Conagra Brands
Annual Report
2019
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222 Merchandise Mart Plaza
Suite 1300
Chicago, IL 60654
©Conagra Brands, Inc. All rights reserved.
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DEAR FELLOW SHAREHOLDERS
DEAR FELLOW SHAREHOLDERS
In each of the last four years, my letter to you has focused
In each of the last four years, my letter to you has focused
on a common theme: the incredible transformation
on a common theme: the incredible transformation
under way here at Conagra Brands. This year’s letter
under way here at Conagra Brands. This year’s letter
will not break from that tradition. During fiscal 2019, we
will not break from that tradition. During fiscal 2019, we
continued our work to strengthen Conagra’s portfolio,
continued our work to strengthen Conagra’s portfolio,
capabilities and culture to accelerate growth and maximize
capabilities and culture to accelerate growth and maximize
value creation. Ultimately, fiscal 2019 was another year of
value creation. Ultimately, fiscal 2019 was another year of
remarkable transition for Conagra Brands.
remarkable transition for Conagra Brands.
Transformation of our portfolio has been a key priority of
Transformation of our portfolio has been a key priority of
ours since my tenure with the company began. In fiscal
ours since my tenure with the company began. In fiscal
2019, we made significant strides in this regard. First, we
2019, we made significant strides in this regard. First, we
launched an expansive innovation slate, particularly in our
launched an expansive innovation slate, particularly in our
frozen food and snacking businesses. Terrific new products
frozen food and snacking businesses. Terrific new products
across brands like Healthy Choice,® Marie Callender’s® and
across brands like Healthy Choice,® Marie Callender’s® and
Banquet® enabled our frozen single-serve meals portfolio
Banquet® enabled our frozen single-serve meals portfolio
to drive growth for the entire category. Within snacks,
to drive growth for the entire category. Within snacks,
our innovation led growth beyond our expectations and
our innovation led growth beyond our expectations and
contributions from every key snacking vertical: popcorn,
contributions from every key snacking vertical: popcorn,
meat snacks, sweet treats and seeds. Our fiscal 2019
meat snacks, sweet treats and seeds. Our fiscal 2019
innovation initiatives helped Conagra deliver organic net
innovation initiatives helped Conagra deliver organic net
sales growth for the second year in a row.
sales growth for the second year in a row.
Beyond innovating our existing portfolio in fiscal 2019,
Beyond innovating our existing portfolio in fiscal 2019,
we accelerated the next wave of change through the
we accelerated the next wave of change through the
acquisition of Pinnacle Foods. Pinnacle was an obvious
acquisition of Pinnacle Foods. Pinnacle was an obvious
fit for Conagra, and the acquisition increased our scale,
fit for Conagra, and the acquisition increased our scale,
enhanced our frozen platform and added leading, iconic
enhanced our frozen platform and added leading, iconic
brands in attractive categories. Since completing the
brands in attractive categories. Since completing the
transaction in October 2018, we’ve made tremendous
transaction in October 2018, we’ve made tremendous
progress integrating the business, realizing synergies
progress integrating the business, realizing synergies
and positioning Pinnacle’s largest brands—Bird’s Eye,®
and positioning Pinnacle’s largest brands—Bird’s Eye,®
Duncan Hines® and Wish-Bone®— for a return to growth.
Duncan Hines® and Wish-Bone®— for a return to growth.
The Pinnacle acquisition also enhanced our portfolio of
The Pinnacle acquisition also enhanced our portfolio of
better-for-you brands. Particularly exciting among these
better-for-you brands. Particularly exciting among these
brands is Gardein,® the second largest plant-based meat
brands is Gardein,® the second largest plant-based meat
alternative brand in the marketplace today.1 We believe
alternative brand in the marketplace today.1 We believe
that Gardein is well positioned to capitalize on the
that Gardein is well positioned to capitalize on the
exciting growth in consumer interest in plant-based
exciting growth in consumer interest in plant-based
meat alternatives. Gardein already provides center-of-plate
meat alternatives. Gardein already provides center-of-plate
offerings across all day parts, and we’re excited
offerings across all day parts, and we’re excited
to bring more plant-based proteins to consumers in
to bring more plant-based proteins to consumers in
the years ahead.
the years ahead.
of net sales growth. Our fiscal 2019 gross profit increased
of net sales growth. Our fiscal 2019 gross profit increased
12.8%, again driven by the Pinnacle acquisition. Adjusted
12.8%, again driven by the Pinnacle acquisition. Adjusted
gross profit increased 15.5%.2 The impact of our financing
gross profit increased 15.5%.2 The impact of our financing
for the Pinnacle acquisition led to a 21.5% decline in diluted
for the Pinnacle acquisition led to a 21.5% decline in diluted
earnings per share from continuing operations (EPS)
earnings per share from continuing operations (EPS)
in fiscal 2019, and a decline in adjusted EPS of 4.7%.2
in fiscal 2019, and a decline in adjusted EPS of 4.7%.2
However, the company continued its history of strong
However, the company continued its history of strong
cash flow generation from its earnings. We generated $1.1
cash flow generation from its earnings. We generated $1.1
billion in net cash flows from operating activities (continuing
billion in net cash flows from operating activities (continuing
operations) in fiscal 2019 and $761 million2 of free cash
operations) in fiscal 2019 and $761 million2 of free cash
flow, both of which were above expectations.
flow, both of which were above expectations.
Our strong cash flow results enabled us to remain on track
Our strong cash flow results enabled us to remain on track
with our post-Pinnacle deleveraging plan. We reduced debt
with our post-Pinnacle deleveraging plan. We reduced debt
by $886 million from the close of the acquisition through
by $886 million from the close of the acquisition through
the end of the fiscal year. We remain fully committed
the end of the fiscal year. We remain fully committed
to achieving our goal of a net debt to adjusted EBITDA
to achieving our goal of a net debt to adjusted EBITDA
leverage ratio of 3.6 to 3.5 times by the end of fiscal 2021
leverage ratio of 3.6 to 3.5 times by the end of fiscal 2021
and maintaining a solid investment grade credit rating.
and maintaining a solid investment grade credit rating.
We also continued to prioritize returning capital to our
We also continued to prioritize returning capital to our
shareholders in fiscal 2019. During the year, we paid cash
shareholders in fiscal 2019. During the year, we paid cash
dividends of $356 million.
dividends of $356 million.
Delivering on financial commitments to shareholders will
Delivering on financial commitments to shareholders will
always remain our priority. However, we firmly believe that
always remain our priority. However, we firmly believe that
we can do well by doing good. During fiscal 2019 we made
we can do well by doing good. During fiscal 2019 we made
great progress on our Corporate Social Responsibility
great progress on our Corporate Social Responsibility
(CSR) agenda and I invite you to visit our website to
(CSR) agenda and I invite you to visit our website to
read our citizenship report. The report provides detail on
read our citizenship report. The report provides detail on
our four CSR focus areas—Better Planet, Good Food,
our four CSR focus areas—Better Planet, Good Food,
Stronger Communities and Responsible Sourcing.
Stronger Communities and Responsible Sourcing.
Team members across Conagra Brands have once
Team members across Conagra Brands have once
again come together to deliver against our important
again come together to deliver against our important
initiatives in this space.
initiatives in this space.
Looking ahead, I remain confident that Conagra Brands
Looking ahead, I remain confident that Conagra Brands
has the portfolio, capabilities and people to deliver
has the portfolio, capabilities and people to deliver
sustainable, profitable growth for you, our owners.
sustainable, profitable growth for you, our owners.
I want to thank all of our dedicated employees across
I want to thank all of our dedicated employees across
the globe for their commitment to creating value at
the globe for their commitment to creating value at
Conagra Brands, and I’d like to thank you for your
Conagra Brands, and I’d like to thank you for your
continued confidence in us.
continued confidence in us.
As a result of our focus on reshaping the Conagra Brands
As a result of our focus on reshaping the Conagra Brands
portfolio over the last several years, we enter fiscal 2020
portfolio over the last several years, we enter fiscal 2020
with a solid foundation from which to deliver for investors.
with a solid foundation from which to deliver for investors.
Sincerely,
Sincerely,
Turning to our fiscal 2019 financials, we delivered a net
Turning to our fiscal 2019 financials, we delivered a net
sales increase of 20.2%, driven by the Pinnacle acquisition.
sales increase of 20.2%, driven by the Pinnacle acquisition.
Organic net sales grew 0.3%,2 our second consecutive year
Organic net sales grew 0.3%,2 our second consecutive year
Sean M. Connolly
Sean M. Connolly
President and Chief Executive Officer
President and Chief Executive Officer
1 IRI MULO Current Year May 2018 - April 2019
1 IRI MULO Current Year May 2018 - April 2019
2 This measure is a non-GAAP financial measure. For a reconciliation of this measure to the most directly comparable GAAP
2 This measure is a non-GAAP financial measure. For a reconciliation of this measure to the most directly comparable GAAP
measure, please see Reconciliation For Regulation G Purposes beginning on page 112.
measure, please see Reconciliation For Regulation G Purposes beginning on page 112.
3 The inability to predict the amount and timing of the impacts of foreign exchange, acquisitions, divestitures, and other items
3 The inability to predict the amount and timing of the impacts of foreign exchange, acquisitions, divestitures, and other items
impacting comparability makes a detailed reconciliation of this forward-looking non-GAAP financial measure impracticable.
impacting comparability makes a detailed reconciliation of this forward-looking non-GAAP financial measure impracticable.
BOARD OF DIRECTORS
BOARD OF DIRECTORS
LEADERSHIP
LEADERSHIP
Anil Arora
Anil Arora
Richard H. Lenny
Richard H. Lenny
Sean Connolly
Sean Connolly
Director and Former Vice Chairman of
Director and Former Vice Chairman of
Former Chairman and Chief Executive
Former Chairman and Chief Executive
Chief Executive Officer
Chief Executive Officer
Envestnet, Inc.; Former Chief Executive
Envestnet, Inc.; Former Chief Executive
Officer of The Hershey Company
Officer of The Hershey Company
and President
and President
of Envestnet | Yodlee
of Envestnet | Yodlee
Director since July 2018
Director since July 2018
Director since March 2009 and Non-
Director since March 2009 and Non-
Executive Chairman since May 2018
Executive Chairman since May 2018
Colleen Batcheler
Colleen Batcheler
Thomas K. Brown
Thomas K. Brown
Melissa Lora
Melissa Lora
Retired Group Vice President of Global
Retired Group Vice President of Global
Retired President of Taco Bell
Retired President of Taco Bell
Purchasing at Ford Motor Company
Purchasing at Ford Motor Company
International, a part of
International, a part of
Director since October 2013
Director since October 2013
YUM! Brands, Inc.
YUM! Brands, Inc.
Stephen G. Butler
Stephen G. Butler
Retired Chairman and
Retired Chairman and
Director since January 2019
Director since January 2019
Ruth Ann Marshall
Ruth Ann Marshall
Executive Vice President,
Executive Vice President,
General Counsel and
General Counsel and
Corporate Secretary
Corporate Secretary
Dave Biegger
Dave Biegger
Executive Vice President,
Executive Vice President,
Chief Supply Chain Officer
Chief Supply Chain Officer
Chief Executive Officer of KPMG LLP
Chief Executive Officer of KPMG LLP
Retired President of MasterCard
Retired President of MasterCard
Charisse Brock
Charisse Brock
Director since May 2003
Director since May 2003
International’s Americas division
International’s Americas division
Executive Vice President,
Executive Vice President,
Director since May 2007
Director since May 2007
Chief Human Resources Officer
Chief Human Resources Officer
President and Chief Executive Officer
President and Chief Executive Officer
Craig P. Omtvedt
Craig P. Omtvedt
Retired Senior Vice President
Retired Senior Vice President
and Chief Financial Officer of
and Chief Financial Officer of
Fortune Brands, Inc.
Fortune Brands, Inc.
Scott Ostfeld
Scott Ostfeld
Partner of JANA Partners LLC
Partner of JANA Partners LLC
Director since November 2016
Director since November 2016
Jon Harris
Jon Harris
Derek De La Mater
Derek De La Mater
Executive Vice President,
Executive Vice President,
Chief Customer Officer
Chief Customer Officer
Senior Vice President,
Senior Vice President,
Chief Communications Officer
Chief Communications Officer
and co-portfolio manager of JANA’s
and co-portfolio manager of JANA’s
David Marberger
David Marberger
engagement strategy.
engagement strategy.
Director since February 2019
Director since February 2019
Executive Vice President,
Executive Vice President,
Chief Financial Officer
Chief Financial Officer
Sean M. Connolly
Sean M. Connolly
of Conagra Brands, Inc.
of Conagra Brands, Inc.
since April 2015
since April 2015
Director since April 2015
Director since April 2015
Joie A. Gregor
Joie A. Gregor
Retired Managing Director
Retired Managing Director
for Leadership Development
for Leadership Development
at Warburg Pincus, LLC
at Warburg Pincus, LLC
Director since February 2009
Director since February 2009
Rajive Johri
Rajive Johri
Former President and Director
Former President and Director
of First National Bank of Omaha
of First National Bank of Omaha
Director since January 2009
Director since January 2009
Tom McGough
Tom McGough
Executive Vice President,
Executive Vice President,
Co-Chief Operating Officer
Co-Chief Operating Officer
Darren Serrao
Darren Serrao
Executive Vice President,
Executive Vice President,
Co-Chief Operating Officer
Co-Chief Operating Officer
Mindy Simon
Mindy Simon
Senior Vice President,
Senior Vice President,
Chief Information Officer
Chief Information Officer
Robert Wise
Robert Wise
Senior Vice President,
Senior Vice President,
Corporate Controller
Corporate Controller
THIS IS A GREENER
THIS IS A GREENER
ANNUAL REPORT
ANNUAL REPORT
The paper for this publication is
The paper for this publication is
FSC® certified and meets the strict
FSC® certified and meets the strict
standards of the Forest Stewardship
standards of the Forest Stewardship
Council,® which promotes
Council,® which promotes
environmentally appropriate, socially
environmentally appropriate, socially
beneficial and economically viable
beneficial and economically viable
management of the world’s forests.
management of the world’s forests.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended May 26, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File No. 1-7275
_________________________________________________
CONAGRA BRANDS, INC.
