UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
F
or the transition period from toCommission File Number: 1-7275
CONAGRA BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 47-0248710 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
222 W. Merchandise Mart Plaza, Suite 1300 Chicago, Illinois | 60654 | |
(Address of principal executive offices) | (Zip Code) |
(312) 549-5000
(Registrant’sRegistrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $5.00 par value | CAG | New York Stock Exchange |
I
ndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Number of shares outstanding of issuer’sissuer's common stock, as of November 26, 2017,February 23, 2020, was 400,660,848.
Table of Contents
1 | |||||
Item 1 | 1 | ||||
1 | |||||
2 | |||||
3 | |||||
4 | |||||
Notes to Unaudited Condensed Consolidated Financial Statements | 5 | ||||
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 34 | |||
Item 3 | 47 | ||||
Item 4 | 48 | ||||
49 | |||||
Item | 49 | ||||
Item | 49 | ||||
Item 6 | 51 | ||||
52 | |||||
Exhibit 101 Exhibit 104 |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions except per share amounts)
(unaudited)
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||
Net sales |
| $ | 2,555.0 |
|
| $ | 2,707.1 |
|
| $ | 7,766.5 |
|
| $ | 6,925.2 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
| 1,870.6 |
|
|
| 1,954.8 |
|
|
| 5,619.7 |
|
|
| 4,980.2 |
|
Selling, general and administrative expenses |
|
| 319.9 |
|
|
| 334.1 |
|
|
| 1,090.5 |
|
|
| 1,078.7 |
|
Pension and postretirement non-service income |
|
| (16.4 | ) |
|
| (9.8 | ) |
|
| (37.2 | ) |
|
| (29.7 | ) |
Interest expense, net |
|
| 117.7 |
|
|
| 130.9 |
|
|
| 361.8 |
|
|
| 260.5 |
|
Income from continuing operations before income taxes and equity method investment earnings |
|
| 263.2 |
|
|
| 297.1 |
|
|
| 731.7 |
|
|
| 635.5 |
|
Income tax expense |
|
| 68.9 |
|
|
| 67.2 |
|
|
| 141.5 |
|
|
| 147.0 |
|
Equity method investment earnings |
|
| 10.4 |
|
|
| 12.7 |
|
|
| 50.3 |
|
|
| 66.6 |
|
Income from continuing operations |
|
| 204.7 |
|
|
| 242.6 |
|
|
| 640.5 |
|
|
| 555.1 |
|
Loss from discontinued operations, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.9 | ) |
Net income |
| $ | 204.7 |
|
| $ | 242.6 |
|
| $ | 640.5 |
|
| $ | 553.2 |
|
Less: Net income attributable to noncontrolling interests |
|
| 0.3 |
|
|
| 0.6 |
|
|
| 1.8 |
|
|
| 1.4 |
|
Net income attributable to Conagra Brands, Inc. |
| $ | 204.4 |
|
| $ | 242.0 |
|
| $ | 638.7 |
|
| $ | 551.8 |
|
Earnings per share — basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Conagra Brands, Inc. common stockholders |
| $ | 0.42 |
|
| $ | 0.50 |
|
| $ | 1.31 |
|
| $ | 1.28 |
|
Income from discontinued operations attributable to Conagra Brands, Inc. common stockholders |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income attributable to Conagra Brands, Inc. common stockholders |
| $ | 0.42 |
|
| $ | 0.50 |
|
| $ | 1.31 |
|
| $ | 1.28 |
|
Earnings per share — diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Conagra Brands, Inc. common stockholders |
| $ | 0.42 |
|
| $ | 0.50 |
|
| $ | 1.31 |
|
| $ | 1.28 |
|
Loss from discontinued operations attributable to Conagra Brands, Inc. common stockholders |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.01 | ) |
Net income attributable to Conagra Brands, Inc. common stockholders |
| $ | 0.42 |
|
| $ | 0.50 |
|
| $ | 1.31 |
|
| $ | 1.27 |
|
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||
Net sales | $ | 2,173.4 | $ | 2,088.4 | $ | 3,977.6 | $ | 3,984.0 | |||||||
Costs and expenses: | |||||||||||||||
Cost of goods sold | 1,515.1 | 1,440.9 | 2,800.3 | 2,791.9 | |||||||||||
Selling, general and administrative expenses | 307.3 | 417.9 | 546.3 | 649.6 | |||||||||||
Interest expense, net | 38.0 | 54.1 | 74.4 | 112.3 | |||||||||||
Income from continuing operations before income taxes and equity method investment earnings | 313.0 | 175.5 | 556.6 | 430.2 | |||||||||||
Income tax expense | 109.5 | 78.4 | 229.5 | 247.6 | |||||||||||
Equity method investment earnings | 20.6 | 17.2 | 50.6 | 30.3 | |||||||||||
Income from continuing operations | 224.1 | 114.3 | 377.7 | 212.9 | |||||||||||
Income from discontinued operations, net of tax | 0.4 | 11.6 | 0.1 | 103.0 | |||||||||||
Net income | $ | 224.5 | $ | 125.9 | $ | 377.8 | $ | 315.9 | |||||||
Less: Net income attributable to noncontrolling interests | 1.0 | 3.8 | 1.8 | 7.6 | |||||||||||
Net income attributable to Conagra Brands, Inc. | $ | 223.5 | $ | 122.1 | $ | 376.0 | $ | 308.3 | |||||||
Earnings per share — basic | |||||||||||||||
Income from continuing operations attributable to Conagra Brands, Inc. common stockholders | $ | 0.55 | $ | 0.26 | $ | 0.91 | $ | 0.48 | |||||||
Income from discontinued operations attributable to Conagra Brands, Inc. common stockholders | — | 0.02 | — | 0.22 | |||||||||||
Net income attributable to Conagra Brands, Inc. common stockholders | $ | 0.55 | $ | 0.28 | $ | 0.91 | $ | 0.70 | |||||||
Earnings per share — diluted | |||||||||||||||
Income from continuing operations attributable to Conagra Brands, Inc. common stockholders | $ | 0.54 | $ | 0.26 | $ | 0.91 | $ | 0.48 | |||||||
Income from discontinued operations attributable to Conagra Brands, Inc. common stockholders | — | 0.02 | — | 0.22 | |||||||||||
Net income attributable to Conagra Brands, Inc. common stockholders | $ | 0.54 | $ | 0.28 | $ | 0.91 | $ | 0.70 | |||||||
Cash dividends declared per common share | $ | 0.2125 | $ | 0.25 | $ | 0.425 | $ | 0.50 |
See Notes to the Condensed Consolidated Financial Statements.
Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(unaudited)
|
| Thirteen weeks ended |
| |||||||||||||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||||||||||||||||
|
| Pre-Tax Amount |
|
| Tax (Expense) Benefit |
|
| After- Tax Amount |
|
| Pre-Tax Amount |
|
| Tax (Expense) Benefit |
|
| After- Tax Amount |
| ||||||
Net income |
| $ | 273.6 |
|
| $ | (68.9 | ) |
| $ | 204.7 |
|
| $ | 309.8 |
|
| $ | (67.2 | ) |
| $ | 242.6 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized derivative adjustments |
|
| (0.3 | ) |
|
| 0.1 |
|
|
| (0.2 | ) |
|
| (1.8 | ) |
|
| 0.4 |
|
|
| (1.4 | ) |
Reclassification for derivative adjustments included in net income |
|
| (0.9 | ) |
|
| 0.2 |
|
|
| (0.7 | ) |
|
| (0.9 | ) |
|
| 0.3 |
|
|
| (0.6 | ) |
Unrealized currency translation gains |
|
| 3.7 |
|
|
| 0.1 |
|
|
| 3.8 |
|
|
| 7.4 |
|
|
| — |
|
|
| 7.4 |
|
Pension and post-employment benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized pension and post-employment benefit obligations |
|
| 77.6 |
|
|
| (19.4 | ) |
|
| 58.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Reclassification for pension and post-employment benefit obligations included in net income |
|
| (2.8 | ) |
|
| 0.6 |
|
|
| (2.2 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| (0.1 | ) |
Comprehensive income |
|
| 350.9 |
|
|
| (87.3 | ) |
|
| 263.6 |
|
|
| 314.4 |
|
|
| (66.5 | ) |
|
| 247.9 |
|
Comprehensive income attributable to noncontrolling interests |
|
| 0.4 |
|
|
| (0.2 | ) |
|
| 0.2 |
|
|
| 0.4 |
|
|
| (0.3 | ) |
|
| 0.1 |
|
Comprehensive income attributable to Conagra Brands, Inc. |
| $ | 350.5 |
|
| $ | (87.1 | ) |
| $ | 263.4 |
|
| $ | 314.0 |
|
| $ | (66.2 | ) |
| $ | 247.8 |
|
|
| Thirty-nine weeks ended |
| |||||||||||||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||||||||||||||||
|
| Pre-Tax Amount |
|
| Tax (Expense) Benefit |
|
| After- Tax Amount |
|
| Pre-Tax Amount |
|
| Tax (Expense) Benefit |
|
| After- Tax Amount |
| ||||||
Net income |
| $ | 782.0 |
|
| $ | (141.5 | ) |
| $ | 640.5 |
|
| $ | 703.0 |
|
| $ | (149.8 | ) |
| $ | 553.2 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized derivative adjustments |
|
| (3.0 | ) |
|
| 0.8 |
|
|
| (2.2 | ) |
|
| 46.2 |
|
|
| (11.6 | ) |
|
| 34.6 |
|
Reclassification for derivative adjustments included in net income |
|
| (2.5 | ) |
|
| 0.6 |
|
|
| (1.9 | ) |
|
| (1.1 | ) |
|
| 0.3 |
|
|
| (0.8 | ) |
Unrealized currency translation losses |
|
| (5.0 | ) |
|
| 0.7 |
|
|
| (4.3 | ) |
|
| (11.3 | ) |
|
| — |
|
|
| (11.3 | ) |
Pension and post-employment benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized pension and post-employment benefit obligations |
|
| 62.8 |
|
|
| (15.7 | ) |
|
| 47.1 |
|
|
| (0.4 | ) |
|
| — |
|
|
| (0.4 | ) |
Reclassification for pension and post-employment benefit obligations included in net income |
|
| (4.2 | ) |
|
| 1.0 |
|
|
| (3.2 | ) |
|
| (0.5 | ) |
|
| 0.1 |
|
|
| (0.4 | ) |
Comprehensive income |
|
| 830.1 |
|
|
| (154.1 | ) |
|
| 676.0 |
|
|
| 735.9 |
|
|
| (161.0 | ) |
|
| 574.9 |
|
Comprehensive loss attributable to noncontrolling interests |
|
| (0.7 | ) |
|
| (0.3 | ) |
|
| (1.0 | ) |
|
| (1.4 | ) |
|
| (0.9 | ) |
|
| (2.3 | ) |
Comprehensive income attributable to Conagra Brands, Inc. |
| $ | 830.8 |
|
| $ | (153.8 | ) |
| $ | 677.0 |
|
| $ | 737.3 |
|
| $ | (160.1 | ) |
| $ | 577.2 |
|
Thirteen weeks ended | |||||||||||||||||||
November 26, 2017 | November 27, 2016 | ||||||||||||||||||
Pre-Tax Amount | Tax (Expense) Benefit | After-Tax Amount | Pre-Tax Amount | Tax (Expense) Benefit | After-Tax Amount | ||||||||||||||
Net income | $ | 334.0 | $ | (109.5 | ) | $ | 224.5 | $ | 243.2 | $ | (117.3 | ) | $ | 125.9 | |||||
Other comprehensive income: | |||||||||||||||||||
Derivative adjustments: | |||||||||||||||||||
Unrealized derivative adjustments | 1.0 | (0.4 | ) | 0.6 | 2.2 | (0.9 | ) | 1.3 | |||||||||||
Reclassification for derivative adjustments included in net income | 0.1 | — | 0.1 | — | — | — | |||||||||||||
Unrealized gains on available-for-sale securities | 0.4 | (0.2 | ) | 0.2 | 0.2 | — | 0.2 | ||||||||||||
Unrealized currency translation losses | (12.7 | ) | 0.1 | (12.6 | ) | (14.1 | ) | — | (14.1 | ) | |||||||||
Pension and post-employment benefit obligations: | |||||||||||||||||||
Unrealized pension and post-employment benefit obligations | 43.4 | (16.6 | ) | 26.8 | 66.8 | (25.6 | ) | 41.2 | |||||||||||
Reclassification for pension and post-employment benefit obligations included in net income | (0.2 | ) | 0.1 | (0.1 | ) | (0.9 | ) | 0.4 | (0.5 | ) | |||||||||
Comprehensive income | 366.0 | (126.5 | ) | 239.5 | 297.4 | (143.4 | ) | 154.0 | |||||||||||
Comprehensive income attributable to noncontrolling interests | 0.4 | (0.4 | ) | — | 2.2 | (0.1 | ) | 2.1 | |||||||||||
Comprehensive income attributable to Conagra Brands, Inc. | $ | 365.6 | $ | (126.1 | ) | $ | 239.5 | $ | 295.2 | $ | (143.3 | ) | $ | 151.9 |
Twenty-six weeks ended | |||||||||||||||||||
November 26, 2017 | November 27, 2016 | ||||||||||||||||||
Pre-Tax Amount | Tax (Expense) Benefit | After-Tax Amount | Pre-Tax Amount | Tax (Expense) Benefit | After-Tax Amount | ||||||||||||||
Net income | $ | 607.4 | $ | (229.6 | ) | $ | 377.8 | $ | 651.2 | $ | (335.3 | ) | $ | 315.9 | |||||
Other comprehensive income: | |||||||||||||||||||
Derivative adjustments: | |||||||||||||||||||
Unrealized derivative adjustments | 1.0 | (0.4 | ) | 0.6 | (5.8 | ) | 2.2 | (3.6 | ) | ||||||||||
Reclassification for derivative adjustments included in net income | 0.1 | — | 0.1 | — | — | — | |||||||||||||
Unrealized gains on available-for-sale securities | 0.7 | (0.3 | ) | 0.4 | 0.4 | (0.1 | ) | 0.3 | |||||||||||
Unrealized currency translation gains (losses) | 19.9 | — | 19.9 | (26.0 | ) | 0.2 | (25.8 | ) | |||||||||||
Pension and post-employment benefit obligations: | |||||||||||||||||||
Unrealized pension and post-employment benefit obligations | 43.5 | (16.6 | ) | 26.9 | 64.7 | (25.5 | ) | 39.2 | |||||||||||
Reclassification for pension and post-employment benefit obligations included in net income | (0.3 | ) | 0.1 | (0.2 | ) | (1.8 | ) | 0.7 | (1.1 | ) | |||||||||
Comprehensive income | 672.3 | (246.8 | ) | 425.5 | 682.7 | (357.8 | ) | 324.9 | |||||||||||
Comprehensive income attributable to noncontrolling interests | 2.4 | (0.6 | ) | 1.8 | 6.0 | (0.2 | ) | 5.8 | |||||||||||
Comprehensive income attributable to Conagra Brands, Inc. | $ | 669.9 | $ | (246.2 | ) | $ | 423.7 | $ | 676.7 | $ | (357.6 | ) | $ | 319.1 |
See Notes to the Condensed Consolidated Financial Statements.
Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions except share data)
(unaudited)
|
| February 23, 2020 |
|
| May 26, 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 99.0 |
|
| $ | 236.6 |
|
Receivables, less allowance for doubtful accounts of $2.0 and $2.2 |
|
| 854.2 |
|
|
| 818.2 |
|
Inventories |
|
| 1,646.5 |
|
|
| 1,548.9 |
|
Prepaid expenses and other current assets |
|
| 105.0 |
|
|
| 93.4 |
|
Current assets held for sale |
|
| 4.7 |
|
|
| 36.7 |
|
Total current assets |
|
| 2,709.4 |
|
|
| 2,733.8 |
|
Property, plant and equipment |
|
| 5,078.7 |
|
|
| 4,906.3 |
|
Less accumulated depreciation |
|
| (2,760.9 | ) |
|
| (2,578.9 | ) |
Property, plant and equipment, net |
|
| 2,317.8 |
|
|
| 2,327.4 |
|
Goodwill |
|
| 11,443.1 |
|
|
| 11,435.4 |
|
Brands, trademarks and other intangibles, net |
|
| 4,479.4 |
|
|
| 4,539.3 |
|
Other assets |
|
| 1,249.3 |
|
|
| 915.5 |
|
Noncurrent assets held for sale |
|
| 3.1 |
|
|
| 262.4 |
|
|
| $ | 22,202.1 |
|
| $ | 22,213.8 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Notes payable |
| $ | 0.8 |
|
| $ | 1.0 |
|
Current installments of long-term debt |
|
| 923.8 |
|
|
| 20.6 |
|
Accounts payable |
|
| 1,357.4 |
|
|
| 1,252.1 |
|
Accrued payroll |
|
| 133.6 |
|
|
| 173.2 |
|
Other accrued liabilities |
|
| 711.5 |
|
|
| 690.6 |
|
Current liabilities held for sale |
|
| — |
|
|
| 5.1 |
|
Total current liabilities |
|
| 3,127.1 |
|
|
| 2,142.6 |
|
Senior long-term debt, excluding current installments |
|
| 8,897.8 |
|
|
| 10,459.8 |
|
Subordinated debt |
|
| 195.9 |
|
|
| 195.9 |
|
Other noncurrent liabilities |
|
| 2,117.4 |
|
|
| 1,951.8 |
|
Total liabilities |
|
| 14,338.2 |
|
|
| 14,750.1 |
|
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 |
|
| 2,293.0 |
|
|
| 2,286.0 |
|
Retained earnings |
|
| 5,375.2 |
|
|
| 5,047.9 |
|
Accumulated other comprehensive loss |
|
| (72.0 | ) |
|
| (110.3 | ) |
Less treasury stock, at cost, 97,142,924 and 98,133,747 common shares |
|
| (2,732.4 | ) |
|
| (2,760.2 | ) |
Total Conagra Brands, Inc. common stockholders' equity |
|
| 7,785.0 |
|
|
| 7,384.6 |
|
Noncontrolling interests |
|
| 78.9 |
|
|
| 79.1 |
|
Total stockholders' equity |
|
| 7,863.9 |
|
|
| 7,463.7 |
|
|
| $ | 22,202.1 |
|
| $ | 22,213.8 |
|
November 26, 2017 | May 28, 2017 | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 84.0 | $ | 251.4 | |||
Receivables, less allowance for doubtful accounts of $3.4 and $3.1 | 683.8 | 563.4 | |||||
Inventories | 1,059.2 | 934.2 | |||||
Prepaid expenses and other current assets | 183.5 | 228.7 | |||||
Current assets held for sale | 45.8 | 35.5 | |||||
Total current assets | 2,056.3 | 2,013.2 | |||||
Property, plant and equipment | 4,236.8 | 4,261.9 | |||||
Less accumulated depreciation | (2,594.8 | ) | (2,606.9 | ) | |||
Property, plant and equipment, net | 1,642.0 | 1,655.0 | |||||
Goodwill | 4,457.0 | 4,301.1 | |||||
Brands, trademarks and other intangibles, net | 1,298.2 | 1,229.3 | |||||
Other assets | 846.1 | 790.6 | |||||
Noncurrent assets held for sale | 100.5 | 107.1 | |||||
$ | 10,400.1 | $ | 10,096.3 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities | |||||||
Notes payable | $ | 67.1 | $ | 28.2 | |||
Current installments of long-term debt | 198.8 | 199.0 | |||||
Accounts payable | 886.7 | 773.1 | |||||
Accrued payroll | 131.9 | 167.6 | |||||
Other accrued liabilities | 565.8 | 552.6 | |||||
Total current liabilities | 1,850.3 | 1,720.5 | |||||
Senior long-term debt, excluding current installments | 3,065.9 | 2,573.3 | |||||
Subordinated debt | 195.9 | 195.9 | |||||
Other noncurrent liabilities | 1,501.5 | 1,528.8 | |||||
Total liabilities | 6,613.6 | 6,018.5 | |||||
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 | 1,166.8 | 1,171.9 | |||||
Retained earnings | 4,464.3 | 4,247.0 | |||||
Accumulated other comprehensive loss | (165.2 | ) | (212.9 | ) | |||
Less treasury stock, at cost, 167,246,324 and 151,387,209 common shares | (4,607.9 | ) | (4,054.9 | ) | |||
Total Conagra Brands, Inc. common stockholders' equity | 3,697.7 | 3,990.8 | |||||
Noncontrolling interests | 88.8 | 87.0 | |||||
Total stockholders' equity | 3,786.5 | 4,077.8 | |||||
$ | 10,400.1 | $ | 10,096.3 |
See Notes to the Condensed Consolidated Financial Statements.
Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
|
| Thirty-nine weeks ended |
| |||||
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 640.5 |
|
| $ | 553.2 |
|
Loss from discontinued operations |
|
| — |
|
|
| (1.9 | ) |
Income from continuing operations |
|
| 640.5 |
|
|
| 555.1 |
|
Adjustments to reconcile net income to net cash flows from operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 292.5 |
|
|
| 232.6 |
|
Asset impairment charges |
|
| 113.5 |
|
|
| 3.0 |
|
Loss (gain) on divestiture |
|
| 2.2 |
|
|
| (13.2 | ) |
Earnings of affiliates in excess of distributions |
|
| (15.8 | ) |
|
| (23.4 | ) |
Stock-settled share-based payments expense |
|
| 29.0 |
|
|
| 22.5 |
|
Contributions to pension plans |
|
| (11.0 | ) |
|
| (11.5 | ) |
Pension benefit |
|
| (25.8 | ) |
|
| (21.0 | ) |
Proceeds from settlement of interest rate swaps |
|
| — |
|
|
| 47.5 |
|
Novation of a legacy guarantee |
|
| — |
|
|
| (27.3 | ) |
Other items |
|
| 12.1 |
|
|
| 25.4 |
|
Change in operating assets and liabilities excluding effects of business acquisitions and dispositions: |
|
|
|
|
|
|
|
|
Receivables |
|
| (37.2 | ) |
|
| (108.4 | ) |
Inventories |
|
| (104.6 | ) |
|
| 13.0 |
|
Deferred income taxes and income taxes payable, net |
|
| (33.3 | ) |
|
| 39.3 |
|
Prepaid expenses and other current assets |
|
| (14.6 | ) |
|
| (20.0 | ) |
Accounts payable |
|
| 116.4 |
|
|
| (15.6 | ) |
Accrued payroll |
|
| (40.0 | ) |
|
| (9.0 | ) |
Other accrued liabilities |
|
| (17.4 | ) |
|
| 56.1 |
|
Net cash flows from operating activities — continuing operations |
|
| 906.5 |
|
|
| 745.1 |
|
Net cash flows from operating activities — discontinued operations |
|
| — |
|
|
| 11.2 |
|
Net cash flows from operating activities |
|
| 906.5 |
|
|
| 756.3 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| (265.3 | ) |
|
| (236.1 | ) |
Sale of property, plant and equipment |
|
| 8.7 |
|
|
| 18.7 |
|
Purchase of marketable securities |
|
| (37.9 | ) |
|
| — |
|
Sale of marketable securities |
|
| 43.1 |
|
|
| — |
|
Purchase of businesses, net of cash acquired |
|
| — |
|
|
| (5,119.2 | ) |
Proceeds from divestitures, net of cash divested |
|
| 191.4 |
|
|
| 32.2 |
|
Other items |
|
| 0.1 |
|
|
| 0.1 |
|
Net cash flows from investing activities |
|
| (59.9 | ) |
|
| (5,304.3 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net short-term borrowings |
|
| (0.1 | ) |
|
| (278.3 | ) |
Issuance of long-term debt |
|
| — |
|
|
| 8,310.5 |
|
Repayment of long-term debt |
|
| (665.9 | ) |
|
| (3,517.1 | ) |
Debt issuance costs and bridge financing fees |
|
| — |
|
|
| (95.2 | ) |
Payment of intangible asset financing arrangement |
|
| (13.6 | ) |
|
| (14.0 | ) |
Issuance of Conagra Brands, Inc. common shares, net |
|
| — |
|
|
| 555.7 |
|
Cash dividends paid |
|
| (310.1 | ) |
|
| (253.0 | ) |
Exercise of stock options and issuance of other stock awards, including tax withholdings |
|
| 4.3 |
|
|
| (4.1 | ) |
Other items |
|
| 0.8 |
|
|
| 0.9 |
|
Net cash flows from financing activities |
|
| (984.6 | ) |
|
| 4,705.4 |
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
|
| 0.4 |
|
|
| (3.2 | ) |
Net change in cash and cash equivalents and restricted cash |
|
| (137.6 | ) |
|
| 154.2 |
|
Cash and cash equivalents and restricted cash at beginning of period |
|
| 237.6 |
|
|
| 129.0 |
|
Cash and cash equivalents and restricted cash at end of period |
| $ | 100.0 |
|
| $ | 283.2 |
|
Twenty-six weeks ended | |||||||
November 26, 2017 | November 27, 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 377.8 | $ | 315.9 | |||
Income from discontinued operations | 0.1 | 103.0 | |||||
Income from continuing operations | 377.7 | 212.9 | |||||
Adjustments to reconcile income from continuing operations to net cash flows from operating activities: | |||||||
Depreciation and amortization | 129.0 | 133.5 | |||||
Asset impairment charges | 8.8 | 211.9 | |||||
Gain on divestitures | — | (197.5 | ) | ||||
Loss on extinguishment of debt | — | 60.6 | |||||
Earnings of affiliates in excess of distributions | (50.6 | ) | (23.4 | ) | |||
Stock-settled share-based payments expense | 17.7 | 18.3 | |||||
Contributions to pension plans | (6.1 | ) | (5.9 | ) | |||
Pension benefit | (21.5 | ) | (20.6 | ) | |||
Other items | 3.8 | 23.9 | |||||
Change in operating assets and liabilities excluding effects of business acquisitions and dispositions: | |||||||
Receivables | (109.8 | ) | (49.2 | ) | |||
Inventories | (130.5 | ) | (32.2 | ) | |||
Deferred income taxes and income taxes payable, net | 95.3 | 183.5 | |||||
Prepaid expenses and other current assets | 0.1 | 0.2 | |||||
Accounts payable | 132.3 | 71.7 | |||||
Accrued payroll | (39.7 | ) | (95.5 | ) | |||
Other accrued liabilities | (1.8 | ) | (31.6 | ) | |||
Net cash flows from operating activities — continuing operations | 404.7 | 460.6 | |||||
Net cash flows from operating activities — discontinued operations | 16.0 | 81.6 | |||||
Net cash flows from operating activities | 420.7 | 542.2 | |||||
Cash flows from investing activities: | |||||||
Additions to property, plant and equipment | (123.4 | ) | (118.3 | ) | |||
Sale of property, plant and equipment | 6.9 | 11.3 | |||||
Proceeds from divestitures | — | 489.1 | |||||
Purchase of businesses | (249.6 | ) | (108.2 | ) | |||
Net cash flows from investing activities — continuing operations | (366.1 | ) | 273.9 | ||||
Net cash flows from investing activities — discontinued operations | — | (123.7 | ) | ||||
Net cash flows from investing activities | (366.1 | ) | 150.2 | ||||
Cash flows from financing activities: | |||||||
Net short-term borrowings | 38.9 | (7.2 | ) | ||||
Issuance of long-term debt, net of debt issuance costs | 497.4 | — | |||||
Repayment of long-term debt | (4.8 | ) | (555.8 | ) | |||
Payment of intangible asset financing arrangement | (14.4 | ) | (14.9 | ) | |||
Repurchase of Conagra Brands, Inc. common shares | (580.0 | ) | (170.1 | ) | |||
Cash dividends paid | (171.6 | ) | (219.4 | ) | |||
Exercise of stock options and issuance of other stock awards, including tax withholdings | 4.0 | 47.4 | |||||
Net cash flows from financing activities — continuing operations | (230.5 | ) | (920.0 | ) | |||
Net cash flows from financing activities — discontinued operations | — | 839.1 | |||||
Net cash flows from financing activities | (230.5 | ) | (80.9 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 8.5 | (3.5 | ) | ||||
Net change in cash and cash equivalents | (167.4 | ) | 608.0 | ||||
Add: Cash balance included in assets held for sale and discontinued operations at beginning of period | — | 36.4 | |||||
Less: Cash balance included in assets held for sale and discontinued operations at end of period | — | — | |||||
Cash and cash equivalents at beginning of period | 251.4 | 798.1 | |||||
Cash and cash equivalents at end of period | $ | 84.0 | $ | 1,442.5 |
See Notes to the Condensed Consolidated Financial Statements.
