant date fair value of $41.82 per PBRSU. The PBRSU awards are awards of share units with vesting contingent on our achievement of certain absolute total shareholder return performance ("TSR") goals over a performance period beginning on the grant date and ending May 27, 2022 (the "PBRSU performance period"). If PBRSUs are earned based on absolute TSR and absolute TSR meets or exceeds a 62
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) predetermined rate, they become eligible for an upward adjustment of 25% based on our relative TSR for the PBRSU performance period versus the median TSR of the S&P 500 Index ("RTSR"). Each PBRSU award payout can range from 0% to 500% of the initial target grant and will not exceed 8.6 times the grant value of each grantee's PBRSU award (including earned dividend equivalents). Compensation expense for the awards is recognized over the PBRSU performance period based upon the grant date fair value. The grant date fair value was estimated using a Monte-Carlo simulation model with a risk-free rate of 2.35% and an expected volatility of 24.92%. The model includes no expected dividend yield as the PBRSUs earn dividend equivalents. We recognize compensation expense using the straight-line method over the requisite service period, accounting for forfeitures as they occur. The compensation expense for our PBRSU awards totaled $2.4 million, $2.7 million, and $0.3 million for fiscal 2021, 2020, and 2019 respectively. The tax benefit related to the compensation expense for fiscal 2021, 2020, and 2019 was $0.2 million, $0.2 million, and $0.1 million, respectively. Based on estimates at May 30, 2021, we had $2.3 million of total unrecognized compensation expense related to the PBRSU awards that will be recognized over a period of one year. Stock Option Plan We haveAwardsIn accordance with stockholder-approved stock optionequity incentive plans, that provide for granting ofwe granted stock options to employees and directors for the purchase of common stock at prices equal to theits fair value at the date of grant. OptionsStock options become exercisable under various vesting schedules (typically three years) and generally expire seven to ten years after the date of grant. NoNaN stock options were granted in fiscal 2018. The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions for stock options granted:
| | | | | | 2017 | | 2016 | Expected volatility (%) | 19.15 | | 17.88 | Dividend yield (%) | 2.33 | | 2.74 | Risk-free interest rates (%) | 1.03 | | 1.60 | Expected life of stock option (years) | 4.94 | | 4.96 |
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The expected volatility is based on the historical market volatility of our stock over the expected life of the stock options granted. The expected life represents the period of time that the awards are expected to be outstanding and is based on the contractual term of each instrument, taking into account employees' historical exercise and termination behavior.
2021, 2020, or 2019.A summary of the option activity as of May 27, 201830, 2021 and changes during the fiscal year then ended is presented below: Options | | Number of Options (in Millions) | | | Weighted Average Exercise Price | | | Average Remaining Contractual Term (Years) | | | Aggregate Intrinsic Value (in Millions) | | Outstanding at May 31, 2020 | | | 3.8 | | | $ | 30.07 | | | | | | | | | | Exercised | | | (0.8 | ) | | $ | 27.47 | | | | | | | $ | 7.0 | | Outstanding at May 30, 2021 | | | 3.0 | | | $ | 30.70 | | | | 4.16 | | | $ | 22.5 | | Exercisable at May 30, 2021 | | | 3.0 | | | $ | 30.70 | | | | 4.16 | | | $ | 22.5 | |
| | | | | | | | | | | | | | Options | Number of Options (in Millions) | | Weighted Average Exercise Price | | Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (in Millions) | Outstanding at May 28, 2017 | 6.3 |
| | $ | 27.12 |
| | | | | Exercised | (1.1 | ) | | $ | 22.28 |
| | | | $ | 15.8 |
| Forfeited | (0.1 | ) | | $ | 34.78 |
| | | | | Outstanding at May 27, 2018 | 5.1 |
| | $ | 28.11 |
| | 5.76 | | $ | 47.6 |
| Exercisable at May 27, 2018 | 4.0 |
| | $ | 26.34 |
| | 5.14 | | $ | 44.4 |
|
We recognize compensation expense using the straight-line method over the requisite service period, accounting for forfeitures as they occur. During fiscal 2017 and 2016, the Company granted 1.1 million options and 1.6 million options, respectively, with a weighted average grant date value of $6.12 and $5.08, respectively. The total intrinsic value of stock options exercised was $15.8$7.0 million, $29.8$3.8 million, and $165.6$7.9 million for fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. The closing market price of our common stock on the last trading day of fiscal 20182021 was $37.41$38.10 per share. Compensation expense for stock option awards totaled $4.2 million, $6.2$0.2 million and $9.4$2.2 million for fiscal 2018, 2017,2020 and 2016, respectively, including discontinued operations of $0.2 million and $0.8 million for fiscal 2017 and 2016,2019, respectively. Included in the compensation expense for stock option awards for fiscal 2018, 2017, and 20162019 was $0.4$0.2 million $0.9 million, and $1.0 million, respectively, related to stock options granted by a subsidiary in the subsidiary's shares to the subsidiary's employees. The tax benefit related to the stock option expense for fiscal 2018, 2017,2020 and 20162019 was $1.4 million, $2.4$0.1 million and $3.6$0.5 million, respectively. At May 27, 2018,30, 2021, we had $2.3 million of total0 unrecognized compensation expense related to stock options that will be recognized over a weighted average period of 0.9 years. options.Cash received from stock option exercises for the fiscal years ended May 27, 2018, May 28, 2017,2021, 2020, and May 29, 20162019 was $25.1$20.5 million, $84.4$11.0 million, and $228.7$12.4 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $5.3$1.7 million, $19.5$1.4 million, and $57.3$2.3 million for fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively.
15. PRE-TAX INCOME AND INCOME TAXES
The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was enacted into law on December 22, 2017. The changes to U.S. tax law include, but are not limited to, (1) reducing the federal statutory income tax rate from 35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) repealing the exception for deductibility of performance-based compensation to covered employees, along with expanding the number of covered employees; and (4) allowing immediate expensing of machinery and equipment contracted for purchase after September 27, 2017.
The Tax Act also establishes new tax provisions that will affect our fiscal year 2019, including, but not limited to, (1) eliminating the deduction for domestic manufacturing activities; (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (3) establishing a new minimum tax on Global Intangible Low-Taxed Income ("GILTI"), a new Base Erosion Anti-Abuse Tax, and a new U.S. corporate deduction for Foreign-Derived Intangible Income.
On December 22, 2017, the U.S. Securities and Exchange Commission released Staff Accounting Bulletin ("SAB") 118, which allows for a measurement period up to one year after the enactment date of the Tax Act to finalize related income tax impacts. Although our accounting for the impact of the Tax Act is incomplete, we have made reasonable estimates and recorded provisional amounts for items impacted including, among others, the following:
63
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
•We remeasured deferred tax assetsStock Appreciation Rights Awards During the second quarter of fiscal 2019, in connection with the completion of the Pinnacle acquisition, we granted 2.3 million cash-settled stock appreciation rights with a fair value estimated at closing date using a Black-Scholes option-pricing model and liabilities based ona grant date price of $36.37 per share to Pinnacle employees in replacement of their unvested stock option awards that were outstanding as of the rates at which they are expectedclosing date. Approximately $14.8 million of the fair value of the replacement awards granted to reversePinnacle employees was attributable to pre-combination service and recorded a provisional net benefit of $241.6 million. In addition,was included in the purchase price and established as a resultliability. As of the Tax Act we recorded a provisional benefitMay 30, 2021, there were 0 remaining stock appreciation rights. The compensation income for our cash-settled stock appreciation rights totaled $0.3 million and $13.7 million for fiscal 2020 and fiscal 2019, respectively. Included in this amount for fiscal 2019 is income of $3.2$14.0 million related to the releasemark-to-market of valuation allowance against certain deferred tax assets that are more likely than not to be realized. The releasethe liability established in connection with the Pinnacle acquisition and expense of valuation allowance was refined by a $0.5$0.2 million increase asfor accelerated vesting of May 27, 2018 from our initial estimate made in our third quarter of fiscal 2018 in accordance with SAB 118. •We computed a provisional tax of approximately $19.8 millionawards related to the applicationPinnacle integration restructuring activities, net of the one-time transition tax on the net accumulated post-1986 earnings and profits of foreign subsidiaries. The transition tax was refined by a $4.6 million increase as of May 27, 2018 from our initial estimate made in our third quarter of fiscal 2018 in accordance with SAB 118.
We have not yet completed our analysis of the GILTI tax rules and are still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on certain foreign differences between the financial statement and tax basis of foreign assets and liabilities. At May 27, 2018, we did not record a deferred tax liability for these differences. We will continue to analyze the impact of GILTI as more guidance is issued andmarking-to-market these awards based on a decision will be made during fiscal year 2019 on whether to treat the GILTI as a period cost or a deferredlower market price of Conagra common shares. The related tax item.
As a result of our fiscal year end, the lower U.S. statutory federal income tax rate resulted in a blended U.S. federal statutory rate of 29.3% for our fiscal year ending May 27, 2018. It is expected to be 21%expense for fiscal years beginning after May 27, 2018.
2020 and fiscal 2019 was $0.1 million and $3.4 million, respectively14. PRE-TAX INCOME AND INCOME TAXES Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following: | | 2021 | | | 2020 | | | 2019 | | United States | | $ | 1,426.5 | | | $ | 978.3 | | | $ | 826.6 | | Foreign | | | 68.2 | | | | 64.8 | | | | 72.5 | | | | $ | 1,494.7 | | | $ | 1,043.1 | | | $ | 899.1 | |
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | United States | $ | 902.5 |
| | $ | 883.5 |
| | $ | 136.9 |
| Foreign | 69.6 |
| | (82.8 | ) | | 38.0 |
| | $ | 972.1 |
| | $ | 800.7 |
| | $ | 174.9 |
|
The provision for income taxes included the following: | | 2021 | | | 2020 | | | 2019 | | Current | | | | | | | | | | | | | Federal | | $ | 232.6 | | | $ | 188.2 | | | $ | 125.4 | | State | | | 31.8 | | | | 25.5 | | | | 22.6 | | Foreign | | | 15.3 | | | | 9.5 | | | | 21.6 | | | | | 279.7 | | | | 223.2 | | | | 169.6 | | Deferred | | | | | | | | | | | | | Federal | | | (63.5 | ) | | | 37.6 | | | | 40.1 | | State | | | (26.1 | ) | | | (62.3 | ) | | | 19.0 | | Foreign | | | 3.7 | | | | 2.8 | | | | (9.9 | ) | | | | (85.9 | ) | | | (21.9 | ) | | | 49.2 | | | | $ | 193.8 | | | $ | 201.3 | | | $ | 218.8 | |
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Current | | | | | | Federal | $ | 153.1 |
| | $ | 201.5 |
| | $ | 206.5 |
| State | 17.8 |
| | 6.7 |
| | 31.0 |
| Foreign | 32.5 |
| | 6.5 |
| | 8.6 |
| | 203.4 |
| | 214.7 |
| | 246.1 |
| Deferred | | | | | | Federal | (43.7 | ) | | 62.1 |
| | (161.5 | ) | State | 17.4 |
| | (5.3 | ) | | (38.9 | ) | Foreign | (2.5 | ) | | (16.8 | ) | | 0.7 |
| | (28.8 | ) | | 40.0 |
| | (199.7 | ) | | $ | 174.6 |
| | $ | 254.7 |
| | $ | 46.4 |
|
64
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
Income taxes computed by applying the U.S. Federal statutory rates to income from continuing operations before income taxes are reconciled to the provision for income taxes set forth in the Consolidated Statements of OperationsEarnings as follows: | | 2021 | | | 2020 | | | 2019 | | Computed U.S. Federal income taxes | | $ | 313.9 | | | $ | 219.0 | | | $ | 188.8 | | State income taxes, net of U.S. Federal tax impact | | | 37.4 | | | | 29.6 | | | | 34.1 | | Goodwill and intangible impairments | | | 13.6 | | | | 11.2 | | | | 12.5 | | Remeasurement of deferred taxes due to legal entity reorganization | | | 35.8 | | | | (40.9 | ) | | | 16.9 | | State tax impact of combining Pinnacle business | | | 0 | | | | 0 | | | | (12.0 | ) | Change of valuation allowance on capital loss carryforward | | | (188.5 | ) | | | 0 | | | | (32.2 | ) | Other | | | (18.4 | ) | | | (17.6 | ) | | | 10.7 | | | | $ | 193.8 | | | $ | 201.3 | | | $ | 218.8 | |
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Computed U.S. Federal income taxes | $ | 285.3 |
| | $ | 280.2 |
| | $ | 61.2 |
| State income taxes, net of U.S. Federal tax impact | 18.0 |
| | 22.4 |
| | (6.4 | ) | Remeasurement of U.S. deferred taxes | (241.6 | ) | | — |
| | — |
| Transition tax on foreign earnings | 19.8 |
| | — |
| | — |
| Tax credits and domestic manufacturing deduction | (20.6 | ) | | (19.8 | ) | | (16.5 | ) | Federal rate differential on legal reserve | 12.6 |
| | — |
| | — |
| Goodwill and intangible impairments | — |
| | 104.7 |
| | — |
| Stock compensation | (5.7 | ) | | (18.8 | ) | | — |
| Change of valuation allowance on capital loss carryforward | 78.6 |
| | (84.1 | ) | | — |
| Change in estimate related to tax methods used for certain international sales, federal credits, and state credits | — |
| | (8.0 | ) | | 6.0 |
| Other | 28.2 |
| | (21.9 | ) | | 2.1 |
| | $ | 174.6 |
| | $ | 254.7 |
| | $ | 46.4 |
|
Income taxes paid, net of refunds, were $164.1$286.3 million, $213.0$178.0 million, and $291.3$133.8 million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. The tax effect of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following: | | May 30, 2021 | | | May 31, 2020 | | | | Assets | | | Liabilities | | | Assets | | | Liabilities | | Property, plant and equipment | | $ | — | | | $ | 281.7 | | | $ | — | | | $ | 258.4 | | Inventory | | | 19.5 | | | | — | | | | 19.5 | | | | — | | Goodwill, trademarks and other intangible assets | | | — | | | | 1,118.4 | | | | — | | | | 1,108.4 | | Right-of-use assets | | | — | | | | 45.5 | | | | — | | | | 51.0 | | Accrued expenses | | | 12.0 | | | | — | | | | 13.4 | | | | — | | Compensation related liabilities | | | 36.5 | | | | — | | | | 36.3 | | | | — | | Pension and other postretirement benefits | | | — | | | | 9.8 | | | | 35.2 | | | | — | | Investment in unconsolidated subsidiaries | | | — | | | | 2.6 | | | | — | | | | 196.2 | | Lease liabilities | | | 54.4 | | | | — | | | | 61.3 | | | | — | | Other liabilities that will give rise to future tax deductions | | | 96.2 | | | | — | | | | 88.1 | | | | — | | Net capital and operating loss carryforwards | | | 53.8 | | | | — | | | | 753.4 | | | | — | | Federal credits | | | 16.1 | | | | — | | | | 17.5 | | | | — | | Other | | | 33.9 | | | | 33.1 | | | | 52.7 | | | | 31.8 | | | | | 322.4 | | | | 1,491.1 | | | | 1,077.4 | | | | 1,645.8 | | Less: Valuation allowance | | | (67.5 | ) | | | — | | | | (728.3 | ) | | | — | | Net deferred taxes | | $ | 254.9 | | | $ | 1,491.1 | | | $ | 349.1 | | | $ | 1,645.8 | |
| | | | | | | | | | | | | | | | | | May 27, 2018 | | May 28, 2017 | | Assets | | Liabilities | | Assets | | Liabilities | Property, plant and equipment | $ | — |
| | $ | 141.0 |
| | $ | — |
| | $ | 216.6 |
| Goodwill, trademarks and other intangible assets | — |
| | 406.2 |
| | — |
| | 623.4 |
| Accrued expenses | 15.5 |
| | — |
| | 20.2 |
| | — |
| Compensation related liabilities | 34.1 |
| | — |
| | 63.9 |
| | — |
| Pension and other postretirement benefits | 45.8 |
| | — |
| | 275.2 |
| | — |
| Investment in unconsolidated subsidiaries | — |
| | 165.8 |
| | — |
| | 237.8 |
| Other liabilities that will give rise to future tax deductions | 109.7 |
| | — |
| | 117.9 |
| | — |
| Net capital and operating loss carryforwards | 762.5 |
| | — |
| | 1,112.5 |
| | — |
| Other | 26.3 |
| | 6.1 |
| | 60.0 |
| | 6.3 |
| | 993.9 |
| | 719.1 |
| | 1,649.7 |
| | 1,084.1 |
| Less: Valuation allowance | (739.6 | ) | | — |
| | (1,013.4 | ) | | — |
| Net deferred taxes | $ | 254.3 |
| | $ | 719.1 |
| | $ | 636.3 |
| | $ | 1,084.1 |
|
The liability for gross unrecognized tax benefits at May 27, 201830, 2021 was $32.5$33.0 million, excluding a related liability of $7.7$8.8 million for gross interest and penalties. Included in the balance at May 30, 2021 are $0.8 million of 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. As of May 28, 2017,31, 2020, our gross liability for unrecognized tax benefits was $39.3$35.8 million, excluding a related liability of $6.0$7.4 million for gross interest and penalties. Interest and penalties recognized in the Consolidated Statements of OperationsEarnings was an expense of $1.6$1.4 million in fiscal 2018,2021, a benefit of $0.3$4.3 million in fiscal 2017,2020, and a benefitan expense of $0.2$1.2 million in fiscal 2016. 2019.The net amount of unrecognized tax benefits at May 27, 201830, 2021 and May 28, 201731, 2020 that, if recognized, would favorably impact our effective tax rate was $27.8$28.2 million and $31.6$30.3 million, respectively. 65
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) We accrue interest and penalties associated with uncertain tax positions as part of income tax expense.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
We conduct business and file tax returns in numerous countries, states, and local jurisdictions. The U.S. Internal Revenue Service ("IRS") has completed its audit of the Company for tax years through fiscal 2015 and all2020. All resulting significant items for fiscal 20152020 and prior years have been settled with the IRS.IRS, with the exception of fiscal 2016. Statutes of limitation for pre-acquisition tax years of Pinnacle generally remain open for calendar year 2003 and subsequent years principally related to net operating losses. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from three to five years. We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $15.3$13.2 million over the next twelve months due to various Federal,federal, state, and foreign audit settlements and the expiration of statutes of limitations. Of this amount, approximately $6.7 million would reverse through results of discontinued operations. The change in the unrecognized tax benefits for the year ended May 27, 201830, 2021 was: Beginning balance on May 31, 2020 | | $ | 35.8 | | Increases from positions established during prior periods | | | 0.8 | | Decreases from positions established during prior periods | | | (2.6 | ) | Increases from positions established during the current period | | | 2.6 | | Reductions resulting from lapse of applicable statute of limitation | | | (4.3 | ) | Other adjustments to liability | | | 0.7 | | Ending balance on May 30, 2021 | | $ | 33.0 | |
| | | | | Beginning balance on May 28, 2017 | $ | 39.3 |
| Increases from positions established during prior periods | 14.5 |
| Decreases from positions established during prior periods | (11.5 | ) | Increases from positions established during the current period | 3.5 |
| Decreases relating to settlements with taxing authorities | (10.3 | ) | Reductions resulting from lapse of applicable statute of limitation | (2.9 | ) | Other adjustments to liability | (0.1 | ) | Ending balance on May 27, 2018 | $ | 32.5 |
|