(Exact name of registrant as specified in its charter)
__________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
222 W. Merchandise Mart Plaza, Suite 1300
Chicago, Illinois
(Address of principal executive offices)
47-0248710
(I.R.S. Employer
Identification No.)
60654
(Zip Code)
Registrant’s telephone number, including area code (312) 549-5000
___________________________________________________
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Common Stock, $5.00 par value
Trading Symbol(s)
Name of each exchange on which registered
CAG
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
No
No
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
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.:
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
Smaller reporting company
Emerging growth company
Non-accelerated filer
Accelerated filer
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 Act). Yes
The aggregate market value of the voting common stock of Conagra Brands, Inc. held by non-affiliates on November 23, 2018 (the last business day of the
Registrant's most recently completed second fiscal quarter) was approximately $16,118,457,515 based upon the closing sale price on the New York Stock Exchange on
such date.
No
At June 23, 2019, 486,129,815 common shares were outstanding.
Documents Incorporated by Reference
Portions of the Registrant’s definitive Proxy Statement for the Registrant's 2019 Annual Meeting of Stockholders (the "2019 Proxy Statement") are incorporated
by reference into Part III.
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Table of Contents
PART I
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3
Item 4 Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . .
Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8
Consolidated Statements of Operations for the Fiscal Years Ended May 2019, 2018, and
2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended May 2019,
2018, and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of May 26, 2019 and May 27, 2018 . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Common Stockholders' Equity for the Fiscal Years Ended May
2019, 2018, and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Fiscal Years Ended May 2019, 2018, and
2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III
Item 10 Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 12
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13 Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14
Part IV
Item 15 Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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PART I
This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results, performance
or achievements could differ materially from those projected in the forward-looking statements as a result of a number of
risks, uncertainties, and other factors. For a discussion of important factors that could cause our results, performance, or
achievements to differ materially from any future results, performance, or achievements expressed or implied by our forward-
looking statements, please refer to Item 1A, Risk Factors and Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations below.
ITEM 1. BUSINESS
General Development of Business
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 that enables the Company to evolve its portfolio to satisfy people's
changing food preferences. Its iconic brands such as Birds Eye®, Marie Callender's®, Banquet®, Healthy Choice®, Slim
Jim®, Reddi-wip®, and Vlasic®, as well as emerging brands, including Angie's® BOOMCHICKAPOP®, Duke's®, Earth
Balance®, Gardein®, and Frontera®, offer choices for every occasion.
We began as a Midwestern flour-milling company and entered other commodity-based businesses throughout our history.
We were initially incorporated as a Nebraska corporation in 1919 and reincorporated as a Delaware corporation in January
1976. Over time, we transformed into the branded, pure-play consumer packaged goods food company we are today. We
achieved this through various acquisitions, including consumer food brands such as Banquet®, Chef Boyardee®, Marie
Callender’s®, Alexia®, Blake's®, Frontera®, Duke’s®, BIGS®, Birds Eye®, Vlasic®, and divestitures. We have divested our Lamb
Weston business, Private Brands business, Spicetec Flavors & Seasonings business, JM Swank business, Wesson® oil business,
Italian-based frozen pasta business, milling business, dehydrated and fresh vegetable operations, and a trading and
merchandising business, among others. Growing our food businesses has also been fueled by innovation, organic growth of
our brands, and expansion into adjacent categories. We are focused on delivering sustainable, profitable growth with strong
and improving returns on our invested capital.
On October 26, 2018, we completed our acquisition of Pinnacle Foods Inc. ("Pinnacle"). As a result of the acquisition,
Pinnacle became a wholly-owned subsidiary of the Company.
On November 9, 2016, we completed the spinoff of Lamb Weston Holdings, Inc. ("Lamb Weston") through a distribution
of 100% of our interest in Lamb Weston to holders, as of November 1, 2016, of outstanding shares of our common stock (the
"Spinoff"). The transaction effecting this change was structured as a tax-free spinoff.
In January 2013, we acquired Ralcorp Holdings, Inc. ("Ralcorp"), a manufacturer of private branded food. Since the
acquisition of Ralcorp, we focused on addressing executional shortfalls and customer service issues intended to improve
operating performance for our Private Brands business. However, after further review of the Private Brands business, we
changed our strategic direction and divested the Private Brands business in the third quarter of fiscal 2016.
Narrative Description of Business
We compete throughout the food industry and focus on adding value for our customers who operate in the retail food and
foodservice channels.
Our operations, including our reporting segments, are described below. Our locations, including manufacturing facilities,
within each reporting segment, are described in Item 2, Properties.
1
Reporting Segments
Our reporting segments are as follows:
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-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
primarily in the United States.
Pinnacle Foods
The Pinnacle Foods reporting segment includes branded and private-label food products, in various temperature states,
sold in various retail and foodservice channels in the United States and Canada. Results of the Pinnacle Foods segment reflect
activity beginning on October 26, 2018, the closing date of the acquisition.
Commercial Foods
We previously had a Commercial reporting segment that included commercially branded and private label food and
ingredients, which were sold primarily to commercial, restaurant, foodservice, food manufacturing, and industrial customers.
The segment's primary food items included a variety of vegetable, spice, and frozen bakery goods, which were sold under
brands such as Spicetec Flavors & Seasonings®. In the first quarter of fiscal 2017, we sold our Spicetec and JM Swank
businesses. These businesses comprised the entire Commercial segment following the presentation of Lamb Weston as
discontinued operations.
Unconsolidated Equity Investments
We have two unconsolidated equity investments. Our most significant equity method investment is a milling business.
Acquisitions
On October 26, 2018, we completed the acquisition of Pinnacle. As a result of the acquisition, Pinnacle became a wholly-
owned subsidiary of the Company. Pursuant to the Agreement and Plan of Merger, dated as of June 26, 2018 (the "Merger
Agreement"), among Conagra Brands, Pinnacle, and Patriot Merger Sub Inc., a wholly-owned subsidiary of Conagra Brands
that ceased to exist at the effective time of the merger, each share of Pinnacle common stock issued and outstanding immediately
prior to the effective time of the merger was converted into the right to receive (i) $43.11 per share in cash and (ii) 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 shares of 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 to former holders of Pinnacle stock; and (3) replacement awards issued to former Pinnacle employees representing
the fair value attributable to pre-combination service of $51.1 million. Approximately $7.02 billion of the purchase price has
been allocated to goodwill, pending determination of the final purchase price allocation. Approximately $3.52 billion has
been allocated to brands, trademarks and other intangibles. Of the total goodwill, $236.7 million is deductible for tax purposes.
Amortizable brands, trademarks and other intangibles totaled $668.7 million. Indefinite lived brands, trademarks and other
intangibles totaled $2.85 billion. This business is reflected in the Pinnacle Foods segment.
2
In February 2018, we acquired the Sandwich Bros. of Wisconsin® business, maker of frozen breakfast and entree flatbread
pocket sandwiches. This business is included in the Refrigerated & Frozen segment.
In October 2017, we acquired Angie's Artisan Treats, LLC, maker of Angie's® BOOMCHICKAPOP® ready-to-eat popcorn.
This business is primarily included in the Grocery & Snacks segment.
In April 2017, we acquired protein-based snacking businesses Thanasi Foods LLC, maker of Duke’s® meat snacks, and
BIGS LLC, maker of BIGS® seeds. These businesses are primarily included in the Grocery & Snacks segment.
In September 2016, we acquired the operating assets of Frontera Foods, Inc. and Red Fork LLC, including the Frontera®,
Red Fork®, and Salpica® brands (the "Frontera acquisition"). These businesses make authentic, gourmet Mexican food products
and contemporary American cooking sauces. These businesses are included primarily in the Grocery & Snacks and Refrigerated
& Frozen segments, and to a lesser extent within the International segment.
Divestitures
On May 24, 2019, we completed the sale of our Italian-based frozen pasta business, Gelit, for proceeds net of cash divested
of $77.5 million, subject to final working capital adjustments. The business results were previously reported in our Refrigerated
& Frozen segment. The assets and liabilities of this business have been reclassified as assets and liabilities held for sale within
our Consolidated Balance Sheets for all periods presented prior to the divestiture.
During the fourth quarter of fiscal 2019, we completed the sale of our Wesson® oil business for net proceeds of $171.8
million, subject to final working capital adjustments. The business results were previously reported primarily in our Grocery
& Snacks segment, and to a lesser extent within the Foodservice and International segments. The assets of this business have
been reclassified as assets held for sale within our Consolidated Balance Sheets for all periods presented prior to the divestiture.
During the first quarter of fiscal 2019, we completed the sale of our Del Monte® processed fruit and vegetable business
in Canada for combined proceeds of $32.2 million. The results of operations of the divested Del Monte® business are included
in our International segment for the periods preceding the completion of the transaction. The assets of this business have been
reclassified as assets held for sale within our Consolidated Balance Sheets for all periods presented prior to the divestiture.
On November 9, 2016, we completed the Spinoff of our Lamb Weston business. As of such date, we did not beneficially
own any equity interest in Lamb Weston and no longer consolidated Lamb Weston into our financial results. We reflected the
results of this business as discontinued operations for all periods presented.
In the first quarter of fiscal 2017, we completed the sales of our Spicetec Flavors & Seasonings business ("Spicetec")
and our JM Swank business for combined proceeds of $489.0 million. The results of operations of Spicetec and JM Swank
are included in the Commercial segment.
General
The following comments pertain to all of our reporting segments.
Conagra Brands is a branded consumer packaged goods food company that operates in many sectors of the food industry,
with a significant focus on the sale of branded, private branded, and value-added consumer food, as well as foodservice items
and ingredients. We use many different raw materials, the bulk of which are commodities. The prices paid for raw materials
used in making our food generally reflect factors such as weather, commodity market fluctuations, currency fluctuations,
tariffs, and the effects of governmental agricultural programs. Although the prices of raw materials can be expected to fluctuate
as a result of these factors, we believe such raw materials to be in adequate supply and generally available from numerous
sources. From time to time, we have faced increased costs for many of our significant raw materials, packaging, and energy
inputs. We seek to mitigate higher input costs through productivity and pricing initiatives, and the use of derivative instruments
to economically hedge a portion of forecasted future consumption.
We experience intense competition for sales of our food items in our major markets. Our food items compete with widely
advertised, well-known, branded food, as well as private branded and customized food items. Some of our competitors are
larger and have greater resources than we have. We compete primarily on the basis of quality, value, customer service, brand
recognition, and brand loyalty.
Demand for certain of our food items may be influenced by holidays, changes in seasons, or other annual events.
3
We manufacture, primarily for stock and fill, our customer orders from finished goods inventories. While at any given
time there may be some backlog of orders, such backlog is not material in respect to annual net sales, and the changes of
backlog orders from time to time are not significant.
Our trademarks are of material importance to our business and are protected by registration or other means in the United
States and most other markets where the related food items are sold. Some of our food items are sold under brands that have
been licensed from others. We also actively develop and maintain a portfolio of patents, although no single patent is considered
material to the business as a whole. We have proprietary trade secrets, technology, know-how, processes, and other intellectual
property rights that are not registered.
Many of our facilities and products we make are subject to various laws and regulations administered by the United States
Department of Agriculture, the Federal Food and Drug Administration, the Occupational Safety and Health Administration,
and other federal, state, local, and foreign governmental agencies relating to the food safety and quality, sanitation, safety and
health matters, and environmental control. We believe that we comply with such laws and regulations in all material respects
and that continued compliance with such regulations will not have a material effect upon capital expenditures, earnings, or
our competitive position.
Our largest customer, Walmart, Inc. and its affiliates, accounted for approximately 24% of consolidated net sales for each
of fiscal 2019, 2018, and 2017.
As of May 26, 2019, Conagra Brands and its subsidiaries had approximately 18,000 employees, primarily in the United
States. Approximately 51% of our employees are parties to collective bargaining agreements. Of the employees subject to
collective bargaining agreements, approximately 23% are parties to collective bargaining agreements scheduled to expire
during fiscal 2020. We believe our relationships with employees and their representative organizations are good.
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF JULY 19, 2019
Title & Capacity
Name
Sean M. Connolly . . . . . . President and Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . .
David S. Marberger . . . . . Executive Vice President and Chief Financial Officer . . . . . . . . . . . . . .
Colleen R. Batcheler . . . . Executive Vice President, General Counsel and Corporate Secretary . .
David B. Biegger . . . . . . . Executive Vice President, Chief Supply Chain Officer . . . . . . . . . . . . .
Charisse Brock . . . . . . . . . Executive Vice President, Chief Human Resources Officer. . . . . . . . . .
Thomas M. McGough . . . Executive Vice President and Co-Chief Operating Officer . . . . . . . . . .
Darren C. Serrao . . . . . . . Executive Vice President and Co-Chief Operating Officer . . . . . . . . . .
Robert G. Wise. . . . . . . . . Senior Vice President, Corporate Controller . . . . . . . . . . . . . . . . . . . . .
Year First
Appointed an
Executive
Officer
Age
53
54
45
60
57
54
53
51
2015
2016
2008
2015
2015
2013
2015
2012
Sean M. Connolly has served as our President and Chief Executive Officer and a member of the Board since April 6,
2015. Prior to that, he served as President and Chief Executive Officer and a director of The Hillshire Brands Company (a
branded food products company) from June 2012 to August 2014, Executive Vice President of Sara Lee Corporation (the
predecessor to Hillshire), and Chief Executive Officer, Sara Lee North American Retail and Foodservice, from January 2012
to June 2012. Prior to joining Hillshire, Mr. Connolly served as President of Campbell North America, the largest division
of Campbell Soup Company (a branded food products company), from October 2010 to December 2011, President, Campbell
USA from 2008 to 2010, and President, North American Foodservice for Campbell from 2007 to 2008. Before joining Campbell
in 2002, he served in various marketing and brand management roles at The Procter & Gamble Company (a consumer packaged
goods company).