Conagra Brands, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(columnar dollars in millions except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented. The adjustments are of a normal recurring nature, except as otherwise noted. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in the Conagra Brands, Inc. (formerly ConAgra Foods, Inc.(the "Company", the "Company""Conagra Brands", "we", "us", or "our") Annual Report on Form 10-K for the fiscal year ended
The results of operations for any quarter or a partial fiscal year period are not necessarily indicative of the results to be expected for other periods or the full fiscal year.
Basis of Consolidation
— The Condensed Consolidated Financial Statements include the accounts of Conagra BrandsRevenue Recognition — Our revenues primarily consist of the Company's interest in Lamb Westonsale of food products which are sold to holdersretailers 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 sharesvariable 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 Company's common stock as of November 1, 2016 (the "Spinoff"). In accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), the results of operationsgoods to customers. Control is transferred upon delivery of the Lamb Weston operationsgoods to the customer. Shipping and/or handling costs that occur before the customer obtains control of the goods are presenteddeemed to be fulfillment activities and are accounted for as discontinued operationsfulfillment costs. We assess the goods and 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 distinct.
We offer various forms of trade promotions and the methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. Our promotional activities are conducted either through the retail trade or directly with consumers and include activities such as such, have been excluded from continuing operationsin-store displays and segment results for all periods presented (see Note 3 for additional discussion).
Comprehensive Income
— Comprehensive income includes net income, currency translation adjustments, certain derivative-related activity,The following table details the accumulated balances for each component of other comprehensive income, (loss), net of tax:
November 26, 2017 | May 28, 2017 |
| February 23, 2020 |
|
| May 26, 2019 |
| ||||||||
Currency translation losses, net of reclassification adjustments | $ | (78.7 | ) | $ | (98.6 | ) |
| $ | (92.4 | ) |
| $ | (90.9 | ) | |
Derivative adjustments, net of reclassification adjustments | (0.4 | ) | (1.1 | ) |
|
| 29.9 |
|
|
| 34.0 |
| |||
Unrealized gains (losses) on available-for-sale securities | 0.1 | (0.3 | ) | ||||||||||||
Pension and post-employment benefit obligations, net of reclassification adjustments | (86.2 | ) | (112.9 | ) |
|
| (9.5 | ) |
|
| (53.4 | ) | |||
Accumulated other comprehensive loss | $ | (165.2 | ) | $ | (212.9 | ) |
| $ | (72.0 | ) |
| $ | (110.3 | ) |
The following table summarizes the reclassifications from accumulated other comprehensive income (loss)loss into operations:income:
|
| Thirteen weeks ended |
|
| Affected Line Item in the Condensed Consolidated Statement of Earnings1 | |||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
|
| ||
Net derivative adjustment, net of tax: |
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
| $ | (0.9 | ) |
| $ | (0.9 | ) |
| Interest expense, net |
|
|
| (0.9 | ) |
|
| (0.9 | ) |
| Total before tax |
|
|
| 0.2 |
|
|
| 0.3 |
|
| Income tax expense |
|
| $ | (0.7 | ) |
| $ | (0.6 | ) |
| Net of tax |
Pension and postretirement liabilities: |
|
|
|
|
|
|
|
|
|
|
Net prior service cost |
| $ | 0.2 |
|
| $ | 0.2 |
|
| Pension and postretirement non-service income |
Net actuarial gain |
|
| (1.1 | ) |
|
| (0.3 | ) |
| Pension and postretirement non-service income |
Curtailment |
|
| 0.2 |
|
|
| — |
|
| Pension and postretirement non-service income |
Settlement |
|
| (2.1 | ) |
|
| — |
|
| Pension and postretirement non-service income |
|
|
| (2.8 | ) |
|
| (0.1 | ) |
| Total before tax |
|
|
| 0.6 |
|
|
| — |
|
| Income tax expense |
|
| $ | (2.2 | ) |
| $ | (0.1 | ) |
| Net of tax |
|
| Thirty-nine weeks ended |
|
| Affected Line Item in the Condensed Consolidated Statement of Earnings1 | |||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
|
| ||
Net derivative adjustment, net of tax: |
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
| $ | (2.5 | ) |
| $ | (1.1 | ) |
| Interest expense, net |
|
|
| (2.5 | ) |
|
| (1.1 | ) |
| Total before tax |
|
|
| 0.6 |
|
|
| 0.3 |
|
| Income tax expense |
|
| $ | (1.9 | ) |
| $ | (0.8 | ) |
| Net of tax |
Pension and postretirement liabilities: |
|
|
|
|
|
|
|
|
|
|
Net prior service cost |
| $ | 0.5 |
|
| $ | 0.6 |
|
| Pension and postretirement non-service income |
Net actuarial gain |
|
| (3.4 | ) |
|
| (1.1 | ) |
| Pension and postretirement non-service income |
Curtailment |
|
| 0.8 |
|
|
| — |
|
| Pension and postretirement non-service income |
Settlement |
|
| (2.1 | ) |
|
| — |
|
| Pension and postretirement non-service income |
|
|
| (4.2 | ) |
|
| (0.5 | ) |
| Total before tax |
|
|
| 1.0 |
|
|
| 0.1 |
|
| Income tax expense |
|
| $ | (3.2 | ) |
| $ | (0.4 | ) |
| Net of tax |
Thirteen weeks ended | Affected Line Item in the Condensed Consolidated Statement of Earnings1 | |||||||||
November 26, 2017 | November 27, 2016 | |||||||||
Net derivative adjustment, net of tax: | ||||||||||
Cash flow hedges | $ | 0.1 | $ | — | Interest expense, net | |||||
0.1 | — | Total before tax | ||||||||
— | — | Income tax expense | ||||||||
$ | 0.1 | $ | — | Net of tax | ||||||
Pension and postretirement liabilities: | ||||||||||
Net prior service benefit | $ | (0.2 | ) | $ | (0.9 | ) | Selling, general and administrative expenses | |||
(0.2 | ) | (0.9 | ) | Total before tax | ||||||
0.1 | 0.4 | Income tax expense | ||||||||
$ | (0.1 | ) | $ | (0.5 | ) | Net of tax |
Twenty-six weeks ended | Affected Line Item in the Condensed Consolidated Statement of Earnings1 | |||||||||
November 26, 2017 | November 27, 2016 | |||||||||
Net derivative adjustment, net of tax: | ||||||||||
Cash flow hedges | $ | 0.1 | $ | — | Interest expense, net | |||||
0.1 | — | Total before tax | ||||||||
— | — | Income tax expense | ||||||||
$ | 0.1 | $ | — | Net of tax | ||||||
Pension and postretirement liabilities: | ||||||||||
Net prior service benefit | $ | (0.3 | ) | $ | (1.8 | ) | Selling, general and administrative expenses | |||
(0.3 | ) | (1.8 | ) | Total before tax | ||||||
0.1 | 0.7 | Income tax expense | ||||||||
$ | (0.2 | ) | $ | (1.1 | ) | Net of tax |
1
Amounts in parentheses indicate income recognized in the Condensed Consolidated Statements of Earnings.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.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 U.S.Accounting Changes
— Inaccounting 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 ROU asset value. The adoption of this ASU did not result in a cumulative-effect adjustment to the opening balance of retained earnings and did not impact our Condensed Consolidated Statements of Earnings or our Condensed Consolidated Statements of Cash Flows. See Note 12 for additional information related to our lease arrangements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The effective date for the standard is for fiscal years beginning after December 15, 2018. Early2019 and interim periods within those fiscal years. We elected to early adopt this ASU in fiscal 2020. The adoption is permitted. We are evaluating the effect thatof this standard willguidance did not have ona material impact to 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,December 2019, the FASB issued ASU 2016-15,
Recently Issued Accounting Standards — In NovemberJune 2016, the FASB issued ASU 2016-18,
2. ACQUISITIONS
On October 26, 2018, we acquired Pinnacle Foods Inc. ("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 (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 effective time of the merger, each outstanding share of Pinnacle common stock was converted into the right to receive $43.11 per share in cash and 0.6494 shares of common stock, par value $5.00 per share, of the Company ("Company Shares") (together, the "Merger Consideration"), with cash payable in lieu of fractional Company Shares. The total amount of consideration 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 employees representing the fair value attributable to pre-combination service (see Note 8) of $51.1 million.
In January 2017,connection with the FASBacquisition, we issued ASU 2017-01,
The following table summarizes our final allocation of the total purchase consideration to the fair values of the assets acquired and subjectliabilities assumed at the acquisition date.
|
| October 26, 2018 |
| |
Cash and cash equivalents |
| $ | 47.0 |
|
Receivables |
|
| 202.8 |
|
Inventories |
|
| 649.3 |
|
Prepaid expenses and other current assets |
|
| 15.0 |
|
Property, plant and equipment |
|
| 719.5 |
|
Goodwill |
|
| 7,026.0 |
|
Brands, trademarks and other intangibles |
|
| 3,519.5 |
|
Other assets |
|
| 25.4 |
|
Current liabilities |
|
| (607.6 | ) |
Senior long-term debt, excluding current installments |
|
| (2,671.3 | ) |
Noncurrent deferred tax liabilities |
|
| (810.0 | ) |
Other noncurrent liabilities |
|
| (81.6 | ) |
Total assets acquired and liabilities assumed |
| $ | 8,034.0 |
|
During the first half of fiscal 2020, we made adjustments to working capital adjustments. Approximately $156.5 million has been classified asour initial allocations, which resulted in an increase to goodwill of which $95.4$10.1 million is deductible forprimarily as the result of changes in the values of certain inventory, deferred income tax purposes. Approximately $73.8 milliontaxes, and $10.3 millionother noncurrent liabilities as we refined our fair value estimates. These changes did not have a significant impact on our net income.
Goodwill represents the excess of the purchase price has been allocatedconsideration transferred over the fair values of the assets acquired and liabilities assumed and is primarily attributable to non-amortizingsynergies and amortizing intangible assets respectively. The business is included insuch as assembled workforce, which are not separately recognizable. Of the Grocery & Snacks segment.
The following unaudited pro forma financial information presents the combined results of operations as if the acquisition of Pinnacle had occurred on May 29, 2017, the beginning of fiscal year 2018. These businessesunaudited pro forma results may not necessarily reflect the actual results of operations that would have been achieved, nor are reflected principally withinthey necessarily indicative of future results of operations.
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||
|
| February 24, 2019 |
|
| February 24, 2019 |
| ||
Pro forma net sales |
| $ | 2,707.1 |
|
| $ | 8,174.9 |
|
Pro forma net income attributable to Conagra Brands, Inc. |
| $ | 263.1 |
|
| $ | 675.4 |
|
The pro forma results include adjustments for amortization of acquired intangible assets, depreciation, and interest expense on debt issued to finance the Groceryacquisition, 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 of $1.2 million and $62.1 million for the third quarter and first three quarters of fiscal 2019, respectively, were excluded from the pro forma results. Acquisition related costs incurred by Pinnacle of $66.8 million for the first three quarters of fiscal 2019 were excluded from the pro forma results. |
• | Non-recurring expense of $26.9 million and $51.3 million for the third quarter and first three quarters of fiscal 2019, respectively, related to the fair value adjustment to acquisition-date inventory estimated to have been sold was excluded from the pro forma results. |
• | Non-recurring expense of $45.7 million for the first three quarters of fiscal 2019 related to securing bridge financing for the acquisition was excluded from the pro forma results. |
3. DIVESTITURES AND ASSETS HELD FOR SALE
Lender's® Bagel Business
During the third quarter of fiscal 2020, we completed the sale of our Lender's® bagel business for net proceeds of $33.2 million, subject to final working capital adjustments. The business results were previously reported primarily in our Refrigerated & SnacksFrozen segment, and to a lesser extent within the Refrigerated & Frozen and International segments.
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||
Net sales | $ | — | $ | 636.0 | $ | — | $ | 1,407.9 | |||||||
Income (loss) from discontinued operations before income taxes and equity method investment earnings | $ | — | $ | 46.3 | $ | (0.3 | ) | $ | 175.1 | ||||||
Income (loss) before income taxes and equity method investment earnings | — | 46.3 | (0.3 | ) | 175.1 | ||||||||||
Income tax expense (benefit) | — | 39.1 | (0.1 | ) | 88.6 | ||||||||||
Equity method investment earnings | — | 5.3 | — | 15.9 | |||||||||||
Income (loss) from discontinued operations, net of tax | — | 12.5 | (0.2 | ) | 102.4 | ||||||||||
Less: Net income attributable to noncontrolling interests | — | 3.2 | — | 6.8 | |||||||||||
Net income (loss) from discontinued operations attributable to Conagra Brands, Inc. | $ | — | $ | 9.3 | $ | (0.2 | ) | $ | 95.6 |
In connection with the Spinoff, total assetspending sale of $2.28 billion and total liabilitiesour Lender's® bagel business, we recognized an impairment charge 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 5 for discussion of the debt-for-debt exchange related to the Spinoff.
The assets of this business have been reclassified as assets held for sale within our Condensed Consolidated Balance Sheets for all periods presented.
|
| May 26, 2019 |
| |
Current assets |
| $ | 5.4 |
|
Noncurrent assets (including goodwill of $19.3 million) |
|
| 62.3 |
|
Current liabilities |
|
| 0.5 |
|
DSD Snacks Business
During the second quarter of fiscal 2020, we completed the sale of our Direct Store Delivery ("DSD") Snacks business for net proceeds of $139.0 million, subject to final working capital adjustments. The business results were previously reported in our Grocery & Snacks segment.
In connection with the pending 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.
The assets and liabilities classified as held for sale reflected in our Condensed Consolidated Balance Sheet related to the DSD Snacks business were as follows:
|
| May 26, 2019 |
| |
Current assets |
| $ | 21.4 |
|
Noncurrent assets (including goodwill of $34.6 million) |
|
| 156.2 |
|
Current liabilities |
|
| 4.6 |
|
November 26, 2017 | May 28, 2017 | ||||||
Current assets | $ | 45.8 | $ | 35.5 | |||
Noncurrent assets (including goodwill of $74.5 million) | 95.5 | 95.5 |
Other Divestitures
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 working capital adjustments. The business results were previously reported in our Refrigerated & Frozen segment.
During the fourth quarter of fiscal 2019, we completed the sale of our Wesson® oil business for net proceeds of $168.3 million, including working capital adjustments. The business results were previously reported primarily in our Grocery & Snacks segment, and to a lesser extent within our Foodservice and International segments.
During the first quarter of fiscal 2017,2019, we completed the salessale of our Spicetec Flavors & SeasoningsDel Monte®processedfruit and vegetable business ("Spicetec") andin Canada, which was previously reported in our JM Swank business, eachInternational segment, for combined proceeds of which$32.2 million. We recognized a gain on the sale of $13.2 million, included within SG&A expenses.
Other Assets Held for Sale
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 CommercialGrocery & Snacks segment, and to a lesser extent within our Foodservice segment. ThroughWe received net proceeds of $20.1 million, with additional expected proceeds of approximately $4.7 million by the second quarterend of fiscal 2017, we received $329.8 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 $52.9 million, respectively, in the first half of fiscal 2017. We entered into transition services agreements in connection with the sales of these businesses and recognized $0.2 million of income during the first half of fiscal 2018 and $1.0 million during the second quarter and first half of fiscal 2017, classified within selling, general and administrative expenses.
In connection with this planned 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.
In addition, we are actively marketing certain other assets. These assets have been reclassified as assets held for sale within our Condensed Consolidated Balance Sheets for periods prior to the disposal of these noncurrentindividual asset groups.
The assets classified as held for sale was $5.0 million and $11.6 million withinreflected in our Corporate segment at November 26, 2017 and May 28, 2017, respectively.Condensed Consolidated Balance Sheets were as follows:
|
| February 23, 2020 |
|
| May 26, 2019 |
| ||
Current assets |
| $ | 4.7 |
|
| $ | 9.9 |
|
Noncurrent assets (including goodwill of $10.3 million at May 26, 2019) |
|
| 3.1 |
|
|
| 43.9 |
|
4. RESTRUCTURING ACTIVITIES
Pinnacle Integration Restructuring Plan
In December2018, our Board of Directors (the "Board") approved a restructuring and Administrative Efficiency Plan
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 third quarter of fiscal 2020):
|
| Grocery & Snacks |
|
| Refrigerated & Frozen |
|
| International |
|
| Corporate |
|
| Total |
| |||||
Accelerated depreciation |
| $ | 0.7 |
|
| $ | 5.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 6.2 |
|
Other cost of goods sold |
|
| 17.9 |
|
|
| 9.3 |
|
|
| 0.7 |
|
|
| — |
|
|
| 27.9 |
|
Total cost of goods sold |
|
| 18.6 |
|
|
| 14.8 |
|
|
| 0.7 |
|
|
| — |
|
|
| 34.1 |
|
Severance and related costs |
|
| — |
|
|
| 4.3 |
|
|
| 1.5 |
|
|
| 114.8 |
|
|
| 120.6 |
|
Asset impairment (net of gains on disposal) |
|
| 54.6 |
|
|
| 8.3 |
|
|
| — |
|
|
| 2.9 |
|
|
| 65.8 |
|
Accelerated depreciation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7.4 |
|
|
| 7.4 |
|
Contract/lease termination |
|
| 1.4 |
|
|
| 0.2 |
|
|
| 0.8 |
|
|
| 17.6 |
|
|
| 20.0 |
|
Consulting/professional fees |
|
| — |
|
|
| — |
|
|
| 0.8 |
|
|
| 82.3 |
|
|
| 83.1 |
|
Other selling, general and administrative expenses |
|
| 1.0 |
|
|
| 1.0 |
|
|
| 0.1 |
|
|
| 30.7 |
|
|
| 32.8 |
|
Total selling, general and administrative expenses |
|
| 57.0 |
|
|
| 13.8 |
|
|
| 3.2 |
|
|
| 255.7 |
|
|
| 329.7 |
|
Consolidated total |
| $ | 75.6 |
|
| $ | 28.6 |
|
| $ | 3.9 |
|
| $ | 255.7 |
|
| $ | 363.8 |
|
During the third quarter of fiscal 2020, we recognized the following pre-tax expenses for the Pinnacle Integration Restructuring Plan:
|
| Grocery & Snacks |
|
| Refrigerated & Frozen |
|
| Corporate |
|
| Total |
| ||||
Accelerated depreciation |
| $ | 0.5 |
|
| $ | 0.9 |
|
| $ | — |
|
| $ | 1.4 |
|
Total cost of goods sold |
|
| 0.5 |
|
|
| 0.9 |
|
|
| — |
|
|
| 1.4 |
|
Severance and related costs |
|
| — |
|
|
| 4.3 |
|
|
| (0.4 | ) |
|
| 3.9 |
|
Asset impairment (net of gains on disposal) |
|
| — |
|
|
| 3.8 |
|
|
| — |
|
|
| 3.8 |
|
Accelerated depreciation |
|
| — |
|
|
| — |
|
|
| 0.3 |
|
|
| 0.3 |
|
Contract/lease termination |
|
| — |
|
|
| — |
|
|
| 2.9 |
|
|
| 2.9 |
|
Consulting/professional fees |
|
| — |
|
|
| — |
|
|
| 6.3 |
|
|
| 6.3 |
|
Other selling, general and administrative expenses |
|
| — |
|
|
| — |
|
|
| 1.0 |
|
|
| 1.0 |
|
Total selling, general and administrative expenses |
|
| — |
|
|
| 8.1 |
|
|
| 10.1 |
|
|
| 18.2 |
|
Consolidated total |
| $ | 0.5 |
|
| $ | 9.0 |
|
| $ | 10.1 |
|
| $ | 19.6 |
|
Included in the above results are $12.7 million of charges that have resulted or will result in cash outflows and $6.9 million in non-cash charges.
During the first three quarters of fiscal 2020, we recognized the following pre-tax expenses for the Pinnacle Integration Restructuring Plan:
|
| Grocery & Snacks |
|
| Refrigerated & Frozen |
|
| International |
|
| Corporate |
|
| Total |
| |||||
Accelerated depreciation |
| $ | 0.5 |
|
| $ | 1.4 |
|
| $ | — |
|
| $ | — |
|
| $ | 1.9 |
|
Other cost of goods sold |
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
Total cost of goods sold |
|
| 0.6 |
|
|
| 1.4 |
|
|
| — |
|
|
| — |
|
|
| 2.0 |
|
Severance and related costs |
|
| — |
|
|
| 4.3 |
|
|
| 0.2 |
|
|
| 4.0 |
|
|
| 8.5 |
|
Asset impairment (net of gains on disposal) |
|
| 0.2 |
|
|
| 3.8 |
|
|
| — |
|
|
| 2.9 |
|
|
| 6.9 |
|
Accelerated depreciation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.7 |
|
|
| 2.7 |
|
Contract/lease termination |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14.7 |
|
|
| 14.7 |
|
Consulting/professional fees |
|
| — |
|
|
| — |
|
|
| 0.6 |
|
|
| 21.6 |
|
|
| 22.2 |
|
Other selling, general and administrative expenses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6.5 |
|
|
| 6.5 |
|
Total selling, general and administrative expenses |
|
| 0.2 |
|
|
| 8.1 |
|
|
| 0.8 |
|
|
| 52.4 |
|
|
| 61.5 |
|
Consolidated total |
| $ | 0.8 |
|
| $ | 9.5 |
|
| $ | 0.8 |
|
| $ | 52.4 |
|
| $ | 63.5 |
|
Included in the above results are $41.8 million of charges that have resulted or will result in cash outflows and $21.7 million in non-cash charges.