We have approximately $27.5$13.3 million of foreign net operating loss carryforwards ($10.79.8 million will expire between fiscal 20192022 and 20392042 and $16.8$3.5 million have no expiration dates) and $19.4$106.8 million of Federalfederal net operating loss carryforwards which expire inbetween fiscal 2037. Federal capital loss carryforwards related to the Private Brands divestiture of approximately $2.8 billion will expire in fiscal 2021.2022 and 2027. Included in net deferred tax liabilities are $35.7$30.7 million of tax effected state net operating loss carryforwards which expire in various years ranging from fiscal 20192022 to 20282040 and $173.7$3.8 million of tax effected state capital loss carryforwards related to the divestiture of Private Brands, the vast majority of whichbalances that expire in fiscal 2021.year 2031. Foreign tax credits of $1.0$14.3 million will expire between fiscal 2025 and fiscal 2028.2031. State tax credits of approximately $10.1$5.2 million will expire in various years ranging from fiscal 20192023 to 2028. Federal capital loss carryforwards related to the Private Brands divestiture of approximately $1.9 billion expired at the end of fiscal 2021. Accordingly, we have removed the deferred tax asset and the related valuation allowance from our balance sheet. Tax effected state capital loss carryforwards related to the Private Brands divestiture of approximately $91.9 million also expired at the end of fiscal 2021 and were removed from the balance sheet, including the related valuation allowance. In fiscal 2021, we completed a restructuring of our ownership interest in Ardent Mills that utilized a portion of our capital loss carryforward prior to its expiration. Also in fiscal 2021, we completed several other transactions related to retained assets in conjunction with the divestiture of the Peter Pan® peanut butter and Egg Beaters® businesses that we believe will utilize a portion of the remaining capital loss carryforward. These transactions are subject to certain elections and are currently under review by the Internal Revenue Service. We believe they may result in increases to the tax basis in those assets and if successful would result in tax benefits being realized in future periods. We have recognized a valuation allowance for the portion of the net operating loss carryforwards, capital loss carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized. The net change in the valuation allowance for fiscal 20182021 was a decrease of $273.8$653.9 million. For fiscal 20172020 and 2016,2019, changes in the valuation allowance were a decrease of $420.1$9.8 million and an increase of $1.4 billion,$1.5 million, respectively. The current year change principally relates to remeasurement of deferred tax assets and correspondingdecreases in the valuation allowances due to tax reform and an adjustment toon the valuation allowancecapital loss carryforward generated from the sale of our Private Brands operations. Valuation allowances were released on capital loss due tolosses that were utilized against capital gains generated on the terminationdivestures of the sales agreement forPeter Pan® peanut butter and Egg Beaters® businesses and the Wesson® oil business.Historically, werestructuring of our ownership interest in Ardent Mills. Valuation allowances were also removed on the Federal and state capital losses that expired at the end of fiscal 2021.66
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) We believe that our foreign subsidiaries have invested or will invest any undistributed earnings indefinitely, or the earnings will be remitted in a tax-neutral transaction, and, therefore, do not provided U.S.provide deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries. During fiscal 2018, we determined that previously undistributed earnings 15. LEASES We have operating and finance leases of certain foreign subsidiaries no longer meetwarehouses, plants, land, office space, production and distribution equipment, automobiles, and office equipment. We determine whether an agreement is or contains a lease at lease inception. ROU assets represent our right to use an underlying asset for the requirements for indefinite reinvestment under applicable accounting guidancelease term and therefore, recognized $5.9 million of income tax expense in fiscal 2018. We continuelease liabilities represent our obligation to believemake lease payments arising from the remaining undistributed earningslease. As most of our foreign subsidiaries are indefinitely reinvested and therefore haveleases do not provided any additional U.S. deferred taxes. It is not practicable to estimateprovide an implicit interest rate, we calculate the amountlease liability at lease commencement as the present value of U.S. income taxes that would be incurred inunpaid lease payments using our estimated incremental borrowing rate. The incremental borrowing rate represents the eventrate of interest that we werewould have to repatriate allpay to borrow an amount equal to the cumulative earnings of non-U.S. affiliateslease payments on a collateralized basis over a similar term and associated companies. Accordingly, deferred taxes will be provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested.
16. LEASES
We lease certain facilities, land, and transportation equipment under agreements that expire at various dates. Rent expense under all operating leases from continuing operations was $62.5 million, $71.2 million, and $77.4 million in fiscal 2018, 2017, and 2016, respectively. These amounts are inclusive of certain charges recognizedis determined using a portfolio approach based on information available at the cease-usecommencement date of the lease.We have elected not to separate lease and non-lease components of an agreement for remainingall underlying asset classes prospectively from the ASU 2016-02, Leases, Topic 842 adoption date. Any lease arrangements with an initial term of twelve months or less are not recorded on our Consolidated Balance Sheet. We recognize lease cost for these lease arrangements on a straight-line basis over the lease term. Our lease terms may include options to extend or terminate the lease. We consider these options in determining the lease term used to establish our ROU asset and lease liabilities. A limited number of our lease agreements include rental payments associated with exited properties. adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.Leases reported in our Consolidated Balance Sheet were as follows: | | Operating Leases | | | | Balance Sheet Location | | May 30, 2021 | | | May 31, 2020 | | ROU assets, net | | Other assets | | $ | 188.5 | | | $ | 209.3 | | Lease liabilities (current) | | Other accrued liabilities | | | 36.6 | | | | 44.4 | | Lease liabilities (noncurrent) | | Other noncurrent liabilities | | | 188.3 | | | | 206.1 | |
| | Finance Leases | | | | Balance Sheet Location | | May 30, 2021 | | | May 31, 2020 | | ROU assets, at cost | | Property, plant and equipment | | $ | 217.6 | | | $ | 220.4 | | Less accumulated depreciation | | Less accumulated depreciation | | | (60.2 | ) | | | (53.6 | ) | ROU assets, net | | Property, plant and equipment, net | | | 157.4 | | | | 166.8 | | Lease liabilities (current) | | Current installments of long-term debt | | | 23.1 | | | | 22.2 | | Lease liabilities (noncurrent) | | Senior long-term debt, excluding current installments | | | 116.0 | | | | 132.9 | |
The components of total lease cost were as follows: 67
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts) | | | 2021 | | | 2020 | | Operating lease cost | | | $ | 51.0 | | | $ | 63.7 | | Finance lease cost | | | | | | | | | | Depreciation of leased assets | | | | 19.0 | | | | 15.4 | | Interest on lease liabilities | | | | 8.2 | | | | 9.1 | | Short-term lease cost | | | | 5.1 | | | | 3.8 | | Total lease cost | | | $ | 83.3 | | | $ | 92.0 | |
A summary of non-cancellableWe recognized accelerated operating lease commitmentscost of $9.9 million and impairments of ROU assets of $2.9 million within SG&A expenses in fiscal 2020. These charges are included in the Pinnacle Integration Restructuring Plan. Rent expense under all operating leases was $83.5 million in fiscal 2019. The weighted-average remaining lease terms and weighted-average discount rate for fiscal years following our leases as of May 27, 2018, was as follows: | | | | | 2019 | $ | 35.6 |
| 2020 | 25.2 |
| 2021 | 22.3 |
| 2022 | 17.9 |
| 2023 | 15.8 |
| Later years | 82.3 |
| | $ | 199.1 |
|
At May 27, 201830, 2021 and May 28, 2017, assets under capital and financing leases totaling $82.9 million, net of accumulated depreciation of $32.1 million, and $119.5 million, net of $47.7 million of accumulated depreciation, respectively,31, 2020 were included in Property, plant and equipment. Charges resultingas follows: | Operating Leases | | | Finance Leases | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | | | | | | | | | | | | | | | | Weighted-average remaining lease term (in years) | | 8.1 | | | | 8.5 | | | | 7.7 | | | | 8.0 | | Weighted-average discount rate | | 3.51 | % | | | 3.61 | % | | | 4.95 | % | | | 5.29 | % |
Cash flows arising from the depreciation of assets held under capital and financing leases are recognized within depreciation expense in the Consolidated Statements of Operations.lease transactions were as follows: | | | 2021 | | | 2020 | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | | Operating cash outflows from operating leases | | $ | 56.0 | | | $ | 59.5 | | Operating cash outflows from finance leases | | | 8.3 | | | | 9.2 | | Financing cash outflows from finance leases | | | 24.3 | | | | 22.5 | | ROU assets obtained in exchange for new lease liabilities: | | | | | | | | | | Operating leases | | | 21.1 | | | | 41.6 | | Finance leases | | | 26.1 | | | | 12.2 | |
Non-cash issuances of capital and financing lease obligations totaling $1.3 million, $0.5 million, and $103.3$23.5 million are excluded from cash flows from investing and financing activities on the Consolidated Statements of Cash Flows for fiscal 2018, 2017,2019. Maturities of lease liabilities by fiscal year as of May 30, 2021 were as follows: | Operating Leases | | | Finance Leases | | | Total | | 2022 | $ | 46.5 | | | $ | 28.5 | | | $ | 75.0 | | 2023 | | 41.2 | | | | 25.3 | | | | 66.5 | | 2024 | | 32.4 | | | | 20.4 | | | | 52.8 | | 2025 | | 24.4 | | | | 18.3 | | | | 42.7 | | 2026 | | 20.9 | | | | 15.0 | | | | 35.9 | | Later years | | 102.8 | | | | 63.9 | | | | 166.7 | | Total lease payments | | 268.2 | | | | 171.4 | | | | 439.6 | | Less: Imputed interest | | (43.3 | ) | | | (32.3 | ) | | | (75.6 | ) | Total lease liabilities | $ | 224.9 | | | $ | 139.1 | | | $ | 364.0 | |
68
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and 2016, respectively.
17.May 26, 2019(columnar dollars in millions except per share amounts) We have entered into contracts that are or contain a lease that have not yet commenced with aggregate payments totaling $272.2 million as of May 30, 2021. This amount primarily relates to a warehouse facility with a future minimum lease commitment of $257.7 million. We expect to take control of this leased asset in fiscal 2023. 16. CONTINGENCIES We are a party to certain litigation matters relating to our acquisition of Beatrice Company ("Beatrice") in fiscal 1991, including litigation proceedings related to businesses divested by Beatrice prior to our acquisition of the company. These proceedings includehave included suits against a number of lead paint and pigment manufacturers, including ConAgra Grocery Products Company, LLC, a wholly owned subsidiary of the Company ("ConAgra Grocery Products") as alleged successor to W. P. Fuller & Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967. These lawsuits generally seek damages for personal injury, property damage, economic loss, and governmental expenditures allegedly caused by the use of lead-based paint, and/or injunctive relief for inspection and abatement. Although decisions favorable to usWhen such lawsuits have been rendered in Rhode Island, New Jersey, Wisconsin, and Ohio, we remain a defendant in active suits in Illinois and California.brought, ConAgra Grocery Products has denied liability, in both suits, both on the merits of the claims and on the basis that we do not believe it to be the successor to any liability attributable to W. P. Fuller & Co. TheDecisions favorable to us were rendered in Rhode Island, New Jersey, Wisconsin, and Ohio. ConAgra Grocery Products was held liable for the abatement of a public nuisance in California, suit isand the case was dismissed pursuant to settlement in July 2019 as discussed in the following paragraph. We remain a defendant in 1 active suit in Illinois. The Illinois suit seeks class-wide relief for reimbursement of costs associated with the testing of lead levels in blood. We do not believe it is probable that we have incurred any liability with respect to the Illinois case, nor is it possible to estimate any potential exposure. In California, a number of cities and counties joined in a consolidated action seeking abatement of an alleged public nuisance in the form of lead-based paint potentially present on the interior of residences, regardless of its condition. On September 23, 2013, a trial of the California case concluded in the Superior Court of California for the County of Santa Clara, and on January 27, 2014, the court entered a judgment (the "Judgment") against ConAgra Grocery Products and two2 other defendants ordering the creation of a California abatement fund in the amount of $1.15 billion. Liability iswas joint and several. The Company appealed the Judgment, and on November 14, 2017 the California Court of Appeal for the Sixth Appellate District reversed in part, holding that the defendants were not liable to pay for abatement of homes built after 1950, but affirmed the Judgment as to homes built before 1951. The Court of Appeal remanded the case to the trial court with directions to recalculate the amount of the abatement fund estimated to be necessary to cover the cost of remediating pre-1951 homes, and to hold an evidentiary hearing regarding appointment of a suitable receiver. ConAgra Grocery Products and the other defendants petitioned the California Supreme Court for review of the decision, which we believe to be an unprecedented expansion of current California law. On February 14, 2018, the California Supreme Court denied the petition and declined to review the merits of the case, and the case was remanded to the trial court for further proceedings. ConAgra Grocery Products and the other defendants have indicated that they will seeksought further review of certain issues from the Supreme Court of the United States, although further appeal is discretionary and may not be granted. Further proceedings inbut on October 15, 2018, the Supreme Court declined to review the case. On September 4, 2018, the trial court may not be stayed pending the outcome of any further appeal. In light of the decision rendered by the California Appellate Court on November 14, 2017, and the California Supreme Court's decision on February 14, 2018 not to review the Appellate Court's decision, we
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
have concluded that the liability has likely become probable as contemplated by Accounting Standards Codification Topic 450, however many uncertainties remain which make it difficult to estimate the potential liability, including the following: (i) the trial court has not yet recalculated its estimate of the amount needed to remediate pre-1951 homes in the plaintiff jurisdictions or entered a new judgment to replacebe $409.0 million. As of July 10, 2019, the one vacated by the California Appellate Court; (ii) although liability is joint and several, it is unknown what amount each defendant may ultimately be requiredparties reached an agreement in principle to pay or how allocation among the defendants (and other potentially responsible parties such as property owners who may have violated the applicable housing codes) will be determined; (iii) according to the trial court's original order, participation in the abatement program by eligible homeowners is voluntary and it is unknown what percentage of eligible homeowners will choose to participate or how such claims will be administered; (iv) the trial court's original order required that any amounts paid by the defendants into the fund that were not spent within four years would be returned to the defendants, and it is unknown whetherresolve this feature of the fund will be retained or, if it is retained, how much will be spent during that time period; and (v) defendants will have a new right to appeal any new aspects of the judgment enteredmatter, which agreement was approved by the trial court upon remand, although it is unknown whetheron July 24, 2019, and the court would stay execution of any new judgment while a subsequent appeal is pending.
To assist the trial court in satisfying its responsibilities, during our fourth quarter of fiscal 2018, the defendants and plaintiff each submitted informationaction against ConAgra Grocery Products was dismissed with prejudice. Pursuant to the court regarding recalculationsettlement, ConAgra Grocery Products will pay a total of $101.7 million in 7 installments to be paid annually from fiscal 2020 through fiscal 2026. As part of the abatement fund. In addition, onesettlement, ConAgra Grocery Products has provided a guarantee of up to $15.0 million in the defendants entered into a proposed settlement with the plaintiff, contingent upon a judicial good faith determination under California law. event co-defendant, NL Industries, Inc., defaults on its payment obligations.We are uncertain as to when the court will make a ruling on a recalculated abatement fund or the proposed settlement. Notwithstanding the uncertainties described above, this additional information was used by the Company in concluding that a loss is now reasonably estimable. While the ultimate amount of any loss and timing of payments related thereto remain uncertain and could change as further information is obtained, we believe that our share of the loss could range from $60 million to $335have accrued $11.6 million and have recorded a liability$52.0 million, within other accrued liabilities and other noncurrent liabilities, respectively, for the amount in that range that we believe is a better estimate than the low or high endsthis matter as of the range.May 30, 2021. The extent of insurance coverage is uncertain and the Company's carriers are on notice; however, any possible insurance recovery has not been considered for purposes of determining our liability. We cannot assure that the final resolution of these matters will not have a material adverse effect on its financial condition, results of operations, or liquidity. 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. In June 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. ("Jacobs"), 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. During the first quarter of fiscal 2012, our motion for summary judgment was granted and the suit was dismissed without prejudice on the basis that the suit was filed prematurely. In the third quarter of fiscal 2014, Jacobs refiled its action seeking indemnity. On March 25, 2016, a Douglas County jury in Nebraska rendered a verdict in favor of Jacobs and against us in the amount of $108.9 million plus post-judgment interest. We filed our Notice of Appeal in September 2016, the appeal was heard by the Nebraska Supreme Court in November 2017, and the case is awaiting decision by the Nebraska Supreme Court. The appeal will be decided directly by the Nebraska Supreme Court. Although our insurance carriers have provided customary notices of reservation of their rights under the policies of insurance, we expect any ultimate exposure in this case to be limited to the applicable insurance deductible.