David S. Marberger has served as Executive Vice President and Chief Financial Officer since August 2016. Prior to joining
Conagra Brands, he served as Chief Financial Officer of Prestige Brands Holdings, Inc. (a provider of over-the-counter
healthcare products) from October 2015 until July 2016. Prior to that, Mr. Marberger served as the Senior Vice President and
Chief Financial Officer of Godiva Chocolatier, Inc. (a global manufacturer and supplier of premium chocolates) from 2008
until October 2015. Prior to that, Mr. Marberger served Tasty Baking Company as Executive Vice President and Chief Financial
Officer from 2006 to 2008 and as Senior Vice President and Chief Financial Officer from 2003 to 2006. From 1993 until 2003,
4
he served in various roles at Campbell Soup Company, where he last held the position of Vice President, Finance, Food and
Beverage Division.
Colleen R. Batcheler has served as Executive Vice President, General Counsel and Corporate Secretary since September
2009 and served as Senior Vice President, General Counsel and Corporate Secretary from February 2008 until September
2009. Ms. Batcheler joined Conagra Brands in June 2006 as Vice President, Chief Securities Counsel and Assistant Corporate
Secretary. In September 2006, she was named Corporate Secretary. From 2003 until joining Conagra Brands, Ms. Batcheler
served as Vice President and Corporate Secretary of Albertson's, Inc. (a retail food and drug chain). Prior to that, she served
as Associate Counsel with The Cleveland Clinic Foundation (a non-profit academic medical center) and an associate with
Jones Day (a law firm).
David B. Biegger has served as Executive Vice President and Chief Supply Chain Officer since October 2015. Prior to
joining Conagra Brands, Mr. Biegger spent nearly 11 years at the Campbell Soup Company, where he served as Senior Vice
President, Global Supply Chain from February 2014 until October 2015 and was responsible for the global supply chain of
that company, including manufacturing, quality, safety, engineering, procurement, logistics, environmental sustainability and
customer service. Prior to joining Campbell Soup Company, he spent 24 years in supply chain roles at Procter & Gamble Co.
(a consumer goods corporation).
Charisse Brock has served as Executive Vice President and Chief Human Resources Officer since November 2015 and
as Senior Vice President and Interim Chief Human Resources Officer from August 2015 until November 2015. Prior to serving
in these roles, Ms. Brock served as Vice President of Human Resources for the Consumer Foods segment of Conagra Brands
from September 2010 until August 2015. Ms. Brock joined Conagra Brands in 2004 as Director of Human Resources, supporting
the Refrigerated Foods Group. Prior to joining Conagra Brands, she served for 15 years at The Quaker Oats Company (which
was acquired by PepsiCo during her tenure) in its Consumer Foods Division.
Thomas M. McGough has served as Executive Vice President and Co-Chief Operating Officer since October 2018. Prior
to that, he served as the Company's President, Operating Segments from May 2017 until October 2018 and as the Company's
President of Consumer Foods from May 2013 until May 2017. Mr. McGough also served as President, Grocery Products from
2011 until May 2013 and as Vice President in the Company's Consumer Foods organization from 2007 to 2011. Prior to joining
the Company, Mr. McGough served in various roles at H.J. Heinz, where he began his career in 1990.
Darren C. Serrao has served as Executive Vice President and Co-Chief Operating Officer since October 2018. Prior to
that, he served as Executive Vice President, Chief Growth Officer from August 2015 to October 2018. Prior to joining the
Company, Mr. Serrao served as Senior Vice President, Chief Marketing and Commercial Officer at Campbell Soup Company
from February 2015 until August 2015 and as Senior Vice President of Innovation and Business Development for Campbell
North America from July 2011 until February 2015. Mr. Serrao has also held several profit and loss and marketing positions
during his career, including roles with PepsiCo and Unilever.
Robert G. Wise has served as Senior Vice President, Corporate Controller since December 2012. Mr. Wise joined Conagra
Brands in March 2003 and has held various positions of increasing responsibility with Conagra Brands, including Vice
President, Assistant Corporate Controller from March 2006 until January 2012 and Vice President, Corporate Controller from
January 2012 until December 2012. Prior to joining Conagra Brands, Mr. Wise served in various roles at KPMG LLP (an
accounting firm) from October 1995 until March 2003.
Foreign Operations
Foreign operations information is set forth in Note 21 "Business Segments and Related Information" to the consolidated
financial statements contained in this report.
5
Available Information
We make available, free of charge through the "Investors—Financial Reports & Filings" link on our Internet website at
http://www.conagrabrands.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities
and Exchange Commission ("SEC"). We use our Internet website, through the "Investors" link, as a channel for routine
distribution of important information, including news releases, analyst presentations, and financial information. The
information on our website is not, and will not be deemed to be, a part of this annual report on Form 10-K or incorporated
into any of our other filings with the SEC.
We have also posted on our website our (1) Corporate Governance Principles, (2) Code of Conduct, (3) Code of Ethics
for Senior Corporate Officers, and (4) Charters for the Audit/Finance Committee, Nominating, Governance and Public Affairs
Committee, and Human Resources Committee. Shareholders may also obtain copies of these items at no charge by writing
to: Corporate Secretary, Conagra Brands, Inc., 222 Merchandise Mart Plaza, Suite 1300, Chicago, IL, 60654.
ITEM 1A. RISK FACTORS
Our business is subject to various risks and uncertainties. Any of the risks and uncertainties described below could
materially adversely affect our business, financial condition, and results of operations and should be considered in evaluating
us. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional
risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely
affect our business, performance, or financial condition in the future.
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), 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;
decreased demand in the restaurant business, particularly casual and fine dining, may adversely affect our Foodservice
operations;
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.
Our existing and future debt may limit cash flow available to invest in the ongoing needs of our business and could prevent
us from fulfilling our debt obligations.
As of May 26, 2019, we had total debt of approximately $10.68 billion, including approximately $9.96 billion aggregate
principal amount of senior notes. Total debt increased $6.86 billion since May 27, 2018, and reflects, in part, indebtedness
incurred to complete the Pinnacle acquisition. We have the ability under our existing revolving credit facility to incur substantial
additional debt. Our ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures
will depend on our ability to generate cash in the future. Our historical financial results have been, and we anticipate that our
future financial results will be, subject to fluctuations. Our ability to generate cash, to a certain extent, is subject to general
6
economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. We cannot guarantee
that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an
amount sufficient to enable us to make payments of our debt, fund other liquidity needs, and make planned capital expenditures.
Our level of debt could have important consequences for shareholders. For example, it could:
• make it more difficult for us to satisfy our debt service obligations;
•
•
•
•
•
•
•
restrict us from making strategic acquisitions or taking advantage of favorable business opportunities;
restrict us from repurchasing shares of our common stock;
limit flexibility to plan for, or react to, changes in the businesses and industries in which we operate, which may
adversely affect our operating results and ability to meet our debt service obligations;
limit our ability to refinance our indebtedness or increase the cost of such indebtedness;
require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing
the availability of our cash flow to fund working capital, capital expenditures, acquisitions, dividends, and other
general corporate purposes;
increase our vulnerability to adverse economic or industry conditions, including changes in interest rates;
limit our ability to obtain additional financing in the future to fund our working capital requirements, capital
expenditures, acquisitions, investment, debt service obligations, and other general operating requirements or to enable
us to react to changes in our business; or
•
place us at a competitive disadvantage compared to businesses in our industry that have less debt.
Additionally, any failure to meet required payments on our debt, or failure to comply with any covenants in the instruments
governing our debt, could result in an event of default under the terms of those instruments and a downgrade to our credit
ratings. A downgrade in our credit ratings would increase our borrowing costs and could affect our ability to issue commercial
paper. In the event of a default, the holders of our debt could elect to declare all the amounts outstanding under such instruments
to be due and payable. Any default under the agreements governing our debt and the remedies sought by the holders of such
debt could render us unable to pay principal and interest on our debt.
A significant portion of our operations are conducted through our subsidiaries. As a result, our ability to generate sufficient
cash flow for our needs is dependent to some extent on the earnings of our subsidiaries and the payment of those earnings to
us in the form of dividends, loans, or advances and through repayment of loans or advances from us. Our subsidiaries are
separate and distinct legal entities. Our subsidiaries have no obligation to pay any amounts due on our debt to provide us with
funds to meet our cash flow needs, whether in the form of dividends, distributions, loans, or other payments. In addition, any
payment of dividends, loans, or advances by our subsidiaries could be subject to statutory or contractual restrictions. Payments
to us by our subsidiaries will also be contingent upon our subsidiaries' earnings and business considerations. Our right to
receive any assets of any of our subsidiaries upon their liquidation or reorganization will be effectively subordinated to the
claims of that subsidiary's creditors, including trade creditors. In addition, even if we are a creditor of any of our subsidiaries,
our rights as a creditor would be subordinate to any security interest in the assets of our subsidiaries and any indebtedness of
our subsidiaries senior to that held by us. Finally, changes in the laws of foreign jurisdictions in which we operate may adversely
affect the ability of some of our foreign subsidiaries to repatriate funds to us.
Increased competition may result in reduced sales or profits.
The food industry is highly competitive, and further consolidation in the industry would likely increase competition. Our
principal competitors have substantial financial, marketing, and other resources. Increased competition can reduce our sales
due to loss of market share or the need to reduce prices to respond to competitive and customer pressures. Competitive pressures
also may restrict our ability to increase prices, including in response to commodity and other cost increases. We sell branded,
private brand, and customized food products, as well as commercially branded foods. Our branded products have an advantage
over private brand products primarily due to advertising and name recognition, although private brand products typically sell
at a discount to those of branded competitors. In addition, when branded competitors focus on price and promotion, the
environment for private brand producers becomes more challenging because the price difference between private brand
products and branded products may become less significant. In most product categories, we compete not only with other
widely advertised branded products, but also with other private label and store brand products that are generally sold at lower
7
prices. A strong competitive response from one or more of our competitors to our marketplace efforts, or a consumer shift
towards more generic, lower-priced, or other value offerings, could result in us reducing pricing, increasing marketing or other
expenditures, or losing market share. Our margins and profits could decrease if a reduction in prices or increased costs are
not counterbalanced with increased sales volume.
In addition, substantial growth in e-commerce has encouraged the entry of new competitors and business models,
intensifying competition by simplifying distribution and lowering barriers to entry. The expanding presence of e-commerce
retailers has impacted, and may continue to impact, consumer preferences and market dynamics, which in turn may negatively
affect our sales or profits.
Increases in commodity costs may have a negative impact on profits.
We use many different commodities such as wheat, corn, oats, soybeans, beef, pork, poultry, steel, aluminum, and energy.
Commodities are subject to price volatility caused by commodity market fluctuations, supply and demand, currency
fluctuations, external conditions such as weather, and changes in governmental agricultural and energy policies and regulations.
In addition, recent world events have increased the risks posed by international trade disputes, tariffs, and sanctions. We
procure a wide spectrum of commodities globally and could potentially face increased prices for commodities sourced from
nations that could be impacted by trade disputes, tariffs, or sanctions. Commodity price increases will result in increases in
raw material, packaging, and energy costs and operating costs. We may not be able to increase our product prices and achieve
cost savings that fully offset these increased costs; and increasing prices may result in reduced sales volume, reduced margins,
and profitability. We have experience in hedging against commodity price increases; however, these practices and experience
reduce, but do not eliminate, the risk of negative profit impacts from commodity price increases. We do not fully hedge against
changes in commodity prices, and the risk management procedures that we use may not always work as we intend.
Volatility in the market value of derivatives we use to manage exposures to fluctuations in commodity prices will cause
volatility in our gross margins and net earnings.
We utilize derivatives to manage price risk for some of our principal ingredients and energy costs, including grains (wheat,
corn, and oats), oils, beef, pork, poultry, and energy. Changes in the values of these derivatives are generally recorded in
earnings currently, resulting in volatility in both gross margin and net earnings. These gains and losses are reported in cost of
goods sold in our Consolidated Statements of Operations and in unallocated general corporate expenses in our segment
operating results until we utilize the underlying input in our manufacturing process, at which time the gains and losses are
reclassified to segment operating profit. We may experience volatile earnings as a result of these accounting treatments.
If we do not achieve the appropriate cost structure in the highly competitive food industry, our profitability could decrease.
Our future success and earnings growth depend in part on our ability to achieve the appropriate cost structure and operate
efficiently in the highly competitive food industry, particularly in an environment of volatile input costs. We continue to
implement profit-enhancing initiatives that impact our supply chain and general and administrative functions. These initiatives
are focused on cost-saving opportunities in procurement, manufacturing, logistics, and customer service, as well as general
and administrative overhead levels. Gaining additional efficiencies may become more difficult over time. Our failure to reduce
costs through productivity gains or by eliminating redundant costs resulting from acquisitions could adversely affect our
profitability and weaken our competitive position. If we do not continue to effectively manage costs and achieve additional
efficiencies, our competitiveness and our profitability could decrease.
We may not realize the benefits that we expect from our restructuring plans, including the Pinnacle Integration
Restructuring Plan.
In fiscal 2019, we announced a restructuring and integration plan related to the ongoing integration of the recently acquired
operations of Pinnacle (the "Pinnacle Integration Restructuring Plan") for the purpose of achieving significant cost synergies
between the companies. We expect to incur material charges for exit and disposal activities under U.S. generally accepted
accounting principles.
8
The successful design and implementation of the Pinnacle Integration Restructuring Plan presents significant
organizational design and infrastructure challenges. In many cases, it will require successful negotiations with third parties,
including labor organizations, suppliers, business partners, and other stakeholders. In addition, the Pinnacle Integration
Restructuring Plan may not advance our business strategy as expected. Events and circumstances, such as financial or strategic
difficulties, delays, and unexpected costs may occur that could result in our not realizing all or any of the anticipated benefits
or our not realizing the anticipated benefits on our expected timetable. If we are unable to realize the anticipated savings and
cost synergies of the Pinnacle Integration Restructuring Plan, our ability to fund other initiatives may be adversely affected.
Any failure to implement the Pinnacle Integration Restructuring Plan in accordance with our expectations could adversely
affect our financial condition, results of operations, and cash flows.