We recognized the following cumulative (plan inception to February 23, 2020) pre-tax expenses for the Pinnacle Integration Restructuring Plan related to our continuing operations in our Condensed Consolidated Statement of Operations:
|
| Grocery & Snacks |
|
| Refrigerated & Frozen |
|
| International |
|
| Corporate |
|
| Total |
| |||||
Accelerated depreciation |
| $ | 0.5 |
|
| $ | 1.4 |
|
| $ | — |
|
| $ | — |
|
| $ | 1.9 |
|
Other cost of goods sold |
|
| 1.6 |
|
|
| 1.5 |
|
|
| 0.7 |
|
|
| — |
|
|
| 3.8 |
|
Total cost of goods sold |
|
| 2.1 |
|
|
| 2.9 |
|
|
| 0.7 |
|
|
| — |
|
|
| 5.7 |
|
Severance and related costs |
|
| — |
|
|
| 4.3 |
|
|
| 1.5 |
|
|
| 114.8 |
|
|
| 120.6 |
|
Asset impairment (net of gains on disposal) |
|
| 0.2 |
|
|
| 3.8 |
|
|
| — |
|
|
| 2.9 |
|
|
| 6.9 |
|
Accelerated depreciation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7.4 |
|
|
| 7.4 |
|
Contract/lease termination |
|
| — |
|
|
| — |
|
|
| 0.8 |
|
|
| 15.0 |
|
|
| 15.8 |
|
Consulting/professional fees |
|
| — |
|
|
| — |
|
|
| 0.8 |
|
|
| 59.7 |
|
|
| 60.5 |
|
Other selling, general and administrative expenses |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 14.7 |
|
|
| 14.8 |
|
Total selling, general and administrative expenses |
|
| 0.2 |
|
|
| 8.1 |
|
|
| 3.2 |
|
|
| 214.5 |
|
|
| 226.0 |
|
Consolidated total |
| $ | 2.3 |
|
| $ | 11.0 |
|
| $ | 3.9 |
|
| $ | 214.5 |
|
| $ | 231.7 |
|
Included in the above results are $203.0 million of charges that have resulted or will result in cash outflows and $28.7 million in non-cash charges.
Liabilities recorded for the Pinnacle Integration Restructuring Plan and changes therein for the first three quarters of fiscal 2020 were as follows:
|
| Balance at May 26, 2019 |
|
| Costs Incurred and Charged to Expense |
|
| Costs Paid or Otherwise Settled |
|
| Changes in Estimates |
|
| Balance at February 23, 2020 |
| |||||
Severance and related costs |
| $ | 76.9 |
|
| $ | 10.4 |
|
| $ | (52.6 | ) |
| $ | (1.9 | ) |
| $ | 32.8 |
|
Contract termination |
|
| 1.0 |
|
|
| 4.6 |
|
|
| (3.9 | ) |
|
| — |
|
|
| 1.7 |
|
Consulting/professional fees |
|
| 18.4 |
|
|
| 22.2 |
|
|
| (34.6 | ) |
|
| — |
|
|
| 6.0 |
|
Other costs |
|
| 1.2 |
|
|
| 6.5 |
|
|
| (7.7 | ) |
|
| — |
|
|
| — |
|
Total |
| $ | 97.5 |
|
| $ | 43.7 |
|
| $ | (98.8 | ) |
| $ | (1.9 | ) |
| $ | 40.5 |
|
Conagra Restructuring Plan
In the third quarter of fiscal 2019, we initiated a new restructuring plan for costs incurred in connection with actions taken to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network (the "Conagra Restructuring Plan"). Although we remain unable to make good faith estimates relating to the entire Conagra Restructuring Plan, we are reporting on actions initiated through the end of the third quarter of fiscal 2020, 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 November 26, 2017, our Board of Directors hasFebruary 23, 2020, we have approved the incurrence of up to $900.9$129.8million ($36.9 million of expenses in connectioncash charges and $92.9 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 $464.8$126.7 million of charges ($320.735.2 million of cash charges and $144.1$91.5 million of non-cash charges) for actions identified to date under the SCAE Plan related to our continuing operations.Conagra Restructuring Plan. In the secondthird quarter and first halfthree quarters of fiscal 2018,2020, we recognized charges of $7.1$11.9 million and $18.5$52.6 million, respectively, in association with the SCAE Plan related to our continuing operations.Conagra Restructuring Plan. In the secondthird quarter and first halfthree quarters of fiscal 2017,2019, we recognized $19.8charges of $1.0 million and $33.9 million, respectively, in association with the SCAE Plan related to our continuing operations.Conagra Restructuring Plan. We expect to incur costs related to the SCAEConagra Restructuring Plan over a multi-year period.
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 through the first half of fiscal 2018):
Grocery & Snacks | Refrigerated & Frozen | International | Foodservice | Corporate | Total | ||||||||||||||||||
Pension costs | $ | 32.9 | $ | 1.5 | $ | — | $ | — | $ | — | $ | 34.4 | |||||||||||
Accelerated depreciation | 32.2 | 18.6 | — | — | 1.2 | 52.0 | |||||||||||||||||
Other cost of goods sold | 10.0 | 2.1 | — | — | — | 12.1 | |||||||||||||||||
Total cost of goods sold | 75.1 | 22.2 | — | — | 1.2 | 98.5 | |||||||||||||||||
Severance and related costs, net | 26.0 | 10.3 | 3.4 | 7.9 | 103.4 | 151.0 | |||||||||||||||||
Fixed asset impairment (net of gains on disposal) | 5.9 | 6.9 | — | — | 11.2 | 24.0 | |||||||||||||||||
Accelerated depreciation | — | — | — | — | 4.7 | 4.7 | |||||||||||||||||
Contract/lease cancellation expenses | 0.9 | 0.6 | 0.6 | — | 86.2 | 88.3 | |||||||||||||||||
Consulting/professional fees | 1.1 | 0.4 | 0.1 | — | 54.1 | 55.7 | |||||||||||||||||
Other selling, general and administrative expenses | 16.1 | 3.2 | — | — | 23.3 | 42.6 | |||||||||||||||||
Total selling, general and administrative expenses | 50.0 | 21.4 | 4.1 | 7.9 | 282.9 | 366.3 | |||||||||||||||||
Consolidated total | $ | 125.1 | $ | 43.6 | $ | 4.1 | $ | 7.9 | $ | 284.1 | $ | 464.8 |
|
| Grocery & Snacks |
|
| Refrigerated & Frozen |
|
| International |
|
| Corporate |
|
| Total |
| |||||
Accelerated depreciation |
| $ | 40.2 |
|
| $ | 20.1 |
|
| $ | — |
|
| $ | — |
|
| $ | 60.3 |
|
Other cost of goods sold |
|
| 9.0 |
|
|
| 1.0 |
|
|
| — |
|
|
| — |
|
|
| 10.0 |
|
Total cost of goods sold |
|
| 49.2 |
|
|
| 21.1 |
|
|
| — |
|
|
| — |
|
|
| 70.3 |
|
Severance and related costs |
|
| 11.1 |
|
|
| 3.5 |
|
|
| 1.2 |
|
|
| 0.2 |
|
|
| 16.0 |
|
Asset impairment (net of gains on disposal) |
|
| 25.0 |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| — |
|
|
| 25.3 |
|
Contract/lease termination |
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.3 |
|
Other selling, general and administrative expenses |
|
| 12.0 |
|
|
| 1.9 |
|
|
| 0.3 |
|
|
| — |
|
|
| 14.2 |
|
Total selling, general and administrative expenses |
|
| 48.3 |
|
|
| 5.6 |
|
|
| 1.6 |
|
|
| 0.3 |
|
|
| 55.8 |
|
Total |
| $ | 97.5 |
|
| $ | 26.7 |
|
| $ | 1.6 |
|
| $ | 0.3 |
|
| $ | 126.1 |
|
Pension and postretirement non-service income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.6 |
|
Consolidated total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 126.7 |
|
During the third quarter of fiscal 2020, we recognized the following pre-tax expenses for the SCAE Plan related to our continuing operations:Conagra Restructuring Plan:
|
| Grocery & Snacks |
|
| Refrigerated & Frozen |
|
| Total |
| |||
Accelerated depreciation |
| $ | 8.3 |
|
| $ | — |
|
| $ | 8.3 |
|
Other cost of goods sold |
|
| 1.2 |
|
|
| — |
|
|
| 1.2 |
|
Total cost of goods sold |
|
| 9.5 |
|
|
| — |
|
|
| 9.5 |
|
Severance and related costs |
|
| 0.3 |
|
|
| 1.2 |
|
|
| 1.5 |
|
Asset impairment (net of gains on disposal) |
|
| 0.5 |
|
|
| 0.2 |
|
|
| 0.7 |
|
Other selling, general and administrative expenses |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.2 |
|
Total selling, general and administrative expenses |
|
| 0.9 |
|
|
| 1.5 |
|
|
| 2.4 |
|
Total |
| $ | 10.4 |
|
| $ | 1.5 |
|
| $ | 11.9 |
|
Grocery & Snacks | International | Corporate | Total | ||||||||||||
Pension costs | $ | 2.1 | $ | — | $ | — | $ | 2.1 | |||||||
Other cost of goods sold | 1.3 | — | — | 1.3 | |||||||||||
Total cost of goods sold | 3.4 | — | — | 3.4 | |||||||||||
Severance and related costs, net | (0.2 | ) | 0.9 | 0.6 | 1.3 | ||||||||||
Fixed asset impairment (net of gains on disposal) | (1.5 | ) | — | — | (1.5 | ) | |||||||||
Accelerated depreciation | — | — | 0.7 | 0.7 | |||||||||||
Contract/lease cancellation expenses | 0.1 | — | (0.1 | ) | — | ||||||||||
Consulting/professional fees | 0.1 | — | 0.4 | 0.5 | |||||||||||
Other selling, general and administrative expenses | 2.1 | — | 0.6 | 2.7 | |||||||||||
Total selling, general and administrative expenses | 0.6 | 0.9 | 2.2 | 3.7 | |||||||||||
Consolidated total | $ | 4.0 | $ | 0.9 | $ | 2.2 | $ | 7.1 |
Included in the above tableresults are $7.7$2.8 million in charges that have resulted or will result in cash outflows and $9.1 million in non-cash charges.
During the first three quarters of fiscal 2020, we recognized the following pre-tax expenses for the Conagra Restructuring Plan:
|
| Grocery & Snacks |
|
| Refrigerated & Frozen |
|
| International |
|
| Corporate |
|
| Total |
| |||||
Accelerated depreciation |
| $ | 18.7 |
|
| $ | 0.9 |
|
| $ | — |
|
| $ | — |
|
| $ | 19.6 |
|
Other cost of goods sold |
|
| 1.2 |
|
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| 1.4 |
|
Total cost of goods sold |
|
| 19.9 |
|
|
| 1.1 |
|
|
| — |
|
|
| — |
|
|
| 21.0 |
|
Severance and related costs |
|
| 3.3 |
|
|
| 1.3 |
|
|
| 0.5 |
|
|
| — |
|
|
| 5.1 |
|
Asset impairment (net of gains on disposal) |
|
| 25.0 |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| — |
|
|
| 25.3 |
|
Contract/lease termination |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Other selling, general and administrative expenses |
|
| 0.3 |
|
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| 0.5 |
|
Total selling, general and administrative expenses |
|
| 28.6 |
|
|
| 1.7 |
|
|
| 0.6 |
|
|
| 0.1 |
|
|
| 31.0 |
|
Total |
| $ | 48.5 |
|
| $ | 2.8 |
|
| $ | 0.6 |
|
| $ | 0.1 |
|
| $ | 52.0 |
|
Pension and postretirement non-service income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.6 |
|
Consolidated total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 52.6 |
|
Included in the above results are $7.5 million of charges that have resulted or will result in cash outflows and net$45.1 million in non-cash gains of $0.6 million.
We recognized the following cumulative (plan inception to February 23, 2020) pre-tax expenses for the SCAEConagra Restructuring Plan related to our continuing operations:operations in our Condensed Consolidated Statement of Operations:
|
| Grocery & Snacks |
|
| Refrigerated & Frozen |
|
| International |
|
| Corporate |
|
| Total |
| |||||
Accelerated depreciation |
| $ | 18.7 |
|
| $ | 1.7 |
|
| $ | — |
|
| $ | — |
|
| $ | 20.4 |
|
Other cost of goods sold |
|
| 1.2 |
|
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| 1.4 |
|
Total cost of goods sold |
|
| 19.9 |
|
|
| 1.9 |
|
|
| — |
|
|
| — |
|
|
| 21.8 |
|
Severance and related costs |
|
| 3.3 |
|
|
| 1.8 |
|
|
| 1.2 |
|
|
| 0.2 |
|
|
| 6.5 |
|
Asset impairment (net of gains on disposal) |
|
| 25.0 |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| — |
|
|
| 25.3 |
|
Contract/lease termination |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Other selling, general and administrative expenses |
|
| 0.3 |
|
|
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| 0.5 |
|
Total selling, general and administrative expenses |
|
| 28.6 |
|
|
| 2.2 |
|
|
| 1.3 |
|
|
| 0.3 |
|
|
| 32.4 |
|
Total |
| $ | 48.5 |
|
| $ | 4.1 |
|
| $ | 1.3 |
|
| $ | 0.3 |
|
| $ | 54.2 |
|
Pension and postretirement non-service income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.6 |
|
Consolidated total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 54.8 |
|
Grocery & Snacks | International | Corporate | Total | ||||||||||||
Pension costs | $ | 2.1 | $ | — | $ | — | $ | 2.1 | |||||||
Accelerated depreciation | 1.2 | — | — | 1.2 | |||||||||||
Other cost of goods sold | 2.4 | — | — | 2.4 | |||||||||||
Total cost of goods sold | 5.7 | — | — | 5.7 | |||||||||||
Severance and related costs, net | 1.8 | 0.9 | 0.6 | 3.3 | |||||||||||
Fixed asset impairment (net of gains on disposal) | (1.4 | ) | — | 4.4 | 3.0 | ||||||||||
Accelerated depreciation | — | — | 1.3 | 1.3 | |||||||||||
Contract/lease cancellation expenses | 0.1 | — | (0.1 | ) | — | ||||||||||
Consulting/professional fees | 0.1 | — | 0.6 | 0.7 | |||||||||||
Other selling, general and administrative expenses | 3.9 | — | 0.6 | 4.5 | |||||||||||
Total selling, general and administrative expenses | 4.5 | 0.9 | 7.4 | 12.8 | |||||||||||
Consolidated total | $ | 10.2 | $ | 0.9 | $ | 7.4 | $ | 18.5 |
Included in the above tableresults are $12.5$8.9 million of charges that have resulted or will result in cash outflows and $6.0$45.9 million in non-cash charges.
Liabilities recorded for the Conagra Restructuring Plan and changes therein for the first three quarters of fiscal 2020 were as follows:
|
| Balance at May 26, 2019 |
|
| Costs Incurred and Charged to Expense |
|
| Costs Paid or Otherwise Settled |
|
| Changes in Estimates |
|
| Balance at February 23, 2020 |
| |||||
Severance and related costs |
| $ | 1.2 |
|
| $ | 5.6 |
|
| $ | (1.5 | ) |
| $ | (0.5 | ) |
| $ | 4.8 |
|
Contract termination |
|
| — |
|
|
| 0.1 |
|
|
| (0.1 | ) |
|
| — |
|
|
| — |
|
Other costs |
|
| — |
|
|
| 1.7 |
|
|
| (1.7 | ) |
|
| — |
|
|
| — |
|
Total |
| $ | 1.2 |
|
| $ | 7.4 |
|
| $ | (3.3 | ) |
| $ | (0.5 | ) |
| $ | 4.8 |
|
Supply Chain and Administrative Efficiency Plan
As of February 23, 2020, we had substantially completed our restructuring activities related to our Supply Chain and Administrative Efficiency Plan (the "SCAE Plan"). In the third quarter and first three quarters of fiscal 2020, we recognized charges of
$0.3 million and $1.0 million, respectively, in connection with the SCAE Plan. In the third quarter and first three quarters of fiscal 2019, we recognized charges of $3.5 million and $8.6 million, respectively, in connection with the SCAE Plan.
We have recognized the following cumulative (plan inception to November 26, 2017)$470.9 million in pre-tax expenses related to($103.3 million in cost of goods sold, $365.3 million in SG&A expenses, and $2.3 million in pension and postretirement non-service income) from the inception of the SCAE Plan through February 23, 2020, related to our continuing operations in our Condensed Consolidated Statements of Earnings:
Grocery & Snacks | Refrigerated & Frozen | International | Foodservice | Corporate | Total | ||||||||||||||||||
Pension costs | $ | 35.0 | $ | 1.5 | $ | — | $ | — | $ | — | $ | 36.5 | |||||||||||
Accelerated depreciation | 32.2 | 18.6 | — | — | 1.2 | 52.0 | |||||||||||||||||
Other cost of goods sold | 7.4 | 2.1 | — | — | — | 9.5 | |||||||||||||||||
Total cost of goods sold | 74.6 | 22.2 | — | — | 1.2 | 98.0 | |||||||||||||||||
Severance and related costs, net | 25.7 | 10.3 | 3.4 | 7.9 | 102.1 | 149.4 | |||||||||||||||||
Fixed asset impairment (net of gains on disposal) | 5.9 | 6.9 | — | — | 11.2 | 24.0 | |||||||||||||||||
Accelerated depreciation | — | — | — | — | 3.9 | 3.9 | |||||||||||||||||
Contract/lease cancellation expenses | 0.9 | 0.6 | 0.6 | — | 71.2 | 73.3 | |||||||||||||||||
Consulting/professional fees | 1.0 | 0.4 | 0.1 | — | 51.8 | 53.3 | |||||||||||||||||
Other selling, general and administrative expenses | 15.1 | 3.2 | — | — | 20.6 | 38.9 | |||||||||||||||||
Total selling, general and administrative expenses | 48.6 | 21.4 | 4.1 | 7.9 | 260.8 | 342.8 | |||||||||||||||||
Consolidated total | $ | 123.2 | $ | 43.6 | $ | 4.1 | $ | 7.9 | $ | 262.0 | $ | 440.8 |
Balance at May 28, 2017 | Costs Incurred and Charged to Expense | Costs Paid or Otherwise Settled | Changes in Estimates | Balance at November 26, 2017 | |||||||||||||||
Pension costs | $ | 31.8 | $ | — | $ | — | $ | 2.1 | $ | 33.9 | |||||||||
Severance and related costs | 13.8 | 4.0 | (7.9 | ) | (0.7 | ) | 9.2 | ||||||||||||
Consulting/professional fees | 0.6 | 0.7 | (1.1 | ) | — | 0.2 | |||||||||||||
Contract/lease cancellation | 11.6 | 0.3 | (3.6 | ) | (0.3 | ) | 8.0 | ||||||||||||
Other costs | 1.9 | 6.5 | (6.9 | ) | — | 1.5 | |||||||||||||
Total | $ | 59.7 | $ | 11.5 | $ | (19.5 | ) | $ | 1.1 | $ | 52.8 |
5. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
Revolving Credit Facility
At November 26, 2017,February 23, 2020, we had a revolving credit facility (the "Facility""Revolving Credit Facility") with a syndicate of financial institutions that providesproviding 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 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 February 23, 2020, there were 0 outstanding borrowings under the Revolving Credit Facility.
Pinnacle Acquisition Financing
In the first quarter of fiscal 2019, in connection with the announcement of the Pinnacle acquisition, we secured $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 in the first half of fiscal 2019 as a result of this amortization. The bridge facility was terminated in connection with the Pinnacle acquisition, and we recognized $33.8 million of expense within SG&A expenses in the second quarter of fiscal 2019 for the remaining unamortized financing costs.
During the second quarter of fiscal 2019, to finance a portion of our acquisition of Pinnacle, we issued senior unsecured notes in an aggregate principal amount of $7.025 billion. We issued the notes in seven tranches: floating rate notes due October 22, 2020 in an aggregate principal amount of $525.0 million with interest equal to three-month LIBOR plus 0.75%, 3.8% senior notes due October 22, 2021 in an aggregate principal amount of $1.20 billion; 4.3% senior notes due May 1, 2024 in an aggregate principal amount of $1.0 billion; 4.6% senior notes due November 1, 2025 in an aggregate principal amount of $1.0 billion; 4.85% senior notes due November 1, 2028 in an aggregate principal amount of $1.30 billion; 5.3% senior notes due November 1, 2038 in an aggregate principal amount of $1.0 billion; and 5.4% senior notes due November 1, 2048 in an aggregate principal amount of $1.0 billion.
During the second quarter of fiscal 2019, to finance a portion of our acquisition of Pinnacle, we also borrowed $1.30 billion under a term loan agreement (the "Term Loan Agreement") with a syndicate of financial institutions providing for term loans to the Company in an aggregate principal amount of up to $1.30 billion. Our borrowings under the Term Loan Agreement consisted of a $650.0 million tranche of three-year term loans maturing on October 26, 2017,2021 and a $650.0 million tranche of five-year term loans maturing on October 26, 2023.
In connection with our acquisition of Pinnacle, we prepaid in full $2.40 billion of obligations 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 Pinnacle's outstanding 5.875% senior notes due January 15, 2024 and recognized a charge of $3.9 million in the second quarter of fiscal 2019 as a cost of early retirement of debt.
During the first quarter of fiscal 2020, we repaid $200.0 million of our borrowings under the Term Loan Agreement, which repayment consisted of $100.0 million of the three-year tranche loans and $100.0 million of the five-year tranche loans. During the third quarter of fiscal 2020, we repaid the remaining borrowings under the Term Loan Agreement of $200.0 million, which repayment consisted of $100.0 million of the three-year tranche loans and $100.0 million of the five-year tranche loans. The Term Loan Agreement was terminated after these repayments.
During the third quarter of fiscal 2020, we also redeemed $250.0 million in aggregate principal amount of our floating rate notes due October 22, 2020. This did not result in a significant gain or loss.
In the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts (see Note 7) 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 $0.9 million and $2.6 million during the third quarter and first three quarters of fiscal 2020, respectively, and $1.0 million and $1.2 million for the third quarter and first three quarters of fiscal 2019, respectively, due to the impact of these interest rate swap contracts.
General
The Revolving Credit Facility generally requires our ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") to interest expense not to 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 5.25 through the first quarter of fiscal 2021 to 3.75 from the second quarter of fiscal 2023 and thereafter, with each ratio to be calculated on a rolling four-quarter basis. As of February 23, 2020, we were in compliance with all financial covenants under the Revolving Credit Facility.
Net interest expense from continuing operations consists of:
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||
Long-term debt |
| $ | 120.6 |
|
| $ | 133.4 |
|
| $ | 368.1 |
|
| $ | 252.5 |
|
Short-term debt |
|
| — |
|
|
| — |
|
|
| 0.9 |
|
|
| 15.0 |
|
Interest income |
|
| (1.3 | ) |
|
| (1.9 | ) |
|
| (2.3 | ) |
|
| (5.0 | ) |
Interest capitalized |
|
| (1.6 | ) |
|
| (0.6 | ) |
|
| (4.9 | ) |
|
| (2.0 | ) |
|
| $ | 117.7 |
|
| $ | 130.9 |
|
| $ | 361.8 |
|
| $ | 260.5 |
|
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||
Long-term debt | $ | 39.4 | $ | 56.6 | $ | 77.5 | $ | 117.5 | |||||||
Short-term debt | 0.7 | 0.2 | 1.1 | 0.4 | |||||||||||
Interest income | (1.1 | ) | (0.8 | ) | (2.0 | ) | (1.5 | ) | |||||||
Interest capitalized | (1.0 | ) | (1.9 | ) | (2.2 | ) | (4.1 | ) | |||||||
$ | 38.0 | $ | 54.1 | $ | 74.4 | $ | 112.3 |
Our accrued interest entities, but for which we are not the primary beneficiary. We do not consolidate the financial statements of these entities.
6. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for the first halfthree quarters of fiscal
|
| Grocery & Snacks |
|
| Refrigerated & Frozen |
|
| International |
|
| Foodservice |
|
| Total |
| |||||
Balance as of May 26, 2019 |
| $ | 4,741.3 |
|
| $ | 5,642.4 |
|
| $ | 299.0 |
|
| $ | 752.7 |
|
| $ | 11,435.4 |
|
Purchase accounting adjustments |
|
| 3.5 |
|
|
| 5.9 |
|
|
| 0.7 |
|
|
| — |
|
|
| 10.1 |
|
Currency translation |
|
| — |
|
|
| — |
|
|
| (2.4 | ) |
|
| — |
|
|
| (2.4 | ) |
Balance as of February 23, 2020 |
| $ | 4,744.8 |
|
| $ | 5,648.3 |
|
| $ | 297.3 |
|
| $ | 752.7 |
|
| $ | 11,443.1 |
|
Grocery & Snacks | Refrigerated & Frozen | International | Foodservice | Total | |||||||||||||||
Balance as of May 28, 2017 | $ | 2,439.1 | $ | 1,037.3 | $ | 253.6 | $ | 571.1 | $ | 4,301.1 | |||||||||
Acquisitions | 156.5 | — | — | — | 156.5 | ||||||||||||||
Purchase accounting adjustments | (1.5 | ) | — | — | — | (1.5 | ) | ||||||||||||
Currency translation | — | 0.9 | — | — | 0.9 | ||||||||||||||
Balance as of November 26, 2017 | $ | 2,594.1 | $ | 1,038.2 | $ | 253.6 | $ | 571.1 | $ | 4,457.0 |
Other identifiable intangible assets, excluding amounts classified as held for sale, were as follows:
|
| February 23, 2020 |
|
| May 26, 2019 |
| ||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
| ||||
Non-amortizing intangible assets |
| $ | 3,544.1 |
|
| $ | — |
|
| $ | 3,559.6 |
|
| $ | — |
|
Amortizing intangible assets |
|
| 1,240.4 |
|
|
| 305.1 |
|
|
| 1,239.9 |
|
|
| 260.2 |
|
|
| $ | 4,784.5 |
|
| $ | 305.1 |
|
| $ | 4,799.5 |
|
| $ | 260.2 |
|
November 26, 2017 | May 28, 2017 | ||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
Non-amortizing intangible assets | $ | 908.8 | $ | — | $ | 834.1 | $ | — | |||||||
Amortizing intangible assets | 587.3 | 197.9 | 575.4 | 180.2 | |||||||||||
$ | 1,496.1 | $ | 197.9 | $ | 1,409.5 | $ | 180.2 |
In the first quarter of fiscal 2017, in anticipation2020, we reorganized our reporting segments to incorporate the Pinnacle business into our legacy reporting segments, to reflect how the business is now being managed. Accordingly, we reassigned goodwill from the legacy Pinnacle segment to the applicable reporting units of the Spinoff,legacy Conagra segments, consistent with the Company's new management structure. The allocation of goodwill to Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice was $2.19 billion, $4.58 billion, $58.5 million, and $181.6 million, respectively. We tested goodwill for impairment both prior to and subsequent to the reallocation of Pinnacle goodwill and there were 0 impairments of goodwill. Such impairment tests are performed by estimating the fair value of each reporting unit and comparing that to the carrying amount of the net assets of the applicable reporting unit. If the estimated fair value of a reporting unit is less than its carrying value, such deficit is recognized as an impairment of goodwill.
Fair value is typically estimated using a discounted cash flow analysis which requires us to estimate the future cash flows 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 changedconsider historical results adjusted to reflect current and anticipated 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). With the assistance of a third-party valuation specialist, we used a discount rate for our reporting segments. In accordance with applicable accounting guidance, we were required to determine newdomestic reporting units at a lower level (at the operating segment orof 7% and rates ranging from 8% to 11% for our International reporting units. We used terminal growth rates between 1% and 2% for all reporting units (excluding 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.
Several of our reporting units have an estimated fair value substantially in excess of the carrying value. Three of our reporting units with aggregate goodwill of $3.5 billion have an estimated fair value that exceeds the respective carrying value as of our most recent testing date as follows:
|
| Carrying Value of Goodwill |
|
| Excess Fair Value as of Fiscal 2020 Test Date |
| ||
Sides, Components, Enhancers (part of Refrigerated & Frozen segment) |
| $ | 2,636.6 |
|
|
| 18.1 | % |
Foodservice |
|
| 752.7 |
|
|
| 36.7 | % |
Canada (part of International segment) |
|
| 96.2 |
|
|
| 32.0 | % |
If our future cash flow projections and other fair value assumptions for these reporting units change, we may be subject to potential impairment in subsequent quarters.
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 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 2017,2020, we recorded impairment charges totaling $139.2$19.3 million within our Refrigerated & Frozen segment and Grocery & Snacks segment for the impairment of goodwill.
Amortizing intangible assets, carrying a remaining weighted average life of approximately 1420 years, are principally composed of customer relationships licensing arrangements, and acquired intellectual property. Amortization expense was $8.7$14.9 million and $17.3$44.9 million for the secondthird quarter and first halfthree quarters of fiscal 2018,2020, respectively, and $8.1$14.9 million and $16.5$34.0 million for the secondthird quarter and first halfthree quarters of fiscal 2017,2019, respectively. Based on amortizing assets recognized in our Condensed Consolidated Balance Sheet as of
7. DERIVATIVE FINANCIAL INSTRUMENTS
Our operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and energy, foreign currency exchange rates, and interest rates. In the normal course of business, these risks are managed through a variety of strategies, including the use of derivatives.
Commodity and commodity index futures and option contracts are used from time to time to economically hedge commodity input prices on items such as natural gas, vegetable oils, proteins, 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 ofIn 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
From time to time, we may use derivative instruments, including interest rate swaps, to reduce risk related to changes in interest rates. This includes, but is not limited to, hedging against increasing interest rates prior to the issuance of long-term debt and hedging the fair value of our senior long-term debt.
Derivatives Designated as Cash Flow Hedges
During the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts to hedge 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 interest expense over the lives of the related debt instruments. The unamortized amount at February 23, 2020 was $42.9 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 selling, general and administrativeSG&A expenses. These substantially offset the foreign currency transaction gains or losses recognized as values of the monetary assets or liabilities being economically hedged change.
All derivative instruments are recognized on our balance sheets at fair value (refer to Note 16 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 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 November 26, 2017February 23, 2020 and May 28, 2017, $0.926, 2019, $4.0 million, representing a right to reclaim cash collateral, wasand $0.1 million, representing an obligation to return cash collateral, respectively, were included in prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets.
Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or an obligation to return cash collateral were reflected in our Condensed Consolidated Balance Sheets as follows:
|
| February 23, 2020 |
|
| May 26, 2019 |
| ||
Prepaid expenses and other current assets |
| $ | 2.5 |
|
| $ | 5.9 |
|
Other accrued liabilities |
|
| 1.9 |
|
|
| 1.4 |
|
November 26, 2017 | May 28, 2017 | ||||||
Prepaid expenses and other current assets | $ | 4.2 | $ | 2.3 | |||
Other accrued liabilities | 2.0 | 1.3 |
The following table presents our derivative assets and liabilities, at November 26, 2017,February 23, 2020, on a gross basis, prior to the setoff of $0.1$1.0 million to total derivative assets and $1.0$3.0 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 |
| $ | 1.5 |
|
| Other accrued liabilities |
| $ | 3.1 |
|
Foreign exchange contracts |
| Prepaid expenses and other current assets |
|
| — |
|
| Other accrued liabilities |
|
| 1.8 |
|
Total derivatives not designated as hedging instruments |
| $ | 1.5 |
|
|
|
| $ | 4.9 |
|
Derivative Assets | Derivative Liabilities | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Commodity contracts | Prepaid expenses and other current assets | $ | 3.5 | Other accrued liabilities | $ | 1.0 | |||||
Foreign exchange contracts | Prepaid expenses and other current assets | 0.8 | Other accrued liabilities | 1.9 | |||||||
Other | Prepaid expenses and other current assets | — | Other accrued liabilities | 0.1 | |||||||
Total derivatives not designated as hedging instruments | $ | 4.3 | $ | 3.0 |
The following table presents our derivative assets and liabilities at
May
|
| Derivative Assets |
|
| Derivative Liabilities |
| ||||||
|
| Balance Sheet Location |
| Fair Value |
|
| Balance Sheet Location |
| Fair Value |
| ||
Commodity contracts |
| Prepaid expenses and other current assets |
| $ | 4.9 |
|
| Other accrued liabilities |
| $ | 0.9 |
|
Foreign exchange contracts |
| Prepaid expenses and other current assets |
|
| 1.4 |
|
| Other accrued liabilities |
|
| 0.9 |
|
Other |
| Prepaid expenses and other current assets |
|
| 0.1 |
|
| Other accrued liabilities |
|
| — |
|
Total derivatives not designated as hedging instruments |
| $ | 6.4 |
|
|
|
| $ | 1.8 |
|
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 Condensed Consolidated Statements of Earnings were as follows:
|
| Location in Condensed Consolidated |
| Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statements of Earnings for the Thirteen Weeks Ended |
| |||||
Derivatives Not Designated as Hedging Instruments |
| Statements of Earnings of Gains (Losses) Recognized on Derivatives |
| February 23, 2020 |
|
| February 24, 2019 |
| ||
Commodity contracts |
| Cost of goods sold |
| $ | (3.5 | ) |
| $ | 3.3 |
|
Foreign exchange contracts |
| Cost of goods sold |
|
| (2.2 | ) |
|
| (2.5 | ) |
Total gains (losses) from derivative instruments not designated as hedging instruments |
| $ | (5.7 | ) |
| $ | 0.8 |
|
|
| Location in Condensed Consolidated |
| Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statements of Earnings for the Thirty-nine Weeks Ended |
| |||||
Derivatives Not Designated as Hedging Instruments |
| Statements of Earnings of Gains (Losses) Recognized on Derivatives |
| February 23, 2020 |
|
| February 24, 2019 |
| ||
Commodity contracts |
| Cost of goods sold |
| $ | (8.0 | ) |
| $ | (3.3 | ) |
Foreign exchange contracts |
| Cost of goods sold |
|
| (4.5 | ) |
|
| (0.1 | ) |
Total losses from derivative instruments not designated as hedging instruments |
| $ | (12.5 | ) |
| $ | (3.4 | ) |
Derivatives Not Designated as Hedging Instruments | Location in Condensed Consolidated Statement of Earnings of Gains Recognized on Derivatives | Gains Recognized on Derivatives in Condensed Consolidated Statement of Earnings for the Thirteen Weeks Ended | ||||||||
November 26, 2017 | November 27, 2016 | |||||||||
Commodity contracts | Cost of goods sold | $ | 0.8 | $ | 1.6 | |||||
Foreign exchange contracts | Cost of goods sold | 2.2 | 1.4 | |||||||
Foreign exchange contracts | Selling, general and administrative expense | — | 2.5 | |||||||
Total gains from derivative instruments not designated as hedging instruments | $ | 3.0 | $ | 5.5 |
Derivatives Not Designated as Hedging Instruments | Location in Condensed Consolidated Statement of Earnings of Gains (Losses) Recognized on Derivatives | Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statement of Earnings for the Twenty-six Weeks Ended | ||||||||
November 26, 2017 | November 27, 2016 | |||||||||
Commodity contracts | Cost of goods sold | $ | 1.4 | $ | 1.2 | |||||
Foreign exchange contracts | Cost of goods sold | (5.8 | ) | 1.5 | ||||||
Foreign exchange contracts | Selling, general and administrative expense | 0.3 | 1.3 | |||||||
Total gains (losses) from derivative instruments not designated as hedging instruments | $ | (4.1 | ) | $ | 4.0 |
As of November 26, 2017,February 23, 2020, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $81.6$91.3 million and $34.2$62.0 million for purchase and sales contracts, respectively. As of May 28, 2017,26, 2019, our open commodity contracts had a notional value of $76.8$140.1 million and $73.4$18.5 million for purchase and sales contracts, respectively. The notional amount of our foreign currency forward contracts as of November 26, 2017February 23, 2020 and May 28, 201726, 2019 was $72.8$97.6 million and $81.9$88.2 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.
8. SHARE-BASED PAYMENTS
For the
fiscal 2018,2020, we granted 0.81.2 million restricted stock units at a weighted average grant date price of $34.09$28.21 and 0.50.6 million performance shares at a weighted average grant date price of $33.82.
During the second quarter of fiscal 2019, in connection with the completion of the Pinnacle acquisition, we granted the following awards to Pinnacle employees in replacement of their unvested equity awards that were outstanding as of the closing date: (1) 2.0 million cash-settled share unit awards at a grant date fair value of $36.37 per share unit and (2) 2.3 million cash-settled stock appreciation rights with a fair value estimated at closing date using a Black-Scholes option-pricing model and a grant date price of $36.37 per share. Approximately $51.1 million of the fair value of the replacement awards granted to Pinnacle employees was attributable to pre-combination service and was included in the purchase price and established as a liability. As of February 23, 2020, the liability of the replacement awards was $5.7 million, which includes post-combination service expense, the mark-to-market of the liability, and the impact of payouts since the acquisition. Post-combination expense of approximately $1.0 million, based on the market price of shares of Conagra Brands common stock as of February 23, 2020, is expected to be recognized related to the replacement awards over the remaining post-combination service period of approximately one year.
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 20182020 (the "2018"2020 performance period") is, fiscal 2021 (the "2021 performance period"), and fiscal 2022 (the "2022 performance period") are based on our fiscal 2016 earnings before interest, taxes, depreciation, and amortization ("EBITDA") return on capital. 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. The fiscal 2017 EBITDA return on capital target,
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 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.
9. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average outstanding shares of common stock. Diluted earnings 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 shareholders 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 per share:
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||
Net income attributable to Conagra Brands, Inc. common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Conagra Brands, Inc. common stockholders |
| $ | 204.4 |
|
| $ | 242.0 |
|
| $ | 638.7 |
|
| $ | 553.7 |
|
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 |
| $ | 204.4 |
|
| $ | 242.0 |
|
| $ | 638.7 |
|
| $ | 551.8 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
| 487.4 |
|
|
| 486.2 |
|
|
| 487.1 |
|
|
| 431.3 |
|
Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities |
|
| 1.4 |
|
|
| 1.2 |
|
|
| 1.3 |
|
|
| 1.8 |
|
Diluted weighted average shares outstanding |
|
| 488.8 |
|
|
| 487.4 |
|
|
| 488.4 |
|
|
| 433.1 |
|
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||
Net income available to Conagra Brands, Inc. common stockholders: | |||||||||||||||
Income from continuing operations attributable to Conagra Brands, Inc. common stockholders | $ | 223.1 | $ | 113.7 | $ | 375.9 | $ | 212.1 | |||||||
Income from discontinued operations, net of tax, attributable to Conagra Brands, Inc. common stockholders | 0.4 | 8.4 | 0.1 | 96.2 | |||||||||||
Net income attributable to Conagra Brands, Inc. common stockholders | $ | 223.5 | $ | 122.1 | $ | 376.0 | $ | 308.3 | |||||||
Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated | — | 0.3 | — | 0.8 | |||||||||||
Net income available to Conagra Brands, Inc. common stockholders | $ | 223.5 | $ | 121.8 | $ | 376.0 | $ | 307.5 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic weighted average shares outstanding | 406.5 | 437.7 | 411.1 | 438.4 | |||||||||||
Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities | 3.9 | 3.6 | 4.0 | 3.7 | |||||||||||
Diluted weighted average shares outstanding | 410.4 | 441.3 | 415.1 | 442.1 |
For both the
10. INVENTORIES
The major classes of inventories were as follows:
|
| February 23, 2020 |
|
| May 26, 2019 |
| ||
Raw materials and packaging |
| $ | 274.9 |
|
| $ | 272.9 |
|
Work in process |
|
| 175.5 |
|
|
| 126.9 |
|
Finished goods |
|
| 1,124.4 |
|
|
| 1,083.1 |
|
Supplies and other |
|
| 71.7 |
|
|
| 66.0 |
|
Total |
| $ | 1,646.5 |
|
| $ | 1,548.9 |
|
November 26, 2017 | May 28, 2017 | ||||||
Raw materials and packaging | $ | 204.2 | $ | 182.1 | |||
Work in process | 124.9 | 91.9 | |||||
Finished goods | 682.2 | 612.9 | |||||
Supplies and other | 47.9 | 47.3 | |||||
Total | $ | 1,059.2 | $ | 934.2 |
11. INCOME TAXES
Income tax expense from continuing operations for the secondthird quarter of fiscal 20182020 and 20172019 was $109.5$68.9 million and $78.4$67.2 million, respectively. Income tax expense from continuing operations for the first halfthree quarters of fiscal 20182020 and 20172019 was $229.5$141.5 million and $247.6$147.0 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, from continuing operations, inclusive of equity method investment earnings) from continuing operations was 32.8%25.2% and 40.7%21.7% for the secondthird quarter of fiscal 20182020 and 2017,2019, respectively. The effective tax rate from continuing operations was 37.8% and 53.8% for the first half of fiscal 2018 and 2017, respectively.
The effective tax rate in the third quarter of fiscal 2020 reflects the following:
• | additional state income tax expense related to uncertain tax positions and |
• | an adjustment of valuation allowance associated with the Wesson® oil business. |
The effective tax rate for the first three quarters of fiscal 2020 reflects the above-cited items, as well as the impact of benefits from the settlement of tax issues that were previously reserved, a change in deferred state tax rates due to the integration of Pinnacle activity for tax purposes, a tax planning strategy that will allow utilization of certain state attributes, state tax law changes, additional tax expense associated with non-deductible goodwill related to assets for which an impairment charge was recognized, a benefit from statute lapses on tax issues that were previously reserved, and an income tax benefit associated with a deduction of a prior year federal income tax matter.
The effective tax rate in the repatriationthird quarter of cash fromfiscal 2019 reflects the following:
• | a benefit recognized due to the non-taxability of the novation of a legacy guarantee, |
• | a benefit recognized due to a reduction in the fair value of equity awards subject to limitations on deductibility that were issued to Pinnacle executives as replacement awards at the time of the acquisition, and |
• | an increase to the deemed repatriation tax liability. |
The effective tax rate for the first three quarters of fiscal 2019 reflects the above-cited items, as well as the impact of foreign subsidiaries and the tax expenserestructuring resulting in a benefit related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made.
The amount of gross unrecognized tax benefits for uncertain tax positions was $34.0$46.2 million as of November 26, 2017February 23, 2020 and $39.3$44.1 million as of May 28, 2017. There were no balances included as of either November 26, 2017 or May 28, 2017,2019. Included in those amounts was $8.5 million and $1.0 million, respectively, for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The gross unrecognized tax benefits excluded related liabilities for gross interest and penalties of $7.1$8.1 million and $6.0$11.7 million as of November 26, 2017February 23, 2020 and May 28, 2017,26, 2019, respectively.
The net amount of unrecognized tax benefits at November 26, 2017February 23, 2020 and May 28, 201726, 2019 that, if recognized, would impact the Company's effective tax rate was $25.7$32.4 million and $31.6$37.3 million, respectively. Included in those amounts is $6.6$6.7 million and $15.6 million, respectively, that would be reported in discontinued operations. Recognition of these tax benefits would have a favorable impact on the Company's effective tax rate.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $9.4$20.9 million over the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes of limitations.
As of November 26, 2017February 23, 2020 and May 28, 2017,26, 2019, we had a deferred tax asset of $1.09 billion$688.9 million and $1.08 billion,$687.1 million, respectively, that was generated from the capital loss realized on the sale of the Private Brands operations with corresponding valuation allowances of $995.1$688.9 million and $990.9$687.1 million, respectively, to reflect the uncertainty regarding the ultimate realization of the tax asset. During the first half of fiscal 2018, the balance of the deferred tax asset was adjusted for the impact of state law changes, realization of certain tax attributes, and the settlement of certain tax indemnity claims under the contract terms ofFederal capital loss carryforwards related to the Private Brands sale.
We have not provided U.S.any deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries. During the first quarter of fiscal 2018, we decided to repatriate certain cash balances then held in Italy, Canada, Mexico, the Netherlands, and Luxembourg due to the timing of cash flows in connection with certain business acquisition and divestiture activity, as well as forecasted levels of short-term borrowings. We repatriated $151.3 million during the second quarter of fiscal 2018. The cash repatriation resulted in the repatriation of $115.0 million in previously undistributedDeferred taxes will be provided for earnings of our foreign subsidiaries. As a result of the repatriation,non-U.S. affiliates and associated companies when we have recognized $11.8 million of income tax expense in the first half of fiscal 2018.
In response to the Tax Cuts and Jobs Act was signed into law. WeCOVID-19 outbreak, legislation concerning taxes has been passed in March 2020. While we are in the process of evaluatingstill assessing the impact of the recently enacted lawlegislation, we do not expect there to be a material impact to our consolidated financial statements at this time.
12. LEASES
We have operating and finance leases of certain warehouses, 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 lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
As most of our leases do not provide an implicit interest rate, we calculate the lease liability at lease commencement as the present value of unpaid lease payments using our estimated incremental borrowing rate. The incremental borrowing rate represents the
rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.
We have elected not to separate lease and non-lease components of an agreement for all underlying asset classes prospectively from the ASC 842 adoption date.
Any lease arrangements with an initial term of 12 months or less are not recorded on our Condensed Consolidated Financial Statements. The impact is expectedBalance 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 beextend 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 adjusted periodically for inflation. Our lease agreements do not contain any material to theresidual value guarantees or material restrictive covenants.
Leases reported in our Condensed Consolidated Financial Statements.Balance Sheet as of February 23, 2020 were as follows:
|
| Operating Leases |
| |||
|
| Balance Sheet Location |
| February 23, 2020 |
| |
ROU assets, net |
| Other assets |
| $ | 221.4 |
|
Lease liabilities (current) |
| Other accrued liabilities |
|
| 47.5 |
|
Lease liabilities (noncurrent) |
| Other noncurrent liabilities |
|
| 217.7 |
|
|
| Finance Leases |
| |||
|
| Balance Sheet Location |
| February 23, 2020 |
| |
ROU assets, at cost |
| Property, plant and equipment |
| $ | 213.8 |
|
Less accumulated depreciation |
| Less accumulated depreciation |
|
| (51.5 | ) |
ROU assets, net |
| Property, plant and equipment, net |
|
| 162.3 |
|
Lease liabilities (current) |
| Current installments of long-term debt |
|
| 20.8 |
|
Lease liabilities (noncurrent) |
| Senior long-term debt, excluding current installments |
|
| 131.6 |
|
The components of total lease cost for the third quarter and first three quarters of fiscal 2020 were as follows:
Lease cost |
| Thirteen weeks ended February 23, 2020 |
|
| Thirty-nine weeks ended February 23, 2020 |
| ||
Operating lease cost |
| $ | 14.3 |
|
| $ | 51.1 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
Depreciation of leased assets |
|
| 3.9 |
|
|
| 11.6 |
|
Interest on lease liabilities |
|
| 2.2 |
|
|
| 6.7 |
|
Short-term lease cost |
|
| 1.4 |
|
|
| 2.8 |
|
Total lease cost |
| $ | 21.8 |
|
| $ | 72.2 |
|
We recognized accelerated operating lease cost of $9.9 million and impairments of ROU assets of $2.9 million within SG&A expenses in the first three quarters of fiscal 2020. These charges are included in the Pinnacle Integration Restructuring Plan.
The weighted-average remaining lease terms and weighted-average discount rate for our leases as of February 23, 2020 were as follows:
|
| Operating Leases |
|
| Finance Leases |
| ||
Weighted-average remaining lease term (in years) |
|
| 8.5 |
|
|
| 8.2 |
|
Weighted-average discount rate |
|
| 3.62 | % |
|
| 5.41 | % |
Cash flows arising from lease transactions for the first three quarters of fiscal 2020 were as follows:
|
| Thirty-Nine Weeks Ended February 23, 2020 |
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash outflows from operating leases |
| $ | 41.8 |
|
Operating cash outflows from finance leases |
|
| 6.9 |
|
Financing cash outflows from finance leases |
|
| 15.8 |
|
ROU assets obtained in exchange for new lease liabilities: |
|
|
|
|
Operating leases |
|
| 40.1 |
|
Finance leases |
|
| 2.8 |
|
Maturities of lease liabilities by fiscal year as of February 23, 2020 were as follows:
|
| Operating Leases |
|
| Finance Leases |
|
| Total |
| |||
2020 (remaining year) |
| $ | 14.8 |
|
| $ | 7.1 |
|
| $ | 21.9 |
|
2021 |
|
| 55.2 |
|
|
| 28.6 |
|
|
| 83.8 |
|
2022 |
|
| 42.0 |
|
|
| 27.2 |
|
|
| 69.2 |
|
2023 |
|
| 36.2 |
|
|
| 22.1 |
|
|
| 58.3 |
|
2024 |
|
| 27.8 |
|
|
| 17.9 |
|
|
| 45.7 |
|
Later years |
|
| 138.1 |
|
|
| 90.7 |
|
|
| 228.8 |
|
Total lease payments |
|
| 314.1 |
|
|
| 193.6 |
|
|
| 507.7 |
|
Less: Imputed interest |
|
| (48.9 | ) |
|
| (41.2 | ) |
|
| (90.1 | ) |
Total lease liabilities |
| $ | 265.2 |
|
| $ | 152.4 |
|
| $ | 417.6 |
|
We have entered into lease agreements for certain facilities and equipment with payments totaling $9.1 million that have not yet commenced as of February 23, 2020.