We are party to a number of putative class action lawsuits challenging various product claims made in the Company's product labeling. These matters include Briseno v. ConAgra Foods, Inc., in which it is alleged that the labeling for Wesson® oils as 100% natural is false and misleading because the oils contain genetically modified plants and organisms. In February 2015, the U.S. District Court for the Central District of California granted class certification to permit plaintiffs to pursue state law claims. The Company appealed to the United States Court of Appeals for the Ninth Circuit, which affirmed class certification in January 2017. The Supreme Court of the United States declined to review the decision and the case has beenwas remanded to the trial court for further proceedings. On April 4, 2019, the trial court granted preliminary approval of a settlement in this matter. In the second69
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) quarter of fiscal 2020, a single objecting class member appealed the court's decision approving the settlement to the United States Court of Appeals for the Ninth Circuit. On June 1, 2021, the appellate court rejected the settlement and remanded to the trial court for further proceedings. While we cannot predict with certainty the results of this or any other legal proceeding challenging our product claims, we do not expect this matterthese matters to have a material adverse effect on our financial condition, results of operations, or business. We are party to matters challenging the Company's wage and hour practices. These matters include a number of putative class actions consolidated under the caption Negrete v. ConAgra Foods, Inc., et al, pending in the U.S. District Court for the Central District of California, in which the plaintiffs allege a pattern of violations of California and/or federal law at several current and former Company manufacturing facilities across the State of California. On June 21, 2021, the trial court granted preliminary approval of a settlement in this matter. If final approval is obtained, the settlement will require a payment by the Company of $9.0 million, which we have accrued within other accrued liabilities. While we cannot predict with certainty
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
the results of this or any other legal proceeding, we do not expect this matter to have a material adverse effect on our financial condition, results of operations, or business. InWe are party to a number of matters asserting product liability claims against the fourthCompany related to certain Pam® and other cooking spray products. These lawsuits generally seek damages for personal injuries allegedly caused by defects in the design, manufacture, or safety warnings of the cooking spray products. We have put the Company's insurance carriers on notice. While we cannot predict with certainty the results of these or any other legal proceedings, we do not expect these matters to have a material adverse effect on our financial condition, results of operations, or business. The Company, its directors, and several of its executive officers are defendants in several class actions alleging violations of federal securities laws. The lawsuits assert that the Company's officers made material misstatements and omissions that caused the market to have an unrealistically positive assessment of the Company's financial prospects in light of the acquisition of Pinnacle, thus causing the Company's securities to be overvalued prior to the release of the Company's consolidated financial results on December 20, 2018 for the second quarter of fiscal 2018, we accrued $151.0 millionyear 2019. The first of these lawsuits, captioned West Palm Beach Firefighters' Pension Fund v. Conagra Brands, Inc., et al., with which subsequent lawsuits alleging similar facts have been consolidated, was filed on February 22, 2019 in new legal reserves relatingthe U.S. District Court for the Northern District of Illinois. That consolidated lawsuit was dismissed with prejudice on December 23, 2020 for failure to state a claim. On January 22, 2021, the plaintiff filed a notice of appeal of the trial court’s decision to the U.S. Court of Appeals for the Seventh Circuit. In addition, on May 9, 2019, a stockholder filed a derivative action on behalf of the Company against the Company's directors captioned Klein v. Arora, et al. in the U.S. District Court for the Northern District of Illinois asserting harm to the Company due to alleged breaches of fiduciary duty and mismanagement in connection with the Pinnacle acquisition. On July 9, 2019, September 20, 2019, and March 10, 2020, the Company received three separate demands from stockholders under Delaware law to inspect the Company's books and records related to the Board of Directors' review of the Pinnacle business, acquisition, and the Company's public statements related to them. On July 22, 2019 and August 6, 2019, respectively, two additional stockholder derivative lawsuits captioned Opperman v. Connolly, et al. and Dahl v. Connolly, et al. were filed in the U.S. District Court for the Northern District of Illinois asserting similar facts and claims as the Klein v. Arora, et al. matter. On October 21, 2019, the Company received an additional demand from a stockholder under Delaware law to appoint a special committee to investigate the conduct of certain officers and directors in connection with the Pinnacle acquisition and the Company's public statements. All remaining stockholder lawsuits and demands are currently stayed by agreement pending the final outcome of the West Palm Beach Firefighters' Pension Fund matter. We have put the Company's insurance carriers on notice of each of these securities and stockholder matters. While we cannot predict with certainty the results of these or any other legal proceedings, we do not expect these matters set forth above. to have a material adverse effect on our financial condition, results of operations, or business.Environmental Matters Securities and Exchange Commission (the "SEC") regulations require us to disclose certain information about environmental proceedings if a governmental authority is a party to such proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will exceed a stated threshold. Pursuant to the SEC regulations, the Company uses a threshold of $1.0 million for purposes of determining whether disclosure of any such proceedings is required. We are a party to certain environmental proceedings relating to our acquisition of Beatrice in fiscal 1991. Such proceedings include proceedings related to businesses divested by Beatrice prior to our acquisition of Beatrice. The current environmental 70
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) proceedings associated with Beatrice include litigation and administrative proceedings involving Beatrice's possible status as a potentially responsible party at approximately 40 Superfund, proposed Superfund, or state-equivalent sites (the "Beatrice sites"). These sites involve locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides, fertilizers, dyes, inks, solvents, PCBs,polycholorinated biphenyls, acids, lead, sulfur, tannery wastes, and/or other contaminants. In the past five years, Beatrice has paid or is in the process of paying its liability share at 31 of these sites. Reserves for these Beatrice environmental proceedings 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 accrual for Beatrice-related environmental matters totaled $52.4$55.6 million ($2.4 million within other accrued liabilities and $53.2 million within other noncurrent liabilities) as of May 27, 2018,30, 2021, a majority of which relates to the Superfund and state-equivalent sites referenced above. During the third quarter of fiscal 2017, a final Remedial Investigation/Feasibility Study was submitted for the Southwest Properties portion ("Operating Unit 4") of the Wells G&H Superfund site, which is one of the Beatrice sites. The U.S. Environmental Protection Agency (the "EPA"("EPA") issued a Record of Decision (the "ROD"("ROD") for the Southwest Properties portion of the site on September 29, 2017 and has entered into negotiations with potentially responsible parties to determine final responsibility for implementing the ROD. On September 14, 2020, the district court entered a consent decree among EPA and the settling defendants, including the Company.Guarantees and Other Contingencies In certain limited situations, weWe guarantee obligationsan obligation of the Lamb Weston business pursuant to a guarantee arrangementsarrangement that existed prior to the Spinoff andspinoff of the Lamb Weston business (the "Spinoff"). The guarantee remained in place following completion of the Spinoff and it will remain in place until such guarantee obligations areobligation is substituted for guarantees issued by Lamb Weston. Such guarantee arrangements are described below. Pursuant to the Separationseparation and Distribution Agreement,distribution agreement, dated as of November 8, 2016 (the "Separation Agreement"), between us and Lamb Weston, thesethis guarantee arrangements arearrangement is deemed liabilitiesa liability of Lamb Weston that werewas transferred to Lamb Weston as part of the Spinoff. Accordingly, in the event that we are required to make any payments as a result of thesethis guarantee arrangements,arrangement, Lamb Weston is obligated to indemnify us for any such liability, reduced by any insurance proceeds received by us, in accordance with the terms of the indemnification provisions under the Separation Agreement. Lamb Weston is a party to a warehouse services agreement with a third-party warehouse provider through July 2035. Under this agreement, Lamb Weston is required to make payments for warehouse services based on the quantity of goods stored and other service factors. We have guaranteed the warehouse provider that we will make the payments required under the agreement in the event that Lamb Weston fails to perform. Minimum payments of $1.5 million per month are required under this agreement. It is not possible to determine the maximum amount of the payment obligations under this agreement. Upon completion of the Spinoff, we recognized a liability for the estimated fair value of this guarantee. As of May 27, 2018, the amount of this guarantee, recorded in other noncurrent liabilities, was $28.1 million.
Lamb Weston is a party to an agricultural sublease agreement with a third party for certain farmland through 20202025 (subject, at Lamb Weston's option, to extension for two1 additional five-year periods) period). Under the terms of the sublease agreement, Lamb Weston is required to make certain rental payments to the sublessor. We have guaranteed the sublessor Lamb Weston's performance and the payment of all amounts (including indemnification obligations) owed by Lamb Weston under the sublease agreement, up to a maximum of $75.0 million. We believe the farmland associated with this sublease agreement is readily marketable for lease to other area farming operators. As such, we believe that any financial exposure to the company,Company, in the event that we were required to perform under the guaranty,guarantee, would be largely mitigated. We lease or leased 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. The lease agreements also contain contingent put options (the "lease put options") that allow or allowed the lessors to require us to purchase the buildings at the greater of original construction cost, or fair market value, withoutguarantee a lease agreement in place (the "put price") in certain limited circumstances. As a result of substantial impairment charges related to our divested Private Brands operations, these lease put options became exercisable. During fiscal 2016, we entered into a series of related transactions in which we exchanged
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
a warehouse we owned in Indiana for two buildings and parcels of land that we leased as part of our Omaha corporate offices. Concurrent with the asset exchange, the leases on the two Omaha corporate buildings subject to contingent put options were canceled. We recognized aggregate charges of $55.6 million for the early termination of these leases. We also entered into a lease for the warehouse in Indiana and we recorded a financing lease obligation of $74.2 million. During fiscal 2017, one of these lease agreements expired. As a result of this expiration, we reversed the applicable accrual and recognized a benefit of $6.7 million in SG&A expenses. During the third quarter of fiscal 2018, we purchased two buildings that were subject to lease put options and recognized net losses totaling $48.2 million for the early exit of unfavorable lease contracts.resulting from an exited facility. As of May 27, 2018, there was one30, 2021, the remaining leased building subject to a lease put option for which the put option price exceeded the estimated fair valueterm of the property by $8.2 million, of which we had accrued $1.2 million. We are amortizing the difference between the put pricethis arrangement did not exceed six years and the estimated fair value (without a lease agreement in place)maximum amount of the property over the remaining lease term within SG&A expenses. This lease is accounted for as an operating lease, and accordingly, there are no material assets and liabilities, other than the accrued portion of the put price, associated with this entity included in the Consolidated Balance Sheets. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of this entity. In making this determination,future payments we have considered, among other items, the terms of the lease agreement, the expected remaining useful life of the asset leased, and the capital structure of the lessor entity.
guaranteed was $13.9 million.General 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; however, it is reasonably possible that a change of the estimates of any of the foregoing matters may occur in the future and, as noted, the lead paint matter could result in a material final judgment which could have a material adverse effect on our financial condition, results of operations, or liquidity. Costs of legal services associated with the foregoing matters are recognized in earnings as services are provided.
18.17. 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. 71
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) 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, packaging materials, 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 May 27, 2018,30, 2021, we had economically hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with expiration dates through March 2019.October 2022.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 May 27, 2018,30, 2021, we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through February 2019. 2022.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.
NotesDerivatives Designated as Cash Flow Hedges During the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts to Consolidated Financial Statements - (Continued) Fiscal Years Endedhedge a portion of the interest rate risk related to our issuance of long-term debt to help finance the acquisition of Pinnacle. We settled these contracts during the second quarter of fiscal 2019 and deferred a $47.5 million gain in accumulated other comprehensive income. This gain will be amortized as a reduction of net interest expense over the lives of the related debt instruments. In the second quarter of fiscal 2021, $0.5 million was written off in connection with the early extinguishment of debt (see Note 4). The unamortized amount at May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
30, 2021 was $38.2 million.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. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results immediately. 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 SG&A expenses. These substantially offset the foreign currency transaction gains or losses recognized as values of the monetary assets or liabilities being economically hedged. hedged change.All derivative instruments are recognized on the Consolidated Balance Sheets at fair value (refer to Note 2019 for additional information related to fair value measurements). 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 generally accepted accounting principles,U.S. GAAP, 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 master netting agreements provide for legal right of setoff. At May 27, 201830, 2021 and May 28, 2017, $1.031, 2020, $2.0 million, representing an obligation to return cash collateral, and $0.9$1.1 million, representing a right to reclaim cash collateral, respectively, were included in prepaid expenses and other current assets in our Consolidated Balance Sheets. 72
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or obligation to return cash collateral were reflected in our Consolidated Balance Sheets as follows: | | May 30, 2021 | | | May 31, 2020 | | Prepaid expenses and other current assets | | $ | 15.5 | | | $ | 8.0 | | Other accrued liabilities | | | 6.9 | | | | 0.4 | |
| | | | | | | | | | May 27, 2018 | | May 28, 2017 | Prepaid expenses and other current assets | $ | 4.4 |
| | $ | 2.3 |
| Other accrued liabilities | 0.1 |
| | 1.3 |
|
The following table presents our derivative assets and liabilities at May 27, 2018,30, 2021, on a gross basis, prior to the setoff of $1.4$7.4 million to total derivative assets and $0.4$5.4 million to total derivative liabilities where legal right of setoff existed: | | Derivative Assets | | | Derivative Liabilities | | | | Balance Sheet Location | | Fair Value | | | Balance Sheet Location | | Fair Value | | Commodity contracts | | Prepaid expenses and other current assets | | $ | 22.9 | | | Other accrued liabilities | | $ | 5.4 | | Foreign exchange contracts | | Prepaid expenses and other current assets | | | — | | | Other accrued liabilities | | | 6.9 | | Total derivatives not designated as hedging instruments | | | | $ | 22.9 | | | | | $ | 12.3 | |
| | | | | | | | | | | | | | Derivative Assets | | Derivative Liabilities | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | Commodity contracts | Prepaid expenses and other current assets | | $ | 3.7 |
| | Other accrued liabilities | | $ | 0.4 |
| Foreign exchange contracts | Prepaid expenses and other current assets | | 2.1 |
| | Other accrued liabilities | | — |
| Other | Prepaid expenses and other current assets | | — |
| | Other accrued liabilities | | 0.1 |
| Total derivatives not designated as hedging instruments | | | $ | 5.8 |
| | | | $ | 0.5 |
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The following table presents our derivative assets and liabilities, at May 28, 2017,31, 2020, on a gross basis, prior to the setoff of $0.5$0.4 million to total derivative assets and $1.4$1.5 million to total derivative liabilities where legal right of setoff existed: | | Derivative Assets | | | Derivative Liabilities | | | | Balance Sheet Location | | Fair Value | | | Balance Sheet Location | | Fair Value | | Commodity contracts | | Prepaid expenses and other current assets | | $ | 3.3 | | | Other accrued liabilities | | $ | 1.9 | | Foreign exchange contracts | | Prepaid expenses and other current assets | | | 5.1 | | | Other accrued liabilities | | | — | | Total derivatives not designated as hedging instruments | | | | $ | 8.4 | | | | | $ | 1.9 | |
| | | | | | | | | | | | | | Derivative Assets | | Derivative Liabilities | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | Commodity contracts | Prepaid expenses and other current assets | | $ | 2.6 |
| | Other accrued liabilities | | $ | 1.4 |
| Foreign exchange contracts | Prepaid expenses and other current assets | | 0.2 |
| | Other accrued liabilities | | 1.1 |
| Other | Prepaid expenses and other current assets | | — |
| | Other accrued liabilities | | 0.2 |
| Total derivatives not designated as hedging instruments | | | $ | 2.8 |
| | | | $ | 2.7 |
|
The location and amount of gains (losses) from derivatives not designated as hedging instruments in our Consolidated Statements of OperationsEarnings were as follows: | | For the Fiscal Year Ended May 30, 2021 | | Derivatives Not Designated as Hedging Instruments | | Location in Consolidated Statement of Earnings of Gains (Losses) Recognized on Derivatives | | Amount of Gains (Losses) Recognized on Derivatives in Consolidated Statement of Earnings | | Commodity contracts | | Cost of goods sold | | $ | 26.6 | | Foreign exchange contracts | | Cost of goods sold | | | (17.1 | ) | Total gains from derivative instruments not designated as hedging instruments | | | | $ | 9.5 | |
| | | | | | | | | | For the Fiscal Year Ended May 27, 2018 | Derivatives Not Designated as Hedging Instruments | | Location in Consolidated Statement of Operations of Gain (Loss) Recognized on Derivatives | | Amount of Gain (Loss) Recognized on Derivatives in Consolidated Statement of Operations | Commodity contracts | | Cost of goods sold | | $ | 3.0 |
| Foreign exchange contracts | | Cost of goods sold | | (3.9 | ) | Foreign exchange contracts | | Selling, general and administrative expense | | 0.3 |
| Total loss from derivative instruments not designated as hedging instruments | | | | $ | (0.6 | ) |
| | | | | | | | | | For the Fiscal Year Ended May 28, 2017 | Derivatives Not Designated as Hedging Instruments | | Location in Consolidated Statement of Operations of Gain (Loss) Recognized on Derivatives | | Amount of Gain (Loss) Recognized on Derivatives in Consolidated Statement of Operations | Commodity contracts | | Cost of goods sold | | $ | 0.9 |
| Foreign exchange contracts | | Cost of goods sold | | (0.3 | ) | Foreign exchange contracts | | Selling, general and administrative expense | | 0.2 |
| Total gain from derivative instruments not designated as hedging instruments | | | | $ | 0.8 |
|
73
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts) | | For the Fiscal Year Ended May 31, 2020 | | Derivatives Not Designated as Hedging Instruments | | Location in Consolidated Statement of Earnings of Gains (Losses) Recognized on Derivatives | | Amount of Gains (Losses) Recognized on Derivatives in Consolidated Statement of Earnings | | Commodity contracts | | Cost of goods sold | | $ | (18.4 | ) | Foreign exchange contracts | | Cost of goods sold | | | 5.5 | | Total losses from derivative instruments not designated as hedging instruments | | | | $ | (12.9 | ) |
| | For the Fiscal Year Ended May 26, 2019 | | Derivatives Not Designated as Hedging Instruments | | Location in Consolidated Statement of Earnings of Gains (Losses) Recognized on Derivatives | | Amount of Gains (Losses) Recognized on Derivatives in Consolidated Statement of Earnings | | Commodity contracts | | Cost of goods sold | | $ | (5.3 | ) | Foreign exchange contracts | | Cost of goods sold | | | 1.7 | | Total losses from derivative instruments not designated as hedging instruments | | | | $ | (3.6 | ) |
| | | | | | | | | | For the Fiscal Year Ended May 29, 2016
| Derivatives Not Designated as Hedging Instruments | | Location in Consolidated Statement of Operations of Gain (Loss) Recognized on Derivatives | | Amount of Gain (Loss) Recognized on Derivatives in Consolidated Statement of Operations | Commodity contracts | | Cost of goods sold | | $ | (8.1 | ) | Foreign exchange contracts | | Cost of goods sold | | 0.7 |
| Foreign exchange contracts | | Selling, general and administrative expense | | 2.9 |
| Total loss from derivative instruments not designated as hedging instruments | | | | $ | (4.5 | ) |
As of May 27, 2018,30, 2021, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $100.0$148.8 million and $34.2$159.4 million for purchase and sales contracts, respectively. As of May 28, 2017,31, 2020, our open commodity contracts had a notional value of $76.8$102.0 million and $73.4$3.4 million for purchase and sales contracts, respectively. The notional amount of our foreign currency forward and cross currency swap contracts as of May 27, 201830, 2021 and May 28, 201731, 2020 was $82.4$111.4 million and $81.9$107.6 million,, 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 May 27, 2018,30, 2021, 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 $2.7$2.5 million.