In addition, the complexity of the Pinnacle Integration Restructuring Plan will require a substantial amount of management
and operational resources. Our management team must successfully implement administrative and operational changes
necessary to achieve the anticipated benefits of the Pinnacle Integration Restructuring Plan. These and related demands on
our resources may divert the organization's attention from existing core businesses, integrating financial or other systems,
have adverse effects on existing business relationships with suppliers and customers, and impact employee morale. As a result,
our financial condition, results of operations, and cash flows could be adversely affected.
We may be subject to product liability claims and product recalls, which could negatively impact our profitability.
We sell food products for human consumption, which involves risks such as product contamination or spoilage, product
tampering, other adulteration of food products, mislabeling, and misbranding. We may be subject to liability if the consumption
of any of our products causes injury, illness, or death. In addition, we will voluntarily recall products in the event of
contamination or damage. We have issued recalls and have from time to time been and currently are involved in lawsuits
relating to our food products. A significant product liability judgment or a widespread product recall may negatively impact
our sales and profitability for a period of time depending on the costs of the recall, the destruction of product inventory, product
availability, competitive reaction, customer reaction, and consumer attitudes. Even if a product liability claim is unsuccessful
or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could
adversely affect our reputation with existing and potential customers and our corporate and brand image.
Additionally, as a manufacturer and marketer of food products, we are subject to extensive regulation by the U.S. Food
and Drug Administration and other federal, state, and local government agencies. The Food, Drug & Cosmetic Act, (the
"FDCA"), and the Food Safety Modernization Act and their respective regulations govern, among other things, the
manufacturing, composition and ingredients, packaging, and safety of food products. Some aspects of these laws use a strict
liability standard for imposing sanctions on corporate behavior; meaning that no intent is required to be established. If we fail
to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls, or
seizures, as well as criminal sanctions, any of which could have a material adverse effect on our business, financial condition,
or results of operations.
We must identify changing consumer preferences and develop and offer food products to meet their preferences.
Consumer preferences evolve over time and the success of our food products depends on our ability to identify the tastes
and dietary habits of consumers and to offer products that appeal to their preferences, including concerns of consumers
regarding health and wellness, obesity, product attributes, and ingredients. Introduction of new products and product extensions
requires significant development and marketing investment. If our products fail to meet consumer preferences, or we fail to
introduce new and improved products on a timely basis, then the return on that investment will be less than anticipated and
our strategy to grow sales and profits with investments in acquisitions, marketing, and innovation will be less successful.
Similarly, demand for our products could be affected by consumer concerns or perceptions regarding the health effects of
ingredients such as sodium, trans fats, sugar, processed wheat, or other product ingredients or attributes.
Changes in our relationships with significant customers or suppliers could adversely affect us.
During fiscal 2019, our largest customer, Walmart, Inc. and its affiliates, accounted for approximately 24% of our
consolidated net sales. There can be no assurance that Walmart, Inc. and other significant customers will continue to purchase
our products in the same quantities or on the same terms as in the past, particularly as increasingly powerful retailers continue
to demand lower pricing. The loss of a significant customer or a material reduction in sales to a significant customer could
materially and adversely affect our product sales, financial condition, and results of operations.
9
The sophistication and buying power of our customers could have a negative impact on profits.
Our customers, such as supermarkets, warehouse clubs, and food distributors, have continued to consolidate, resulting
in fewer customers on which we can rely for business. These consolidations, the growth of supercenters, and the growth of
e-commerce customers have produced large, sophisticated customers with increased buying power and negotiating strength
who are more capable of resisting price increases and can demand lower pricing, increased promotional programs, or specialty
tailored products. In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced
inventories or to develop and market their own retailer brands. These customers may also in the future use more of their shelf
space, currently used for our products, for their store brand products. We continue to implement initiatives to counteract these
pressures. However, if the larger size of these customers results in additional negotiating strength and/or increased private
label or store brand competition, our profitability could decline.
Consolidation also increases the risk that adverse changes in our customers' business operations or financial performance
will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or
financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases.
If we are unable to complete proposed acquisitions or integrate acquired businesses, our financial results could be materially
and adversely affected.
From time to time, we evaluate acquisition candidates that may strategically fit our business objectives. If we are unable
to complete acquisitions or to successfully integrate and develop acquired businesses, our financial results could be materially
and adversely affected. Moreover, we may incur asset impairment charges related to acquisitions that reduce our profitability.
Our acquisition activities may present financial, managerial, and operational risks. Those risks include diversion of
management attention from existing businesses, difficulties integrating personnel and financial and other systems, effective
and immediate implementation of control environment processes across our employee population, adverse effects on existing
business relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions
and amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or
key employees of acquired businesses, and indemnities and potential disputes with the sellers. Any of these factors could
affect our product sales, financial condition, and results of operations.
In fiscal 2019, we completed the acquisition of Pinnacle for consideration of approximately $8.03 billion, which 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 to former holders of Pinnacle stock; and (3) replacement awards issued
to former Pinnacle employees representing the fair value attributable to pre-combination service of $51.1 million. See "-We
may not realize the growth opportunities and cost synergies that are anticipated from the acquisition of Pinnacle" below for
more information.
If we are unable to complete our proposed divestitures, our financial results could be materially and adversely affected.
From time to time, we may divest businesses that do not meet our strategic objectives or do not meet our growth or
profitability targets. We may not be able to complete desired or proposed divestitures on terms favorable to us. Gains or losses
on the sales of, or lost operating income from, those businesses may affect our profitability and margins. Moreover, we may
incur asset impairment charges related to divestitures that reduce our profitability.
Our divestiture activities may present financial, managerial, and operational risks. Those risks include diversion of
management attention from existing businesses, difficulties separating personnel and financial and other systems, possible
need for providing transition services to buyers, adverse effects on existing business relationships with suppliers and customers
and indemnities and potential disputes with the buyers. Any of these factors could adversely affect our product sales, financial
condition, and results of operations.
10
Disruption of our supply chain could have an adverse impact on our 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, 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.
Any damage to our reputation could have a material adverse effect on our business, financial condition, and results of
operations.
Maintaining a good reputation globally is critical to selling our products. Product contamination or tampering, the failure
to maintain high standards for product quality, safety, and integrity, including with respect to raw materials and ingredients
obtained from suppliers, or allegations of product quality issues, mislabeling, or contamination, even if untrue, may reduce
demand for our products or cause production and delivery disruptions. Our reputation could also be adversely impacted by
any of the following, or by adverse publicity (whether or not valid) relating thereto: the failure to maintain high ethical, social,
and environmental standards for all of our operations and activities; the failure to achieve any stated goals with respect to the
nutritional profile of our products; our research and development efforts; or our environmental impact, including use of
agricultural materials, packaging, energy use, and waste management. Moreover, the growing use of social and digital media
by consumers has greatly increased the speed and extent that information or misinformation and opinions can be shared.
Failure to comply with local laws and regulations, to maintain an effective system of internal controls or to provide accurate
and timely financial information could also hurt our reputation. Damage to our reputation or loss of consumer confidence in
our products for any of these or other reasons could result in decreased demand for our products and could have a material
adverse effect on our business, financial condition, and results of operations, as well as require additional resources to rebuild
our reputation.
If we fail to comply with the many laws applicable to our business, we may face lawsuits or incur significant fines and
penalties. In addition, changes in such laws may lead to increased costs.
Our business is subject to a variety of governmental laws and regulations, including food and drug laws, environmental
laws, laws related to advertising and marketing practices, accounting standards, taxation requirements, competition laws,
employment laws, data privacy laws, and anti-corruption laws, among others, in and outside of the United States. Our facilities
and products are subject to many laws and regulations administered by the United States Department of Agriculture, the
Federal Food and Drug Administration, the Occupational Safety and Health Administration, and other federal, state, local,
and foreign governmental agencies relating to the processing, packaging, storage, distribution, advertising, labeling, quality,
and safety of food products, the health and safety of our employees, and the protection of the environment. Our failure to
comply with applicable laws and regulations could subject us to lawsuits, administrative penalties, and civil remedies, including
fines, injunctions, and recalls of our products. In addition, changes in applicable laws and regulations, including changes in
taxation requirements and new or increased tariffs on products imported from certain countries, may lead to increased costs
and could negatively affect our business, financial condition, and results of operations.
Our operations are also subject to extensive and increasingly stringent regulations administered by the Environmental
Protection Agency, which pertain to the discharge of materials into the environment and the handling and disposition of wastes.
Failure to comply with these regulations can have serious consequences, including civil and administrative penalties and
negative publicity. Changes in applicable laws or regulations or evolving interpretations thereof, including increased
government regulations to limit carbon dioxide and other greenhouse gas emissions as a result of concern over climate change,
may result in increased compliance costs, capital expenditures, and other financial obligations for us, which could affect our
profitability or impede the production or distribution of our products, and affect our net operating revenues.
11
We are increasingly dependent on information technology, and potential disruption, cyberattacks, security problems, and
expanding social media vehicles present new risks.
We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic
and financial information, to manage and support a variety of business processes and activities, and to comply with regulatory,
legal, and tax requirements. Our information technology systems, some of which are dependent on services provided by third
parties, may be vulnerable to damage, interruption, or shutdown due to any number of causes outside of our control such as
catastrophic events, natural disasters, fires, power outages, systems failures, telecommunications failures, employee error or
malfeasance, security breaches, computer viruses or other malicious codes, ransomware, unauthorized access attempts, denial
of service attacks, phishing, hacking, and other cyberattacks. Increased cybersecurity threats pose a potential risk to the security
and viability of our information technology systems, as well as the confidentiality, integrity, and availability of the data stored
on those systems. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology
infrastructure and to maintain and protect the related automated and manual control processes, we could be subject to billing
and collection errors, business disruptions, or damage resulting from security breaches. If any of our significant information
technology systems suffer severe damage, disruption, or shutdown, and our business continuity plans do not effectively resolve
the issues in a timely manner, our product sales, financial condition, and results of operations may be materially and adversely
affected, and we could experience delays in reporting our financial results. In addition, there is a risk of business interruption,
violation of data privacy laws and regulations, litigation, and reputational damage from leakage of confidential information.
Any interruption of our information technology systems could have operational, reputational, legal, and financial impacts that
may have a material adverse effect on our business.
In addition, the inappropriate use of certain media vehicles could cause brand damage or information leakage. Negative
posts or comments about the Company on any social networking web site could seriously damage its reputation. In addition,
the disclosure of non-public company sensitive information through external media channels could lead to information loss.
Identifying new points of entry as social media continues to expand presents new challenges. Any business interruptions or
damage to our reputation could negatively impact our financial condition, results of operations, and the market price of our
common stock.
Additionally, we regularly move data across national borders to conduct our operations and, consequently, are subject to
a variety of laws and regulations in the United States and other jurisdictions regarding privacy, data protection, and data
security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data.
There is significant uncertainty with respect to compliance with such privacy and data protection laws and regulations, including
the European Union General Data Protection Regulation (the "GDPR") (which imposes additional obligations on companies
regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored), because
they are continuously evolving and developing and may be interpreted and applied differently from country to country and
may create inconsistent or conflicting requirements. Our efforts to comply with privacy and data protection laws, including
the GDPR, may impose significant costs and challenges that are likely to increase over time.
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, or if an insufficient number of employees 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 which could adversely affect our product sales, financial condition, and operating
results.
12
Impairment in the carrying value of goodwill or other intangibles could result in the incurrence of impairment charges
and negatively impact our net worth.
As of May 26, 2019, we had goodwill of $11.50 billion and other intangibles of $4.66 billion. The net carrying value of
goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition
date (or subsequent impairment date, if applicable). The net carrying value of other intangibles represents the fair value of
trademarks, customer relationships, and other acquired intangibles as of the acquisition date (or subsequent impairment date,
if applicable), net of accumulated amortization. Goodwill and other acquired intangibles expected to contribute indefinitely
to our cash flows are not amortized, but must be evaluated by management at least annually for impairment. Amortized
intangible assets are evaluated for impairment whenever events or changes in circumstance indicate that the carrying amounts
of these assets may not be recoverable. Impairments to goodwill and other intangible assets may be caused by factors outside
our control, such as the inability to quickly replace lost co-manufacturing business, increasing competitive pricing pressures,
lower than expected revenue and profit growth rates, changes in industry EBITDA (earnings before interest, taxes, depreciation
and amortization) multiples, changes in discount rates based on changes in cost of capital (interest rates, etc.), or the bankruptcy
of a significant customer and could result in the incurrence of impairment charges and negatively impact our net worth.
Our results could be adversely impacted as a result of increased pension, labor, and people-related expenses.
Inflationary pressures and any shortages in the labor market could increase labor costs, which could have a material
adverse effect on our operating results or financial condition. Our labor costs include the cost of providing employee benefits
in the U.S. and foreign jurisdictions, including pension, health and welfare, and severance benefits. Changes in interest rates,
mortality rates, health care costs, early retirement rates, investment returns, and the market value of plan assets can affect the
funded status of our defined benefit plans and cause volatility in the future funding requirements of the plans. A significant
increase in our obligations or future funding requirements could have a negative impact on our results of operations and cash
flows from operations. Additionally, the annual costs of benefits vary with increased costs of health care and the outcome of
collectively-bargained wage and benefit agreements.
Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business
and operations.
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact
on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event
that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less
favorable pricing for certain commodities that are necessary for our products, such as corn, wheat, and potatoes. Adverse
weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce our supplies of raw
materials, lower recoveries of usable raw materials, increase the prices of our raw materials, increase our cost of transporting
and storing raw materials, or disrupt our production schedules.
We may also be subjected to decreased availability or less favorable pricing for water as a result of such change, which
could impact our manufacturing and distribution operations. In addition, natural disasters and extreme weather conditions
may disrupt the productivity of our facilities or the operation of our supply chain. The increasing concern over climate change
also may result in more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of
greenhouse gases. In the event that such regulation is enacted and is more aggressive than the sustainability measures that we
are currently undertaking to monitor our emissions and improve our energy efficiency, we may experience significant increases
in our costs of operation and delivery. In particular, increasing regulation of fuel emissions could substantially increase the
distribution and supply chain costs associated with our products. As a result, climate change could negatively affect our
business and operations.
Due to the seasonality of the business, our revenue and operating results may vary from quarter to quarter.