A summary of non-cancelable operating lease commitments as of May 26, 2019 is as follows:
2020 |
| $ | 52.1 |
|
2021 |
|
| 48.4 |
|
2022 |
|
| 38.0 |
|
2023 |
|
| 34.1 |
|
2024 |
|
| 25.6 |
|
Later years |
|
| 114.4 |
|
|
| $ | 312.6 |
|
Rent expense under all operating leases was $83.5 million in fiscal 2019. This amount is inclusive of certain charges recognized at the cease use date for remaining lease payments associated with exited properties.
13. CONTINGENCIES
Litigation Matters
We are a party to various environmental proceedings andcertain litigation primarily relatedmatters relating to our acquisition in fiscal 1991 of Beatrice Company ("Beatrice"). As a result of the acquisition of Beatrice and the significant pre-acquisition contingencies of the Beatrice businesses and its former subsidiaries, our condensed consolidated post-acquisition financial statements reflect liabilities associated with the estimated resolution of these contingencies. Such liabilities include various in fiscal 1991, including litigation and environmental proceedings related to businesses divested by Beatrice prior to our acquisition of Beatrice. The litigationthe 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"), and the Company as alleged successorssuccessor to W. P. Fuller & Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967. Although decisionsThese 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. When such lawsuits have been brought, ConAgra Grocery Products has denied liability, 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. Decisions favorable to us have beenwere rendered in Rhode Island, New Jersey, Wisconsin, and Ohio, weOhio. ConAgra Grocery Products was held liable for the abatement of a public nuisance in California, and the case was dismissed pursuant to settlement in July 2019 as discussed in the following paragraph. We remain a defendant in 1 active suitssuit in Illinois and California.Illinois. The Illinois suit seeks class-wideclass-
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 thean alleged public nuisance.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 and1951. The Court of Appeal remanded the case to the trial court with directions to recalculate the sumamount of the abatement fund estimated to be paid intonecessary to cover the abatement fund. The Company hascost 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 further review of the decision, which the Company believeswe believe to be an unprecedented expansion of current California law. In lightOn February 14, 2018, the California Supreme Court denied the petition and declined to review the merits of the unsettled nature of California public nuisance lawcase, and the ongoing appeal, a loss is considered neither probable nor estimable,case was remanded to the trial court for further proceedings. ConAgra Grocery Products and the Company has accordingly not accrued any loss relatedother defendants sought further review of certain issues from the Supreme Court of the United States, but on October 15, 2018, the Supreme Court declined to thisreview the case. In addition, it is not possibleOn September 4, 2018, the trial court recalculated its estimate of the amount needed to estimate exposureremediate pre-1951 homes in the remaining caseplaintiff jurisdictions to be $409.0 million. As of July 10, 2019, the parties reached an agreement in Illinois,principle to resolve this matter, which is basedagreement was approved by the trial court on different legal theories. If ultimately necessary,July 24, 2019, and the Companyaction against ConAgra Grocery Products was dismissed with prejudice. Pursuant to the settlement, ConAgra Grocery Products will lookpay a total of $101.7 million in 7 installments to be paid annually from fiscal 2020 through fiscal 2026. As part of the settlement, ConAgra Grocery Products has provided a guarantee of up to $15.0 million in the event co-defendant, NL Industries, Inc., defaults on its insurance policiespayment obligations.
We have accrued $11.2 million and $63.2 million, within other accrued liabilities and other noncurrent liabilities, respectively, for coverage; its carriers are on notice. However, thethis matter as of February 23, 2020. The extent of insurance coverage is uncertain and the CompanyCompany'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 thesethe lead paint and pigment matters will not have a material adverse effect on itsour financial condition, results of operations, or liquidity.
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
We are party to a number of 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. While we cannot predict with certainty 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.
We are party to a number of matters asserting product liability claims against the Company 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 year 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 the U.S. District Court for the Northern District of Illinois. In addition, on May 9, 2019, a shareholder 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 shareholder 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 limited situations,officers and directors in connection with the Pinnacle acquisition and the Company's public statements. We have put the Company's insurance carriers on notice of each of these securities and shareholder matters. 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.
Environmental Matters
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 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, polycholorinated biphenyls, acids, lead, sulfur, tannery wastes, and/or other contaminants. 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 $58.2 million as of February 23, 2020, 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 ("EPA") issued a Record of Decision ("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. Additionally, in conjunction with the conclusion of the fifth Five-Year Review period for Operating Unit 1 of the Wells G&H site, which spanned from October 1, 2014 to September 30, 2019, we are negotiating with the EPA to allow us to begin testing different environmental remediation methods to improve the efficiency and effectiveness of our current cleanup efforts affecting both Operating Units 1 and 2. As a result, in the second quarter of fiscal 2020, we increased our environmental reserves by $6.6 million associated with these expected cleanup efforts.
Guarantees and Other Contingencies
We 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.
In certain limited situations, we will guarantee an obligation of an unconsolidated entity. We leaseguarantee certain office buildingsleases resulting from entities that we have determined to be variable interest entities. The lease agreements contain put options exercisable now and remain exercisable until generally 30 days after the enddivestiture of the respective lease agreements, that allow the lessors to require us to purchase the buildings at the greater of original construction cost, or fair market value, without a lease in place. We have financial exposure with respect to these entitiesJM Swank business completed in the event we are required to purchase the leased buildings for a price in excess of the then current fair value under the applicable lease purchase options. We are amortizing the difference between the put price and the estimated fair value (without a lease agreement in place) of each respective property over the remaining respective lease term within selling, general and administrative expenses. As of November 26, 2017 and May 28, 2017, the estimated amount by which the put prices exceeded the fair values of the related properties was $50.7 million, of which we had accrued $10.2 million and $8.4 million, respectively. In December 2017, subsequent to the secondfirst quarter of fiscal 2018,2017. As of February 23, 2020, the remaining terms of these arrangements did not exceed three years and the maximum amount of future payments we purchasedhave guaranteed was $0.7 million. In addition, we guarantee a building that had been subject to a put option. We will recognize a net losslease resulting from an exited facility. As of approximately $13 million forFebruary 23, 2020, the early terminationremaining term of this arrangement did not exceed seven years and the associated lease in our third quartermaximum amount of fiscal 2018. Also in December 2017,future payments we made an offer to purchase another property subject to a put option. We have not entered into a binding legal contract in connection with this offer. However, if our offer is accepted, we may recognize an estimated loss of $30 million to $40 million, upon closing of the transaction, for the early exit of an unfavorable lease contract. If this transaction is completed, we would have one remaining leased building subject to a put option for which the put option price exceeds the estimated fair value by $8.2 million, of which we had accrued $1.0 million, as of November 26, 2017.guaranteed was $17.1 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. Itliquidity; 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, while unlikely, the lead paint matterwhich could result inhave a material final judgment. 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.
14. PENSION AND POSTRETIREMENT BENEFITS
We have defined benefit retirement plans ("plans") for eligible salaried and hourly employees. Benefits are based on years of credited service and average compensation or stated amounts for each year of service. We also sponsor postretirement plans which provide certain medical and dental benefits ("other postretirement benefits") to qualifying U.S. employees.
In connection with the second quarteracquisition of fiscal 2018,Pinnacle, we approvednow include the amendmentcomponents of our salariedpension and non-qualifiedpostretirement expense associated with the Pinnacle pension plans effective asand post-employment benefit plan in our Condensed Consolidated Statements of December 31, 2017. The amendment will freezeEarnings from the compensation and service periods used to calculate pension benefits for active employees who participate indate of the plans. Beginning January 1, 2018, impacted employees will not accrue additional benefitcompletion of the acquisition. These plans are frozen for future service and eligible compensation received under thesebenefits. The tabular disclosures presented below are inclusive of the Pinnacle plans.
As a result of the amendment,anticipated exit of certain facilities, during the first quarter of fiscal 2020, we were required to remeasure ourremeasured the Company's hourly pension plan liability as of September 30, 2017.August 25, 2019 and recorded a pension curtailment 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 3.78%3.13%. The curtailment loss and related remeasurement resulted in a net decrease toincreased the underfunded status of the pension plansplan by $43.5$12.3 million with a corresponding benefitloss within other comprehensive income (loss) for.
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 plan 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.
During the third quarter of fiscal 2020, we amended a certain hourly pension plan that will freeze future compensation and service periods. As a result, we remeasured the Company’s hourly pension plan liability as of January 31, 2020 and recorded a pension curtailment charge, respectively.
Components of pension benefit and other postretirement benefit costs are (includes amounts related to discontinued operations):are:
|
| Pension Benefits |
| |||||||||||||
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||
Service cost |
| $ | 2.8 |
|
| $ | 2.8 |
|
| $ | 8.4 |
|
| $ | 8.3 |
|
Interest cost |
|
| 27.8 |
|
|
| 34.0 |
|
|
| 89.8 |
|
|
| 98.7 |
|
Expected return on plan assets |
|
| (42.0 | ) |
|
| (44.6 | ) |
|
| (124.7 | ) |
|
| (130.1 | ) |
Amortization of prior service cost |
|
| 0.7 |
|
|
| 0.7 |
|
|
| 2.0 |
|
|
| 2.1 |
|
Curtailment loss |
|
| 0.2 |
|
|
| — |
|
|
| 0.8 |
|
|
| — |
|
Settlement gain |
|
| (2.1 | ) |
|
| — |
|
|
| (2.1 | ) |
|
| — |
|
Benefit cost (benefit) — Company plans |
|
| (12.6 | ) |
|
| (7.1 | ) |
|
| (25.8 | ) |
|
| (21.0 | ) |
Pension benefit cost — multi-employer plans |
|
| 1.5 |
|
|
| 1.4 |
|
|
| 5.0 |
|
|
| 4.9 |
|
Total benefit cost (benefit) |
| $ | (11.1 | ) |
| $ | (5.7 | ) |
| $ | (20.8 | ) |
| $ | (16.1 | ) |
|
| Postretirement Benefits |
| |||||||||||||
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||
Service cost |
| $ | — |
|
| $ | — |
|
| $ | 0.1 |
|
| $ | 0.1 |
|
Interest cost |
|
| 0.6 |
|
|
| 1.0 |
|
|
| 1.9 |
|
|
| 2.9 |
|
Amortization of prior service benefit |
|
| (0.5 | ) |
|
| (0.5 | ) |
|
| (1.5 | ) |
|
| (1.5 | ) |
Recognized net actuarial gain |
|
| (1.1 | ) |
|
| (0.4 | ) |
|
| (3.4 | ) |
|
| (1.2 | ) |
Curtailment gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.6 | ) |
Total cost (benefit) |
| $ | (1.0 | ) |
| $ | 0.1 |
|
| $ | (2.9 | ) |
| $ | (0.3 | ) |
Pension Benefits | |||||||||||||||
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||
Service cost | $ | 13.2 | $ | 15.9 | $ | 25.9 | $ | 32.6 | |||||||
Interest cost | 27.7 | 29.9 | 55.9 | 59.9 | |||||||||||
Expected return on plan assets | (54.6 | ) | (53.9 | ) | (108.8 | ) | (107.7 | ) | |||||||
Amortization of prior service cost | 0.7 | 0.7 | 1.4 | 1.3 | |||||||||||
Recognized net actuarial loss | 3.4 | — | 3.4 | — | |||||||||||
Special termination benefits | — | 1.5 | — | 1.5 | |||||||||||
Curtailment loss | 0.7 | — | 0.7 | — | |||||||||||
Benefit cost (benefit) — Company plans | (8.9 | ) | (5.9 | ) | (21.5 | ) | (12.4 | ) | |||||||
Pension benefit cost — multi-employer plans | 4.2 | 2.8 | 5.7 | 5.1 | |||||||||||
Total benefit cost (benefit) | $ | (4.7 | ) | $ | (3.1 | ) | $ | (15.8 | ) | $ | (7.3 | ) |
Postretirement Benefits | |||||||||||||||
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||
Service cost | $ | — | $ | 0.1 | $ | — | $ | 0.1 | |||||||
Interest cost | 0.9 | 1.0 | 1.8 | 2.1 | |||||||||||
Amortization of prior service benefit | (0.8 | ) | (1.6 | ) | (1.6 | ) | (3.3 | ) | |||||||
Recognized net actuarial loss | — | 0.1 | — | 0.2 | |||||||||||
Total cost (benefit) | $ | 0.1 | $ | (0.4 | ) | $ | 0.2 | $ | (0.9 | ) |
The Company uses a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost.
The weighted-average discount rates for service and interest costs under the spot-rate approach used for pension benefit cost fromas of May 29, 2017 through September 30, 2017,27, 2019 were 4.19%4.04% and 3.26%3.51%, respectively. The weighted-average discount rates for service and interest costs subsequent to September 30, 2017 are 4.04%January 31, 2020 were 3.74% and 3.24%3.26%, respectively.
During the secondthird quarter and first halfthree quarters of fiscal 2018,2020, we contributed $2.3$3.6 million and $6.1$11.0 million, respectively, to our pension plans and contributed $3.0$2.2 million and $6.9$4.2 million, respectively, to our other postretirement plans. Based upon the current funded status of the plans and the current interest rate environment, we anticipate making further contributions of approximately
15. STOCKHOLDERS' EQUITY
The following table presents a reconciliation of our stockholders' equity accounts for the
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 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 | (5.1 | ) | 0.2 | 27.0 | 22.1 | |||||||||||||||||||||||||
Spinoff of Lamb Weston | 15.5 | 15.5 | ||||||||||||||||||||||||||||
Currency translation adjustment, net | 19.9 | 19.9 | ||||||||||||||||||||||||||||
Repurchase of common shares | (580.0 | ) | (580.0 | ) | ||||||||||||||||||||||||||
Unrealized gain on securities | 0.4 | 0.4 | ||||||||||||||||||||||||||||
Derivative adjustment, net | 0.7 | 0.7 | ||||||||||||||||||||||||||||
Activities of noncontrolling interests | 1.8 | 1.8 | ||||||||||||||||||||||||||||
Pension and postretirement healthcare benefits | 26.7 | 26.7 | ||||||||||||||||||||||||||||
Dividends declared on common stock; $0.425 per share | (174.4 | ) | (174.4 | ) | ||||||||||||||||||||||||||
Net income attributable to Conagra Brands, Inc. | 376.0 | 376.0 | ||||||||||||||||||||||||||||
Balance at November 26, 2017 | 567.9 | $ | 2,839.7 | $ | 1,166.8 | $ | 4,464.3 | $ | (165.2 | ) | $ | (4,607.9 | ) | $ | 88.8 | $ | 3,786.5 |
|
| 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 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 |
|
|
|
|
|
|
|
|
|
| (8.5 | ) |
|
| (0.3 | ) |
|
|
|
|
|
| 16.0 |
|
|
| (0.2 | ) |
|
| 7.0 |
|
Currency translation adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (8.9 | ) |
|
|
|
|
|
| (2.7 | ) |
|
| (11.6 | ) |
Derivative adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1.8 | ) |
|
|
|
|
|
|
|
|
|
| (1.8 | ) |
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.5 |
|
|
| 0.5 |
| |
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (11.4 | ) |
|
|
|
|
|
|
|
|
|
| (11.4 | ) |
Dividends declared on common stock; $0.2125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (103.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (103.4 | ) |
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
| 173.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 173.8 |
| |
Balance at August 25, 2019 |
|
| 584.2 |
|
| $ | 2,921.2 |
|
| $ | 2,277.5 |
|
| $ | 5,118.0 |
|
| $ | (132.4 | ) |
| $ | (2,744.2 | ) |
| $ | 76.7 |
|
| $ | 7,516.8 |
|
Stock option and incentive plans |
|
|
|
|
|
|
|
|
|
| 9.4 |
|
|
| (0.4 | ) |
|
|
|
|
|
| 4.5 |
|
|
|
|
|
|
| 13.5 |
|
Currency translation adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3.5 |
|
|
|
|
|
|
|
|
|
|
| 3.5 |
|
Derivative adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1.4 | ) |
|
|
|
|
|
|
|
|
|
| (1.4 | ) |
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.8 |
|
|
| 1.8 |
|
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.7 | ) |
|
|
|
|
|
|
|
|
|
| (0.7 | ) |
Dividends declared on common stock; $0.2125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (103.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (103.4 | ) |
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 260.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 260.5 |
|
Balance at November 24, 2019 |
|
| 584.2 |
|
| $ | 2,921.2 |
|
| $ | 2,286.9 |
|
| $ | 5,274.7 |
|
| $ | (131.0 | ) |
| $ | (2,739.7 | ) |
| $ | 78.5 |
|
| $ | 7,690.6 |
|
Stock option and incentive plans |
|
|
|
|
|
|
|
|
|
| 6.1 |
|
|
| (0.3 | ) |
|
|
|
|
|
| 7.3 |
|
| 0.2 |
|
|
| 13.3 |
| |
Currency translation adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3.9 |
|
|
|
|
|
|
| (0.1 | ) |
|
| 3.8 |
|
Derivative adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.9 | ) |
|
|
|
|
|
|
|
|
|
| (0.9 | ) |
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.3 |
|
|
| 0.3 |
|
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 56.0 |
|
|
|
|
|
|
|
|
|
|
| 56.0 |
|
Dividends declared on common stock; $0.2125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (103.6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (103.6 | ) |
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 204.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 204.4 |
|
Balance at February 23, 2020 |
|
| 584.2 |
|
| $ | 2,921.2 |
|
| $ | 2,293.0 |
|
| $ | 5,375.2 |
|
| $ | (72.0 | ) |
| $ | (2,732.4 | ) |
| $ | 78.9 |
|
| $ | 7,863.9 |
|
The following table presents a reconciliation of our stockholders' equity accounts for the thirty-nine weeks ended February 24, 2019:
|
| 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 |
|
|
|
|
|
|
|
|
|
| (14.1 | ) |
|
| 0.5 |
|
|
|
|
|
|
| 23.3 |
|
|
| 0.1 |
|
|
| 9.8 |
|
Adoption of ASU 2016-01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.6 |
|
|
| (0.6 | ) |
|
|
|
|
|
|
|
|
|
| — |
|
Adoption of ASU 2014-09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.5 |
|
Currency translation adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.7 | ) |
|
|
|
|
|
| (2.3 | ) |
|
| (3.0 | ) |
Derivative adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (43.4 | ) |
|
|
|
|
|
|
|
|
|
| (43.4 | ) |
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
| (0.3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 0.3 |
|
|
| — |
|
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.5 | ) |
|
|
|
|
|
|
|
|
|
| (0.5 | ) |
Dividends declared on common stock; $0.2125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (83.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (83.2 | ) |
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 178.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 178.2 |
|
Balance at August 26, 2018 |
|
| 567.9 |
|
| $ | 2,839.7 |
|
| $ | 1,165.6 |
|
| $ | 4,841.5 |
|
| $ | (155.7 | ) |
| $ | (4,954.6 | ) |
| $ | 78.5 |
|
| $ | 3,815.0 |
|
Stock option and incentive plans |
|
|
|
|
|
|
|
|
|
| 2.2 |
|
|
| 0.1 |
|
|
|
|
|
|
| 3.7 |
|
|
|
|
|
|
| 6.0 |
|
Currency translation adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (14.8 | ) |
|
|
|
|
|
| (0.9 | ) |
|
| (15.7 | ) |
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 adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 79.2 |
|
|
|
|
|
|
|
|
|
|
| 79.2 |
|
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
| 0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1.6 |
|
|
| 2.2 |
|
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.2 | ) |
|
|
|
|
|
|
|
|
|
| (0.2 | ) |
Dividends declared on common stock; $0.2125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (86.8 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (86.8 | ) |
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 131.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 131.6 |
|
Balance at November 25, 2018 |
|
| 584.2 |
|
| $ | 2,921.2 |
|
| $ | 2,280.8 |
|
| $ | 4,886.4 |
|
| $ | (91.5 | ) |
| $ | (2,772.8 | ) |
| $ | 79.2 |
|
| $ | 7,303.3 |
|
Stock option and incentive plans |
|
|
|
|
|
|
|
|
|
| (3.9 | ) |
|
| 0.1 |
|
|
|
|
|
|
| 7.8 |
|
|
|
|
|
|
| 4.0 |
|
Currency translation adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7.9 |
|
|
|
|
|
|
| (0.5 | ) |
|
| 7.4 |
|
Derivative adjustment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2.0 | ) |
|
|
|
|
|
|
|
|
|
| (2.0 | ) |
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
| 0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.2 | ) |
|
| 0.1 |
|
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (0.1 | ) |
|
|
|
|
|
|
|
|
|
| (0.1 | ) |
Dividends declared on common stock; $0.2125 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (103.2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (103.2 | ) |
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 242.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 242.0 |
|
Balance at February 24, 2019 |
|
| 584.2 |
|
| $ | 2,921.2 |
|
| $ | 2,277.2 |
|
| $ | 5,025.3 |
|
| $ | (85.7 | ) |
| $ | (2,765.0 | ) |
| $ | 78.5 |
|
| $ | 7,451.5 |
|
16. FAIR VALUE MEASUREMENTS
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities,
Level 2 — Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, and
Level 3 — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.
The 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.
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
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Net Value |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
| $ | 2.5 |
|
| $ | — |
|
| $ | — |
|
| $ | 2.5 |
|
Marketable securities |
|
| 10.9 |
|
|
| — |
|
|
| — |
|
|
| 10.9 |
|
Deferred compensation assets |
|
| 9.2 |
|
|
| — |
|
|
| — |
|
|
| 9.2 |
|
Total assets |
| $ | 22.6 |
|
| $ | — |
|
| $ | — |
|
| $ | 22.6 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
| $ | — |
|
| $ | 1.9 |
|
| $ | — |
|
| $ | 1.9 |
|
Deferred compensation liabilities |
|
| 71.6 |
|
|
| — |
|
|
| — |
|
|
| 71.6 |
|
Total liabilities |
| $ | 71.6 |
|
| $ | 1.9 |
|
| $ | — |
|
| $ | 73.5 |
|
Level 1 | Level 2 | Level 3 | Net Value | ||||||||||||
Assets: | |||||||||||||||
Derivative assets | $ | 3.3 | $ | 0.9 | $ | — | $ | 4.2 | |||||||
Available-for-sale securities | 4.3 | — | — | 4.3 | |||||||||||
Total assets | $ | 7.6 | $ | 0.9 | $ | — | $ | 8.5 | |||||||
Liabilities: | |||||||||||||||
Derivative liabilities | $ | — | $ | 2.0 | $ | — | $ | 2.0 | |||||||
Deferred compensation liabilities | 53.7 | — | — | 53.7 | |||||||||||
Total liabilities | $ | 53.7 | $ | 2.0 | $ | — | $ | 55.7 |
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
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Net Value |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
| $ | 3.0 |
|
| $ | 2.9 |
|
| $ | — |
|
| $ | 5.9 |
|
Marketable securities |
|
| 15.7 |
|
|
| — |
|
|
| — |
|
|
| 15.7 |
|
Deferred compensation assets |
|
| 10.7 |
|
|
| — |
|
|
| — |
|
|
| 10.7 |
|
Total assets |
| $ | 29.4 |
|
| $ | 2.9 |
|
| $ | — |
|
| $ | 32.3 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
| $ | — |
|
| $ | 1.4 |
|
| $ | — |
|
| $ | 1.4 |
|
Deferred compensation liabilities |
|
| 70.4 |
|
|
| — |
|
|
| — |
|
|
| 70.4 |
|
Total liabilities |
| $ | 70.4 |
|
| $ | 1.4 |
|
| $ | — |
|
| $ | 71.8 |
|
Level 1 | Level 2 | Level 3 | Net Value | ||||||||||||
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.
In the firstthird quarter of fiscal 2018, a charge2020, we recognized charges of $4.7$3.8 million was recognized in the CorporateRefrigerated & Frozen segment for the impairment of certain long-lived assets. The impairment was measured based upon the estimated sales price of the assets.
In the second quarter and first half of fiscal 2017,2020, we recognized goodwill impairment charges in the International segment of $43.9$54.4 million and $183.1 million, respectively. See Note 7 for discussion of the methodology employed to measure this impairment. We also recognized an impairment of an indefinite-lived brand totaling $24.4$27.6 million in the International segmentGrocery & Snacks and Refrigerated & Frozen segments, respectively, for the impairment of certain long-lived assets. The impairments were measured based upon the estimated sales price of the assets held for sale.
In the first half of 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.
In the first quarter of fiscal 2017.2020, we recognized charges for the impairment of certain indefinite-lived brands. The fair valuevalues of the brand wasthese brands were estimated using the "Relief From Royalty" method."relief from royalty" method (See Note 6). Impairments in our Grocery & Snacks and Refrigerated & Frozen segments totaled $3.5 million and $15.8 million, respectively.
In the third quarter and first three quarters of fiscal 2019, we recognized charges of $0.3 million and $1.6 million, respectively, in general corporate expenses for the impairment of certain long-lived assets. The impairments were measured based upon the estimated sales price of the assets.
The carrying amount of long-term debt (including current installments) was $3.46$10.02 billion and $10.68 billion as of
17. BUSINESS SEGMENTS AND RELATED INFORMATION
In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business into our legacy reporting segments in order to better reflect how the business is now being managed. We now reflect our results of operations in five4 reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, Foodservice, and Commercial.