19.18. PENSION AND POSTRETIREMENT BENEFITS We have defined benefit retirement plans ("pension 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. Effective August 1, 2013, our defined benefit pension plan for eligible salaried employees was closed to new hire salaried employees. New hire salaried employees will generally be eligible to participate in our defined contribution plan. During the secondthird quarter of fiscal 2018,2020, we approved the amendment of our salaried and non-qualifiedamended a certain hourly pension plans effective as of December 31, 2017. The amendmentplan that froze thefuture compensation and service periods used to calculate pension benefits for active employees who participate in the plans. Beginning January 1, 2018, impacted employees do not accrue additional benefit for future service and eligible compensation received under these plans. periods. As a result, of the amendment, we remeasured ourthe Company's hourly pension plan liability as of September 30, 2017.January 31, 2020 and recorded a pension curtailment loss of $0.2 million previously within other comprehensive income (loss). In connection with the remeasurement, we updated the effective discount rate assumption for the impacted pension plan from 3.90%3.86% to 3.78%2.96%. The curtailment and related remeasurement resulted in a net decrease toincreased the underfunded status of the pension plansplan by $43.5$4.3 million with a corresponding benefitloss within other comprehensive income (loss) for.74
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) During the second quarter of fiscal 2018. In addition,2020, the Company provided a voluntary lump-sum settlement offer to certain terminated vested participants in the salaried pension plan in order to reduce a portion of the pension obligation. During the third quarter of fiscal 2020, lump-sum settlement payments totaling $154.6 million were distributed from pension plan assets to such participants. As a result of the settlement, we recorded charges of $3.4 million and $0.7 million reflecting the write-off of actuarial losses in excess of 10% ofwere required to remeasure our pension liabilityplan liability. In connection with the remeasurement, we updated the effective discount rate assumption for the impacted pension plan obligation from 3.89% to 3.37%, as of December 31, 2019. The settlement and related remeasurement resulted in the recognition of a settlement gain of $2.1 million, reflected in pension and postretirement non-service income, as well as a benefit to other comprehensive income (loss) totaling $79.8 million in the third quarter of fiscal 2020. As a result of the anticipated exit of certain facilities, during the first quarter of fiscal 2020, we remeasured the Company's hourly pension plan as of August 25, 2019 and recorded a pension curtailment charge, respectively. loss of $0.6 million previously within other comprehensive income (loss). In connection with the remeasurement, we updated the effective discount rate assumption for the impacted pension plan obligation from 3.90% to 3.13%. The curtailment loss and related remeasurement increased the underfunded status of the pension plan by $12.3 million with a corresponding loss within other comprehensive income (loss).We recognize the funded status of our planspension and other benefitspostretirement plans in the Consolidated Balance Sheets. For our pension plans, we also recognize as a component of accumulated other comprehensive loss,income (loss), the net of tax results of the actuarial gains or losses within the corridor and prior service costs or credits that arise during the period but are not recognized in net periodic benefit cost. For our other benefits,postretirement plans, we also recognize as a component of accumulated other comprehensive income (loss), the net of tax results of the gains or losses and prior service costs or credits that arise during the period but are not recognized in net periodic benefit cost. These amounts will be adjusted out of accumulated other comprehensive income (loss) as they are subsequently recognized as components of net periodic benefit cost. For our pension plans, we have elected to immediately recognize
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
actuarial gains and losses in our operating results in the year in which they occur, to the extent they exceed the corridor, eliminating amortization. Amounts are included in the components of pension benefit and other postretirement benefitplan costs, below, as recognized net actuarial loss. The information below includes the activities of our continuing and discontinued operations.
The changes in benefit obligations and plan assets at May 27, 201830, 2021 and May 28, 201731, 2020 are presented in the following table. | | Pension Plans | | | Postretirement Plans | | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | Change in Benefit Obligation | | | | | | | | | | | | | | | | | Benefit obligation at beginning of year | | $ | 3,872.5 | | | $ | 3,733.2 | | | $ | 89.8 | | | $ | 91.2 | | Service cost | | | 11.6 | | | | 11.5 | | | | 0.2 | | | | 0.1 | | Interest cost | | | 86.8 | | | | 118.4 | | | | 1.5 | | | | 2.6 | | Actuarial loss (gain) | | | (37.4 | ) | | | 411.6 | | | | (2.3 | ) | | | 3.0 | | Plan settlements | | | — | | | | (201.7 | ) | | | (0.3 | ) | | | (0.1 | ) | Curtailments | | | — | | | | (0.8 | ) | | | — | | | | — | | Benefits paid | | | (196.8 | ) | | | (199.3 | ) | | | (8.5 | ) | | | (6.9 | ) | Currency | | | 2.5 | | | | (0.4 | ) | | | 1.1 | | | | (0.1 | ) | Benefit obligation at end of year | | $ | 3,739.2 | | | $ | 3,872.5 | | | $ | 81.5 | | | $ | 89.8 | | Change in Plan Assets | | | | | | | | | | | | | | | | | Fair value of plan assets at beginning of year | | $ | 3,820.4 | | | $ | 3,601.5 | | | $ | 3.4 | | | $ | 3.4 | | Actual return on plan assets | | | 194.6 | | | | 557.5 | | | | 0.2 | | | | 0.1 | | Employer contributions | | | 27.6 | | | | 17.5 | | | | 8.5 | | | | 6.9 | | Plan settlements | | | — | | | | (156.3 | ) | | | (0.3 | ) | | | (0.1 | ) | Benefits paid | | | (196.8 | ) | | | (199.3 | ) | | | (8.5 | ) | | | (6.9 | ) | Currency | | | 3.0 | | | | (0.5 | ) | | | — | | | | — | | Fair value of plan assets at end of year | | $ | 3,848.8 | | | $ | 3,820.4 | | | $ | 3.3 | | | $ | 3.4 | |
| | | | | | | | | | | | | | | | | | Pension Benefits | | Other Benefits | | 2018 | | 2017 | | 2018 | | 2017 | Change in Benefit Obligation | | | | | | | | Benefit obligation at beginning of year | $ | 3,548.7 |
| | $ | 3,903.0 |
| | $ | 156.9 |
| | $ | 201.7 |
| Service cost | 42.8 |
| | 56.9 |
| | 0.2 |
| | 0.3 |
| Interest cost | 111.1 |
| | 116.8 |
| | 3.9 |
| | 4.6 |
| Plan participants' contributions | — |
| | — |
| | 4.7 |
| | 4.7 |
| Amendments | 0.6 |
| | 5.5 |
| | (17.2 | ) | | — |
| Actuarial gain | (9.4 | ) | | (51.5 | ) | | (13.2 | ) | | (32.0 | ) | Plan settlements | (10.2 | ) | | (287.5 | ) | | — |
| | — |
| Special termination benefits | — |
| | 1.5 |
| | — |
| | — |
| Curtailments | (79.5 | ) | | (18.1 | ) | | — |
| | — |
| Benefits paid | (181.3 | ) | | (169.7 | ) | | (16.2 | ) | | (19.0 | ) | Currency | 0.8 |
| | (0.8 | ) | | 0.2 |
| | (0.2 | ) | Business divestitures | — |
| | (7.4 | ) | | — |
| | (3.2 | ) | Benefit obligation at end of year | $ | 3,423.6 |
| | $ | 3,548.7 |
| | $ | 119.3 |
| | $ | 156.9 |
| Change in Plan Assets | | | | | | | | Fair value of plan assets at beginning of year | $ | 2,983.6 |
| | $ | 2,959.4 |
| | $ | — |
| | $ | 0.1 |
| Actual return on plan assets | 276.1 |
| | 346.1 |
| | 3.7 |
| | — |
| Employer contributions | 312.6 |
| | 163.0 |
| | 11.5 |
| | 14.2 |
| Plan participants' contributions | — |
| | — |
| | 4.7 |
| | 4.7 |
| Plan settlements | (10.2 | ) | | (287.5 | ) | | — |
| | — |
| Investment and administrative expenses | (26.5 | ) | | (26.7 | ) | | — |
| | — |
| Benefits paid | (181.3 | ) | | (169.7 | ) | | (16.2 | ) | | (19.0 | ) | Currency | 0.8 |
| | (1.0 | ) | | — |
| | — |
| Fair value of plan assets at end of year | $ | 3,355.1 |
| | $ | 2,983.6 |
| | $ | 3.7 |
| | $ | — |
|
75
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
The funded status and amounts recognized in our Consolidated Balance Sheets at May 27, 201830, 2021 and May 28, 201731, 2020 were: | | Pension Plans | | | Postretirement Plans | | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | Funded Status | | $ | 109.6 | | | $ | (52.1 | ) | | $ | (78.2 | ) | | $ | (86.4 | ) | Amounts Recognized in Consolidated Balance Sheets | | | | | | | | | | | | | | | | | Other assets | | $ | 245.0 | | | $ | 202.4 | | | $ | 3.0 | | | $ | 2.9 | | Other accrued liabilities | | | (10.3 | ) | | | (8.9 | ) | | | (9.0 | ) | | | (10.0 | ) | Other noncurrent liabilities | | | (125.1 | ) | | | (245.6 | ) | | | (72.2 | ) | | | (79.3 | ) | Net Amount Recognized | | $ | 109.6 | | | $ | (52.1 | ) | | $ | (78.2 | ) | | $ | (86.4 | ) | Amounts Recognized in Accumulated Other Comprehensive (Income) Loss (Pre-tax) | | | | | | | | | | | | | | | | | Actuarial net loss (gain) | | $ | (41.5 | ) | | $ | 51.2 | | | $ | (12.9 | ) | | $ | (15.0 | ) | Net prior service cost (benefit) | | | 6.2 | | | | 8.6 | | | | (38.4 | ) | | | (40.1 | ) | Total | | $ | (35.3 | ) | | $ | 59.8 | | | $ | (51.3 | ) | | $ | (55.1 | ) | Weighted-Average Actuarial Assumptions Used to Determine Benefit Obligations at May 30, 2021 and May 31, 2020 | | | | | | | | | | | | | | | | | Discount rate | | | 3.04 | % | | | 2.98 | % | | | 2.51 | % | | | 2.39 | % | Long-term rate of compensation increase | | N/A | | | N/A | | | N/A | | | N/A | |
| | | | | | | | | | | | | | | | | | | | Pension Benefits | | Other Benefits | | | 2018 | | 2017 | | 2018 | | 2017 | Funded Status | | $ | (68.5 | ) | | $ | (565.1 | ) | | $ | (115.6 | ) | | $ | (156.9 | ) | Amounts Recognized in Consolidated Balance Sheets | | | | | | | | | Other assets | | $ | 103.0 |
| | $ | 17.1 |
| | $ | 2.6 |
| | $ | — |
| Other accrued liabilities | | (11.8 | ) | | (10.9 | ) | | (16.2 | ) | | (18.4 | ) | Other noncurrent liabilities | | (159.7 | ) | | (571.3 | ) | | (102.0 | ) | | (138.5 | ) | Net Amount Recognized | | $ | (68.5 | ) | | $ | (565.1 | ) | | $ | (115.6 | ) | | $ | (156.9 | ) | Amounts Recognized in Accumulated Other Comprehensive (Income) Loss (Pre-tax) | | | | | | | | | Actuarial net loss (gain) | | $ | 48.8 |
| | $ | 174.2 |
| | $ | (25.8 | ) | | $ | (9.0 | ) | Net prior service cost (benefit) | | 13.8 |
| | 16.0 |
| | (18.4 | ) | | (4.6 | ) | Total | | $ | 62.6 |
| | $ | 190.2 |
| | $ | (44.2 | ) | | $ | (13.6 | ) | Weighted-Average Actuarial Assumptions Used to Determine Benefit Obligations at May 27, 2018 and May 28, 2017 | | | | | | | | | Discount rate | | 4.14 | % | | 3.90 | % | | 3.81 | % | | 3.33 | % | Long-term rate of compensation increase | | N/A |
| | 3.63 | % | | N/A |
| | N/A |
|
The accumulated benefit obligation for all defined benefit pension plans was $3.4$3.74 billion and $3.5$3.87 billion at May 27, 201830, 2021 and May 28, 2017,31, 2020, respectively. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets at May 27, 201830, 2021 and May 28, 201731, 2020 were: | | | | | | 2021 | | | 2020 | | Projected benefit obligation | | | | | | $ | 135.4 | | | $ | 1,062.8 | | Accumulated benefit obligation | | | | | | | 135.4 | | | | 1,062.8 | | Fair value of plan assets | | | | | | | — | | | | 808.2 | |
| | | | | | | | | | | | 2018 | | 2017 | Projected benefit obligation | | $ | 951.1 |
| | $ | 3,433.6 |
| Accumulated benefit obligation | | 950.1 |
| | 3,357.1 |
| Fair value of plan assets | | 779.5 |
| | 2,851.4 |
|
Components of pension benefit and other postretirement benefitplan costs included: | | Pension Plans | | | Postretirement Plans | | | | 2021 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2019 | | Service cost | | $ | 11.6 | | | $ | 11.5 | | | $ | 10.9 | | | $ | 0.2 | | | $ | 0.1 | | | $ | 0.1 | | Interest cost | | | 86.8 | | | | 118.4 | | | | 132.6 | | | | 1.5 | | | | 2.6 | | | | 3.8 | | Expected return on plan assets | | | (140.0 | ) | | | (170.2 | ) | | | (174.4 | ) | | | — | | | | — | | | | — | | Amortization of prior service cost (benefit) | | | 2.3 | | | | 2.7 | | | | 3.1 | | | | (2.1 | ) | | | (2.1 | ) | | | (2.2 | ) | Recognized net actuarial loss (gain) | | | 0.8 | | | | 44.8 | | | | 5.1 | | | | (3.5 | ) | | | (4.6 | ) | | | (1.4 | ) | Settlement gain | | | — | | | | (2.1 | ) | | | — | | | | (0.5 | ) | | | (0.2 | ) | | | (1.0 | ) | Curtailment loss (gain) | | | 0.2 | | | | 0.8 | | | | — | | | | — | | | | — | | | | (0.6 | ) | Pension and postretirement cost (benefit) — Company plans | | | (38.3 | ) | | | 5.9 | | | | (22.7 | ) | | | (4.4 | ) | | | (4.2 | ) | | | (1.3 | ) | Pension cost (benefit) — multi-employer plans | | | 7.4 | | | | 6.5 | | | | 6.3 | | | | — | | | | — | | | | — | | Total pension and postretirement cost (benefit) | | $ | (30.9 | ) | | $ | 12.4 | | | $ | (16.4 | ) | | $ | (4.4 | ) | | $ | (4.2 | ) | | $ | (1.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Other Benefits | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | Service cost | $ | 42.8 |
| | $ | 56.9 |
| | $ | 93.8 |
| | $ | 0.2 |
| | $ | 0.3 |
| | $ | 0.4 |
| Interest cost | 111.1 |
| | 116.8 |
| | 159.8 |
| | 3.9 |
| | 4.6 |
| | 7.5 |
| Expected return on plan assets | (218.3 | ) | | (207.4 | ) | | (259.9 | ) | | — |
| | — |
| | — |
| Amortization of prior service cost (benefit) | 2.9 |
| | 2.6 |
| | 2.7 |
| | (3.4 | ) | | (6.6 | ) | | (7.8 | ) | Special termination benefits | — |
| | 1.5 |
| | 25.6 |
| | — |
| | — |
| | — |
| Recognized net actuarial loss | 3.4 |
| | 1.2 |
| | 348.5 |
| | — |
| | 0.5 |
| | 0.1 |
| Settlement loss | 1.3 |
| | 13.8 |
| | — |
| | — |
| | — |
| | — |
| Curtailment loss | 0.7 |
| | 1.7 |
| | 0.3 |
| | — |
| | — |
| | — |
| Benefit cost — Company plans | (56.1 | ) | | (12.9 | ) | | 370.8 |
| | 0.7 |
| | (1.2 | ) | | 0.2 |
| Pension benefit cost — multi-employer plans | 7.1 |
| | 12.0 |
| | 42.9 |
| | — |
| | — |
| | — |
| Total benefit (income) cost | $ | (49.0 | ) | | $ | (0.9 | ) | | $ | 413.7 |
| | $ | 0.7 |
| | $ | (1.2 | ) | | $ | 0.2 |
|
76
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
As a result of the Spinoff, during fiscal 2017, we recorded a pension curtailment gain of $19.5 million within other comprehensive income (loss) and remeasured a significant qualified pension plan as of November 9, 2016. In connection with the remeasurement, we updated the effective discount rate assumption from 3.86% to 4.04%. The remeasurement and the curtailment gain decreased the underfunded status of the pension plans by $66.0 million with a corresponding benefit within other comprehensive income (loss).