Our sales and cash flows are affected by seasonal cyclicality. Sales of frozen foods, including frozen vegetables and frozen
complete bagged meals, tend to be marginally higher during the winter months. Seafood sales peak during Lent, in advance
of the Easter holiday. Since many of the raw materials we process are agricultural crops, production of these products is
predominantly seasonal, occurring during and immediately following the purchase of such crops. For these reasons, sequential
quarterly comparisons are not a good indication of our performance or how we may perform in the future. If we are unable
to obtain access to working capital or if seasonal fluctuations are greater than anticipated, there could be a material adverse
effect on our financial condition, results of operations or cash flows.
13
The termination or expiration of current co-manufacturing arrangements could reduce our sales volume and adversely
affect our results of operations.
Our businesses periodically enter into co-manufacturing arrangements with manufacturers of products. The terms of these
agreements vary but are generally for relatively short periods of time. Volumes produced under each of these agreements can
fluctuate significantly based upon the product's life cycle, product promotions, alternative production capacity, and other
factors, none of which are under our direct control. Our future ability to enter into co-manufacturing arrangements is not
guaranteed, and a decrease in current co-manufacturing levels could have a significant negative impact on sales volume.
Ardent Mills may not achieve the benefits that are anticipated from the joint venture.
The benefits that are expected to result from our Ardent Mills joint venture will depend, in part, on our ability to realize
the anticipated cost synergies in the transaction, Ardent Mills' ability to successfully integrate the ConAgra Mills and Horizon
Milling businesses and its ability to successfully manage the joint venture on a going-forward basis. It is not certain that we
will realize these benefits at all, and if we do, it is not certain how long it will take to achieve these benefits. If, for example,
we are unable to achieve the anticipated cost savings, or if there are unforeseen integration costs, or if Ardent Mills is unable
to operate the joint venture smoothly in the future, the financial performance of the joint venture may be negatively affected.
As we outsource certain functions, we become more dependent on the third parties performing those functions.
As part of a concerted effort to achieve cost savings and efficiencies, we have entered into agreements with third-party
service providers under which we have outsourced certain information systems, sales, finance, accounting, and other functions,
and we may enter into managed services agreements with respect to other functions in the future. If any of these third-party
service providers do not perform according to the terms of the agreements, or if we fail to adequately monitor their performance,
we may not be able to achieve the expected cost savings or we may have to incur additional costs to correct errors made by
such service providers, and our reputation could be harmed. Depending on the function involved, such errors may also lead
to business interruption, damage or disruption of information technology systems, processing inefficiencies, the loss of or
damage to intellectual property or non-public company sensitive information through security breaches or otherwise, effects
on financial reporting, litigation or remediation costs, or damage to our reputation, any of which could have a material adverse
effect on our business. In addition, if we transition functions to one or more new, or among existing, external service providers,
we may experience challenges that could have a material adverse effect on our results of operations or financial condition.
Our intellectual property rights are valuable, and any inability to protect them could have an adverse impact on our business,
financial condition, and results of operations.
Our intellectual property rights, including our trademarks, licensing agreements, trade secrets, patents, and copyrights,
are a significant and valuable aspect of our business. We attempt to protect our intellectual property rights by pursuing remedies
available to us under trademark, copyright, trade secret, and patent laws, as well as entering into licensing, third-party
nondisclosure and assignment agreements and policing of third-party misuses of our intellectual property. If we fail to
adequately protect the intellectual property rights we have now or may acquire in the future, or if there occurs any change in
law or otherwise that serves to reduce or remove the current legal protections of our intellectual property, then our financial
results could be materially and adversely affected.
Certain of our intellectual property rights, including the P.F. Chang's®, Bertolli®, and Libby's® trademarks, are owned by
third parties and licensed to us, and others, such as Alexia®, are owned by us and licensed to third parties. While many of these
licensing arrangements are perpetual in nature, others must be periodically renegotiated or renewed pursuant to the terms of
such licensing arrangement. If in the future we are unable to renew such a licensing arrangement pursuant to its terms and
conditions, or if we fail to renegotiate such a licensing arrangement, then our financial results could be materially and adversely
affected.
There is also a risk that other parties may have intellectual property rights covering some of our brands, products, or
technology. If any third parties bring a claim of intellectual property infringement against us, we may be subject to costly and
time-consuming litigation, diverting the attention of management and our employees. If we are unsuccessful in defending
against such claims, we may be subject to, among other things, significant damages, injunctions against development and sale
of certain products, or we may be required to enter into costly licensing agreements, any of which could have an adverse
impact on our business, financial condition, and results of operations.
14
Our stock price may be subject to significant volatility, and you may not be able to resell shares of our common stock at
or above the price you paid or at all, and you could lose all or part of your investment as a result.
The market price of our common stock could fluctuate significantly for many reasons, including reasons not specifically
related to our performance, such as industry or market trends, reports by industry analysts and other third parties, investor
perceptions, actions by credit rating agencies, negative announcements by our customers or competitors regarding their own
performance or actions taken by our competitors, as well as general economic and industry conditions. Our common stock
price is also affected by announcements we make about our business, market data that is available to subscribers, analyst
reports related to our Company, changes in financial estimates by analysts, whether or not we meet the financial estimates of
analysts who follow our Company, rating agency announcements about our business, variations in our quarterly results of
operations and those of our competitors, general economic and stock market conditions, future sales of our common stock,
perceptions of the investment opportunity associated with our common stock relative to other investment alternatives, the
public's reaction to our public announcements and filings with the SEC, actual or anticipated growth rates relative to our
competitors, and speculation by the investment community regarding our business, among other factors.
As a result of these factors, investors in our common stock may not be able to resell their shares at or above the price at
which they purchase our common stock. In addition, the stock market in general has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad
market and industry factors may materially reduce the market price of our common stock, regardless of our operating
performance. In addition, in the past, some companies that have had volatile market prices for their securities have been subject
to class action or derivative lawsuits. The filing of a lawsuit against us, regardless of the outcome, could have a negative effect
on our business, financial condition and results of operations, as it could result in substantial legal costs and a diversion of
management's attention and resources.
We may not realize the growth opportunities and cost synergies that are anticipated from the acquisition of Pinnacle.
The benefits that are expected to result from the acquisition will depend, in part, on our ability to realize the anticipated
growth opportunities and cost synergies as the result of the acquisition. Our success in realizing these growth opportunities
and cost synergies, and the timing of this realization, depends on the successful integration of Pinnacle. There is a significant
degree of difficulty and management distraction inherent in the process of integrating a company as sizable as Pinnacle. The
process of integrating operations could cause an interruption of, or loss of momentum in, our activities. Members of our senior
management may be required to devote considerable amounts of time to this integration process, which will decrease the time
they will have to manage the Company, service existing customers, attract new customers, and develop new products or
strategies. If senior management is not able to effectively manage the integration process, or if any significant business activities
are interrupted as a result of the integration process, our business could suffer. There can be no assurance that we will successfully
or cost-effectively integrate Pinnacle. The failure to do so could have a material adverse effect on our business, financial
condition, and results of operations.
Even if we are able to integrate Pinnacle successfully, this integration may not result in the realization of the full benefits
that are currently expected from this acquisition, and there can be no guarantee that these benefits will be achieved within the
anticipated time frames or at all. For example, we may not be able to eliminate duplicative costs. Moreover, we may incur
substantial expenses in connection with the integration of Pinnacle. While it is anticipated that certain expenses will be incurred
to achieve cost synergies, such expenses are difficult to estimate accurately, and may exceed current estimates. Accordingly,
the benefits from the acquisition may be offset by costs incurred to, or delays in, integrating the business.
We may be exposed to claims and liabilities or incur operational difficulties as a result of the Spinoff.
The Spinoff continues to involve a number of risks, including, among other things, certain indemnification risks and risk
associated with the provision of transitional services. In connection with the Spinoff, we entered into a separation and
distribution agreement and various other agreements (including a transition services agreement, a tax matters agreement, an
employee matters agreement, and a trademark license agreement), which we refer to as the Lamb Weston agreements. The
Lamb Weston agreements govern the Spinoff and the relationship between the two companies going forward. They also provide
for the performance of services by each company for the benefit of the other for a period of time.
The Lamb Weston agreements provide for indemnification obligations designed to make Lamb Weston financially
responsible for certain liabilities that may exist relating to its business activities, whether incurred prior to or after the
distribution, including any pending or future litigation. It is possible that a court would disregard the allocation agreed to
15
between us and Lamb Weston and require us to assume responsibility for obligations allocated to Lamb Weston. Third parties
could also seek to hold us responsible for any of these liabilities or obligations, and the indemnity rights we have under the
separation and distribution agreement may not be sufficient to fully cover all of these liabilities and obligations. Even if we
are successful in obtaining indemnification, we may have to bear costs temporarily. In addition, our indemnity obligations to
Lamb Weston may be significant. These risks could negatively affect our business, financial condition, or results of operations.
In addition, certain of the Lamb Weston agreements provide for the performance of services by each company for the
benefit of the other for a period of time. As such, there is continued risk that management's and our employees' attention will
be significantly diverted by the provision of transitional services. The Lamb Weston agreements could also lead to disputes
over rights to certain shared property and rights and over the allocation of costs and revenues for products and operations. If
Lamb Weston is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could
incur losses. Our inability to effectively manage separation activities and related events could adversely affect our business,
financial condition, or results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters are located in Chicago, Illinois. Other general offices, shared service centers, and product development
facilities are located in Colorado, Nebraska, New Jersey, and the District of Columbia. We also lease a limited number of
domestic sales offices. International general offices are located in Canada, China, Colombia, Mexico, Panama, and the
Philippines.
We maintain a number of stand-alone distribution facilities. In addition, there are warehouses at most of our manufacturing
facilities.
Utilization of manufacturing capacity varies by manufacturing plant based upon the type of products assigned and the
level of demand for those products. Management believes that our manufacturing and processing plants are well maintained
and are generally adequate to support the current operations of the business.
As of July 19, 2019, we had forty-seven domestic manufacturing facilities located in Arkansas, California, Colorado,
Georgia, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire,
Ohio, Pennsylvania, Tennessee, Washington, and Wisconsin. We also have international manufacturing facilities in Canada
and Mexico, and interests in ownership of international manufacturing facilities in India and Mexico.
We own most of our manufacturing facilities. However, a limited number of plants and parcels of land with the related
manufacturing equipment are leased. Substantially all of our transportation equipment and forward-positioned distribution
centers containing finished goods are leased or operated by third parties.
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. Therefore, it is impracticable to disclose them by segment.
ITEM 3. LEGAL PROCEEDINGS
Litigation Matters
We are a party to certain litigation matters relating to our acquisition of Beatrice Company ("Beatrice") in fiscal 1991,
including litigation proceedings related to businesses divested by Beatrice prior to our acquisition of the company. These
proceedings 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") as alleged successor to W. P.
Fuller & Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967.
These lawsuits generally seek damages for personal injury, property damage, economic loss, and governmental expenditures
allegedly caused by the use of lead-based paint, and/or injunctive relief for inspection and abatement. Although decisions
favorable to us have been rendered in Rhode Island, New Jersey, Wisconsin, and Ohio, we remain a defendant in active suits
in Illinois and California. ConAgra Grocery Products has denied liability in both suits, both on the merits of the claims and
16
on the basis that we do not believe it to be the successor to any liability attributable to W. P. Fuller & Co. The California suit
is discussed in the following paragraph. The Illinois suit seeks class-wide relief for reimbursement of costs associated with
the testing of lead levels in blood. We do not believe it is probable that we have incurred any liability with respect to the
Illinois case, nor is it possible to estimate any potential exposure.
In California, a number of cities and counties joined in a consolidated action seeking abatement of an alleged public
nuisance in the form of lead-based paint potentially present on the interior of residences, regardless of its condition. On
September 23, 2013, a trial of the California case concluded in the Superior Court of California for the County of Santa Clara,
and on January 27, 2014, the court entered a judgment (the "Judgment") against ConAgra Grocery Products and 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. The Court of Appeal remanded the case to the trial court with directions
to recalculate the amount of the abatement fund estimated to be necessary to cover the cost of remediating pre-1951 homes,
and to hold an evidentiary hearing regarding appointment of a suitable receiver. ConAgra Grocery Products and the other
defendants petitioned the California Supreme Court for review of the decision, which we believe to be an unprecedented
expansion of current California law. On February 14, 2018, the California Supreme Court denied the petition and declined to
review the merits of the case, and the case was remanded to the trial court for further proceedings. ConAgra Grocery Products
and the other defendants sought further review of certain issues from the Supreme Court of the United States, but on October
15, 2018, the Supreme Court declined to review the case. On September 4, 2018, the trial court recalculated its estimate of
the amount needed to remediate pre-1951 homes in the plaintiff jurisdictions to be $409.0 million. As of July 10, 2019, the
parties reached an agreement in principle to resolve this matter, which agreement remains subject to approval by the trial
court. Once approved, the action against ConAgra Grocery Products will be dismissed with prejudice. Pursuant to the
settlement, ConAgra Grocery Products will pay a total of $101.7 million in seven installments to be paid annually from fiscal
2020 through fiscal 2026. ConAgra Grocery Products will further provide a guarantee of up to $15.0 million in the event co-
defendant, NL Industries, Inc., defaults on its payment obligations.
We have accrued $25.3 million and $74.1 million, within other accrued liabilities and other noncurrent liabilities,
respectively, for this matter as of May 26, 2019. The extent of insurance coverage is uncertain and the Company's carriers
are on notice; however, any possible insurance recovery has not been considered for purposes of determining our liability.
We cannot assure that the final resolution of these matters will not have a material adverse effect on our 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 Wesson®
oils as 100% natural is false and misleading because the oils contain genetically modified plants and organisms. In February
2015, the U.S. District Court for the Central District of California granted class certification to permit plaintiffs to pursue
state law claims. The Company appealed to the United States Court of Appeals for the Ninth Circuit, which affirmed class
certification in January 2017. The Supreme Court of the United States declined to review the decision and the case has been
remanded to the trial court for further proceedings. On April 4, 2019, the trial court granted preliminary approval of a settlement
in this matter.