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 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 packaged for sale to restaurants and other foodservice establishments primarily in the United States.
We do not aggregate operating segments when determining our reporting segments.
Operating profit for each of the segments is based on net sales less all identifiable operating expenses. General corporate expense, net interest expense, and income taxes have been excluded from segment operations.
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks |
| $ | 1,022.9 |
|
| $ | 1,129.8 |
|
| $ | 3,143.0 |
|
| $ | 2,901.0 |
|
Refrigerated & Frozen |
|
| 1,076.8 |
|
|
| 1,094.3 |
|
|
| 3,204.2 |
|
|
| 2,636.2 |
|
International |
|
| 220.9 |
|
|
| 228.3 |
|
|
| 659.6 |
|
|
| 640.4 |
|
Foodservice |
|
| 234.4 |
|
|
| 254.7 |
|
|
| 759.7 |
|
|
| 747.6 |
|
Total net sales |
| $ | 2,555.0 |
|
| $ | 2,707.1 |
|
| $ | 7,766.5 |
|
| $ | 6,925.2 |
|
Operating profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks |
| $ | 199.4 |
|
| $ | 225.0 |
|
| $ | 614.8 |
|
| $ | 623.2 |
|
Refrigerated & Frozen |
|
| 190.7 |
|
|
| 189.1 |
|
|
| 533.7 |
|
|
| 441.4 |
|
International |
|
| 22.3 |
|
|
| 29.9 |
|
|
| 73.5 |
|
|
| 89.7 |
|
Foodservice |
|
| 27.2 |
|
|
| 36.8 |
|
|
| 96.6 |
|
|
| 98.8 |
|
Total operating profit |
| $ | 439.6 |
|
| $ | 480.8 |
|
| $ | 1,318.6 |
|
| $ | 1,253.1 |
|
Equity method investment earnings |
|
| 10.4 |
|
|
| 12.7 |
|
|
| 50.3 |
|
|
| 66.6 |
|
General corporate expense |
|
| 75.1 |
|
|
| 62.6 |
|
|
| 262.3 |
|
|
| 386.8 |
|
Pension and postretirement non-service income |
|
| (16.4 | ) |
|
| (9.8 | ) |
|
| (37.2 | ) |
|
| (29.7 | ) |
Interest expense, net |
|
| 117.7 |
|
|
| 130.9 |
|
|
| 361.8 |
|
|
| 260.5 |
|
Income tax expense |
|
| 68.9 |
|
|
| 67.2 |
|
|
| 141.5 |
|
|
| 147.0 |
|
Income from continuing operations |
| $ | 204.7 |
|
| $ | 242.6 |
|
| $ | 640.5 |
|
| $ | 555.1 |
|
Less: Net income attributable to noncontrolling interests |
|
| 0.3 |
|
|
| 0.6 |
|
|
| 1.8 |
|
|
| 1.4 |
|
Income from continuing operations attributable to Conagra Brands, Inc. |
| $ | 204.4 |
|
| $ | 242.0 |
|
| $ | 638.7 |
|
| $ | 553.7 |
|
The following table presents further disaggregation of our net sales:
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||
Frozen |
|
| 910.3 |
|
|
| 899.0 |
|
|
| 2,600.6 |
|
|
| 2,053.4 |
|
Other shelf-stable |
|
| 639.1 |
|
|
| 723.5 |
|
|
| 1,921.0 |
|
|
| 1,810.6 |
|
Snacks |
|
| 383.8 |
|
|
| 406.3 |
|
|
| 1,222.0 |
|
|
| 1,090.4 |
|
Foodservice |
|
| 234.4 |
|
|
| 254.7 |
|
|
| 759.7 |
|
|
| 747.6 |
|
International |
|
| 220.9 |
|
|
| 228.3 |
|
|
| 659.6 |
|
|
| 640.4 |
|
Refrigerated |
|
| 166.5 |
|
|
| 195.3 |
|
|
| 603.6 |
|
|
| 582.8 |
|
Total net sales |
| $ | 2,555.0 |
|
| $ | 2,707.1 |
|
| $ | 7,766.5 |
|
| $ | 6,925.2 |
|
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||
Net sales | |||||||||||||||
Grocery & Snacks | $ | 900.4 | $ | 853.2 | $ | 1,646.2 | $ | 1,610.4 | |||||||
Refrigerated & Frozen | 758.1 | 740.7 | 1,373.8 | 1,345.3 | |||||||||||
International | 220.3 | 211.4 | 411.2 | 406.1 | |||||||||||
Foodservice | 294.6 | 283.1 | 546.4 | 551.1 | |||||||||||
Commercial | — | — | — | 71.1 | |||||||||||
Total net sales | $ | 2,173.4 | $ | 2,088.4 | $ | 3,977.6 | $ | 3,984.0 | |||||||
Operating profit | |||||||||||||||
Grocery & Snacks | $ | 199.8 | $ | 220.2 | $ | 376.0 | $ | 400.7 | |||||||
Refrigerated & Frozen | 128.5 | 118.0 | 230.4 | 210.2 | |||||||||||
International | 20.2 | (26.7 | ) | 39.1 | (175.9 | ) | |||||||||
Foodservice | 47.4 | 31.9 | 70.6 | 53.6 | |||||||||||
Commercial | — | (0.5 | ) | — | 202.8 | ||||||||||
Total operating profit | $ | 395.9 | $ | 342.9 | $ | 716.1 | $ | 691.4 | |||||||
Equity method investment earnings | 20.6 | 17.2 | 50.6 | 30.3 | |||||||||||
General corporate expense | 44.9 | 113.3 | 85.1 | 148.9 | |||||||||||
Interest expense, net | 38.0 | 54.1 | 74.4 | 112.3 | |||||||||||
Income tax expense | 109.5 | 78.4 | 229.5 | 247.6 | |||||||||||
Income from continuing operations | $ | 224.1 | $ | 114.3 | $ | 377.7 | $ | 212.9 | |||||||
Less: Net income attributable to noncontrolling interests of continuing operations | 1.0 | 0.6 | 1.8 | 0.8 | |||||||||||
Income from continuing operations attributable to Conagra Brands, Inc. | $ | 223.1 | $ | 113.7 | $ | 375.9 | $ | 212.1 |
Presentation of Derivative Gains (Losses) for Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives 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.
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||
Gross derivative gains (losses) incurred |
| $ | (5.7 | ) |
| $ | 0.8 |
|
| $ | (12.5 | ) |
| $ | (3.4 | ) |
Less: Net derivative gains (losses) allocated to reporting segments |
|
| (1.9 | ) |
|
| 1.0 |
|
|
| (3.3 | ) |
|
| 0.4 |
|
Net derivative losses recognized in general corporate expenses |
| $ | (3.8 | ) |
| $ | (0.2 | ) |
| $ | (9.2 | ) |
| $ | (3.8 | ) |
Net derivative losses allocated to Grocery & Snacks |
| $ | (0.9 | ) |
| $ | — |
|
| $ | (1.5 | ) |
| $ | (1.0 | ) |
Net derivative losses allocated to Refrigerated & Frozen |
|
| — |
|
|
| (0.2 | ) |
|
| (0.7 | ) |
|
| (0.7 | ) |
Net derivative gains (losses) allocated to International |
|
| (0.8 | ) |
|
| 1.3 |
|
|
| (1.1 | ) |
|
| 2.4 |
|
Net derivative losses allocated to Foodservice |
|
| (0.2 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| (0.3 | ) |
Net derivative gains (losses) included in segment operating profit |
| $ | (1.9 | ) |
| $ | 1.0 |
|
| $ | (3.3 | ) |
| $ | 0.4 |
|
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||
November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | ||||||||||||
Net derivative gains (losses) incurred | $ | 3.0 | $ | 3.0 | $ | (4.4 | ) | $ | 2.7 | ||||||
Less: Net derivative gains (losses) allocated to reporting segments | (4.1 | ) | 3.8 | (5.5 | ) | 2.8 | |||||||||
Net derivative gains (losses) recognized in general corporate expenses | $ | 7.1 | $ | (0.8 | ) | $ | 1.1 | $ | (0.1 | ) | |||||
Net derivative gains (losses) allocated to Grocery & Snacks | $ | (0.4 | ) | $ | 2.4 | $ | (1.0 | ) | $ | 2.0 | |||||
Net derivative gains allocated to Refrigerated & Frozen | 0.1 | 0.7 | 0.1 | 0.5 | |||||||||||
Net derivative gains (losses) allocated to International | (3.7 | ) | 0.2 | (4.4 | ) | 0.2 | |||||||||
Net derivative gains (losses) allocated to Foodservice | (0.1 | ) | 0.5 | (0.2 | ) | 0.2 | |||||||||
Net derivative losses allocated to Commercial | — | — | — | (0.1 | ) | ||||||||||
Net derivative gains (losses) included in segment operating profit | $ | (4.1 | ) | $ | 3.8 | $ | (5.5 | ) | $ | 2.8 |
As of November 26, 2017,February 23, 2020, the cumulative amount of net derivative losses from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was $1.9$7.8 million. This amount reflected net losses of $0.6$8.0 million incurred during the twenty-sixthirty-nine weeks ended November 26, 2017, as well asFebruary 23, 2020 and net lossesgains of $1.3$0.2 million incurred prior to fiscal 2018.2020. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results losses of $1.8$3.9 million in fiscal 20182020 and losses of $0.1$3.9 million in fiscal 20192021 and thereafter.
Assets by Segment
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, it is impracticable to allocate those assets to the reporting segments, as well as disclose total assets by segment. Total depreciation expense was $55.6$84.2 million and $111.7$247.6 million for the secondthird quarter and first halfthree quarters of fiscal 2018,2020, respectively, and $58.2$77.4 million and $117.0$198.6 million for the secondthird quarter and first halfthree quarters of fiscal 2017,and 2019, respectively.
Other Information
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 the third quarter and first three quarters of fiscal 2020 and 2019. Foreign net sales, including sales by domestic segments to customers located outside of the United States, were
approximately $228.0 million and $237.5 million in the third quarter of fiscal 2020 and 2019, respectively. Our foreign net sales during the first three quarters of fiscal 2020 and 2019 were approximately $675.9 million and $683.1 million, respectively. Our long-lived assets located outside of the United States are not significant.
Our largest customer, Wal-Mart Stores,Walmart, Inc. and its affiliates, accounted for approximately 24%27% of consolidated net sales in eachthe third quarter of both fiscal 2020 and 2019 and approximately 26% in the second quarterfirst three quarters of both fiscal 2020 and first half of fiscal 2018 and 2017,2019, primarily in the Grocery & Snacks and Refrigerated & Frozen segments.
Walmart, Inc. and its affiliates accounted for approximately 28% and 26%33% of consolidated net receivables as of NovemberFebruary 23, 2020 and approximately 30% as of May 26, 2017 and May 28, 2017, respectively, primarily in the Grocery & Snacks and Refrigerated & Frozen segments.
We offer certain suppliers access to a third-party service that allows them to view our scheduled payments online. The third partythird-party service also allows suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third party, or any financial institutions concerning this service. All of our accounts payable remain as obligations to our suppliers as stated in our supplier agreements. As of November 26, 2017, $68.7February 23, 2020, $223.9 million of our total accounts payable is payable to suppliers who utilize this third-party service.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information contained in this report includes forward-looking statements within the meaning of the federal securities laws. Examples of forward-looking statements include statements regarding our expected future financial performance or position, results of operations, business strategy, plans and objectives of management for future operations, and other statements that are not historical facts. You can identify forward-looking statements by their use of forward-looking words, such as "may", "will", "anticipate", "expect", "believe", "estimate", "intend", "plan", "should", "seek", or comparable terms.
Readers of this report should understand that these forward-looking statements are not guarantees of performance or results. Forward-looking statements provide our current expectations and beliefs concerning future events and are subject to risks, uncertainties, and factors relating to our business and operations, all of which are difficult to predict and could cause our actual results to differ materially from the expectations expressed in or implied by such forward-looking statements. SuchThese risks, uncertainties, and factors include, among other things: changes in federalthe risk that the cost savings and state tax laws, includingany other synergies from the recently enacted U.S. tax reform legislation;
The discussion that follows should be read together with the unaudited Condensed Consolidated Financial Statements and related notes contained in this report and with the financial statements, related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended May 28, 201726, 2019 and subsequent filings with the SEC. Results for the secondthird quarter of fiscal 20182020 are not necessarily indicative of results that may be attained in the future.
EXECUTIVE OVERVIEW
Conagra Brands, Inc. (the "Company", "Conagra Brands", "we", "us", or "our"), headquartered in Chicago, is one of North America's leading branded food companies. Guided by an entrepreneurial spirit, the Company combines a rich heritage of making great food with a sharpened focus on innovation. The Company's portfolio is evolving to satisfy people's changing food preferences. Its iconic brands such as
Birds Eye®, Marie Callender's®,Fiscal 2019 Pinnacle Acquisition
On November 9, 2016,October 26, 2018, we completed our acquisition of Pinnacle Foods Inc ("Pinnacle"), a branded packaged foods company specializing in shelf-stable and frozen foods. The total amount of consideration paid in connection with the spinoffacquisition was approximately $8.03 billion, consisting of Lamb Weston Holdings, Inc. ("Lamb Weston") through a distribution of 100% of our interest in Lamb Weston to holders, as of November 1, 2016, of outstandingcash and shares of our stock, as described in more detail in the section entitled "Acquisitions" below.
In connection with the Pinnacle acquisition, we issued approximately $8.33 billion of long-term debt and received cash proceeds of $575.0 million ($555.7 million net of related fees) from the issuance of common stock (the "Spinoff"). The transaction effecting this change was structured as a tax-free spinoff.
The integration of Pinnacle is continuing and on-track. We expect to resultsachieve cost synergies of discontinued operations for all periods prior to$305 million per year when the Spinoff.
In the first quarter of fiscal 2017,2020, we completedreorganized our reporting segments to incorporate the sales ofPinnacle operations into our Spicetec Flavors & Seasoningslegacy reporting segments in order to better reflect how the business ("Spicetec") and our JM Swank business for combined proceeds of $489.1 million. The results of operations of Spicetec and JM Swank are included inis now being managed. Prior periods have been reclassified to conform to the Commercial segment.
Fiscal 2020 Third Quarter Results
In the secondthird quarter of fiscal 2018, earnings2020, results reflected a decrease in net sales, including the impact of increased sales volumes, primarilyrecent acquisitions, with organic (excludes the resultimpacts of hurricane-related sales,foreign exchange and a gross margin increase in the Foodservice segment,divested businesses, as well as higheracquisitions until the anniversary date of the acquisition) decreases in each of our operating profit primarilysegments with the exception of a slight increase in theour Refrigerated & Frozen segment, in each case compared to the third quarter of fiscal 2019. Overall gross profit decreased due to higher input costs, higher brand building investments with retailers, lower sales volumes, higher inventory write-offs, and Foodservice segments. The improvedlost profits due to divested businesses, which were partially offset by supply chain realized productivity and cost synergies. Overall segment operating performance also reflected an increaseprofit decreased in each operating segment with the exception of our Refrigerated & Frozen segment. Corporate expenses were higher primarily due to items impacting comparability, as discussed below. There were decreased selling, general and administrative ("SG&A") expenses as a result of cost synergies and removal of costs associated with the divested businesses, offset by increased stock compensation expense. We recognized lower equity method investment earnings, and lower interest expense, and higher income tax expense, in each case compared to the secondthird quarter of fiscal 2017. Overall operating performance2019. Excluding items impacting comparability, our effective tax rate was impacted by higher-than-anticipated inflation, hurricane-related costs, and increased investmentsslightly higher to drive distribution and consumer trial.
Diluted earnings per share in the secondthird quarter of fiscal 20182020 were $0.54.$0.42. Diluted earnings per share in the secondthird quarter of fiscal 20172019 were $0.28, including$0.50. Diluted earnings per share were affected by lower net income, more shares outstanding in the third quarter of $0.26 per diluted share from continuing operations and $0.02 per diluted share from discontinued operations. Severalfiscal 2020 compared to the third quarter of fiscal 2019, as well as several significant items affectaffecting the comparability of year-over-year results of continuing operations (see
Items Impacting Comparability
Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and economic hedging of foreign currency exchange rate risks of anticipated transactions is discussed in the segment review below.
Items of note impacting comparability for the secondthird quarter of fiscal 20182020 included the following:
• | charges totaling $31.8 million ($23.9 million after-tax) in connection with our restructuring plans. |
Items of note impacting comparability for the secondthird quarter of fiscal 20172019 included the following:
• | charges totaling $38.4 million ($28.7 million after-tax) in connection with our restructuring plans, |
• | incremental cost of goods sold of $26.9 million ($20.0 million after-tax) due to the fair value adjustment to inventory resulting from acquisition accounting for Pinnacle, |
• | a gain of $27.3 million ($27.3 million after-tax) related to the novation of a legacy guarantee, |
• | a gain of $18.6 million ($17.5 million after-tax) related to the fair value adjustment of cash settleable equity awards issued in connection with, |
• | an income tax charge of $2.5 million primarily associated with the reduction of the deemed repatriation liability. |
Items of note impacting comparability for the first halfthree quarters of fiscal 20182020 included the following:
• | charges totaling $117.1 million ($90.0 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, |
• | charges totaling $19.3 million ($14.8 million after-tax) related to the impairment of certain brand intangible assets, |
• | a gain of $11.9 million ($8.9 million after-tax) related to a contract settlement, |
• | charges totaling $6.6 million ($5.0 million after-tax) related to a legacy environmental matter, and |
• | an income tax benefit of $52.5 million primarily related to the reorganization of various legacy Pinnacle legal entities and state tax planning strategies. |
Items of note impacting comparability for the first halfthree quarters of fiscal 20172019 included the following:
• | charges totaling $149.9 million ($115.7 million after-tax) in connection with our restructuring plans, |
• | charges totaling $115.8 million ($92.9 million after-tax) associated with costs incurred for acquisitions and planned divestitures, |
• | incremental cost of goods sold of $51.3 million ($38.2 million after-tax) due to the fair value adjustment to inventory resulting from acquisition accounting for Pinnacle, |
• | charges totaling $8.9 million ($6.6 million after-tax) associated with costs incurred for integration activities related to the acquisition of Pinnacle, |
• | a gain of $27.3 million ($27.3 million after-tax) related to the novation of a legacy guarantee, |
• | a gain of $18.6 million ($17.5 million after-tax) related to the fair value adjustment of cash settleable equity awards issued in connection with, and included in the acquisition consideration of the Pinnacle acquisition, |
• | a gain of $15.1 million ($11.6 million after-tax) related to the gain on the sale of an asset within the Ardent Mills joint venture, |
• | a gain of $13.2 million ($9.6 million after-tax) from the sale of the Del Monte® Canada business, |
• | an income tax benefit of $24.3 million related to a tax adjustment of valuation allowance associated with the planned divestiture of the Wesson® oil business. |
Acquisitions
On October 26, 2018, we completed the Pinnacle acquisition. Pursuant to the impairmentAgreement and Plan of goodwillMerger, dated as of June 26, 2018 (the "Merger Agreement"), among the Company, Pinnacle, and other intangible assets in our International segment,
Divestitures
During the third quarter of fiscal 2020, we completed the sale of our SCAE Plan,Lender's® bagel business for net proceeds of $33.2 million, subject to final working capital adjustments. The results of operations of the divested Lender's® bagel business are primarily included in our Refrigerated & Frozen segment, and
During the second quarter of fiscal 2018,2020, we entered into a definitive agreementcompleted the sale of our Direct Store Delivery ("DSD") Snacks business for net proceeds of $139.0 million, subject to acquire the
During the fourth quarter of fiscal 2019, we acquired Angie's Artisan Treats, LLC, makercompleted the sale of
During the fourth quarter of fiscal 2019, we acquired protein-based snacking businesses Thanasi Foods LLC, makeralso completed the sale of
During the fourthfirst quarter of fiscal 2017,2019, we signed an agreement to sell our
Restructuring Plans
In May 2013, we announcedDecember2018, our Board of Directors (the "Board") approved a restructuring and integration plan related to the Supply Chain and Administrative Efficiency Planongoing integration of the recently acquired operations of Pinnacle for the purpose of achieving significant cost synergies between the companies (the "SCAE"Pinnacle Integration Restructuring Plan"), our planas a result of which we expect to integrateincur material charges for exit and restructuredisposal activities under U.S. generally accepted accounting principles. We have approved the operationsincurrence of our Private Brands business, improve selling, generalup to $360.0 million ($255.0 million of cash charges and administrative ("SG&A") 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$105.0 million of non-cash charges) in connection with operational expenditures under the SCAEPinnacle Integration Restructuring 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.
Although we remain unable to make good faith estimates relating to the entire SCAEPinnacle Integration Restructuring Plan, we are reporting on actions initiated through the end of the secondthird quarter of fiscal 2018,2020, including the estimated amounts or range of amounts for each major type of cost expected to be incurred, and the charges that have resulted or will result in cash outflows. We have incurred or expect to incur approximately $363.8 million of charges ($257.8 million of cash charges and $106.0 million of non-cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan. In the third quarter and first three quarters of fiscal 2020, we recognized charges of $19.6 million and $63.5 million, respectively, in association with the Pinnacle Integration Restructuring Plan. In the third quarter and first three quarters of fiscal 2019, we recognized charges of $36.9 million and $139.5 million, respectively, in association with the Pinnacle Integration Restructuring Plan.
In the third quarter of fiscal 2019, we initiated a new restructuring plan for costs in connection with actions taken to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network (the "Conagra Restructuring Plan"). Although we remain unable to make good faith estimates relating to the entire Conagra Restructuring Plan, we are reporting on actions initiated through the end of the third quarter of fiscal 2020, 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 November 26, 2017, the Board of Directors of the Company hasFebruary 23, 2020, we have approved the incurrence of up to $900.9$129.8 million ($36.9 million of expenses in connectioncash charges and $92.9 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 $464.8$126.7 million of charges ($320.735.2 million of cash charges and $144.1$91.5 million of non-cash charges) for actions identified to date under the SCAE Plan related to our continuing operations.Conagra Restructuring Plan. In the secondthird quarter and first halfthree quarters of fiscal 2018,2020, we recognized charges of $7.1$11.9 million and $18.5$52.6 million, respectively, in connection with the Conagra Restructuring Plan. In the third quarter and first three quarters of fiscal 2019, we recognized charges of $1.0 million in connection with the Conagra Restructuring Plan.
As of February 23, 2020, we have substantially completed our restructuring activities related to the Supply Chain and Administrative Efficiency Plan (the "SCAE Plan"). In the third quarter and first three quarters of fiscal 2020, we recognized charges of $0.3 million and $1.0 million, respectively, in association with the SCAE Plan related to our continuing operations.Plan. In the secondthird quarter and first halfthree quarters of fiscal 2017,2019, we recognized charges of $19.8$3.5 million and 33.9$8.6 million, respectively, in association with the SCAE Plan. Our total pre-tax expenses for the SCAE Plan related to our continuing operations.operations are expected to be $471.2 million ($322.0 million of cash charges and $149.2 million of non-cash charges).
COVID – 19
The impact that the recent novel coronavirus (COVID-19) pandemic will have on our consolidated results of operations is uncertain. We expect a decrease in consumer traffic in away-from-home food outlets as a result of COVID-19 across all of our major
markets which will negatively impact our net sales to incur costs relatedcustomers in our Foodservice segment for at least the remainder of fiscal 2020. We have seen increased orders from retail customers in North America subsequent to the SCAE Plan over a multi-year period.
SEGMENT REVIEW
In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business into our legacy reporting segments in order to better reflect how the business is now being managed. We now reflect our results of operations in fivefour reporting segments: Grocery & Snacks, Refrigerated & Frozen, Foodservice, International, and Commercial.
Grocery & Snacks
The Grocery & Snacks reporting segment principally includes branded, shelf stable food products sold in various retail channels in the United States.
Refrigerated & Frozen
The Refrigerated & Frozen reporting segment principally includes branded, temperature controlledtemperature-controlled food products sold in various retail channels in the United States.
International
The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States.
Foodservice
The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and a variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments in the United States.