During fiscal 2017, we provided a voluntary lump-sum settlement offer to certain terminated vested participants in our salaried pension plan. Lump-sum settlement payments totaling $287.5 million were distributed from pension plan assets to such participants. Due to the pension settlement, we were required to remeasure our pension plan liability. In connection with the remeasurement, we updated the effective discount rate assumption to 4.11%, as of December 31, 2016. The settlement and related remeasurement resulted in the recognition of a settlement charge of 13.8 million, reflected in SG&A expenses, as well as a benefit to accumulated other comprehensive income (loss) totaling $62.2 million.
Special termination benefits granted in connection with the voluntary retirement program resulted in the recognition of $25.6 million of expense during fiscal 2016. This expense was included in restructuring activities.
In fiscal 2018, 2017,2021, 2020, and 2016,2019, the Company recorded charges of $3.4$0.8 million, $1.2$44.8 million, and $348.5$5.1 million, respectively, reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability. The Company recorded an expense In fiscal 2020, the higher actuarial losses outside of $0.6 million (primarily within restructuring activities), $4.0 million ($2.1 million was recorded in discontinued operations and $1.9 million was recorded in restructuring activities), and $31.8 million ($2.0 million was recorded in discontinued operations and $29.8 million was recorded in restructuring activities) during fiscal 2018, 2017, and 2016, respectively,the 10% corridor were principally related to a reduction in the discount rate used to recognize at present value our expected incurrencepension obligations and a decline in market value of certain multi-employer plan withdrawal costs.
assets associated with our non-qualified and hourly plans.Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were: | | Pension Plans | | | Postretirement Plans | | | | 2021 | | | 2020 | | | 2021 | | | 2020 | | Net actuarial gain (loss) | | $ | 92.0 | | | $ | 21.9 | | | $ | 2.5 | | | $ | (2.9 | ) | Amortization of prior service cost (benefit) | | | 2.3 | | | | 2.7 | | | | (2.1 | ) | | | (2.1 | ) | Settlement and curtailment loss (gain) | | | 0.2 | | | | (1.3 | ) | | | (0.5 | ) | | | (0.2 | ) | Recognized net actuarial loss (gain) | | | 0.8 | | | | 44.8 | | | | (3.5 | ) | | | (4.6 | ) | Currency | | | (0.2 | ) | | | 0 | | | | (0.2 | ) | | | 0 | | Net amount recognized | | $ | 95.1 | | | $ | 68.1 | | | $ | (3.8 | ) | | $ | (9.8 | ) |
| | | | | | | | | | | | | | | | | | | | Pension Benefits | | Other Benefits | | | 2018 | | 2017 | | 2018 | | 2017 | Net actuarial gain | | $ | 120.0 |
| | $ | 183.1 |
| | $ | 16.8 |
| | $ | 32.4 |
| Amendments | | (0.6 | ) | | (5.5 | ) | | 17.2 |
| | (0.4 | ) | Amortization of prior service cost (benefit) | | 2.9 |
| | 2.9 |
| | (3.4 | ) | | (6.6 | ) | Settlement and curtailment loss | | 2.0 |
| | 13.8 |
| | — |
| | — |
| Recognized net actuarial loss | | 3.4 |
| | 1.2 |
| | — |
| | 0.5 |
| Net amount recognized | | $ | 127.7 |
| | $ | 195.5 |
| | $ | 30.6 |
| | $ | 25.9 |
|
Weighted-Average Actuarial Assumptions Used to Determine Net Expense | | Pension Plans | | | Postretirement Plans | | | | 2021 | | | 2020 | | | 2019 | | | 2021 | | | 2020 | | | 2019 | | Discount rate | | | 2.98 | % | | | 3.88 | % | | | 4.15 | % | | | 2.39 | % | | | 3.48 | % | | | 3.81 | % | Long-term rate of return on plan assets | | | 3.74 | % | | | 4.77 | % | | | 5.17 | % | | N/A | | | N/A | | | N/A | | Long-term rate of compensation increase | | N/A | | | N/A | | | | 3.63 | % | | N/A | | | N/A | | | N/A | |
| | | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Other Benefits | | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | Discount rate | | 3.90 | % | | 3.83 | % | | 4.10 | % | | 3.33 | % | | 3.18 | % | | 3.50 | % | Long-term rate of return on plan assets | | 7.50 | % | | 7.50 | % | | 7.75 | % | | N/A |
| | N/A |
| | N/A |
| Long-term rate of compensation increase | | 3.63 | % | | 3.66 | % | | 3.70 | % | | N/A |
| | N/A |
| | N/A |
|
Beginning in fiscal 2017, theThe Company has elected to useuses a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans. Historically, a single weighted-average discount rate was used in the calculation of service and interest costs, both of which are components of pension benefit costs. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost. This change is considered a change in accounting estimate and has been applied prospectively. The pre-tax reduction in total pension benefit cost associated with this change in fiscal 2017 was approximately $27.0 million. We amortize prior service cost for our pension plans and postretirement plans, as well as amortizable gains and losses for our postretirement plans, in equal annual amounts over the average expected future period of vested service. For plans with no active participants, average life expectancy is used instead of average expected useful service.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net expense during the next year are as follows:
| | | | | | | | | | | | Pension Benefits | | Other Benefits | Prior service cost (benefit) | | $ | 2.9 |
| | $ | (2.2 | ) | Net actuarial gain | | N/A |
| | (1.5 | ) |
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 20,19, as of May 27, 2018,30, 2021, was as follows: | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Cash and cash equivalents | | $ | 7.5 | | | $ | 85.0 | | | $ | 0 | | | $ | 92.5 | | Equity securities: | | | | | | | | | | | | | | | | | U.S. equity securities | | | 78.0 | | | | 94.6 | | | | 0 | | | | 172.6 | | International equity securities | | | 121.9 | | | | 0.5 | | | | 0 | | | | 122.4 | | Fixed income securities: | | | | | | | | | | | | | | | | | Government bonds | | | 0 | | | | 772.6 | | | | 0 | | | | 772.6 | | Corporate bonds | | | 0 | | | | 2,407.2 | | | | 0 | | | | 2,407.2 | | Mortgage-backed bonds | | | 0 | | | | 12.4 | | | | 0 | | | | 12.4 | | Real estate funds | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Net receivables for unsettled transactions | | | 5.7 | | | | — | | | | 0 | | | | 5.7 | | Fair value measurement of pension plan assets in the fair value hierarchy | | $ | 213.1 | | | $ | 3,372.3 | | | $ | 0 | | | $ | 3,585.4 | | Investments measured at net asset value | | | | | | | | | | | | | | | 263.4 | | Total pension plan assets | | | | | | | | | | | | | | $ | 3,848.8 | |
| | | | | | | | | | | | | | | | | | | | Level 1 | | Level 2 | | Level 3 | | Total | Cash and cash equivalents | | $ | 1.0 |
| | $ | 65.0 |
| | $ | — |
| | $ | 66.0 |
| Equity securities: | | | | | | | | | U.S. equity securities | | 319.8 |
| | 124.0 |
| | — |
| | 443.8 |
| International equity securities | | 256.5 |
| | 1.0 |
| | — |
| | 257.5 |
| Fixed income securities: | | | | | | | | | Government bonds | | — |
| | 1,854.8 |
| | — |
| | 1,854.8 |
| Corporate bonds | | — |
| | 4.7 |
| | — |
| | 4.7 |
| Mortgage-backed bonds | | — |
| | 9.3 |
| | — |
| | 9.3 |
| Real estate funds | | 7.7 |
| | — |
| | — |
| | 7.7 |
| Master limited partnerships | | 0.4 |
| | — |
| | — |
| | 0.4 |
| Net payables for unsettled transactions | | 10.9 |
| | — |
| | — |
| | 10.9 |
| Fair value measurement of pension plan assets in the fair value hierarchy | | $ | 596.3 |
| | $ | 2,058.8 |
| | $ | — |
| | $ | 2,655.1 |
| Investments measured at net asset value | | | | | | | | 700.0 |
| Total pension plan assets | |
|
| |
|
| |
|
| | $ | 3,355.1 |
|
77
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 20,19, as of May 28, 2017,31, 2020, was as follows: | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Cash and cash equivalents | | $ | 10.1 | | | $ | 71.9 | | | $ | 0 | | | $ | 82.0 | | Equity securities: | | | | | | | | | | | | | | | | | U.S. equity securities | | | 63.9 | | | | 82.2 | | | | 0 | | | | 146.1 | | International equity securities | | | 92.4 | | | | 0.7 | | | | 0 | | | | 93.1 | | Fixed income securities: | | | | | | | | | | | | | | | | | Government bonds | | | 0 | | | | 743.9 | | | | 0 | | | | 743.9 | | Corporate bonds | | | 0 | | | | 2,461.7 | | | | 0 | | | | 2,461.7 | | Mortgage-backed bonds | | | 0 | | | | 22.4 | | | | 0 | | | | 22.4 | | Real estate funds | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Net receivables for unsettled transactions | | | 30.2 | | | | 0 | | | | 0 | | | | 30.2 | | Fair value measurement of pension plan assets in the fair value hierarchy | | $ | 196.6 | | | $ | 3,382.8 | | | $ | 0 | | | $ | 3,579.4 | | Investments measured at net asset value | | | | | | | | | | | | | | | 241.0 | | Total pension plan assets | | | | | | | | | | | | | | $ | 3,820.4 | |
| | | | | | | | | | | | | | | | | | | | Level 1 | | Level 2 | | Level 3 | | Total | Cash and cash equivalents | | $ | 1.0 |
| | $ | 94.0 |
| | $ | — |
| | $ | 95.0 |
| Equity securities: | | | | | | | | | U.S. equity securities | | 494.0 |
| | 13.7 |
| | — |
| | 507.7 |
| International equity securities | | 249.9 |
| | 13.2 |
| | — |
| | 263.1 |
| Fixed income securities: | | | | | | | | | Government bonds | | 51.1 |
| | 224.3 |
| | — |
| | 275.4 |
| Corporate bonds | | 4.4 |
| | 279.5 |
| | — |
| | 283.9 |
| Mortgage-backed bonds | | 63.3 |
| | 6.2 |
| | — |
| | 69.5 |
| Real estate funds | | 9.5 |
| | — |
| | — |
| | 9.5 |
| Master limited partnerships | | 173.5 |
| | — |
| | — |
| | 173.5 |
| Net receivables for unsettled transactions | | 0.7 |
| | — |
| | — |
| | 0.7 |
| Fair value measurement of pension plan assets in the fair value hierarchy | | $ | 1,047.4 |
| | $ | 630.9 |
| | $ | — |
| | $ | 1,678.3 |
| Investments measured at net asset value | | | | | | | | 1,305.3 |
| Total pension plan assets | | | | | | | | $ | 2,983.6 |
|
Level 1 assets are valued based on quoted prices in active markets for identical securities. The majority of the Level 1 assets listed above include the common stock of both U.S. and international companies, mutual funds, master limited partnership units, and real estate investment trusts, all of which are actively traded and priced in the market. Level 2 assets are valued based on other significant observable inputs including quoted prices for similar securities, yield curves, indices, etc. Level 2 assets consist primarily of individual fixed income securities where values are based on quoted prices of similar securities and observable market data. Level 3 assets consist of investments where active market pricing is not readily available and, as such, fair value is estimated using significant unobservable inputs. Certain assets that are measured at fair value using the NAV (net asset value) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. Such investments are generally considered long-term in nature with varying redemption availability. For certain of these investments, with a fair value of approximately $487.2$52.2 million as of May 27, 2018,30, 2021, the asset managers have the ability to impose customary redemption gates which may further restrict or limit the redemption of invested funds therein. As of May 27, 2018, funds with a fair value of $0.1 million have imposed30, 2021, 0 such gates. gates were imposed.As of May 27, 2018,30, 2021, we have unfunded commitments for additional investments of $65.4$32.6 million in private equity funds and $26.7$10.9 million in natural resources funds. We expect unfunded commitments to be funded from plan assets rather than the general assets of the Company. To develop the expected long-term rate of return on plan assets assumption for the pension plans, we consider the current asset allocation strategy, the historical investment performance, and the expectations for future returns of each asset class.
78
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
Our pension plan weighted-average asset allocations by asset category were as follows: | | | | | | May 30, 2021 | | | May 31, 2020 | | Equity securities | | | | | | | 8 | % | | | 6 | % | Debt securities | | | | | | | 83 | % | | | 85 | % | Real estate funds | | | | | | | 1 | % | | | 1 | % | Private equity | | | | | | | 3 | % | | | 3 | % | Other | | | | | | | 5 | % | | | 5 | % | Total | | | | | | | 100 | % | | | 100 | % |
| | | | | | | | | | May 27, 2018 | | May 28, 2017 | Equity securities | | 21 | % | | 39 | % | Debt securities | | 58 | % | | 25 | % | Real estate funds | | 10 | % | | 11 | % | Multi-strategy hedge funds | | 4 | % | | 11 | % | Private equity | | 4 | % | | 4 | % | Other | | 3 | % | | 10 | % | Total | | 100 | % | | 100 | % |
Due to the salaried pension plan freeze that occurred in fiscal 2018, the Company's pension asset strategy is now designed to align our pension plan assets with our projected benefit obligation to reduce volatility by targeting an investment strategy of approximately 90% in fixed-income securities and approximately 10% in return seeking assets, primarily equity securities, real estate, and private assets. Other investments are primarily made up of cash and master limited partnerships.