We are party to matters challenging the Company's wage and hour practices. These matters include a number of 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
17
results on December 20, 2018 for the second quarter of fiscal 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 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. The shareholder derivative lawsuit asserts harm to
the Company due to alleged breaches of fiduciary duty and mismanagement in connection with the Pinnacle acquisition. On
July 9, 2019, the Company received a stockholder demand 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. 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, PCBs, 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 $52.8 million as of May 26, 2019, 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 of the Wells G&H Superfund site, which is one of the Beatrice
sites. The U.S. Environmental Protection Agency (the "EPA") issued a Record of Decision (the "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.
General
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution
of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity; however,
it is reasonably possible that a change of the estimates of any of the foregoing matters may occur in the future and, as noted,
the lead paint matter could result in a material final judgment which could have a material adverse effect on our financial
condition, results of operations, or liquidity.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange, where it trades under the ticker symbol: CAG. At June 23,
2019, there were approximately 16,148 shareholders of record.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
No shares of common stock were purchased during the fourth quarter of fiscal 2019.
18
ITEM 6. SELECTED FINANCIAL DATA
For the Fiscal Years Ended May
Dollars in millions, except per share amounts
Net sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations (1) . . . . . . . . . .
Net income (loss) attributable to Conagra Brands,
Inc. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share: . . . . . . . . . . . . . . . . . . . .
Income from continuing operations
attributable to Conagra Brands, Inc.
common stockholders (1) . . . . . . . . . . . . . . . .
Net income (loss) attributable to Conagra
Brands, Inc. common stockholders (2) . . . . . .
Diluted earnings per share: . . . . . . . . . . . . . . . . . . .
Income from continuing operations
attributable to Conagra Brands, Inc.
common stockholders (1) . . . . . . . . . . . . . . . .
Net income (loss) attributable to Conagra
Brands, Inc. common stockholders (2) . . . . . .
Cash dividends declared per share of common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior long-term debt (noncurrent) (1) . . . . . . . . . .
Subordinated long-term debt (noncurrent) . . . . . . .
2019
2018
2017
2016
2015
$
$
$
$
$
$
$
$
9,538.4
680.3
678.3
1.53
1.53
1.53
1.52
0.85
$
$
$
$
$
$
$
$
7,938.3
797.5
808.4
1.97
2.00
1.95
1.98
0.85
$
$
$
$
$
$
$
$
7,826.9
546.0
639.3
1.26
1.48
1.25
1.46
0.90
$
$
$
$
$
$
$
$
8,664.1
128.5
$
$
9,034.0
451.3
(677.0) $
(252.6)
0.29
$
1.05
(1.57) $
(0.60)
0.29
$
1.04
(1.56) $
(0.59)
1.00
$
1.00
$ 22,213.8
$ 10,459.8
195.9
$
$ 10,389.5
3,035.6
$
195.9
$
$ 10,096.3
2,573.3
$
195.9
$
$ 13,390.6
4,685.5
$
195.9
$
$ 17,437.8
6,676.0
$
195.9
$
(1) Amounts exclude the impact of discontinued operations of the ConAgra Mills operations, the Private Brands
operations, and the Lamb Weston operations.
(2) Amounts include aggregate pre-tax goodwill and certain long-lived asset impairment charges in discontinued
operations of $1.92 billion and $1.56 billion for fiscal 2016 and 2015, respectively.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is intended to provide a summary of significant factors relevant to our financial
performance and condition. The discussion and analysis should be read together with our consolidated financial statements
and related notes in Item 8, Financial Statements and Supplementary Data. Results for the fiscal year ended May 26, 2019
are not necessarily indicative of results that may be attained in the future.
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. These
risks, uncertainties, and factors include, among other things: the risk that the cost savings and any other synergies from the
acquisition of Pinnacle Foods Inc. (the "Pinnacle acquisition") may not be fully realized or may take longer to realize than
expected; the risk that the Pinnacle acquisition may not be accretive within the expected timeframe or to the extent anticipated;
the risks that the Pinnacle acquisition and related integration will create disruption to the Company and its management and
impede the achievement of business plans; the risk that the Pinnacle acquisition will negatively impact the ability to retain
and hire key personnel and maintain relationships with customers, suppliers, and other third parties; risks related to our ability
to successfully address Pinnacle's business challenges; risks related to our ability to achieve the intended benefits of other
recent and pending acquisitions and divestitures, including the divestiture of our Wesson® oil business in February 2019; risks
associated with general economic and industry conditions; risks associated with our ability to successfully execute its long-
term value creation strategies, including those in place for specific brands at Pinnacle before the Pinnacle acquisition; risks
related to our ability to deleverage on currently anticipated timelines, and to continue to access capital on acceptable terms
or at all; risks related to our ability to execute operating and restructuring plans and achieve targeted operating efficiencies
from cost-saving initiatives, related to the Pinnacle acquisition and otherwise, and to benefit from trade optimization programs,
related to the Pinnacle acquisition and otherwise; risks related to the effectiveness of our hedging activities and ability to
respond to volatility in commodities; risks related to the Company's competitive environment and related market conditions;
risks related to our ability to respond to changing consumer preferences and the success of its innovation and marketing
investments; risks related to the ultimate impact of any product recalls and litigation, including litigation related to the lead
paint and pigment matters, as well as any securities litigation, including securities class action lawsuits; risk associated with
actions of governments and regulatory bodies that affect our businesses, including the ultimate impact of new or revised
regulations or interpretations; risks related to the availability and prices of raw materials, including any negative effects caused
by inflation or weather conditions; risks and uncertainties associated with intangible assets, including any future goodwill or
intangible assets impairment charges, related to the Pinnacle acquisition or otherwise; the costs, disruption, and diversion of
management's attention due to the integration of the Pinnacle acquisition; and other risks described in our reports filed from
time to time with the Securities and Exchange Commission (the "SEC"). We caution readers not to place undue reliance on
any forward-looking statements included in this report, which speak only as of the date of this report. We undertake no
responsibility to update these statements, except as required by law.
The discussion that follows should be read together with the consolidated financial statements and related notes contained
in this report. Results for fiscal 2019 are not necessarily indicative of results that may be attained in the future.
20
EXECUTIVE OVERVIEW
Conagra Brands, Inc. (the "Company", "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 that enables the Company to evolve its portfolio to satisfy people's changing food
preferences. Its iconic brands such as Birds Eye®, Marie Callender's®, Banquet®, Healthy Choice®, Slim Jim®, Reddi-wip®,
and Vlasic®, as well as emerging brands, including Angie's® BOOMCHICKAPOP®, Duke's®, Earth Balance®, Gardein®, and
Frontera®, offer choices for every occasion.
Fiscal 2019 Pinnacle Acquisition
On 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 "Pinnacle acquisition"). As a result of the acquisition, Pinnacle
became a wholly-owned subsidiary of the Company. The total amount of consideration paid in connection with the acquisition
was approximately $8.03 billion, consisting of cash and shares of our stock, as described in more detail in the section entitled
"Acquisitions" below.
In connection with the Pinnacle acquisition, we incurred 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 in an underwritten public
offering. We used such proceeds for the payment of the cash portion of the Merger Consideration (as defined below), the
repayment of Pinnacle debt acquired, the refinancing of certain Conagra Brands debt, and the payment of related fees and
expenses.
The integration of Pinnacle is continuing and on-track. We expect to achieve cost synergies of $285 million per year when
the integration is concluded.
Fiscal 2019 Results
Fiscal 2019 performance compared to fiscal 2018 reflected an increase in net sales, including the impact of recent
acquisitions, with organic (excludes the impact of foreign exchange and divested businesses, as well as acquisitions until the
anniversary date of the acquisition) increases in our Refrigerated & Frozen and International operating segments, in each case
compared to fiscal 2018. Overall gross margin increased as the addition of Pinnacle's gross profit, along with supply chain
realized productivity and improved pricing, more than offset higher transportation costs, inflation, and increased investments
in retailer marketing. Overall segment operating profit increased primarily due to the Pinnacle acquisition. Corporate expenses
were primarily flat due to items impacting comparability, as discussed below, as well as increased costs in connection with
the Pinnacle acquisition. We experienced a decrease in equity method investment earnings and increases in both interest
expense and income tax expense, in each case compared to fiscal 2018.
Diluted earnings per share in fiscal 2019 were $1.52, including earnings of $1.53 per diluted share from continuing
operations and a loss of $0.01 per diluted share from discontinued operations. Diluted earnings per share in fiscal 2018 were
$1.98, including earnings of $1.95 per diluted share from continuing operations and $0.03 per diluted share from discontinued
operations. Several significant items affect the comparability of year-over-year results of continuing operations (see "Items
Impacting Comparability" below).
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the "Tax Act") was signed into law. The Tax Act reduced tax
rates and modified certain policies, credits, and deductions and has certain international tax consequences. The Tax Act reduced
the federal corporate tax rate from a maximum of 35% to a flat 21% rate. The Tax Act's corporate rate reduction became
effective January 1, 2018, in the middle of our third quarter of fiscal 2018. Given our off-calendar fiscal year-end, our fiscal
2018 federal statutory tax rate was a blended rate. Our federal statutory rate was 21% in fiscal 2019.
Items Impacting Comparability
Items of note impacting comparability of results from continuing operations for fiscal 2019 included the following:
•
•
charges totaling $180.8 million ($138.9 million after-tax) in connection with our restructuring plans,
charges totaling $118.1 million ($94.8 million after-tax) associated with costs incurred for acquisitions and
divestitures,
21
•
•
•
•
•
•
•
•
•
•
•
charges totaling $89.6 million ($66.9 million after-tax and net of non-controlling interest) related to the impairment
of other intangible assets,
gains of $69.4 million ($35.1 million after-tax) from the sales of the Del Monte® Canada business, the Wesson® oil
business, and the Gelit pasta business,
incremental cost of goods sold of $53.0 million ($39.5 million after-tax) due to the fair value adjustment to inventory
resulting from acquisition accounting for the Pinnacle acquisition,
a gain of $39.1 million ($29.1 million after-tax) related to legal matters,
an income tax benefit of $32.4 million associated with a change in a valuation allowance on a deferred tax asset due
to the divestitures of the Wesson® oil business and the Gelit pasta business,
a gain of $27.3 million ($27.3 million after-tax) related to the novation of a legacy guarantee,
a gain of $15.1 million ($12.2 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 sale of an asset within the Ardent Mills joint venture,
an income tax charge of $10.4 million associated with unusual tax items primarily related to legal entity restructuring
activity,
charges totaling $8.9 million ($6.6 million after-tax) associated with costs incurred for integration activities related
to the Pinnacle acquisition, and
charges totaling $4.3 million ($3.2 million after-tax) related to pension plan lump-sum settlements and a
remeasurement of our salaried and non-qualified pension plan liability.
Items of note impacting comparability of results from continuing operations for fiscal 2018 included the following:
•
•
•
•
•
•
•
•
•
•
an income tax benefit of $233.3 million related to the enactment of the Tax Act,
charges totaling $151.0 million ($113.3 million after-tax) related to certain litigation matters,
an income tax expense of $78.6 million associated with a change in a valuation allowance on a deferred tax asset
due to the termination of the initial agreement for the proposed sale of our Wesson® oil business,
an income tax charge of $42.1 million associated with unusual tax items related to the repatriation of cash during the
second quarter from foreign subsidiaries, the tax expense related to the earnings of foreign subsidiaries previously
deemed to be permanently invested, a pension contribution, and the effect of a law change in Mexico requiring
deconsolidation for tax reporting purposes,
charges totaling $34.9 million ($25.6 million after-tax) related to the early termination of an unfavorable lease contract
by purchasing the property subject to the lease,
charges totaling $38.0 million ($27.0 million after-tax) in connection with our SCAE Plan (as defined below),
charges totaling $15.7 million ($10.9 million after-tax) associated with costs incurred for acquisitions and divestitures,
charges totaling $5.4 million ($3.7 million after-tax) related to pension plan lump-sum settlements and a
remeasurement of our salaried and non-qualified pension plan liability,
charges totaling $4.8 million ($3.7 million after-tax) related to the impairment of other intangible assets, and
a benefit of $4.3 million ($2.9 million after-tax) related to the substantial liquidation of an international joint venture
(recorded in equity method investment earnings).
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 are discussed in the segment
review below.
22
Acquisitions
On October 26, 2018, we completed the Pinnacle acquisition. As a result of the Pinnacle acquisition, Pinnacle became a
wholly owned subsidiary of the Company. 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 shares of 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 to former holders of Pinnacle stock; and (3) replacement awards issued
to former Pinnacle employees representing the fair value attributable to pre-combination service of $51.1 million.
Approximately $7.02 billion of the purchase price has been allocated to goodwill, pending determination of the final purchase
price allocation. Approximately $3.52 billion has been allocated to brands, trademarks and other intangibles. Of the total
goodwill, $236.7 million is deductible for tax purposes. Amortizable brands, trademarks and other intangibles totaled $668.7
million. Indefinite lived brands, trademarks and other intangibles totaled $2.85 billion. This business is reflected in the Pinnacle
Foods segment.
In February 2018, we acquired the Sandwich Bros. of Wisconsin® business, maker of frozen breakfast and entree flatbread
pocket sandwiches, for a cash purchase price of $87.3 million, net of cash acquired. Approximately $57.8 million has been
classified as goodwill, and $9.7 million and $7.1 million have been classified as non-amortizing and amortizing intangible
assets, respectively. The amount of goodwill allocated is deductible for tax purposes. The business is included in the Refrigerated
& Frozen segment.
In October 2017, we acquired Angie's Artisan Treats, LLC, maker of Angie's® BOOMCHICKAPOP® ready-to-eat popcorn,
for a cash purchase price of $249.8 million, net of cash acquired. Approximately $156.7 million has been classified as goodwill,
of which $95.4 million is deductible for income tax purposes. Approximately $73.8 million and $10.3 million of the purchase
price have been allocated to non-amortizing and amortizing intangible assets, respectively. The business is primarily included
in the Grocery & Snacks segment, and to a lesser extent in the International segment.