Presentation of Derivative Gains (Losses) from Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives are 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 the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:
Thirteen weeks ended | Twenty-six weeks ended | ||||||||||||||
($ in millions) | November 26, 2017 | November 27, 2016 | November 26, 2017 | November 27, 2016 | |||||||||||
Net derivative gains (losses) incurred | $ | 3.0 | $ | 3.0 | $ | (4.4 | ) | $ | 2.7 | ||||||
Less: Net derivative gains (losses) allocated to reporting segments | (4.1 | ) | 3.8 | (5.5 | ) | 2.8 | |||||||||
Net derivative gains (losses) recognized in general corporate expenses | $ | 7.1 | $ | (0.8 | ) | $ | 1.1 | $ | (0.1 | ) | |||||
Net derivative gains (losses) allocated to Grocery & Snacks | $ | (0.4 | ) | $ | 2.4 | $ | (1.0 | ) | $ | 2.0 | |||||
Net derivative gains allocated to Refrigerated & Frozen | 0.1 | 0.7 | 0.1 | 0.5 | |||||||||||
Net derivative gains (losses) allocated to International | (3.7 | ) | 0.2 | (4.4 | ) | 0.2 | |||||||||
Net derivative gains (losses) allocated to Foodservice | (0.1 | ) | 0.5 | (0.2 | ) | 0.2 | |||||||||
Net derivative losses allocated to Commercial | — | — | — | (0.1 | ) | ||||||||||
Net derivative gains (losses) included in segment operating profit | $ | (4.1 | ) | $ | 3.8 | $ | (5.5 | ) | $ | 2.8 |
|
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||
($ in millions) |
| February 23, 2020 |
|
| February 24, 2019 |
|
| February 23, 2020 |
|
| February 24, 2019 |
| ||||
Gross derivative gains (losses) incurred |
| $ | (5.7 | ) |
| $ | 0.8 |
|
| $ | (12.5 | ) |
| $ | (3.4 | ) |
Less: Net derivative gains (losses) allocated to reporting segments |
|
| (1.9 | ) |
|
| 1.0 |
|
|
| (3.3 | ) |
|
| 0.4 |
|
Net derivative losses recognized in general corporate expenses |
| $ | (3.8 | ) |
| $ | (0.2 | ) |
| $ | (9.2 | ) |
| $ | (3.8 | ) |
Net derivative losses allocated to Grocery & Snacks |
| $ | (0.9 | ) |
| $ | — |
|
| $ | (1.5 | ) |
| $ | (1.0 | ) |
Net derivative losses allocated to Refrigerated & Frozen |
|
| — |
|
|
| (0.2 | ) |
|
| (0.7 | ) |
|
| (0.7 | ) |
Net derivative gains (losses) allocated to International |
|
| (0.8 | ) |
|
| 1.3 |
|
|
| (1.1 | ) |
|
| 2.4 |
|
Net derivative losses allocated to Foodservice |
|
| (0.2 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| (0.3 | ) |
Net derivative gains (losses) included in segment operating profit |
| $ | (1.9 | ) |
| $ | 1.0 |
|
| $ | (3.3 | ) |
| $ | 0.4 |
|
As of November 26, 2017,February 23, 2020, the cumulative amount of net derivative losses from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was $1.9$7.8 million. This amount reflected net losses of $0.6$8.0 million incurred during the twenty-sixthirty-nine weeks ended November 26, 2017, as well asFebruary 23, 2020 and net lossesgains of $1.3$0.2 million incurred prior to fiscal 2018.2020. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results losses of $1.8$3.9 million in fiscal 20182020 and losses of $0.1$3.9 million in fiscal 20192021 and thereafter.
Net Sales
|
| Net Sales |
| |||||||||||||||||||||
($ in millions) |
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||||||||||
Reporting Segment |
| February 23, 2020 |
|
| February 24, 2019 |
|
| % Inc (Dec) |
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| % Inc (Dec) |
| ||||||
Grocery & Snacks |
| $ | 1,022.9 |
|
| $ | 1,129.8 |
|
|
| (9 | )% |
| $ | 3,143.0 |
|
| $ | 2,901.0 |
|
|
| 8 | % |
Refrigerated & Frozen |
|
| 1,076.8 |
|
|
| 1,094.3 |
|
|
| (2 | )% |
|
| 3,204.2 |
|
|
| 2,636.2 |
|
|
| 22 | % |
International |
|
| 220.9 |
|
|
| 228.3 |
|
|
| (3 | )% |
|
| 659.6 |
|
|
| 640.4 |
|
|
| 3 | % |
Foodservice |
|
| 234.4 |
|
|
| 254.7 |
|
|
| (8 | )% |
|
| 759.7 |
|
|
| 747.6 |
|
|
| 2 | % |
Total |
| $ | 2,555.0 |
|
| $ | 2,707.1 |
|
|
| (6 | )% |
| $ | 7,766.5 |
|
| $ | 6,925.2 |
|
|
| 12 | % |
Net Sales | |||||||||||||||||||||
($ in millions) | Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||||||
Reporting Segment | November 26, 2017 | November 27, 2016 | % Inc (Dec) | November 26, 2017 | November 27, 2016 | % Inc (Dec) | |||||||||||||||
Grocery & Snacks | $ | 900.4 | $ | 853.2 | 6 | % | $ | 1,646.2 | $ | 1,610.4 | 2 | % | |||||||||
Refrigerated & Frozen | 758.1 | 740.7 | 2 | % | 1,373.8 | 1,345.3 | 2 | % | |||||||||||||
International | 220.3 | 211.4 | 4 | % | 411.2 | 406.1 | 1 | % | |||||||||||||
Foodservice | 294.6 | 283.1 | 4 | % | 546.4 | 551.1 | (1 | )% | |||||||||||||
Commercial | — | — | — | % | — | 71.1 | (100 | )% | |||||||||||||
Total | $ | 2,173.4 | $ | 2,088.4 | 4 | % | $ | 3,977.6 | $ | 3,984.0 | — | % |
Net sales for the secondthird quarter of fiscal 20182020 were $2.17$2.56 billion, an increasea decrease of $85.0$152.1 million, or 4%6%, from the secondthird quarter of fiscal 2017.2019. Net sales for the first halfthree quarters of fiscal 20182020 were $3.98$7.77 billion, a decreasean increase of $6.4$841.3 million, or flat,12%, from the first halfthree quarters of fiscal 2017.
Grocery & Snacks net sales for the secondthird quarter of fiscal 20182020 were $900.4 million, an increase$1.02 billion, a decrease of $47.2$106.9 million, or 6%9%, compared to the secondthird quarter of fiscal 2017.2019. Grocery & Snacks net sales for the first halfthree quarters of fiscal 20182020 were $1.65$3.14 billion, an increase of $35.8$242.0 million, or 8%, compared to the first three quarters of fiscal 2019. Results for the third quarter and first three quarters of fiscal 2020 reflected a decrease in volumes of 2% and 1%, respectively, excluding the impact of acquisitions and divestitures, compared to the prior-year periods. The decrease in volumes reflected lower in market performance in our Hunt's® brand and lower consumption across multiple categories in the current quarter due to a warmer than normal winter compared to higher consumption in the prior-year period due to winter storms. Price/mix decreased by 2% for the third quarter of fiscal 2020 and 1% for the first three quarters of fiscal 2020, excluding the impact of acquisitions and divestitures, when compared to the prior-year period due to incremental trade and strategic investments with certain customers and brands. The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $406.3 million, or 14%, to Grocery & Snacks net sales during the first three quarters of fiscal 2020, through the one-year anniversary of the acquisition. The third quarter and first three quarters of fiscal 2020 included $4.4 million and $22.8 million, respectively, of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020. The third quarter and first three quarters of fiscal 2019 included $9.5 million and $28.4 million, respectively, of net sales related to this business. The first three quarters of fiscal 2020 included $46.1 million of net sales related to our DSD Snacks business, which was sold in the second quarter of fiscal 2020. The third quarter and first three quarters of fiscal 2019 included $26.2 million and $32.8 million, respectively, of net sales related to this business. The third quarter and first three quarters of fiscal 2019 also included $37.9 million and $115.9 million, respectively, of net sales related to our divested Wesson® oil business.
Refrigerated & Frozen net sales for the third quarter of fiscal 2020 were $1.08 billion, a decrease of $17.5 million, or 2%, compared to the first half of fiscal 2017. Results for the second quarter of fiscal 2018 reflected a 3% increase in volumes, excluding the impact of acquisitions. The increase in sales volumes was driven by the recent hurricanes through inventory builds in both customer warehouses and consumer pantries in the second quarter of fiscal 2018, which are expected to negatively impact the third quarter of fiscal 2018. Price/mix decreased by 1% in the second quarter of fiscal 2018, compared to the second quarter of fiscal 2017, as a result of investing in higher quality merchandising events intended to drive increased brand saliency with consumers. Results for the first half of fiscal 2018 reflected a 1% decrease in volumes, excluding the impact of acquisitions, reflecting the prior quarter reduction in promotional intensity and planned discontinuation of certain lower-performing products. The acquisitions of Thanasi Foods LLC, BIGS LLC, and Angie's Artisan Treats, LLC contributed $26.4 million and $47.4 million to Grocery & Snacks net sales for the second quarter and first half of fiscal 2018, respectively. The acquisition of Frontera Foods, Inc. and Red Fork LLC contributed $2.1 million and $8.6 million for the second quarter and first half of fiscal 2018, respectively, through the one-year anniversary of the acquisition, which occurred in September 2016.
International net sales for the secondthird quarter of fiscal 20182020 were $220.3$220.9 million, an increasea decrease of $8.9$7.4 million, or 4%3%, compared to the secondthird quarter of fiscal 2017.2019. International net sales for the first halfthree quarters of fiscal 20182020 were $411.2$659.6 million, an increase of $5.1
$19.2 million, or 1%3%, compared to the first halfthree quarters of fiscal 2017.2019. Results for the secondthird quarter of fiscal 20182020, excluding the impact of divestitures, reflected a 2%1% decrease in volume, a 2%1% increase in price/mix, and a 4% increase fromdue to favorable foreign exchange rates, in each case compared to the prior-year period. Results for the first half of fiscal 2018 reflected a 5% decrease in volume, a 3% increase in price/mix, and a 3% increase from foreign exchange rates, in each case compared to the prior-year period. The volume1% decrease in the second quarter and first half of fiscal 2018 reflected strategic decisions to eliminate lower margin products and a reduction in promotional intensity. The increase in price/mix for the second quarter and first half of fiscal 2018 was driven by improvements in pricing and trade productivity.
Foodservice net sales infor the Commercial segment after the firstthird quarter of fiscal 2017. These businesses had2020 were $234.4 million, a decrease of $20.3 million, or 8%, compared to the third quarter of fiscal 2019. Foodservice net sales for the first three quarters of fiscal 2020 were $759.7 million, an increase of $12.1 million, or 2%, compared to the first three quarters of fiscal 2019. Results for both the third quarter and first three quarters of fiscal 2020 reflected a 5% decrease in volume, excluding the impact of acquisitions and divestitures, compared to the prior-year periods. The decline in volume reflected soft restaurant industry trends early in the current quarter and continued execution of the segment's value-over-volume strategy. Price/mix, excluding the impact of acquisitions and divestitures, increased by 2% and 3% in the third quarter and first three quarters of fiscal 2020, respectively, compared to the prior-year periods, reflecting inflation-related pricing and the value-over-volume strategy. The acquisition of Pinnacle contributed $57.7 million, or 8%, for the first three quarters of fiscal 2020, through the one-year anniversary of the acquisition. The third quarter and first three quarters of fiscal 2020 included $0.9 million and $6.6 million, respectively, of net sales related to our Lender's® bagel business, which was sold in the third quarter of fiscal 2020. The third quarter and first three quarters of fiscal 2019 included $2.7 million and $3.6 million, respectively, of net sales related to this business. The first three quarters of fiscal 2020 included $4.6 million of net sales related to our private label peanut butter business, which we exited in the third quarter of fiscal 2020. The third quarter and first three quarters of fiscal 2019 included $2.0 million and $6.3 million, respectively, of net sales related to this business. The third quarter and first three quarters of fiscal 2019 included $11.2 million and $34.2 million, respectively, of net sales related to our divested Wesson® oil business. The first three quarters of fiscal 2019 also included net sales of $71.1$2.0 million for the first half of fiscal 2017, priorrelated to the completion of the divestitures.
SG&A Expenses (includes general corporate expenses)
SG&A expenses totaled $319.9 million for the third quarter of fiscal 2020, a decrease of $110.6$14.2 million, as compared to the secondthird quarter of fiscal 2017.2019. SG&A expenses for the secondthird quarter of fiscal 20182020 reflected the following:
Items impacting comparability of earnings
• | expenses of $20.9 million in connection with our restructuring plans. |
Other changes in expenses compared to the secondthird quarter of fiscal 20172019
• | a decrease in salary, wage, and fringe benefit expense of $17.4 million, largely due to achieved synergies from the Pinnacle acquisition, |
• | a decrease of $6.5 million related to commission expense, |
• | an increase in share-based payment and deferred compensation expense of $5.6 million due to higher share price, |
• | a decrease of $4.8 million related to short-term incentives, |
• | a decrease in royalty expense of $3.8 million, |
• | a decrease in depreciation expense of $2.6 million, |
• | a decrease in franchise tax expense of $2.0, |
• | a decrease of $2.0 related to travel and entertainment expenses, and |
• | a decrease in advertising and promotion spending of $1.9 million. |
SG&A expenses for the secondthird quarter of fiscal 20172019 included the following items impacting the comparability of earnings:
• | expenses of $36.5 million in connection with our restructuring plans, |
• | a benefit of $27.3 million related to the novation of a legacy guarantee, |
• | a benefit of $18.6 million related to the fair value adjustment of cash settleable equity awards issued in connection with, and included in the acquisition consideration of the Pinnacle acquisition, and |
• | expenses of $2.4 million associated with costs incurred for acquisitions and planned divestitures. |
SG&A expenses totaled $546.3 million$1.09 billion for the first halfthree quarters of fiscal 2018, a decrease2020, an increase of $103.3$11.8 million, as compared to the first halfthree quarters of fiscal 2017.2019. SG&A expenses for the first halfthree quarters of fiscal 20182020 reflected the following:
Items impacting comparability of earnings
• | expenses of $93.5 million in connection with our restructuring plans, |
• | expense of $59.0 million related to the impairment of businesses held for sale, |
• | charges totaling $19.3 million related to the impairment of certain brand intangible assets, |
• | a benefit of $11.9 million related to a contract settlement gain, |
• | charges totaling $6.6 million related to a legacy environmental matter, |
• | expenses of $3.6 million associated with costs incurred for acquisitions and planned divestitures, |
• | a net loss of $1.7 million related to divestitures of businesses, and |
• | a benefit of $1.5 million related to a legacy legal matter. |
Other changes in expenses compared to the first halfthree quarters of fiscal 20172019
The increases in SG&A expenses below include the addition of expenses attributable to the Pinnacle business, partially offset by integration synergies:
• | an increase in salary, wage, and fringe benefit expense of $21.5 million, |
• | an increase in share-based payment and deferred compensation expense of $19.9 million due to higher share price and market increases, |
• | an increase of $10.9 million of amortization of definite lived intangible assets, |
• | a decrease in advertising and promotion spending of $8.0 million, |
• | a decrease in self-insured workers' compensation and product liability expense of $7.9 million, |
• | an increase of $7.8 million in computer-related expenses, |
• | a decrease in royalty expense of $5.5 million, |
• | an increase of $3.4 million related to transition services agreement income, and |
• | a decrease of $3.3 million related to professional fees. |
SG&A expenses for the first halfthree quarters of fiscal 20172019 included the following items impacting the comparability of earnings:
• | expenses of $140.7 million in connection with our restructuring plans, |
• | expenses of $103.9 million associated with costs incurred for acquisitions and planned divestitures, |
• | a benefit of $27.3 million related to the novation of a legacy guarantee, |
• | a benefit of $18.6 million related to the fair value adjustment of cash settleable equity awards issued in connection with, and included in the acquisition consideration of the Pinnacle acquisition, |
• | a gain of $13.2 million related to the sale of our Del Monte® Canadian business, and |
• | expenses of $8.9 million related to costs associated with the integration of Pinnacle. |
Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings)
|
| Operating Profit |
| |||||||||||||||||||||
($ in millions) |
| Thirteen weeks ended |
|
| Thirty-nine weeks ended |
| ||||||||||||||||||
Reporting Segment |
| February 23, 2020 |
|
| February 24, 2019 |
|
| % Inc (Dec) |
|
| February 23, 2020 |
|
| February 24, 2019 |
|
| % Inc (Dec) |
| ||||||
Grocery & Snacks |
| $ | 199.4 |
|
| $ | 225.0 |
|
|
| (11 | )% |
| $ | 614.8 |
|
| $ | 623.2 |
|
|
| (1 | )% |
Refrigerated & Frozen |
|
| 190.7 |
|
|
| 189.1 |
|
|
| 1 | % |
|
| 533.7 |
|
|
| 441.4 |
|
|
| 21 | % |
International |
|
| 22.3 |
|
|
| 29.9 |
|
|
| (25 | )% |
|
| 73.5 |
|
|
| 89.7 |
|
|
| (18 | )% |
Foodservice |
|
| 27.2 |
|
|
| 36.8 |
|
|
| (26 | )% |
|
| 96.6 |
|
|
| 98.8 |
|
|
| (2 | )% |
Operating Profit | |||||||||||||||||||||
($ in millions) | Thirteen weeks ended | Twenty-six weeks ended | |||||||||||||||||||
Reporting Segment | November 26, 2017 | November 27, 2016 | % Inc (Dec) | November 26, 2017 | November 27, 2016 | % Inc (Dec) | |||||||||||||||
Grocery & Snacks | $ | 199.8 | $ | 220.2 | (9 | )% | $ | 376.0 | $ | 400.7 | (6 | )% | |||||||||
Refrigerated & Frozen | 128.5 | 118.0 | 9 | % | 230.4 | 210.2 | 10 | % | |||||||||||||
International | 20.2 | (26.7 | ) | N/A | 39.1 | (175.9 | ) | N/A | |||||||||||||
Foodservice | 47.4 | 31.9 | 48 | % | 70.6 | 53.6 | 32 | % | |||||||||||||
Commercial | — | (0.5 | ) | (100 | )% | — | 202.8 | (100 | )% |
Grocery & Snacks operating profit for the secondthird quarter of fiscal 20182020 was $199.8$199.4 million, a decrease of $20.4$25.6 million, or 9%11%, compared to the secondthird quarter of fiscal 2017.2019. Gross profits were $12.0$36.1 million lower in the secondthird quarter of fiscal 20182020 than in the secondthird quarter of fiscal 2017.2019. The lower gross profit was driven by the previously mentioned merchandising investments as well as the impacts of higher input costs and transportation and warehousing costscost inflation, a reduction in profit associated with the recent hurricanes. The acquisitionsdivestiture of Thanasi Foods LLC, BIGS LLC,our DSD Snacks and Angie's Artisan Treats, LLC contributed $9.3 million to Grocery & Snacks gross profit forWesson® oil businesses, the second quarterexit of fiscal 2018. The acquisitionour private label peanut butter business, and lower volume, excluding the impact of Frontera Foods, Inc. and Red Fork LLC contributed $0.6 million in gross profit fordivestitures, partially offset by the second quarterbenefits of fiscal 2018, through the one-year anniversary of the acquisition that occurred in September 2016. Advertising and promotion expenses for the second quarter of fiscal 2018 decreased by $3.9 million compared to the second quarter of fiscal 2017.supply chain realized productivity. Operating profit of the Grocery & Snacks segment was impacted by chargesexpense of $4.0$10.9 million and $1.4$3.0 million in connection withrelated to our restructuring plans in the secondthird quarter of fiscal 20182020 and 2017,2019, respectively. In addition, the secondThe third quarter of fiscal 20182019 included $7.8$17.8 million in charges relatedof incremental cost of goods sold due to acquisitionsthe impact of writing Pinnacle inventory to fair value as part of our acquisition accounting and planned divestitures.
Grocery & Snacks operating profit for the first halfthree quarters of fiscal 20182020 was $376.0$614.8 million, a decrease of $24.7$8.4 million, or 6%1%, compared to the first halfthree quarters of fiscal 2017.2019. Gross profits were $17.3$62.8 million lowerhigher in the first halfthree quarters of fiscal 20182020 than in the first halfthree quarters of fiscal 2017.2019. The lowerhigher gross profit was driven by merchandising investments as well asthe addition of Pinnacle and the benefits of supply chain realized productivity, partially offset by the impacts of higher input costs, and transportation and warehousing costsa reduction in profit associated with the recent hurricanes, offset by improved plant productivity. The acquisitionsdivestiture of Thanasi Foods LLC, BIGS LLC,our DSD Snacks and Angie's Artisan Treats, LLC contributed $15.8 million to Grocery & Snacks gross profit forWesson® oil businesses, and the first halfexit of fiscal 2018. The acquisition of Frontera Foods, Inc. and Red Fork LLC contributed $2.1 million in gross profit for the first half of fiscal 2018, through the one-year anniversary of the acquisition that occurred in September 2016. Advertising and promotion expenses for the first half of fiscal 2018 decreased by $6.5 million compared to the first half of fiscal 2017.our private label peanut butter business. Operating profit of the Grocery & Snacks segment was impacted by chargesexpense of $10.2$49.2 million and $6.3$5.2 million in connection withrelated to our restructuring plans in the first halfthree quarters of fiscal 20182020 and 2017,2019, respectively. In addition, the first halfthree quarters of fiscal 20182020 included $8.6charges of $31.4 million inrelated to the impairment of a business held for sale, a benefit of $11.9 million related to a contract settlement, charges of $3.5 million related to the impairment of certain brand intangible assets, and costs of $3.0 million related to acquisitions and planned divestitures.
Refrigerated & Frozen operating profit for the secondthird quarter of fiscal 20182020 was $128.5$190.7 million, an increase of $10.5$1.6 million, or 9%1%, compared to the secondthird quarter of fiscal 2017.2019. Gross profits were $3.7$6.1 million lower in the secondthird quarter of fiscal 20182020 than in the secondthird quarter of fiscal 2017,2019, driven by inflationincreased input costs and investments to drive distribution, enhanced shelf presence,lost profit associated with the divestitures of our Gelit and trial,Lender's® bagel business, partially offset by increased sales volumes and supply chain realized productivity. Advertising and promotion expenses forOperating profit of the secondRefrigerated & Frozen segment was impacted by expense of $10.5 million related to our restructuring plans in the third quarter of fiscal 2018 decreased by $7.62020. The third quarter of fiscal 2019 included $10.8 million of incremental cost of goods sold due to the impact of writing Pinnacle inventory to fair value as part of our acquisition accounting and the subsequent sale of that inventory and expense of $2.1 million related to our restructuring plans.
Refrigerated & Frozen operating profit for the first three quarters of fiscal 2020 was $533.7 million, an increase of $92.3 million, or 21%, compared to the second quarterfirst three quarters of fiscal 2017.2019. Gross profits were $152.2 million higher in the first three quarters of fiscal 2020 than in the first three quarters of fiscal 2019, due to the addition of Pinnacle and the drivers mentioned above. Operating profit of the Refrigerated & Frozen segment was impacted by charges of $2.2$27.6 million in connection with our restructuring plans in the second quarter of fiscal 2017.
International operating profit for the secondthird quarter of fiscal 20182020 was $20.2$22.3 million, a decrease of $7.6 million, or 25%, compared to an operating loss of $26.7 million in the secondthird quarter of fiscal 2017. The operating loss2019. Gross profits were $13.8 million lower in the secondthird quarter of fiscal 2017 included charges totaling $43.9 million for2020 when compared to the impairment of goodwill in our Mexican operations. Gross profits were $3.2 million higher in the secondthird quarter of fiscal 2018 than in2019, due to higher input costs, increased retailer investments, and the second quartersale of fiscal 2017, as a result of the value over volume strategy through reductions in promotional intensity, improvements in pricing, and trade productivity, and planned discontinuations of certain lower-performing products.
International operating profit for the first halfthree quarters of fiscal 20182020 was $39.1$73.5 million, a decrease of $16.2 million, or 18%, compared to an operating lossthe first three quarters of $175.9fiscal 2019. Gross profits were $12.3 million lower in the first halfthree quarters of fiscal 2017. The operating loss2020
when compared to the first three quarters of fiscal 2019, due to higher input costs, increased retailer investments, and the sales of our Del Monte® Canadian and Wesson® oil businesses, partially offset by the addition of Pinnacle and realized productivity. International gross profits also reflected a decrease of $4.5 million due to foreign exchange rates compared to the prior-year period. Operating profit of the International segment was impacted by expense of $1.4 million and $3.9 million related to our restructuring plans in the first halfthree quarters of fiscal 20172020 and 2019, respectively. In addition, the first three quarters of fiscal 2019 included charges totaling $207.5a gain of $13.2 million related to the sale of our Del Monte® Canadian business and expense of $2.9 million related to costs incurred for acquisitions and planned divestitures.
Foodservice operating profit for the impairment
Foodservice operating profit for the first three quarters of fiscal 2020 was $96.6 million, a decrease of $2.2 million, or 2%, compared to the first three quarters of fiscal 2019. Gross profits were $4.5 million higher in the first halfthree quarters of fiscal 20182020 than in the first halfthree quarters of fiscal 2017, as a result of the value over volume strategy and planned discontinuations of certain lower-performing products.
Interest Expense, Net
Net interest expense was $117.7 million and $130.9 million for the third quarter of inflation-driven increases in pricing.
In addition, the first halfthree quarters of fiscal 2017 was $202.8 million. The company sold the Spicetec and JM Swank businesses in the first quarter2019 included $11.9 million of fiscal 2017, recognizing pre-tax gains totaling $197.7 million. These businesses comprise the entire Commercial segment following the presentation of Lamb Weston as discontinued operations. There are no further operations in the Commercial segment.