Assumed health care cost trend rates have a significant effect on the benefit obligation of the postretirement plans. Assumed Health Care Cost Trend Rates at: | | | | | | May 30, 2021 | | | May 31, 2020 | | Initial health care cost trend rate | | | | | | | 6.53 | % | | | 6.22 | % | Ultimate health care cost trend rate | | | | | | | 4.44 | % | | | 4.43 | % | Year that the rate reaches the ultimate trend rate | | | | | | 2029 | | | 2024 | |
| | | | | | | | Assumed Health Care Cost Trend Rates at: | | May 27, 2018 | | May 28, 2017 | Initial health care cost trend rate | | 7.87 | % | | 8.44 | % | Ultimate health care cost trend rate | | 4.5 | % | | 4.5 | % | Year that the rate reaches the ultimate trend rate | | 2024 |
| | 2024 |
|
A one percentage point change in assumed health care cost rates would have the following effect:
| | | | | | | | | | | | One Percent Increase | | One Percent Decrease | Effect on total service and interest cost | | $ | 0.3 |
| | $ | (0.3 | ) | Effect on postretirement benefit obligation | | 3.9 |
| | (3.5 | ) |
We currently anticipate making contributions of approximately $19.6$12.3 million to our pension plans in fiscal 2019.2022. We anticipate making contributions of $16.2$9.0 million to our other postretirement plans in fiscal 2019.2022. These estimates are based on ERISA guidelines, current tax laws, plan asset performance, and liability assumptions, which are subject to change. The following table presents estimated future gross benefit payments for our plans: | | | | | | Pension Plans | | | Postretirement Plans | | 2022 | | | | | | $ | 201.6 | | | $ | 9.1 | | 2023 | | | | | | | 203.0 | | | | 8.4 | | 2024 | | | | | | | 204.7 | | | | 7.7 | | 2025 | | | | | | | 206.1 | | | | 7.1 | | 2026 | | | | | | | 207.3 | | | | 6.5 | | Succeeding 5 years | | | | | | | 1,031.1 | | | | 25.2 | |
| | | | | | | | | | | | Pension Benefits | | Health Care and Life Insurance Benefits | 2019 | | $ | 188.7 |
| | $ | 16.4 |
| 2020 | | 184.2 |
| | 14.7 |
| 2021 | | 186.5 |
| | 13.4 |
| 2022 | | 189.0 |
| | 12.1 |
| 2023 | | 191.3 |
| | 11.0 |
| Succeeding 5 years | | 980.7 |
| | 40.1 |
|
79
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
Multiemployer Pension Plans The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements that cover certain units of its union-represented employees. The risks of participating in such plans are different from the risks of single-employer plans, in the following respects: | | a. | Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. |
| | b. | If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. |
| | c. | If the Company ceases to have an obligation to contribute to a multiemployer plan in which it had been a contributing employer, it may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of the Company's participation in the plan prior to the cessation of its obligation to contribute. The amount that an employer that has ceased to have an obligation to contribute to a multiemployer plan is required to pay to the plan is referred to as a withdrawal liability. |
The Company's participation in multiemployer plans for the fiscal year ended May 27, 201830, 2021 is outlined in the table below. For each plan that is individually significant to the Company the following information is provided: | • | The "EIN / PN" column provides the Employer Identification Number and the three-digit plan number assigned to a plan by the Internal Revenue Service. |
The "EIN / PN" column provides the Employer Identification Number | • | The most recent Pension Protection Act Zone Status available for 2020 and 2019 is for plan years that ended in calendar years 2020 and 2019, respectively. The zone status is based on information provided to the Company by each plan. A plan in the "red" zone has been determined to be in "critical status", based on criteria established under the Internal Revenue Code ("Code"), and is generally less than 65% funded. A plan in the "yellow" zone has been determined to be in "endangered status", based on criteria established under the Code, and is generally less than 80% funded. A plan in the "green" zone has been determined to be neither in "critical status" nor in "endangered status", and is generally at least 80% funded. |
| • | The "FIP/RP Status Pending/Implemented" column indicates whether a Funding Improvement Plan, as required under the Code to be adopted by plans in the "yellow" zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the "red" zone, is pending or has been implemented by the plan as of the end of the plan year that ended in calendar year 2020. |
| • | Contributions by the Company are the amounts contributed in the Company's fiscal periods ending in the specified year. |
| • | The "Surcharge Imposed" column indicates whether the Company contribution rate for its fiscal year that ended on May 30, 2021 included an amount in addition to the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in "critical status", in accordance with the requirements of the Code. |
| • | The last column lists the expiration dates of the collective bargaining agreements pursuant to which the Company contributes to the plans. |
80
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and the three-digit plan number assigned to a plan by the Internal Revenue Service. The most recent Pension Protection Act Zone Status available for 2017 and 2016 is for plan years that endedMay 26, 2019(columnar dollars in calendar years 2017 and 2016, respectively. The zone status is based on information provided to the Company by each plan. A plan in the "red" zone has been determined to be in "critical status", based on criteria established under the Internal Revenue Code ("Code"), and is generally less than 65% funded. A plan in the "yellow" zone has been determined to be in "endangered status", based on criteria established under the Code, and is generally less than 80% funded. A plan in the "green" zone has been determined to be neither in "critical status" nor in "endangered status", and is generally at least 80% funded. The "FIP/RP Status Pending/Implemented" column indicates whether a Funding Improvement Plan, as required under the Code to be adopted by plans in the "yellow" zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the "red" zone, is pending or has been implemented by the plan as of the end of the plan year that ended in calendar year 2017.
Contributions by the Company are the amounts contributed in the Company's fiscal periods ending in the specified year.
The "Surcharge Imposed" column indicates whether the Company contribution rate for its fiscal year that ended on May 27, 2018 included an amount in addition to the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in "critical status", in accordance with the requirements of the Code.
The last column lists the expiration dates of the collective bargaining agreements pursuant to which the Company contributes to the plans.
millions except per share amounts)For plans that are not individually significant to Conagra Brands the total amount of contributions is presented in the aggregate. | | | | | | Pension Protection Act Zone Status | | | FIP / RP Status | | | Contributions by the Company (millions) | | | | | | | Expiration Dates of Collective | Pension Fund | | | EIN / PN | | | 2020 | | | 2019 | | | Pending / Implemented | | | FY21 | | | | FY20 | | | | FY19 | | | | Surcharge Imposed | | | Bargaining Agreements | Bakery and Confectionary Union and Industry International Pension Plan | | | 52-6118572 / 001 | | | Red, Critical and Declining | | | Red, Critical and Declining | | | RP Implemented | | | $ | 0.0 | | | | $ | 0.0 | | | | $ | 0.1 | | | | No | | | N/A | Central States, Southeast and Southwest Areas Pension Fund | | | 36-6044243 / 001 | | | Red, Critical and Declining | | | Red, Critical and Declining | | | RP Implemented | | | | 2.2 | | | | | 2.0 | | | | | 1.8 | | | | No | | | 5/31/2021 | Western Conference of Teamsters Pension Plan | | | 91-6145047 / 001 | | | Green | | | Green | | | N/A | | | | 3.8 | | | | | 3.2 | | | | | 3.2 | | | | No | | | 6/30/2022 | Other Plans | | | | | | | | | | | | | | | | 1.4 | | | | | 1.3 | | | | | 0.9 | | | | | | | | Total Contributions | | | | | | | | | | | | | | | $ | 7.4 | | | | $ | 6.5 | | | | $ | 6.0 | | | | | | | |
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
| | | | | | | | | | | | | | | | | Pension Protection Act Zone Status | FIP / RP Status Pending / Implemented | Contributions by the Company (millions) | | Expiration Dates of Collective Bargaining Agreements | Pension Fund | EIN / PN | 2017 | 2016 | FY18 | FY17 | FY16 | Surcharge Imposed | Bakery and Confectionary Union and Industry International Pension Plan | 52-6118572 / 001 | Red, Critical and Declining | Red, Critical and Declining | RP Implemented | $ | 1.5 |
| $ | 1.8 |
| $3.1 | No | 2/28/2020 | Central States, Southeast and Southwest Areas Pension Fund | 36-6044243 / 001 | Red, Critical and Declining | Red | RP Implemented | 1.8 |
| 1.8 |
| 1.9 | No | 5/31/2020 | Western Conference of Teamsters Pension Plan | 91-6145047 / 001 | Green | Green | N/A | 2.8 |
| 4.0 |
| 5.4 | No | 06/30/2018 | Other Plans | 0.4 |
| 0.4 |
| 0.7 | | | Total Contributions | $ | 6.5 |
| $8.0 | $11.1 | | |
The Company was not listed in the Forms 5500 filed by any of the other plans or for any of the other years as providing more than 5% of the plan's total contributions. At the date our financial statements were issued, Forms 5500 were not available for plan years ending in calendar year 2017. On May 31, 2018, subsequent to the end of2020.During fiscal 2018,2019, we ceased to participate in the Bakery and Confectionary Union and Industry International Fund in conjunction with our sale of the Trenton, Missouri plant. In addition to the contributions listed in the table above, we recorded an additional expense of $0.6 million, $4.0 million, and $31.8$0.3 million in fiscal 2018, 2017, and 2016, respectively,2019 related to our expected incurrence of certain withdrawal costs. Certain of our employees are covered under defined contribution plans. The expense related to these plans was $24.5$47.6 million, $18.0$49.9 million, and $35.4$39.9 million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively.
20.19. 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 fair values of our Level 2 derivative instruments were determined using valuation models that use market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent commodity and foreign currency option and forward contracts and cross-currency swaps.
81
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts)
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 27, 2018:30, 2021: | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | Derivative assets | | $ | 13.0 | | | $ | 2.5 | | | $ | 0 | | | $ | 15.5 | | Marketable securities | | | 6.6 | | | | 0 | | | | 0 | | | | 6.6 | | Deferred compensation assets | | | 8.8 | | | | 0 | | | | 0 | | | | 8.8 | | Total assets | | $ | 28.4 | | | $ | 2.5 | | | $ | 0 | | | $ | 30.9 | | Liabilities: | | | | | | | | | | | | | | | | | Derivative liabilities | | $ | 0 | | | $ | 6.9 | | | $ | 0 | | | $ | 6.9 | | Deferred compensation liabilities | | | 81.0 | | | | 0 | | | | 0 | | | | 81.0 | | Total liabilities | | $ | 81.0 | | | $ | 6.9 | | | $ | 0 | | | $ | 87.9 | |
| | | | | | | | | | | | | | | | | | Level 1 | | Level 2 | | Level 3 | | Total | Assets: | | | | | | | | Derivative assets | $ | 1.7 |
| | $ | 2.7 |
| | $ | — |
| | $ | 4.4 |
| Available-for-sale securities | 4.8 |
| | — |
| | — |
| | 4.8 |
| Total assets | $ | 6.5 |
| | $ | 2.7 |
| | $ | — |
| | $ | 9.2 |
| Liabilities: | | | | | | | | Derivative liabilities | $ | — |
| | $ | 0.1 |
| | $ | — |
| | $ | 0.1 |
| Deferred compensation liabilities | 51.6 |
| | — |
| | — |
| | 51.6 |
| Total liabilities | $ | 51.6 |
| | $ | 0.1 |
| | $ | — |
| | $ | 51.7 |
|
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 28, 2017:31, 2020: | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Assets: | | | | | | | | | | | | | | | | | Derivative assets | | $ | 2.8 | | | $ | 5.2 | | | $ | 0 | | | $ | 8.0 | | Marketable securities | | | 8.1 | | | | 0 | | | | 0 | | | | 8.1 | | Deferred compensation assets | | | 8.6 | | | | — | | | | — | | | | 8.6 | | Total assets | | $ | 19.5 | | | $ | 5.2 | | | $ | 0 | | | $ | 24.7 | | Liabilities: | | | | | | | | | | | | | | | | | Derivative liabilities | | $ | 0 | | | $ | 0.4 | | | $ | 0 | | | $ | 0.4 | | Deferred compensation liabilities | | | 68.0 | | | | 0 | | | | 0 | | | | 68.0 | | Total liabilities | | $ | 68.0 | | | $ | 0.4 | | | $ | 0 | | | $ | 68.4 | |
| | | | | | | | | | | | | | | | | | Level 1 | | Level 2 | | Level 3 | | Total | Assets: | | | | | | | | Derivative assets | $ | 2.0 |
| | $ | 0.3 |
| | $ | — |
| | $ | 2.3 |
| Available-for-sale securities | 3.5 |
| | — |
| | — |
| | 3.5 |
| Total assets | $ | 5.5 |
| | $ | 0.3 |
| | $ | — |
| | $ | 5.8 |
| Liabilities: | | | | | | | | Derivative liabilities | $ | — |
| | $ | 1.3 |
| | $ | — |
| | $ | 1.3 |
| Deferred compensation liabilities | 47.2 |
| | — |
| | — |
| | 47.2 |
| Total liabilities | $ | 47.2 |
| | $ | 1.3 |
| | $ | — |
| | $ | 48.5 |
|
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. basis using Level 3 inputs.During fiscal 2018,2021, we updated our cost estimates associated with certain asset retirement obligations at several manufacturing facilities largely due to recent experience of physically closing a charge of $4.7 million was recognizedwastewater lagoon. This change in estimate resulted in a non-cash increase to our long-lived assets in the Corporate segmentamount of $27.4 million and will result in additional depreciation in future periods generally ranging from 15-25 years. The fair value of our asset retirement obligations was measured using cost estimates to settle our future obligations (including an estimate of inflation) and discounted to present value using a credit-adjusted risk-free rate. We recognized charges for the impairment of certain long-lived assets. The impairment was measured based upon the estimated sales price of the assets. During fiscal 2017, a charge of $27.6 million was recognized in the Grocery & Snacks segment for the impairment of our Wesson® oil production facility. The impairment was measured based upon the estimated sales price of the facility (See Note 6).
During fiscal 2017, goodwill impairment charges totaling $198.9 million were recognized within our International segment. See Note 9 for discussion of the methodology employed to measure these impairments.
During fiscal 2018, we recognized indefinite-lived brand impairment charges of $4.0 million in our Grocery & Snacks segment and $0.8 million in our International segment. We recognized indefinite-lived brand impairment charges of $37.0 million in our International segment and $68.2 million in our Grocery & Snacks segment for fiscal 2017, and $50.1 million in our Grocery and Snacks segment for fiscal 2016.brands. The fair values of these brands were estimated using the "relief from royalty" method (See(see Note 9)8).
Impairments in our Grocery & Snacks segment totaled $13.0 million, $46.4 million, and $76.5 million for fiscal 2021, 2020, and 2019, respectively. Impairments in our Refrigerated & Frozen segment totaled $76.9 million and $110.8 million for fiscal 2021 and 2020, respectively. Impairments in our International segment totaled $1.0 million, $8.3 million, and $13.1 million for fiscal 2021, 2020, and 2019, respectively.During fiscal 2020, we recognized impairment charges totaling $54.4 million in our Grocery & Snacks segment and $27.6 million in our Refrigerated & Frozen segment. The impairments were measured based upon the estimated sales price of the disposal group (see Note 6). We recognized charges for the impairment of certain long-lived assets measured based upon the estimated sales price of the assets. Impairments totaled $3.0 million in our Grocery & Snacks segment in fiscal 2021, $3.8 million in our Refrigerated & Frozen segment in fiscal 2020, and $2.7 million within general corporate expenses in fiscal 2019. 82
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) During fiscal 2020, we recognized charges of $2.9 million in general corporate expenses related to the impairments of ROU assets. The impairments were measured based upon a discounted cash flow approach. The carrying amount of long-term debt (including current installments) was $3.54$8.30 billion as of May 27, 201830, 2021 and $2.97$9.75 billion as of May 28, 2017.31, 2020. Based on current market rates, the fair value of this debt (level 2 liabilities) at May 27, 201830, 2021 and May 28, 201731, 2020 was estimated at $3.76$9.76 billion and $3.32$11.35 billion, respectively.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
21.20. BUSINESS SEGMENTS AND RELATED INFORMATION During fiscal 2017, we reorganized our reporting segments. We now reflect our results of operations in five4 reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, Foodservice, and Commercial. Prior periods have been reclassified to conform to the revised segment presentation. In the second quarter of fiscal 2017, we completed the Spinoff of Lamb Weston. The Lamb Weston business had previously been included in the Commercial segment. The results of operations of the Lamb Weston business have been classified as discontinued operations for all periods presented.
Foodservice.The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail channels in the United States. The Refrigerated & Frozen reporting segment includes branded, temperature-controlled food products sold in various retail channels in the United States. The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States. The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and a variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments primarily in the United States. The Commercial reporting segment included commercially branded and private label food and ingredients, which were sold primarily to commercial, restaurant, foodservice, food manufacturing, and industrial customers. The segment's primary food items included a variety of vegetable, spice, and frozen bakery goods, which were sold under brands such as Spicetec Flavors & Seasonings®. The Spicetec and JM Swank businesses were sold in the first quarter of fiscal 2017.