In April 2017, we acquired protein-based snacking businesses Thanasi Foods LLC, maker of Duke’s® meat snacks, and
BIGS LLC, maker of BIGS® seeds, for $217.6 million in cash, net of cash acquired (the "Thanasi acquisition"). Approximately
$133.3 million has been classified as goodwill, of which $70.5 million is deductible for income tax purposes. Approximately
$65.1 million and $16.1 million of the purchase price have been allocated to non-amortizing and amortizing intangible assets,
respectively. These businesses are primarily included in the Grocery & Snacks segment.
In September 2016, we acquired the operating assets of Frontera Foods, Inc. and Red Fork LLC, including the Frontera®,
Red Fork®, and Salpica® brands (the "Frontera acquisition"). These businesses make authentic, gourmet Mexican food products
and contemporary American cooking sauces. We acquired the businesses for $108.1 million in cash, net of cash acquired.
Approximately $39.5 million has been classified as goodwill and $59.5 million and $7.2 million have been classified as non-
amortizing and amortizing intangible assets, respectively. The amount allocated to goodwill is deductible for tax purposes.
These businesses are included primarily in the Grocery & Snacks and the Refrigerated & Frozen segments, and to a lesser
extent within the International segment.
Divestitures
On May 24, 2019, we completed the sale of our Italian-based frozen pasta business, Gelit, for proceeds net of cash divested
of $77.5 million, subject to final working capital adjustments. The results of operations of the divested Gelit business are
primarily included in our Refrigerated & Frozen segment for the periods preceding the completion of the transaction.
During the fourth quarter of fiscal 2019, we also completed the sale of our Wesson® oil business for net proceeds of $171.8
million, subject to final working capital adjustments. The results of operations of the divested Wesson® oil business are primarily
included in our Grocery & Snacks segment, and to a lesser extent within the Foodservice and International segments, for the
periods preceding the completion of the transaction.
During the first quarter of fiscal 2019, we completed the sale of our Del Monte® processed fruit and vegetable business
in Canada for combined proceeds of $32.2 million. The results of operations of the divested Del Monte® business are included
in our International segment for the periods preceding the completion of the transaction.
23
On November 9, 2016, we completed the spinoff (the "Spinoff") of Lamb Weston Holdings, Inc. ("Lamb Weston"). The
results of operations of the Lamb Weston business have been reclassified to discontinued operations for all periods presented.
In the first quarter of fiscal 2017, we completed the sales of our Spicetec Flavors & Seasonings business ("Spicetec") and
our JM Swank business for combined proceeds of $489.0 million. The results of operations of Spicetec and JM Swank are
included in the Commercial segment.
Restructuring Plans
In December 2018, our Board of Directors (the "Board") approved a restructuring and integration plan related to the
ongoing integration of the recently acquired operations of Pinnacle (the "Pinnacle Integration Restructuring Plan") for the
purpose of achieving significant cost synergies between the companies, as a result of which we expect to incur material charges
for exit and disposal activities under U.S. generally accepted accounting principles ("U.S. GAAP"). We expect to incur up to
$360.0 million ($285.0 million of cash charges and $75.0 million of non-cash charges) in connection with operational
expenditures under the Pinnacle Integration Restructuring Plan.
Although we remain unable to make good faith estimates relating to the entire Pinnacle Integration Restructuring Plan,
we are reporting on actions initiated through the end of fiscal 2019, 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 $260.1 million of charges ($254.0 million of cash charges and $6.1 million of non-
cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan. In fiscal 2019, we recognized
charges of $168.2 million, which were primarily cash charges.
In the third quarter of fiscal 2019, management initiated a new restructuring plan (the "Conagra Restructuring Plan") for
costs in connection with actions taken to improve selling, general and administrative ("SG&A") expense effectiveness and
efficiencies and to optimize our supply chain network. We have incurred or expect to incur $4.3 million of charges ($2.4
million of cash charges and $1.9 million of non-cash charges) for actions identified to date under the Conagra Restructuring
Plan. We are not able to quantify the scope of the entire Conagra Restructuring Plan at this time. In fiscal 2019, we recognized
charges of $2.2 million ($1.4 million of cash charges and $0.8 million in non-cash charges) in connection with the Conagra
Restructuring Plan.
As of May 26, 2019, we had substantially completed our restructuring activities related to the Supply Chain and
Administrative Efficiency Plan (the "SCAE Plan"). We recognized charges of $9.6 million, $38.0 million, and $63.6 million
in connection with the SCAE Plan related to our continuing operations in fiscal 2019, 2018, and 2017, respectively. Our total
pre-tax expenses for the SCAE Plan related to our continuing operations are expected to be $471.0 million ($321.0 million
of cash charges and $150.0 million of non-cash charges).
SEGMENT REVIEW
We reflect our results of operations in the following reporting segments: Grocery & Snacks, Refrigerated & Frozen,
International, Foodservice, Pinnacle Foods, 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-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.
24
Foodservice
The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces,
and a variety of custom-manufactured culinary products, that are packaged for sale to restaurants and other foodservice
establishments primarily in the United States.
Pinnacle Foods
The Pinnacle Foods reporting segment includes branded and private-labeled food products, in various temperature states,
sold in various retail and foodservice channels in the United States and Canada. Results of the Pinnacle Foods segment reflect
activity beginning on October 26, 2018, the date of the Pinnacle acquisition.
Commercial
The Commercial reporting segment included commercially branded and private label food and ingredients, which were
sold primarily to commercial, restaurant, foodservice, food manufacturing, and industrial customers. The segment's primary
food items included a variety of vegetable, spice, and frozen bakery goods, which were sold under brands such as Spicetec
Flavors & Seasonings®. The Spicetec and JM Swank businesses were sold in the first quarter of fiscal 2017. These businesses
comprised the entire Commercial segment following the presentation of Lamb Weston as discontinued operations.
Presentation of Derivative Gains (Losses) from Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting
treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives
are generally recognized at fair market value with realized and unrealized gains and losses recognized in general corporate
expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period
in which the underlying transaction being economically hedged is included in earnings. In the event that management
determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function
as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin
recognizing such gains and losses within segment operating results, immediately.
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption
and the foreign currency risk of certain forecasted transactions associated with continuing operations, under this methodology:
($ in millions)
Net derivative gains (losses) incurred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Net derivative gains (losses) allocated to reporting segments . . . . . . . . . . . . . .
Net derivative gains (losses) recognized in general corporate expenses. . . . . . . . $
Net derivative gains (losses) allocated to Grocery & Snacks. . . . . . . . . . . . . . . . . . . . $
Net derivative gains (losses) allocated to Refrigerated & Frozen . . . . . . . . . . . . . . . .
Net derivative gains (losses) allocated to International Foods . . . . . . . . . . . . . . . . . . .
Net derivative losses allocated to Foodservice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative losses allocated to Pinnacle Foods . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative losses allocated to Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative gains (losses) included in segment operating profit . . . . . . . . . . . $
Fiscal Years Ended
May 27,
2018
May 28,
2017
May 26,
2019
(3.6) $
(1.8)
(1.8) $
(2.1) $
(1.1)
2.8
(0.6)
(0.8)
—
(1.8) $
$
$
(0.9) $
(7.1)
6.2
0.2
(0.3)
(6.9)
(0.1)
—
—
(7.1) $
0.6
5.7
(5.1)
3.4
0.8
1.6
—
—
(0.1)
5.7
As of May 26, 2019, the cumulative amount of net derivative gains from economic hedges that had been recognized in
general corporate expenses and not yet allocated to reporting segments was $1.4 million. This amount reflected net gains of
$1.0 million incurred during the fiscal year ended May 26, 2019, as well as net gains of $0.4 million incurred prior to fiscal
2019. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment
operating results gains of $0.9 million in fiscal 2020 and $0.5 million in fiscal 2021 and thereafter.
25
Fiscal 2019 compared to Fiscal 2018
Net Sales
($ in millions)
Reporting Segment
Grocery & Snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Refrigerated & Frozen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foodservice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pinnacle Foods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,279.2
$
3,287.0
2,804.0
793.4
934.2
1,727.6
2,753.0
843.5
1,054.8
—
Fiscal 2019
Net Sales
Fiscal 2018
Net Sales
% Inc
(Dec)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
9,538.4
$
7,938.3
— %
2 %
(6)%
(11)%
100 %
20 %
Overall, our net sales were $9.54 billion in fiscal 2019, an increase of 20% compared to fiscal 2018.
Grocery & Snacks net sales for fiscal 2019 were $3.28 billion, a decrease of $7.8 million compared to fiscal 2018. Volume,
excluding the impact of acquisitions and divestitures, was flat in fiscal 2019 compared to the prior-year period. This result
reflected merchandising changes and price elasticity-related declines in certain brands, as well as isolated production
challenges, partially offset by the continued benefit from momentum and innovation successes in the snacks businesses. Price/
mix was flat compared to the prior year as unfavorable mix, coupled with increases in brand building investments with retailers
were offset by the impact of higher pricing. The acquisition of Angie's Artisan Treats, LLC, which was completed in October
2017, contributed $41.3 million to Grocery & Snacks net sales during fiscal 2019, through the one-year anniversary of the
acquisition. Fiscal 2019 results included $115.9 million of net sales related to our Wesson® oil business, which was sold in
the fourth quarter of fiscal 2019. Fiscal 2018 results included $156.4 million of net sales related to this divested business.
Refrigerated & Frozen net sales for fiscal 2019 were $2.80 billion, an increase of $51.0 million, or 2%, compared to fiscal
2018. Results for fiscal 2019 reflected a 1% increase in volume compared to fiscal 2018, excluding the impact of acquisitions.
The increase in sales volumes was a result of innovation across multiple brands, which was partially offset by the effects of
reduced merchandising spend and the impact of a recall during the fourth quarter. Price/mix was flat compared to fiscal 2018,
as continued delivery of top-line accretive innovation in several brands was partially offset by brand building investments
with retailers. The acquisition of the Sandwich Bros. of Wisconsin® business, which was completed in February 2018,
contributed $25.7 million to Refrigerated & Frozen's net sales during fiscal 2019, through the one-year anniversary of the
acquisition.
International net sales for fiscal 2019 were $793.4 million, a decrease of $50.1 million, or 6%, compared to fiscal 2018.
Results for fiscal 2019 reflected a 2% increase in volume, excluding the impact of acquisitions and divestitures, a 4% decrease
due to foreign exchange rates, and a 2% increase in price/mix, in each case compared to fiscal 2018. The volume and price/
mix increases for fiscal 2019 were driven by growth in the Canadian snacks and frozen businesses. The acquisition of Angie's
Artisan Treats, LLC contributed $3.7 million to International net sales for fiscal 2019, through the one-year anniversary of
the acquisition. Fiscal 2019 included $4.1 million of net sales related to our Del Monte® processed fruit and vegetable business
in Canada, which was sold in the first quarter of fiscal 2019. Fiscal 2018 results included $48.9 million of net sales related to
this divested business. In addition, fiscal 2019 and 2018 results included $17.1 million and $24.5 million, respectively, related
to our divested Wesson® oil business.
Foodservice net sales for fiscal 2019 were $934.2 million, a decrease of $120.6 million, or 11%, compared to fiscal 2018.
Results for fiscal 2019 reflected a 14% decrease in volume, excluding divestitures. The decline in volume reflected the
continued execution of the segment's value-over-volume strategy and the sale of our Trenton, Missouri production facility in
the first quarter of fiscal 2019. Price/mix increased 5% in fiscal 2019 compared to fiscal 2018. The increase in price/mix for
fiscal 2019 reflected favorable product and customer mix, the impact of inflation-driven increases in pricing, and the execution
of the segment's value-over-volume strategy. Fiscal 2019 included $34.2 million of net sales related to our Wesson® oil business,
which was sold in the fourth quarter of fiscal 2019. Fiscal 2018 results included $53.4 million of net sales related to this
divested business. Net sales declined by approximately 7% in fiscal 2019 due to the sale of our Trenton, Missouri production
facility.
Pinnacle Foods net sales for fiscal 2019 (reflecting 213 days of Conagra Brands ownership) were $1.73 billion. Results
reflected expected consumption declines as the Company executes its value-over-volume strategy within the Pinnacle portfolio.
26
SG&A Expenses (Includes general corporate expenses)
SG&A expenses totaled $1.47 billion for fiscal 2019, an increase of $75.0 million compared to fiscal 2018. SG&A expenses
for fiscal 2019 reflected the following:
Items impacting comparability of earnings
•
•
•
•
•
•
•
expenses of $170.3 million in connection with our restructuring plans,
expenses of $106.2 million associated with costs incurred for acquisitions and divestitures,
expenses of $89.6 million related to intangible impairments,
gains of $69.4 million related to the divestitures of businesses,
a benefit of $39.1 million related to legal matters,
a benefit of $27.3 million related to the novation of a legacy guarantee,
a benefit of $15.1 million related to the fair value adjustment of cash settleable equity awards issued in connection
with, and included in the consideration for the Pinnacle acquisition, and
•
expenses of $8.9 million related to costs associated with the integration of Pinnacle.
Other changes in expenses compared to fiscal 2018
•
•
•
•
•
•
•
•
•
•
an increase of $81.9 million related to Pinnacle SG&A expenses not included in other items noted herein, representing
such costs incurred from October 26, 2018 through May 26, 2019,
a decrease in advertising and promotion expense of $25.2 million, including $34.0 million of expense attributable
to Pinnacle,
an increase in salary and wage expense of $61.6 million, including $60.2 million attributable to Pinnacle,
a decrease in share-based payment and deferred compensation expense of $13.1 million due to lower share price and
market declines, including $1.0 million of expense attributable to Pinnacle,
a decrease in pension and postretirement service expense of $9.6 million,
an increase in defined contribution plan expense of $6.9 million, including $2.4 million attributable to Pinnacle,
a decrease in charitable contributions of $5.4 million,
a decrease in incentive compensation expense of $4.3 million, including $6.4 million attributable to Pinnacle,
an increase in self-insured workers' compensation and product liability expense of $3.3 million, and
a decrease in transaction services agreement income of $2.9 million.
SG&A expenses for fiscal 2018 included the following items impacting the comparability of earnings:
•
•
•
•
•
charges totaling $151.0 million related to certain litigation matters,
a charge of $34.9 million related to the early termination of an unfavorable lease contract,
expenses of $30.2 million in connection with our SCAE Plan,
expenses of $15.1 million associated with costs incurred for acquisitions and divestitures, and
charges totaling $4.8 million related to the impairment of other intangible assets.