Income Taxes
In the third quarter of fiscal 2017, 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. 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.
The effective tax rate in the first half of fiscal 2018 and 2017 was 38% and 54%, respectively.
• | additional state income tax expense related to uncertain tax positions and |
• | an adjustment of valuation allowance associated with the Wesson® oil business. |
The effective tax rate for the first halfthree quarters of fiscal 2018 reflects2020 reflected the above-cited items, as well as the impact of benefits from the settlement of tax issues that were previously reserved, a change in deferred state tax rates due to the integration of Pinnacle activity for tax purposes, a tax planning strategy that will allow utilization of certain state attributes, state tax law changes, additional tax expense associated with non-deductible goodwill related to assets for which an impairment charge was recognized, a benefit from statute lapses on tax issues that were previously reserved, and an income tax benefit associated with a deduction of a prior year federal income tax matter.
The effective tax rate in the repatriationthird quarter of cash fromfiscal 2019 reflected the following:
• | a benefit recognized due to the non-taxability of the novation of a legacy guarantee, |
• | a benefit recognized due to a reduction in the fair value of equity awards subject to limitations on deductibility that were issued to Pinnacle executives as replacement awards at the time of the acquisition, and |
• | an increase to the deemed repatriation tax liability. |
The effective tax rate for the first three quarters of fiscal 2019 reflected the above-cited items, as well as the impact of foreign subsidiaries and the tax expenserestructuring resulting in a benefit related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer made.
Equity Method Investment Earnings
Equity method investment earnings were $20.6$10.4 million and $17.2$12.7 million for the secondthird quarter of fiscal 20182020 and 2017,2019, respectively. Equity method investment earnings were $50.6$50.3 million and $30.3$66.6 million for the first halfthree quarters of fiscal 20182020 and 2017,2019, respectively. Results for the third quarter and first three quarters of fiscal 2020 included a charge of $0.6 million and a gain of $4.2 million, respectively, related to the sale of an asset by the Ardent Mills joint venture. Results for the first three quarters of fiscal 2019 included a gain of $15.1 million from the sale of an asset by the Ardent Mills joint venture. Ardent Mills earnings were higher than they were in the prior-year periods due to more favorable market conditions and continued improvement in operating effectiveness.
Earnings Per Share
Diluted earnings per share in the secondthird quarter of fiscal 20182020 and 2019 were $0.54.$0.42 and $0.50, respectively. Diluted earnings per share in the second quarterfirst three quarters of fiscal 20172020 were $0.28,$1.31. Diluted earnings per share in the first three quarters of fiscal 2019 were $1.27, including earnings of $0.26$1.28 per diluted share from continuing operations and $0.02a loss of $0.01 per diluted share from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital
Our primary financing objective is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives. If necessary, we use short-term debt principally to finance ongoing operations, including our seasonal requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts payable, accrued payroll, and other accrued liabilities), and a combination of equity and long-term debt to finance both our base working capital needs and our non-current assets. We are committed to maintaining an investment grade credit rating.
At November 26, 2017,February 23, 2020, we had a revolving credit facility (the "Facility""Revolving Credit Facility") with a syndicate of financial institutions that providesproviding 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). We have historically used a credit facility principally as a back-up for our
The Revolving Credit Facility contains customary affirmative and negative covenants for unsecured investment grade credit facilities of this type. It generally requires that our ratio of EBITDA (earningsearnings before interest, taxes, depreciation, and amortization)amortization ("EBITDA") to interest expense 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 5.25 through the first quarter of fiscal 2021 to 3.75 to 1.0 (provided that suchfrom the second quarter of fiscal 2023 and thereafter. Each ratio may be increased at the option of the Company in connection with a material transaction), with each ratiois to be calculated on a rolling four-quarter basis. As of November 26, 2017,February 23, 2020, we were in compliance with allthese financial covenants in the Facility.
We had $67.0 millionno amounts outstanding under our commercial paper program.program as of February 23, 2020 and May 26, 2019. The highest level of borrowings during the first halfthree quarters of fiscal 20182020 was $419.9$145.0 million. A
During fiscal 2020 we had $26.2prepaid the remaining $400.0 million outstanding principal balance of our borrowings under our commercial paper program.
During the secondthird quarter of fiscal 2018,2020, we issued $500.0also redeemed $250.0 million in aggregate principal amount of our floating rate notes due October 9,22, 2020. The notes bear interest at a rate equal to three-month LIBOR plus 0.50% per annum.
As of the end of the secondthird quarter of fiscal 2018,2020, 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,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.
We repurchase shares of our common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board of Directors.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. DuringWe plan to repurchase shares under our authorized program only at times and in amounts as are consistent with the first halfprioritization of fiscal 2018, we repurchased 16.9 million shares ofachieving our common stock under this authorization for an aggregate of $580.0 million.leverage targets. The Company's total remaining share repurchase authorization as of November 26, 2017February 23, 2020 was $802.0 million.
On December 12, 2017,10, 2019, the Board of Directors announced a quarterly dividend payment of $0.2125 per share, which willto be paid on March 1, 20183, 2020, to stockholders of record as of the close of business on January 30, 2018.
During the third quarter of fiscal 2020, we completed the sale of our Lender's® bagel business for net proceeds of $33.2 million, subject to final working capital adjustments.
During the second quarter of fiscal 2020, we completed the sale of our DSD Snacks business for net proceeds of $139.0 million, subject to final working capital adjustments.
In addition to our cash flow from operations, which have been sufficient to fund our short-term liquidity needs thus far in the fourth quarter of fiscal 2017,2020, we signed an agreement to sell our
We have access to additional bank loan facilities, if needed.
Cash Flows
During the first halfthree quarters of fiscal 2018,2020, we used $167.4$137.6 million of cash, which was the net result of $420.7$906.5 million generated from operating activities, $366.1$59.9 million used in investing activities, $230.5$984.6 million used in financing activities, and an increase of $8.5$0.4 million due to the effects of changes in foreign currency exchange rates.
Cash generated from operating activities of continuing operations totaled $404.7$906.5 million in the first halfthree quarters of fiscal 2018,2020, as compared to $460.6$745.1 million generated in the first halfthree quarters of fiscal 2017.2019. The decreaseincrease in operating cash flows for the first three quarters of fiscal 2020 compared to the first three quarters of fiscal 2019 was largely due to the resultinclusion of higher income tax payments attributable to continuing operations and changes in working capital primarily driven by increases in accounts receivable and inventory.the additional operating results from the acquisition of Pinnacle. This was partially offset by decreases inincreased interest and tax payments due to significant debt repayments during fiscal 2017, and lower payments related to incentive compensation and our restructuring plans.
Cash used in investing activities of continuing operations totaled $366.1$59.9 million and $5.30 billion in the first halfthree quarters of fiscal 2018, compared to cash provided of $273.9 million2020 and 2019, respectively. Investing activities in the first halfthree quarters of fiscal 2017. Investing activities of continuing operations in the first half of fiscal 20182020 consisted primarily of capital expenditures totaling $123.4$265.3 million and the net proceeds from divestitures totaling $191.4 million, including the sales of our DSD Snacks and Lender's® bagel businesses. Investing activities in the first three quarters of fiscal 2019 consisted mainly of the purchase of Angie's Artisan Treats, LLCPinnacle for $249.6 million,$5.12 billion, net of cash acquired. Investing activities of continuing operations inacquired, capital expenditures totaling $236.1 million, and the first half of fiscal 2017 included proceeds from the salessale of the Spicetecour Del Monte® processed fruit and JM Swank businessesvegetable business in Canada totaling $489.1 million, partially offset by capital expenditures of $118.3 million and the purchase of the operating assets of Frontera Foods, Inc. and Red Fork LLC totaling $108.2 million, net of cash acquired.$32.2 million.
Cash used in financing activities of continuing operations totaled $230.5$984.6 million in the first halfthree quarters of fiscal 2018 and $920.0 million in the first half of fiscal 2017. Financing activities of continuing operations in the first half of fiscal 2018 consisted principally of common stock repurchases totaling $580.0 million, net proceeds from the issuance of long-term debt totaling $497.4 million,2020, compared to cash dividends paid of $171.6 million, and net short-term borrowings of $38.9 million, mainly under our commercial paper program. Cash used in financing activities of continuing operations in the first half of fiscal 2017 reflected long-term debt repayments of $555.8 million, cash dividends paid of $219.4 million, and common stock repurchases totaling $170.1 million, partially offset by net proceeds from employee stock option exercises and the issuance of other stock awards of $47.4 million.
The Company had cash and cash equivalents of $84.0$99.0 million at November 26, 2017February 23, 2020 and $251.4$236.6 million at May 28, 2017,26, 2019, of which $76.8$47.3 million at November 26, 2017February 23, 2020 and $244.9$144.8 million at May 28, 201726, 2019 was held in foreign countries. During the second quarter of fiscal 2018, the Company repatriated $151.3 million of cash balances previously deemed toWe believe that our foreign subsidiaries have invested or will invest any undistributed earnings indefinitely, or that any undistributed earnings will be permanently reinvested outside the U.S. Refer to Note 12 to the Condensed Consolidated Financial Statements containedremitted in this report for more information related to this repatriation of casha tax-neutral transaction, and, related adjustments totherefore, do not provide deferred tax liability. The Tax Cuts and Jobs Act, signed into law on December 22, 2017, will require the Company to pay taxtaxes on the unremittedcumulative undistributed earnings of itsour foreign subsidiaries. The Company is in the process of determining the amount of that tax and expects to record an initial estimate of the impact on our Condensed Consolidated Financial Statements in the third quarter of fiscal 2018.
Our estimate of capital expenditures for fiscal 20182020 is approximately $300$370 million. For the first half of fiscal 2018, we have funded $123.4 million of capital expenditures.
Management believes that existing cash balances, cash flows from operations, existing credit facilities, and access to capital markets will provide sufficient liquidity to meet our repayment of debt, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, planned share repurchases, and payment of anticipated quarterly dividends for at least the next twelve months.
OBLIGATIONS AND COMMITMENTS
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as lease agreements, debt agreements, and unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-pay" contracts). The unconditional purchase obligation arrangements are entered into in our normal course of business in order to ensure adequate levels of sourced product are available. Of these items, debt, notes payable, and capitalfinance lease obligations, which totaled $3.5 billion as of
A summary of our contractual obligations as of
|
| 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 |
| $ | 9,906.6 |
|
| $ | 901.7 |
|
| $ | 2,482.9 |
|
| $ | 1,000.1 |
|
| $ | 5,521.9 |
|
Finance lease obligations |
|
| 152.4 |
|
|
| 20.7 |
|
|
| 39.0 |
|
|
| 26.0 |
|
|
| 66.7 |
|
Operating lease obligations |
|
| 314.1 |
|
|
| 56.3 |
|
|
| 83.2 |
|
|
| 52.4 |
|
|
| 122.2 |
|
Purchase obligations1 and other contracts |
|
| 1,393.5 |
|
|
| 1,143.9 |
|
|
| 130.8 |
|
|
| 59.6 |
|
|
| 59.2 |
|
Notes payable |
|
| 0.8 |
|
|
| 0.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 11,767.4 |
|
| $ | 2,123.4 |
|
| $ | 2,735.9 |
|
| $ | 1,138.1 |
|
| $ | 5,770.0 |
|
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 | $ | 3,321.3 | $ | 189.7 | $ | 626.7 | $ | 445.9 | $ | 2,059.0 | |||||||||
Capital lease obligations | 127.0 | 9.1 | 16.8 | 17.6 | 83.5 | ||||||||||||||
Operating lease obligations | 216.5 | 39.9 | 50.0 | 34.0 | 92.6 | ||||||||||||||
Purchase obligations1 and other contracts | 1,038.2 | 856.9 | 114.3 | 65.3 | 1.7 | ||||||||||||||
Notes payable | 67.1 | 67.1 | — | — | — | ||||||||||||||
Total | $ | 4,770.1 | $ | 1,162.7 | $ | 807.8 | $ | 562.8 | $ | 2,236.8 |
1
We are also contractually obligated to pay interest on our long-term debt and capitalfinance lease obligations. The weighted average coupon interest rate of the long-term debt obligations outstanding as of
The operating lease obligations noted in the table above have not been reduced by non-cancellable sublease rentals of $0.9$5.9 million.
As of May 28, 2017,26, 2019, we had aggregate unfunded pension and postretirement obligations totaling $565.1 million. This amount is$131.7 million and $87.8 million, respectively. As of February 23, 2020, primarily as a result of several interim pension remeasurements, we had aggregate unfunded pension and postretirement obligations totaling $31.1 million and $85.7 million, respectively. These amounts are not included in the table above as the unfunded obligations are remeasured each fiscal year, thereby resulting in our inability to accurately predict the ultimate amount and we do not expecttiming of any future required contributions to be required to make payments to fund these amounts in the foreseeable future.such plans. Based on current statutory requirements, we are not obligated to fund any amount to our qualified pension plans during the next twelve months. We estimate that we will make payments of approximately $15.2$14.2 million and $10.8 million over the next twelve months to fund our pension plans.and postretirement plans, respectively. See Note 14, Pension and Postretirement Benefits, to the Condensed Consolidated Financial Statements contained in this
report and Note 19, Pension and Postretirement Benefits, to the Consolidated Financial Statements and Critical Accounting Estimates – Employment-Related Benefits contained in the Company's Annual Report on Form 10-K for the year ended May 28, 2017, Critical Accounting Estimates - Employment Related Benefits,26, 2019 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 should the third party be unable to perform). In accordance with generally accepted accounting principles, the followingsuch commercial commitments are not recognized as liabilities in our Condensed Consolidated Balance Sheets. As of February 23, 2020, we had other commercial commitments totaling $1.7 million, which will expire in less than one year.
In addition to the other commercial commitments mentioned above, as of February 23, 2020, we had $52.0 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 in the Condensed Consolidated Balance Sheets contained in this report. A summary of our commitments, including commitments associated with equity method investments, as of November 26, 2017 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 | 6.9 | 3.5 | 3.4 | — | — | ||||||||||||||
Total | $ | 7.8 | $ | 4.1 | $ | 3.7 | $ | — | $ | — |
In certain limited situations, we will guarantee an obligation 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. As of November 26, 2017,February 23, 2020, the remaining terms of these arrangements dodid not exceed sixthree years and the maximum amount of future payments we have guaranteed was $3.4$0.7 million.
We also guarantee obligationsan obligation of the Lamb Weston business pursuant to a guarantee arrangementsarrangement that existed prior to the Spinoffspinoff of the Lamb Weston business (the "Spinoff") and remained in place following completion of the Spinoff until such guarantee obligations areobligation is 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, 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 these 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.
The obligations and commitments tablesdisclosed above do not include any reserves for uncertainties in income taxes, as we are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes. The liability for gross unrecognized tax benefits at November 26, 2017February 23, 2020 was $34.0$46.2 million. The net amount of unrecognized tax benefits at November 26, 2017,February 23, 2020, that, if recognized, would impact our effective tax rate was $25.7$32.4 million. Recognition of these tax benefits would have a favorable impact on our effective tax rate.
CRITICAL ACCOUNTING ESTIMATES
A discussion of our critical accounting estimates can be found in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in Part I,II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks affecting us are exposures to price fluctuations of commodity and energy inputs, interest rates, and foreign currencies.
Other than the changes noted below, there have been no material changes in our market risk during the
Commodity Market Risk
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.
Interest Rate Risk
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.
The carrying amount of long-term debt (including current installments) was $3.46$10.02 billion as of
Foreign Currency Risk
In order to reduce exposures for our processing activities related to changes in foreign currency exchange rates, we may enter into forward exchange or option contracts for transactions denominated in a currency other than the functional currency for certain of our operations. This activity primarily relates to economically hedging against foreign currency risk in purchasing inventory and capital equipment, sales of finished goods, and future settlement of foreign denominated assets and liabilities.
Value-at-Risk (VaR)
We employ various tools to monitor our derivative risk, including value-at-risk ("VaR") models. We perform simulations using historical data to estimate potential losses in the fair value of current derivative positions. We use price and volatility information for the prior 90 days in the calculation of VaR that is used to monitor our daily risk. The purpose of this measurement is to provide a single view of the potential risk of loss associated with derivative 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) during the twenty-sixthirty-nine weeks ended November 26, 2017February 23, 2020 and November 27, 2016.February 24, 2019.
|
| Fair Value Impact |
| |||||
In Millions |
| Average During Thirty-nine Weeks Ended February 23, 2020 |
|
| Average During Thirty-nine Weeks Ended February 24, 2019 |
| ||
Energy commodities |
| $ | 0.4 |
|
| $ | 0.4 |
|
Agriculture commodities |
|
| 0.4 |
|
|
| 0.4 |
|
Other commodities |
|
| 0.1 |
|
|
| 0.1 |
|
Foreign exchange |
|
| 0.6 |
|
|
| 0.7 |
|
Fair Value Impact | |||||||
In Millions | Average During Twenty-six Weeks Ended November 26, 2017 | Average During Twenty-six Weeks Ended November 27, 2016 | |||||
Energy commodities | $ | 0.4 | $ | 0.4 | |||
Agriculture commodities | 0.4 | 0.7 | |||||
Foreign exchange | 0.6 | 0.3 |
ITEM 4. 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
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 our internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, its directors, and several of its executive officers are a partydefendants 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 various environmental proceedings and litigation, primarily related to our acquisitionhave an unrealistically positive assessment of the Company's financial prospects in fiscal 1991 of Beatrice Company ("Beatrice"). As a resultlight of the acquisition of Beatrice andPinnacle, thus causing the significant pre-acquisition contingenciesCompany's securities to be overvalued prior to the release of the Beatrice businesses and its former subsidiaries, our condensedCompany's consolidated post-acquisition financial statements reflect liabilities associated with the estimated resolution of these contingencies. Such liabilities include various litigation and environmental proceedings related to businesses divested by Beatrice prior to our acquisition of Beatrice. The litigation proceedings include 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"), and the Company as alleged successors to W. P. Fuller Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967. Although decisions favorable to us have been rendered in Rhode Island, New Jersey, Wisconsin, and Ohio, we remain a defendant in active suits in Illinois and California. The Illinois suit seeks class-wide relief for reimbursement of costs associated with the testing of lead levels in blood. In California, a number of cities and counties joined in a consolidated action seeking abatement of the alleged public nuisance. On September 23, 2013, a trial of the California case concluded in the Superior Court of Californiaresults on December 20, 2018 for the County of Santa Clara, and on January 27, 2014, the court entered a judgment (the "Judgment") against ConAgra Grocery Products and two other defendants ordering the creation of a California abatement fund in the amount of $1.15 billion. Liability is 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 and remanded to the trial court with directions to recalculate the sum to be paid into the abatement fund. The Company has petitioned the California Supreme Court for further review of the decision, which the Company believes to be an unprecedented expansion of current California law. In light of the unsettled nature of California public nuisance law and the ongoing appeal, a loss is considered neither probable nor estimable, and the Company has accordingly not accrued any loss related to this case. In addition, it is not possible to estimate exposure in the remaining case in Illinois, which is based on different legal theories. If ultimately necessary, the Company will look to its insurance policies for coverage; its carriers are on notice. However, the extent of insurance coverage is uncertain, and the Company 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.
For additional information on legal proceedings, please refer to Part I, Item 3 "Legal Proceedings" and Note 17, "Contingencies" to the financial statements, in each case contained in our Annual Report on Form 10-K for the year ended May 28, 2017, and Part II, Item 1 "Legal Proceedings"26, 2019, and Note 13, "Contingencies" to the Condensed Consolidated Financial Statements in each case contained in our subsequentthis Quarterly ReportsReport on Form 10-Q.
ITEM 1A. RISK FACTORS
The disclosure below modifies the risk factors can be found in Item 1A, Risk Factors,previously disclosed in our Annual Report on Form 10-K for the fiscal year ended May 28, 2017,26, 2019. These risks and uncertainties, along with those previously disclosed, could materially adversely affect our Quarterly Reportbusiness or financial results.
Risks Relating to our Business
Deterioration of general economic conditions could harm our business and results of operations.
Our business and results of operations may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs (including fuel surcharges), the negative impacts caused by pandemics and public health crises (including the COVID-19 outbreak), and the effects of governmental initiatives to manage economic conditions.
Volatility in financial markets and deterioration of national and global economic conditions could impact our business and operations in a variety of ways, including as follows:
• | consumers may shift purchases to more generic, lower-priced, or other value offerings, or may forego certain purchases altogether during economic downturns, which could result in a reduction in sales of higher margin products or a shift in our product mix to lower margin offerings adversely affecting the results of our operations; |
• | restrictions on public gatherings or interactions may limit the opportunity for our customers and consumers to purchase our products; |
• | if a significant percentage of our workforce is unable to work, including because of illness or travel or government restrictions in connection with COVID-19, our operations may be negatively impacted; |
• | a shutdown of one or multiple of our manufacturing facilities due to government restrictions or illness in connection with COVID-19; |
• | decreased demand in the restaurant business (including due to COVID-19), particularly casual and fine dining, may adversely affect our Foodservice operations; |
• | decreased demand for our products due to significant unemployment as a result of COVID-19; |
• | volatility in commodity and other input costs could substantially impact our result of operations; |
• | volatility in the equity markets or interest rates could substantially impact our pension costs and required pension contributions; and |
• | it may become more costly or difficult to obtain debt or equity financing to fund operations or investment opportunities, or to refinance our debt in the future, in each case on terms and within a time period acceptable to us. |
Disruption of our supply chain could have an adverse impact on Form 10-Q forour business, financial condition, and results of operations.
Our ability to make, move, and sell our products is critical to our success. Damage or disruption to our supply chain, including third-party manufacturing or transportation and distribution capabilities, due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics (such as the period ended August 27, 2017,coronavirus (COVID-19) outbreak), strikes, government action, or other reasons beyond our control or the control of our suppliers and business partners, could impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, particularly when a product is sourced from a single supplier or location, could adversely affect our business or financial results. In addition, disputes with significant suppliers, including disputes regarding pricing or performance, could adversely affect our ability to supply products to our customers and could materially and adversely affect our product sales, financial condition, and results of operations.
In particular, we are actively monitoring the recent COVID-19 outbreak and its potential impact on our supply chain and our other filings withconsolidated results of operations. Although our products are manufactured in North America and we source the SEC. Duringsignificant majority of our ingredients and raw materials from North America, due to restrictions resulting from the second quarteroutbreak, global supply may become constrained, which may cause the price of fiscal 2018, there were no material changescertain ingredients and raw materials used in our products to increase and/or we may experience disruptions to our previously disclosed risk factors.
We rely on our management team and other key personnel.
We depend on the skills, working relationships, and continued services of key personnel, including our experienced management team. In addition, our ability to achieve our operating goals depends on our ability to identify, hire, train, and retain qualified individuals. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train, and retain other talented personnel. Any such loss or failure could adversely affect our product sales, financial condition, and operating results.
In particular, our continued success will depend in part on our ability to retain the talents and dedication of key employees. If key employees terminate their employment, become ill as a result of the COVID-19 pandemic, or if an insufficient number of sharesemployees is retained to maintain effective operations, our business activities may be adversely affected and our management team's attention may be diverted. In addition, we may not be able to locate suitable replacements for any key employees who leave, or offer employment to potential replacements on reasonable terms, all of common stock purchased during the second quarter of fiscal 2018, the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase program,which could adversely affect our product sales, financial condition, and the approximate dollar value of the maximum number of shares that may yet be purchased under the share repurchase program:
Period | Total Number of Shares (or units) Purchased | Average Price Paid per Share (or unit) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Maximum Number of Shares that may yet be Purchased under the Program (1) | |||||||||
August 28 through September 24, 2017 | — | $ | — | — | $ | 1,081,967,000 | |||||||
September 25 through October 22, 2017 | 2,278,142 | $ | 34.16 | 2,278,142 | $ | 1,004,155,000 | |||||||
October 23 through November 26, 2017 | 5,904,526 | $ | 34.24 | 5,904,526 | $ | 801,968,000 | |||||||
Total Fiscal 2018 Second Quarter Activity | 8,182,668 | $ | 34.22 | 8,182,668 | $ | 801,968,000 |
ITEM 6. EXHIBITS
All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by Conagra Brands, Inc. (file number 001-07275), unless otherwise noted.
EXHIBIT | DESCRIPTION | |
3.1 | ||
3.2 | ||
31.1 | ||
31.2 | ||
32 | ||
101 | The following materials from Conagra Brands' Quarterly Report on Form 10-Q for the quarter ended | |
104 | ||
Cover Page Interactive Data File (embedded within the |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CONAGRA BRANDS, INC. | |||
By: | /s/ DAVID S. MARBERGER | ||
David S. Marberger | |||
Executive Vice President and Chief Financial Officer | |||
By: | /s/ ROBERT G. WISE | ||
Robert G. Wise | |||
Senior Vice President and Corporate Controller |
Dated this 4th31st day of January, 2018.
52