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, netpension and postretirement non-service income, interest expense, andnet, income taxes, and equity method investment earnings have been excluded from segment operations. | | 2021 | | | 2020 | | | 2019 | | Net sales | | | | | | | | | | | | | Grocery & Snacks | | $ | 4,637.5 | | | $ | 4,617.1 | | | $ | 3,923.6 | | Refrigerated & Frozen | | | 4,774.6 | | | | 4,559.6 | | | | 3,735.4 | | International | | | 938.6 | | | | 925.3 | | | | 864.4 | | Foodservice | | | 834.0 | | | | 952.4 | | | | 1,015.0 | | Total net sales | | $ | 11,184.7 | | | $ | 11,054.4 | | | $ | 9,538.4 | | Operating profit | | | | | | | | | | | | | Grocery & Snacks | | $ | 1,093.8 | | | $ | 915.2 | | | $ | 762.6 | | Refrigerated & Frozen | | | 836.5 | | | | 702.2 | | | | 645.1 | | International | | | 131.8 | | | | 100.6 | | | | 99.8 | | Foodservice | | | 78.9 | | | | 97.6 | | | | 134.3 | | Total operating profit | | $ | 2,141.0 | | | $ | 1,815.6 | | | $ | 1,641.8 | | Equity method investment earnings | | | 84.4 | | | | 73.2 | | | | 75.8 | | General corporate expenses | | | 364.8 | | | | 368.5 | | | | 462.2 | | Pension and postretirement non-service income | | | 54.5 | | | | 9.9 | | | | 35.1 | | Interest expense, net | | | 420.4 | | | | 487.1 | | | | 391.4 | | Income tax expense | | | 193.8 | | | | 201.3 | | | | 218.8 | | Income from continuing operations | | $ | 1,300.9 | | | $ | 841.8 | | | $ | 680.3 | | Less: Net income attributable to noncontrolling interests | | | 2.1 | | | | 1.7 | | | | 0.1 | | Income from continuing operations attributable to Conagra Brands, Inc. | | $ | 1,298.8 | | | $ | 840.1 | | | $ | 680.2 | |
83
Notes to Consolidated Financial Statements -– (Continued) Fiscal Years Ended May 27, 2018,30, 2021, May 28, 2017,31, 2020, and May 29, 2016 26, 2019(columnar dollars in millions except per share amounts) The following table presents further disaggregation of our net sales: | | 2021 | | | 2020 | | | 2019 | | Frozen | | $ | 3,948.0 | | | $ | 3,735.5 | | | $ | 2,994.8 | | Staples | | | | | | | | | | | | | Other shelf-stable | | | 2,838.0 | | | | 2,902.8 | | | | 2,426.7 | | Refrigerated | | | 826.6 | | | | 824.1 | | | | 740.6 | | Snacks | | | 1,799.5 | | | | 1,714.3 | | | | 1,496.9 | | International | | | 938.6 | | | | 925.3 | | | | 864.4 | | Foodservice | | | 834.0 | | | | 952.4 | | | | 1,015.0 | | Total net sales | | $ | 11,184.7 | | | $ | 11,054.4 | | | $ | 9,538.4 | |
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Net sales | | | | | | Grocery & Snacks | $ | 3,287.0 |
| | $ | 3,208.8 |
| | $ | 3,377.1 |
| Refrigerated & Frozen | 2,753.0 |
| | 2,652.7 |
| | 2,867.8 |
| International | 843.5 |
| | 816.0 |
| | 846.6 |
| Foodservice | 1,054.8 |
| | 1,078.3 |
| | 1,104.5 |
| Commercial | — |
| | 71.1 |
| | 468.1 |
| Total net sales | $ | 7,938.3 |
| | $ | 7,826.9 |
| | $ | 8,664.1 |
| Operating profit | | | | | | Grocery & Snacks | $ | 724.8 |
| | $ | 653.7 |
| | $ | 592.9 |
| Refrigerated & Frozen | 479.4 |
| | 445.8 |
| | 420.4 |
| International | 86.5 |
| | (168.9 | ) | | 66.7 |
| Foodservice | 121.8 |
| | 105.1 |
| | 97.7 |
| Commercial | — |
| | 202.6 |
| | 45.4 |
| Total operating profit | $ | 1,412.5 |
| | $ | 1,238.3 |
| | $ | 1,223.1 |
| Equity method investment earnings | 97.3 |
| | 71.2 |
| | 66.1 |
| General corporate expenses | 379.0 |
| | 313.3 |
| | 818.5 |
| Interest expense, net | 158.7 |
| | 195.5 |
| | 295.8 |
| Income tax expense | 174.6 |
| | 254.7 |
| | 46.4 |
| Income from continuing operations | $ | 797.5 |
| | $ | 546.0 |
| | $ | 128.5 |
| Less: Net income attributable to noncontrolling interests of continuing operations | 3.4 |
| | 1.9 |
| | 1.9 |
| Income from continuing operations attributable to Conagra Brands, Inc. | $ | 794.1 |
| | $ | 544.1 |
| | $ | 126.6 |
|
NetTo be consistent with how we present certain disaggregated net sales by product type were: | | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Shelf-stable | $ | 4,660.1 |
| | $ | 4,682.4 |
| | $ | 5,256.8 |
| Temperature-controlled | 3,278.2 |
| | 3,144.5 |
| | 3,407.3 |
| Total net sales | $ | 7,938.3 |
| | $ | 7,826.9 |
| | $ | 8,664.1 |
|
information to investors, we have categorized certain net sales of our segments as "Staples", which includes all of our U.S. domestic retail refrigerated products and other shelf-stable grocery products. Management continues to regularly review financial results and make decisions about allocating resources based upon the four reporting segments outlined above.Presentation of Derivative Gains (Losses) forfrom Economic Hedges of Forecasted Cash Flows in Segment Results Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives are recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results, immediately.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
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: | | 2021 | | | 2020 | | | 2019 | | Net derivative gains (losses) incurred | | $ | 9.5 | | | $ | (12.9 | ) | | $ | (3.6 | ) | Less: Net derivative losses allocated to reporting segments | | | (6.1 | ) | | | (7.4 | ) | | | (1.8 | ) | Net derivative gains (losses) recognized in general corporate expenses | | $ | 15.6 | | | $ | (5.5 | ) | | $ | (1.8 | ) | Net derivative losses allocated to Grocery & Snacks | | $ | (2.3 | ) | | $ | (4.7 | ) | | $ | (2.5 | ) | Net derivative losses allocated to Refrigerated & Frozen | | | (1.7 | ) | | | (2.5 | ) | | | (1.5 | ) | Net derivative gains (losses) allocated to International | | | (1.7 | ) | | | 0.1 | | | | 2.8 | | Net derivative losses allocated to Foodservice | | | (0.4 | ) | | | (0.3 | ) | | | (0.6 | ) | Net derivative losses included in segment operating profit | | $ | (6.1 | ) | | $ | (7.4 | ) | | $ | (1.8 | ) |
| | | | | | | | | | | | | | 2018 | | 2017 | | 2016 | Net derivative gains (losses) incurred | $ | (0.9 | ) | | $ | 0.6 |
| | $ | (7.4 | ) | Less: Net derivative gains (losses) allocated to reporting segments | (7.1 | ) | | 5.7 |
| | (23.8 | ) | Net derivative gains (losses) recognized in general corporate expenses | $ | 6.2 |
| | $ | (5.1 | ) | | $ | 16.4 |
| Net derivative gains (losses) allocated to Grocery & Snacks | $ | 0.2 |
| | $ | 3.4 |
| | $ | (14.4 | ) | Net derivative gains (losses) allocated to Refrigerated & Frozen | (0.3 | ) | | 0.8 |
| | (6.2 | ) | Net derivative gains (losses) allocated to International | (6.9 | ) | | 1.6 |
| | (0.5 | ) | Net derivative losses allocated to Foodservice | (0.1 | ) | | — |
| | (1.0 | ) | Net derivative losses allocated to Commercial | — |
| | (0.1 | ) | | (1.7 | ) | Net derivative gains (losses) included in segment operating profit | $ | (7.1 | ) | | $ | 5.7 |
| | $ | (23.8 | ) |
As of May 27, 2018,30, 2021, the cumulative amount of net derivative gains from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was $3.2$11.5 million. This amount reflected net gains of $13.5 million all of which was incurred during the fiscal year ended May 27, 2018.30, 2021, as well as net losses of $2.0 million incurred prior to fiscal 2021. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results net gains of $2.5$11.2 million in fiscal 20192022 and $0.7$0.3 million in fiscal 20202023 and thereafter.
The majority of our manufacturing assets are shared across multiple reporting segments. Output from these facilities used by each reporting segment can change over time. Also, working capital balances are not tracked by reporting segment. Therefore, 84
Notes to Consolidated Financial Statements – (Continued) Fiscal Years Ended May 30, 2021, May 31, 2020, and May 26, 2019 (columnar dollars in millions except per share amounts) it is impracticable to allocate those assets to the reporting segments, as well as disclose total assets by segment. Total depreciation expense for fiscal 2018, 2017,2021, 2020, and 20162019 was $222.1$328.0 million, $234.4$329.1 million, and $243.9$283.9 million, respectively. Our operations are principally in the United States. With respect to operations outside of the United States, no single foreign country or geographic region was significant with respect to consolidated operations for fiscal 2018, 2017,2021, 2020, and 2016.2019. Foreign net sales, including sales by domestic segments to customers located outside of the United States, were approximately $918.4$960.5 million, $887.2$946.8 million, and $937.9$919.5 million in fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. Our long-lived assets located outside of the United States are not significant. Our largest customer, Walmart, Inc. and its affiliates, accounted for approximately 26% of consolidated net sales for each of fiscal 2021 and 2020 and 24% of consolidated net sales for both fiscal 2018 and 2017 and 23% of consolidated net sales for fiscal 2016,2019, significantly impacting the Grocery & Snacks and Refrigerated & Frozen segments. Walmart, Inc. and its affiliates accounted for approximately 25%31% and 26%30% of consolidated net receivables as of May 27, 201830, 2021 and May 28, 2017,31, 2020, respectively. We offer certain suppliers access to a third-party service that allows them to view our scheduled payments online. The third-party service also allows suppliers to finance advances on our scheduled payments at the sole discretionKroger Co. and its affiliates accounted for approximately 11% and 10% of the supplier and the third-party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third-party, or any financial institutions concerning this service. All of our accounts payable remainconsolidated net receivables as obligations to our suppliers as stated in our supplier agreements. As of May 27, 2018, $103.1 million of our total accounts payable is payable to suppliers who utilize this third-party service.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017,30, 2021 and May 29, 2016
(columnar dollars in millions except per share amounts)
31, 2020, respectively.
22. QUARTERLY FINANCIAL DATA (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | 2017 | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | Net sales | $ | 1,804.2 |
| | $ | 2,173.4 |
| | $ | 1,994.5 |
| | $ | 1,966.2 |
| | $ | 1,895.6 |
| | $ | 2,088.4 |
| | $ | 1,981.2 |
| | $ | 1,861.7 |
| Gross profit | 519.0 |
| | 658.3 |
| | 598.8 |
| | 575.4 |
| | 544.6 |
| | 647.5 |
| | 621.0 |
| | 529.0 |
| Income from continuing operations, net of tax | 153.6 |
| | 224.1 |
| | 349.2 |
| | 70.6 |
| | 98.6 |
| | 114.3 |
| | 179.5 |
| | 153.6 |
| Income (loss) from discontinued operations, net of tax | (0.3 | ) | | 0.4 |
| | 14.5 |
| | (0.3 | ) | | 91.4 |
| | 11.6 |
| | 0.7 |
| | (1.7 | ) | Net income attributable to Conagra Brands, Inc. | 152.5 |
| | 223.5 |
| | 362.8 |
| | 69.6 |
| | 186.2 |
| | 122.1 |
| | 179.7 |
| | 151.3 |
| Earnings per share (1): | | | | | | | | | | | | | | | | Basic earnings per share: | | | | | | | | | | | | | | | | Net income attributable to Conagra Brands, Inc. common stockholders | $ | 0.37 |
| | $ | 0.55 |
| | $ | 0.91 |
| | $ | 0.18 |
| | $ | 0.42 |
| | $ | 0.28 |
| | $ | 0.42 |
| | $ | 0.36 |
| Diluted earnings per share: | | | | | | | | | | | | | | | | Net income attributable to Conagra Brands, Inc. common stockholders | $ | 0.36 |
| | $ | 0.54 |
| | $ | 0.90 |
| | $ | 0.18 |
| | $ | 0.42 |
| | $ | 0.28 |
| | $ | 0.41 |
| | $ | 0.36 |
| Dividends declared per common share (3) | $ | 0.2125 |
| | $ | 0.2125 |
| | $ | 0.2125 |
| | $ | 0.2125 |
| | $ | 0.25 |
| | $ | 0.25 |
| | $ | 0.20 |
| | $ | 0.20 |
| Share price (2): | | | | | | | | | | | | | | | | High | $ | 39.95 |
| | $ | 35.87 |
| | $ | 38.50 |
| | $ | 38.29 |
| | $ | 48.39 |
| | $ | 48.68 |
| | $ | 41.16 |
| | $ | 41.50 |
| Low | 33.07 |
| | 32.43 |
| | 35.47 |
| | 35.34 |
| | 45.70 |
| | 34.30 |
| | 36.47 |
| | 37.29 |
|
| | (1)
| Basic and diluted earnings per share are calculated independently for each of the quarters presented. Accordingly, the sum of the quarterly earnings per share amounts may not agree with the total year. |
| | (2)
| Historical market prices do not reflect any adjustment for the impact of the Lamb Weston Spinoff. |
| | (3)
| Per share dividend declared in the third quarter and fourth quarter of fiscal 2017 includes impact of the Lamb Weston Spinoff. |
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors Conagra Brands, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Conagra Brands, Inc. and subsidiaries (the Company) as of May 27, 201830, 2021 and May 28, 2017,31, 2020, the related consolidated statements of operations,earnings, comprehensive income, (loss), common stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended May 27, 2018,30, 2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of May 27, 2018,30, 2021, based on criteria established in Internal Control -– Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 27, 201830, 2021 and May 28, 2017,31, 2020, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended May 27, 2018,30, 2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 27, 2018,30, 2021 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Annual Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of the recoverability of the carrying value of goodwill As described in Notes 1 and 8 to the consolidated financial statements, the Company’s goodwill was $11.37 billion as of May 30, 2021. Annually, or whenever events or changes in circumstances indicate potential asset impairment has occurred, the Company evaluates the recoverability of the carrying value of goodwill. The Company performed a quantitative impairment test of goodwill for its Sides, Components & Enhancers reporting unit in its first fiscal quarter of 2021, as a result of a reporting unit change. We identified the evaluation of the recoverability of the carrying value of the Sides, Components & Enhancers reporting unit goodwill subsequent to the reporting unit change as a critical audit matter. Subjective and challenging auditor judgment was required to evaluate certain assumptions used to determine the fair value of the reporting unit in the Company’s first fiscal quarter quantitative impairment test. These assumptions included forecasted revenue growth rates including the terminal growth rates, margin growth rates used in determining the forecasted cash flows, and selection of the discount rate. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s evaluation of the assumptions used to determine the fair value of the reporting unit. We evaluated the Company’s ability to forecast cash flows by comparing historical forecasts to actual results and forecasted cash flows with the Company’s most recent plans. We also considered current industry, macroeconomic and market conditions, and the Company’s historical results in evaluating the assumptions described above. We involved our valuation professionals with specialized skills and knowledge who assisted in: | • | evaluating the terminal growth rates by comparing them with publicly available market data; |
| • | evaluating the discount rate used by the Company by comparing the Company’s inputs to the discount rate to publicly available data for comparable entities and assessing the resulting discount rate; and |
| • | testing the estimate of the fair value of the reporting unit using the Company’s cash flow assumptions and discount rate and comparing the results to the Company’s fair value estimate. |
Evaluation of the recoverability of the carrying value of certain indefinite-lived intangible assets As described in Notes 1 and 8 to the consolidated financial statements, the Company’s indefinite-lived intangible assets (consisting primarily of brand names and trademarks) were $4.16 billion as of May 30, 2021. For the fiscal year ended May 30, 2021, the Company recorded impairment charges totaling $90.9 million on indefinite-lived intangible assets. In assessing indefinite-lived intangible assets for impairment, the Company performs either a qualitative or quantitative assessment at least annually or whenever circumstances indicate a potential impairment exists. When a quantitative assessment is performed, the Company estimates the fair value of the intangibles by utilizing a discounted cash flow model that incorporates an estimated royalty rate that would be charged to a third party for the use of the brand. Impairment charges are recorded for any intangibles with carrying values in excess of the estimated fair values. We identified the evaluation of the recoverability of the carrying value of certain indefinite-lived intangible assets for which a quantitative impairment assessment is performed as a critical audit matter. Subjective and challenging auditor judgment was required to evaluate certain assumptions used in determining the fair value of these assets. These assumptions included the forecasted revenue growth rates including the terminal growth rates and forecasted margins, royalty rates, and discount rates.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the quantitative impairment assessments, including controls over the development of the assumptions described above. To assess the Company’s ability to forecast, we compared historical forecasts to actual results. We evaluated the forecasted revenue growth rates including terminal growth rates and forecasted margins used to support the royalty rates by considering current and past performance of the brand names, as well as external market and industry outlook data. We also involved valuation professionals with specialized skills and knowledge, who assisted for certain brand names intangibles in: | • | evaluating the terminal growth rates by comparing them to publicly available market data; |
| • | evaluating the royalty rates by determining that the selected royalty rates are supported by the associated brand name’s margin; |
| • | evaluating the discount rates used by the Company by comparing the Company’s inputs to the discount rates to publicly available data for comparable entities and assessing the resulting discount rate; and |
| • | testing the estimated brand names fair values using the Company’s assumptions and comparing the results to the Company’s fair value estimate. |
/s/ KPMG LLP
We have served as the Company’s auditor since 2005. Omaha, Nebraska July 23, 2021
Omaha, Nebraska
July 20, 2018
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures The Company's management carried out an evaluation, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of May 27, 2018.30, 2021. 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 Company's disclosure controls and procedures arewere effective.Internal Control Over Financial Reporting The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated any change in the Company's internal control over financial reporting that occurred during the quarter covered by this report and determined that there was no change in the Company'sour internal control over financial reporting during the fourth quarter of fiscal 2018covered by this report that has materially affected, or is reasonably likely to materially affect, the Company'sour internal control over financial reporting.
Management's Annual Report on Internal Control Over Financial Reporting
Conagra Brands' management is responsible for establishing and maintaining adequate internal control over financial reporting of Conagra Brands (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Conagra Brands' internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Conagra Brands' internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Conagra Brands; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of Conagra Brands are being made only in accordance with the authorization of management and directors of Conagra Brands; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Conagra Brands' assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
With the participation of Conagra Brands' Chief Executive Officer and Chief Financial Officer, management assessed the effectiveness of Conagra Brands' internal control over financial reporting as of May 27, 2018.30, 2021. In making this assessment, management used criteria established in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). As a result of this assessment, management concluded that, as of May 27, 2018,30, 2021, its internal control over financial reporting was effective.
The effectiveness of Conagra Brands' internal control over financial reporting as of May 27, 201830, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, a copy of which is included in this annual report on Form 10-K.
| | | | | /s/ DAVID S. MARBERGER | Sean M. Connolly | | David S. Marberger | President and Chief Executive Officer July 20, 2018
| /s/ DAVID S. MARBERGER
David S. Marberger
| Executive Vice President and Chief Financial Officer | July 20, 201823, 2021 | | July 23, 2021 |
ITEM 9B. OTHER INFORMATION None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information with respect to our directors will be set forth in the 20182021 Proxy Statement under the heading "Voting Item #1: Election of Directors,Director Nominees," and the information is incorporated herein by reference. There were no material changes to the procedures by which security holders may recommend nominees to our Board during fiscal 2021.Information regarding our executive officers is included in Part I of this Form 10-K under the heading "Executive"Information About Our Executive Officers, of the Registrant as of July 20, 2018," as permitted by the Instruction 3 to Item 401(b)401 of Regulation S-K. InformationIf applicable, information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, by our directors, executive officers, and holders of more than ten percent of our equity securities will be set forth in the 20182021 Proxy Statement under the heading "Information on Stock Ownership—Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,Reports," and the information is incorporated herein by reference. Information with respect to the Audit / Finance Committee and its financial experts will be set forth in the 20182021 Proxy Statement under the heading "Voting Item #1: Election of Directors—Roles and Responsibilities of the Board and its Committees—Director Nominees—How We Govern—The Audit / Finance Committee,Committee" and "Voting Item #1: Election of Director Nominees—How We Govern—How We Govern—Board Committees," and the information is incorporated herein by reference. We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, and Controller. This code of ethics is available on our website at www.conagrabrands.com through the "Investors—Corporate Governance" link. If we make any amendments to this code other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of this code of conduct to our Chief Executive Officer, Chief Financial Officer, or Controller, we will disclose the nature of the amendment or waiver, its effective date, and to whom it applies on our website at www.conagrabrands.com through the "Investors—Corporate Governance" link.
ITEM 11. EXECUTIVE COMPENSATION Information with respect to director and executive compensation and our Human Resources Committee will be set forth in the 20182021 Proxy Statement under the headings "Voting Item #1: Election of Directors—Non-Employee Director Compensation,Nominees—How We Are Paid," "Voting Item #1: Election of Directors—Roles and Responsibilities of the Board and its Committees—Director Nominees—How We Govern—Human Resources Committee," "Compensation Discussion and Analysis," "Compensation Committee Report," and "Executive Compensation," "Potential Payments Upon termination of Change of Control," and "CEO Pay Ratio" and the information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information with respect to security ownership of certain beneficial owners, directors and management will be set forth in the 20182021 Proxy Statement under the heading "Information on Stock Ownership," and the information is incorporated herein by reference. Equity Compensation Plan Information The following table provides information about shares of our common stock that may be issued upon the exercise of options, warrants, and rights under existing equity compensation plans as of our most recent fiscal year-end, May 27, 2018.30, 2021.Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (1) | | | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (2) | | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (1)) (3) | | Equity compensation plans approved by security holders | | | 7,463,546 | | | $ | 30.70 | | | | 39,477,083 | | Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | | Total | | | 7,463,546 | | | $ | 30.70 | | | | 39,477,083 | |
(1) | Represents shares underlying awards that have been granted under the terms of the Conagra Brands, Inc. 2014 Stock Plan (as amended effective December 11, 2017) (the "Plan"). Table amounts are comprised of 1,508,486 shares that could be |
| | | | | | | | | | | | Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a) | | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (b) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | Equity compensation plans approved by security holders (1) | | 8,437,925 |
| | $ | 28.11 |
| | 42,456,481 |
| Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
| Total | | 8,437,925 |
| | $ | 28.11 |
| | 42,456,481 |
|
| | (1) | Column (a) includes 1,130,292issued under outstanding performance shares (assuming target achievement); 184,686 shares that could be issued under performanceoutstanding performance-based restricted stock units (assuming target achievement); 2,492,427 restricted stock units; 243,805 deferral interests in deferred compensation plans; and 3,034,142 shares issuable pursuant to outstanding at May 27, 2018. stock options. |
The performance shares and performance-based restricted stock units are earned and common stock issued if pre-set financial objectives are met. Actual shares issued may be equal to, less than, or greater than the number of outstanding performance shares and performance-based restricted stock units included in column (1), depending on actual performance. The restricted stock units vest and are payable in common stock after expiration of the time periods set forth in the related agreements. The interests in the deferred compensation plans are settled in common stock on the schedules selected by the participants. (2) | Reflects the weighted-average exercise price of stock options, and common stock issued if pre-set financial objectives are met. Included are 402,666 shares for two-thirds of the fiscal 2016 through 2018 performance period and one-third of the fiscal 2017 through 2019 performance period, for which the performance has been determined. For the remaining performance periods, actual shares issued may be equal to, less than, or greater than the number of outstanding performance shares included in column (a), depending on actual performance. Column (b) does not take these awards into account because they do not have an exercise price. The number of shares reflected in column (a) with respect to these performance shares, performance-based restricted stock units, restricted stock units, or deferral interests, as such awards have no exercise price. |
(3) | This number reflects securities available for whichfuture awards under the performance has not been determined assumes the vesting criteria will be achieved at target levels. Column (c)Plan and has not been reduced for the performance shares outstanding. Column (b) also excludes 1,775,294and performance-based restricted stock units and 416,496 deferral interests in deferred compensation plans that are included in column (a) but do not have an exercise price. The units vest and are payable in common stock after expiration of the time periods set forth in the related agreements. The interests in the deferred compensation plans are settled in common stock on the schedules selected by the participants.(1). |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information with respect to director independence and certain relationships and related transactions will be set forth in the 20182021 Proxy Statement under the headings "Voting Item #1: Election of Directors—Consideration of How We are Selected, Evaluated and Organized—Director Independence," "Voting Item #1: Election of Directors—Roles and Responsibilities of the Board and its Committees—How We Govern—The Board's Audit / Finance Committee," and "Voting Item #1: Election of Directors—Roles and Responsibilities of the Board and its Committees—How We Govern—The Board's Human Resources Committee" and the information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information with respect to the principal accountant will be set forth in the 20182021 Proxy Statement under the heading "Voting Item #2: Ratification of the Appointment of KPMG LLP as Our Independent Auditor for Fiscal 2019,2022," and the information is incorporated herein by reference.
ITEM 15. EXHIBITSEXHIBIT AND FINANCIAL STATEMENT SCHEDULES | a) | List of documents filed as part of this report: |
a) List of documents filed as part of this report:1. Financial Statements
All financial statements of the Company as set forth under Item 8 of this Annual Report on Form 10-K. | 2. | Financial Statement Schedules |
2. Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable, not required, or because the required information is included in the consolidated financial statements, notes thereto. 3. Exhibits
All documents referenced below were filed pursuant to the Securities Exchange Act of 1934, as amended, by Conagra Brands, Inc. (file number 001-07275), unless otherwise noted.
EXHIBIT | | DESCRIPTION | | | | EXHIBIT*2.1 | | DESCRIPTION | | | | *2.1 | | Master Agreement, dated as of March 4, 2013, by and among Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, CHS Inc., and HM Luxembourg S.A R.L., incorporated herein by reference to Exhibit 2.2 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013 | | | | *2.1.1 | | Amendment No. 1 to Master Agreement, dated April 30, 2013, by and among Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, CHS Inc., and HM Luxembourg S.A R.L., incorporated herein by reference to Exhibit 2.2.1 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013 | | | | *2.1.2 | | Acknowledgment and Amendment No. 2 to Master Agreement, dated May 31, 2013, by and among Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, CHS Inc., and HM Luxembourg S.A R.L., incorporated herein by reference to Exhibit 2.2.2 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013 | | | | *2.1.3 | | Acknowledgment and Amendment No. 3 to Master Agreement, dated as of July 24, 2013, by and among Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, and CHS Inc., incorporated herein by reference to Exhibit 2.1 of Conagra Brands’ Quarterly Report on Form 10-Q for the quarter ended February 23, 2014 | | | | *2.1.4 | | Acknowledgment and Amendment No. 4 to Master Agreement, dated as of March 27, 2014, by and among Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, and CHS Inc., incorporated herein by reference to Exhibit 2.2.4 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May 25, 2014 | | | | *2.1.5 | | Acknowledgment and Amendment No. 5 to Master Agreement, dated as of May 25, 2014, by and among Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, and CHS Inc., incorporated herein by reference to Exhibit 2.2.5 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May 25, 2014 | | | | *2.2 | | | | | | *2.2.1 | | | | | | 2.2.2 | | |
4.1 | | Indenture, dated as of October 8, 1990, between Conagra Brands, Inc. (formerly ConAgra Foods, Inc.) and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A. and The Chase Manhattan Bank (National Association)), as trustee, incorporated by reference to Exhibit 4.1 of Conagra Brands’ Registration Statement on Form S-3 (Registration No. 033-36967) | | | | 4.2 | | | | | | 4.2.1 | | | | | | **10.14.2.2 | | ConAgra Foods,Second Supplemental Indenture, dated October 22, 2018, by and between Conagra Brands, Inc. Amended and Restated Non-Qualified CRISP Plan (January 1, 2009 Restatement)Wells Fargo Bank, National Association, as Trustee (including Forms of Notes), incorporated herein by reference to Exhibit 10.1 of4.2 to Conagra Brands’ QuarterlyBrands' Current Report on Form 10-Q for8-K filed with the quarter ended November 23, 2008SEC on October 22, 2018
| | | | **10.1.14.2.3 | | Amendment OneThird Supplemental Indenture, dated November 29, 2010 to the ConAgra Foods,October 16, 2020, by and between Conagra Brands, Inc. Amended and Restated Non-Qualified CRISP Plan (January 1, 2009 Restatement)Wells Fargo Bank, National Association as Trustee (including Form of Note), incorporated herein by reference to Exhibit 10.1 of4.2 to Conagra Brands’ QuarterlyCurrent Report on Form 10-Q8-K filed with the SEC on October 16, 2020
| | | | 4.3 | | Description of Securities, incorporated herein by reference to Exhibit 4.3 to Conagra Brands’ Annual Report on Form 10-K for the quarterfiscal year ended February 27, 2011May 26, 2019 | | | | **10.210.1 | | | | | | **10.2.110.1.1 | | | | | | **10.2.210.1.2 | | | | | | **10.2.310.1.3 | | | | | | **10.2.410.1.4 | | | | | | **10.310.2 | | | | | | **10.3.1 | | | | | |
| | | | **10.3.2 | | | | | | **10.4 | | | | | | **10.4.1 | | | | | | **10.4.2 | | | | | | **10.4.3 | | | | | | **10.4.4 | | | | | | **10.4.510.3 | | | | | | **10.4.6 | | | | | | **10.4.7 | | | | | | **10.4.810.3.1 | | | | | |
**10.510.3.2 | | | | | | **10.5.1 | | | | | | **10.5.210.3.3 | | | | | | **10.5.310.4 | | | | | | **10.5.4 | | | | | | **10.5.4.1 | | | | | | **10.5.5 | | |
| | | | | | | **10.6 | | | | | | **10.6.110.4.1 | | | | | | **10.6.210.4.2 | | | | | | **10.6.310.4.3 | | | | | | **10.6.410.5 | | | | | | **10.6.4.1 | | | | | | **10.6.4.2 | | | | | | **10.6.5 | | | | | | **10.6.6 | | | | | | **10.6.7 | | | | | | **10.6.8 | | | | | | **10.7 | | | | | | **10.7.110.5.1 | | | | | | **10.7.210.5.2 | | | | | | **10.7.310.5.3 | | | | | | **10.7.410.5.4 | | | | | | **10.7.510.5.5 | | | | | |
| **10.5.6 | | | **10.7.6 | | | | | | **10.7.710.5.7 | | | | | |
**10.5.8 | | Form of Restricted Stock Unit Agreement under the ConAgra Foods, Inc. 2014 Stock Plan, incorporated herein by reference to Exhibit 10.4 of Conagra Brands’ Quarterly Report on Form 10-Q for the quarterly period ended August 26, 2018 | | | | **10.810.5.9 | | | | | | **10.5.10 | | Form of CEO Performance-Based Restricted Stock Units Agreement, incorporated herein by reference to Exhibit 10.2 of Conagra Brands’ Current Report on Form 8-K filed with the SEC on September 28, 2009April 16, 2019 | | | | **10.910.5.11 | | | | | | **10.6 | | Form of Director Indemnification Agreement, incorporated herein by reference to Exhibit 10.1 of Conagra Brands’ Current Report on Form 8-K filed with the SEC on May 19, 2020 | | | | **10.7 | | Form of Senior Officer Indemnification Agreement, incorporated herein by reference to Exhibit 10.1 of Conagra Brands’ Current Report on Form 8-K filed with the SEC on July 28, 2020 | | | | **10.8 | | ConAgra Foods, Inc. 2014 Executive Incentive Plan incorporated herein by reference to Exhibit 10.2 of Conagra Brands’ Current Report on Form 8-K filed with the SEC on September 22, 2014 | | | | **10.1010.9 | | | | | | **10.10.110.9.1 | | | | | | **10.1110.10 | | | | | | **10.12 | | | | | | **10.13 | | | | | | **10.14 | | | | | | **10.15 | | | | | | **10.1610.11 | | | | | | **10.1710.12 | | | | | | **10.1810.13 | | | | | | **10.18.110.13.1 | | | | | | **10.1910.13.2 | | | | | | **10.14 | | Form of Executive Time Sharing Agreement, as adopted on February 18, 2015, incorporated herein by reference to Exhibit 10.17 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May 31, 2015 | | | |
| | | | **10.16 | | | **10.21 | | | | | | **10.21.1 | | | | | | **10.22 | | | | | | 10.2310.17 | | Revolving Credit Agreement, dated as of February 16, 2017, among Conagra Brands, Inc., Bank of America N.A., as administrative agent and a lender, JPMorgan Chase Bank, N.A. as syndication agent and a lender, and other financial institutions party thereto, incorporated herein by reference to Exhibit 10.1 to Conagra Brands’ Current Report on Form 8-K filed with the SEC on February 17, 2017 | | | | 10.24 | | | | | | 10.25 | | | | | | 10.26 | | | | | | 10.27 | | | | | | 10.28 | | Term Loan Agreement, dated July 11, 2018,May 21, 2020, by and among Conagra Brands, Inc. and BankFarm Credit Services of America, N.A.,PCA, as administrative agent and a lender, Goldman Sachs Bank USA, as syndication agent and a lender, and the other financial institutions party thereto, incorporated herein by reference to Exhibit 10.1 to Conagra Brands’ Current Report on Form 8-K filed with the SEC on July 17, 2018May 21, 2020 | | | | 10.2910.18 | | Amended and Restated Revolving Credit Agreement, dated July 11, 2018, by and among Conagra Brands, Inc. and Bank of America, N.A., as administrative agent and a lender, JPMorgan Chase Bank, N.A., as syndication agent and a lender, and the other financial institutions party thereto, incorporated herein by reference to Exhibit 10.2 to Conagra Brands’ Current Report on Form 8-K filed with the SEC on July 17, 2018 | | | | 10.3010.19 | | Cooperation Agreement,Amendment No. 1, dated as of July 8, 2015, between JANA Partners LLC and Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), incorporated herein by reference13, 2021, to Exhibit 99.1 of Conagra Brands’ Current Report on Form 8-K filed with the SEC on July 8, 2015
| | | | 10.30.1 | | Amended and Restated CooperationRevolving Credit Agreement dated as of May 27, 2016, between JANA Partners LLCby and among Conagra Brands, Inc., incorporated herein by reference to Exhibit 99.1the banks, financial institutions and other institutional lenders party thereto, as lenders, and Bank of Conagra Brands’ Current Report on Form 8-K filed with the SEC on May 31, 2016America, N.A., as administrative agent | | | | 10.30.210.20 | | | | | | 10.30.3 | | | | | | 10.31 | | | | | |
| 10.21 | | | **10.32 | | | | | | 10.33 | | | | | | 10.33.1 | | | | | | 10.34 | | | | | | 10.34.110.21.1 | | | | | | 1221 | | | | | | 21 | | | | | | 23 | | | | | | 24 | | | | | | 31.1 | | | | | | 31.2 | | | | | | 32 | | | | | | 101 | | The following materials from Conagra Brands' Annual Report on Form 10-K for the year ended May 27, 2018,30, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations,Earnings, (ii) the Consolidated Statements of Comprehensive Income, (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Common Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements, and (vii) document and entity information. | | | | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | |
| | * Schedules have been omitted pursuant to Item 601(b)(2)601(a)(5) of Regulation S-K. Conagra Brands agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request. | | | | | | ** Management contract or compensatory plan. | | | | | | Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with respect to Conagra Brands' long-term debt are not filed with this Form 10-K. Conagra Brands will furnish a copy of any such long-term debt agreement to the Securities and Exchange Commission upon request. |
ITEM 16. FORM 10-K SUMMARY
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Conagra Brands, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | CONAGRA BRANDS, INC. | | | | | By: | /s/ SEAN M. CONNOLLY | | | Sean M. Connolly | | | President and Chief Executive Officer | | | July 20, 201823, 2021 | | | | | By: | /s/ DAVID S. MARBERGER | | | David S. Marberger | | | Executive Vice President and Chief Financial Officer | | | July 20, 201823, 2021 | | | | | By: | /s/ ROBERT G. WISE | | | Robert G. Wise | | | Senior Vice President and Corporate Controller | | | July 20, 201823, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 20th23rd day of July, 2018. 2021. | | | Sean M. Connolly* | Director | Bradley A. Alford*Anil Arora* | Director | Anil Arora* | Director | Thomas K. Brown* | Director | Stephen G. Butler*Emanuel Chirico* | Director | Thomas W. Dickson* | Director | Steven F. Goldstone* | Director | Joie A. Gregor* | Director | Rajive Johri* | Director | Richard H. Lenny* | Director | Melissa Lora* | Director | Ruth Ann Marshall* | Director | Craig P. Omtvedt* | Director | Scott Ostfeld* | Director |
* David S. Marberger, by signing his name hereto, signs this annual report on Form 10-K on behalf of each person indicated. Powers-of-Attorney authorizing David S. Marberger to sign this annual report on Form 10-K on behalf of each of the indicated Directors of Conagra Brands, Inc. have been filed herewith as Exhibit 24.
* | David S. Marberger, by signing his name hereto, signs this annual report on Form 10-K on behalf of each person indicated. Powers-of-Attorney authorizing David S. Marberger to sign this annual report on Form 10-K on behalf of each of the indicated Directors of Conagra Brands, Inc. have been filed herewith as Exhibit 24. |
| By: | | | By: | /s/ DAVID S. MARBERGER | | | David S. Marberger | | | Attorney-In-Fact |
100 |