27
Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service
income, interest expense, net, income taxes, and equity method investment earnings)
($ in millions)
Reporting Segment
Grocery & Snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Refrigerated & Frozen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foodservice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pinnacle Foods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2019
Operating
Profit
Fiscal 2018
Operating
Profit
% Inc
(Dec)
689.2
$
502.2
94.5
117.7
238.2
724.8
479.4
86.5
121.8
—
(5)%
5 %
9 %
(3)%
100 %
Grocery & Snacks operating profit for fiscal 2019 was $689.2 million, a decrease of $35.6 million, or 5%, compared to
fiscal 2018. Gross profits were $55.8 million lower in fiscal 2019 than in fiscal 2018. The lower gross profit was driven by
higher input costs, transportation inflation, and a reduction in profit associated with the divestiture of the Wesson® oil business,
partially offset by profit contribution of acquisitions and supply chain realized productivity. The acquisition of Angie's Artisan
Treats, LLC contributed $12.6 million to Grocery & Snacks gross profit in fiscal 2019, through the one-year anniversary of
the acquisition. Advertising and promotion expenses for fiscal 2019 decreased by $31.3 million compared to fiscal 2018.
Operating profit of the Grocery & Snacks segment was impacted by charges totaling $76.5 million in fiscal 2019 for the
impairment of our Chef Boyardee® and Red Fork® brand assets and $4.0 million in fiscal 2018 for the impairment of our HK
Anderson®, Red Fork®, and Salpica® brand assets. Grocery & Snacks also recognized a $33.1 million gain on the sale of our
Wesson® oil business in fiscal 2019. Operating profit of the Grocery & Snacks segment included $1.0 million and $11.4 million
of expenses in fiscal 2019 and 2018, respectively, related to acquisitions and divestitures and charges of $4.6 million and
$14.1 million in connection with our restructuring plans in fiscal 2019 and 2018, respectively.
Refrigerated & Frozen operating profit for fiscal 2019 was $502.2 million, an increase of $22.8 million, or 5%, compared
to fiscal 2018. Gross profits were $19.6 million lower in fiscal 2019 than in fiscal 2018, driven by increased input costs and
transportation inflation, partially offset by supply chain realized productivity. Advertising and promotion expenses for fiscal
2019 decreased by $24.6 million compared to fiscal 2018. Operating profit of the Refrigerated & Frozen segment included a
gain of $23.1 million in fiscal 2019 related to the sale of our Italian-based frozen pasta business, Gelit.
International operating profit for fiscal 2019 was $94.5 million, an increase of $8.0 million, or 9%, compared to fiscal
2018. Gross profits were flat in fiscal 2019 compared to fiscal 2018. Included in the International segment fiscal 2019 operating
profit was a gain of $13.2 million related to the sale of our Del Monte® processed fruit and vegetable business in Canada,
charges of $13.1 million for the impairment of our Aylmer® and Sundrop® brand assets, and charges of $2.9 million related
to divestitures. In addition, operating profit was impacted by charges of $1.9 million and $1.5 million in connection with our
restructuring plans, in fiscal 2019 and 2018, respectively.
Foodservice operating profit for fiscal 2019 was $117.7 million, a decrease of $4.1 million, or 3%, compared to fiscal
2018. Gross profits were $8.5 million lower in fiscal 2019 than in fiscal 2018, due to lower volume (including the sale of our
Trenton, Missouri production facility) and higher input costs, partially offset by supply chain realized productivity.
Pinnacle Foods operating profit for fiscal 2019 (reflecting 213 days of Conagra Brands ownership) was $238.2 million.
Operating profit for Pinnacle Foods during fiscal 2019 included incremental cost of goods sold of $53.0 million due to the
impact of writing inventory to fair value as part of our acquisition accounting and the subsequent sale of that inventory, as
well as charges of $5.9 million related to restructuring activities.
Interest Expense, Net
In fiscal 2019, net interest expense was $391.4 million, an increase of $232.7 million, or 147%, from fiscal 2018. The
increase reflected the following:
•
the issuance of $7.025 billion aggregate principal amount of unsecured senior notes and borrowings of $1.30 billion
under our new unsecured term loan agreement with a syndicate of financial institutions providing for a $650.0 million
tranche of three-year term loans and a $650.0 million tranche of five-year term loans to the Company (the "Term
Loan Agreement"), in each case in connection with the Pinnacle acquisition,
28
•
•
•
•
the repayment of a total of $900.0 million of our borrowings under the Term Loan Agreement in the third and fourth
quarters of fiscal 2019,
the borrowing of $300.0 million under our prior term loan agreement during the fourth quarter of fiscal 2018, which
borrowing was subsequently repaid in connection with the Pinnacle acquisition,
the issuance of $500.0 million aggregate principal amount of floating rate notes due 2020 during the second quarter
of fiscal 2018,
the repayment of $70.0 million aggregate principal amount of outstanding senior notes in the fourth quarter of fiscal
2018, and
•
the repayment of $119.6 million aggregate principal amount of outstanding notes in the third quarter of fiscal 2018.
In addition, fiscal 2019 included $11.9 million related to the amortization of costs incurred to secure fully committed
bridge financing in connection with the then-pending Pinnacle acquisition. The bridge financing was subsequently terminated
in connection with our incurrence of permanent financing to fund the Pinnacle acquisition, and we recognized the remaining
unamortized financing costs of $33.8 million within SG&A expenses.
Income Taxes
Our income tax expense was $218.8 million and $174.6 million in fiscal 2019 and 2018, respectively. The effective tax
rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method
investment earnings) was approximately 24% and 18% for fiscal 2019 and 2018, respectively.
As a result of our off-calendar fiscal year end, the lower U.S. statutory federal income tax rate resulted in a blended U.S.
federal statutory rate of 29.3% for the fiscal year ended May 27, 2018.
The effective tax rate in fiscal 2019 reflects the following:
•
•
•
•
•
•
•
•
•
the impact of legal entity reorganization resulting in a benefit related to undistributed foreign earnings for which the
indefinite reinvestment assertion is no longer made,
additional tax expense on the repatriation of certain foreign earnings,
an adjustment of valuation allowance associated with the expected capital gains from the divestiture of the Wesson® oil
and Gelit businesses,
additional tax expense on non-deductible facilitative costs associated with the Pinnacle acquisition,
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,
an increase to the deemed repatriation tax liability,
additional tax expense due to foreign and domestic restructuring, and
a state tax benefit from integration of the Pinnacle business.
The effective tax rate in fiscal 2018 reflects the following:
•
•
•
•
•
•
the impact of the Tax Act,
an adjustment of valuation allowance associated with the termination of the agreement for the proposed divestiture
of our Wesson® oil business,
an indirect cost of the pension contribution made on February 26, 2018,
additional expense related to the settlement of an audit of the impact of a law change in Mexico,
an income tax benefit allowed upon the vesting/exercise of employee stock compensation awards by our employees,
beyond that which is attributable to the original fair value of the awards upon the date of grant, and
additional expense related to undistributed foreign earnings for which the indefinite reinvestment assertion is no
longer made.
29
We expect our effective tax rate in fiscal 2020, exclusive of any unusual transactions or tax events, to be approximately
24%-25%.
Equity Method Investment Earnings
We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates. Our
most significant affiliate is the Ardent Mills joint venture. Our share of earnings from our equity method investment earnings
were $75.8 million and $97.3 million for fiscal 2019 and 2018, respectively. Results for fiscal 2019 included a gain of $15.1
million from the sale of an asset by the Ardent Mills joint venture. In addition, Ardent Mills earnings for fiscal 2019 reflected
lower commodity margins and the timing of certain customer contracts that negatively impacted performance. A benefit of
$4.3 million was included in the earnings of fiscal 2018 in connection with a gain on the substantial liquidation of an international
joint venture.
Results of Discontinued Operations
Our discontinued operations generated an after-tax loss of $1.9 million and a gain of $14.3 million in fiscal 2019 and
2018, respectively. During fiscal 2018, a $14.5 million income tax benefit was recorded due to an adjustment of the estimated
deductibility of the costs incurred associated with effecting the Spinoff of Lamb Weston.
Earnings Per Share
Diluted earnings per share in fiscal 2019 were $1.52, including earnings of $1.53 per diluted share from continuing
operations and a loss of $0.01 per diluted share from discontinued operations. Diluted earnings per share in fiscal 2018 were
$1.98, including earnings of $1.95 per diluted share from continuing operations and $0.03 per diluted share from discontinued
operations. See "Items Impacting Comparability" above as several significant items affected the comparability of year-over-
year results of operations.
Fiscal 2018 compared to Fiscal 2017
Net Sales
($ in millions)
Reporting Segment
Grocery & Snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Refrigerated & Frozen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foodservice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal 2018
Net Sales
Fiscal 2017
Net Sales
% Inc
(Dec)
3,287.0
$
3,208.8
2,753.0
843.5
1,054.8
—
7,938.3
$
2,652.7
816.0
1,078.3
71.1
7,826.9
2 %
4 %
3 %
(2)%
(100)%
1 %
Overall, our net sales were $7.94 billion in fiscal 2018, an increase of 1% compared to fiscal 2017.
Grocery & Snacks net sales for fiscal 2018 were $3.29 billion, an increase of $78.2 million, or 2%, compared to fiscal
2017. Results reflected a decrease in volumes of approximately 2% in fiscal 2018 compared to the prior-year period, excluding
the impact of acquisitions. The decrease in sales volumes reflected a reduction in promotional intensity, planned discontinuation
of certain lower-performing products, retailer inventory reductions, which were higher than anticipated, and deliberate actions
to optimize distribution on certain lower-margin products, consistent with the Company's value over volume strategy. Price/
mix was flat compared to the prior-year period as favorable mix improvements from recent innovation and higher net pricing
nearly offset continued investments in retailer marketing to drive brand saliency, enhanced distribution, and consumer trial.
The acquisition of Angie's Artisan Treats, LLC contributed $68.1 million to Grocery & Snacks net sales during fiscal 2018.
The Frontera acquisition contributed $8.6 million and the Thanasi acquisition contributed $66.5 million to Grocery & Snacks
net sales during fiscal 2018 through the one-year anniversaries of the acquisitions. The Frontera and Thanasi acquisitions
occurred in September 2016 and April 2017, respectively.
Refrigerated & Frozen net sales for fiscal 2018 were $2.75 billion, an increase of $100.3 million, or 4%, compared to
fiscal 2017. Results for fiscal 2018 reflected a 3% increase in volume compared to fiscal 2017, excluding the impact of
30
acquisitions. The increase in sales volumes was a result of brand renovation and innovation launches. Price/mix was flat
compared to fiscal 2017, as favorability in both net pricing and mix offset continued investment in retailer marketing to drive
brand saliency, enhanced distribution, and consumer trial. The acquisition of the Sandwich Bros. of Wisconsin® business
contributed $21.3 million to Refrigerated & Frozen's net sales during fiscal 2018. The Frontera acquisition, which occurred
in September 2016, and subsequent innovation in the Frontera® brand contributed $4.4 million during fiscal 2018 through
the one-year anniversary of the acquisition.
International net sales for fiscal 2018 were $843.5 million, an increase of $27.5 million, or 3%, compared to fiscal 2017.
Results for fiscal 2018 reflected a 3% decrease in volume, a 3% increase due to foreign exchange rates, and a 3% increase in
price/mix, in each case compared to fiscal 2017. The volume decrease for fiscal 2018 was driven by strategic decisions to
eliminate lower margin products and to reduce promotional intensity. The increase in price/mix compared to the prior-year
period was driven by improvements in pricing and trade productivity.
Foodservice net sales for fiscal 2018 were $1.05 billion, a decrease of $23.5 million, or 2%, compared to fiscal 2017.
Results for fiscal 2018 reflected an 11% decrease in volume, partially offset by a 9% increase in price/mix compared to fiscal
2017. The decrease in volumes compared to the prior year primarily reflected the impact of exiting a non-core business, the
planned discontinuation of certain lower-performing businesses, and softness in certain categories. The increase in price/mix
for fiscal 2018 reflected favorable product and customer mix, the impact of inflation-driven increases in pricing, and the
execution of the segment's value over volume strategy.
In the first quarter of fiscal 2017, we divested our Spicetec and JM Swank businesses. These businesses comprise the
entire Commercial segment following the presentation of Lamb Weston as discontinued operations. Accordingly, there were
no net sales in the Commercial segment after the first quarter of fiscal 2017. These businesses had net sales of $71.1 million
in fiscal 2017 prior to the completion of the divestitures.
SG&A Expenses (Includes general corporate expenses)
SG&A expenses totaled $1.40 billion for fiscal 2018, a decrease of $75.6 million compared to fiscal 2017. SG&A expenses
for fiscal 2018 reflected the following:
Items impacting comparability of earnings
•
•
•
•
•
charges totaling $151.0 million related to certain litigation matters,
a charge of $34.9 million related to the early termination of an unfavorable lease contract,
expenses of $30.2 million in connection with our SCAE Plan,
expenses of $15.1 million associated with costs incurred for acquisitions and divestitures, and
charges totaling $4.8 million related to the impairment of other intangible assets.
Other changes in expenses compared to fiscal 2017
•
•
•
•
•
•
•
•
•
a decrease in advertising and promotion expense of $49.7 million,
a decrease in transaction services agreement income of $18.3 million,
a decrease in incentive compensation expense of $14.6 million,
a decrease in stock-based compensation expense of $10.4 million,
a decrease in contract services of $9.4 million,
a decrease in charitable contributions of $6.7,
a decrease in pension and postretirement service expense of $4.2 million,
an increase in salaries expense of $19.4 million, and
an increase in self-insured workers' compensation and product liability expense of $7.0 million.
31
SG&A expenses for fiscal 2017 included the following items impacting the comparability of earnings:
•
•
•
•
•
•
charges totaling $237.1 million related to the impairment of goodwill and other intangible assets, primarily in the
International segment,
gains totaling $197.4 million, from the divestiture of the Spicetec and JM Swank businesses,
charges totaling $93.3 million related to the early retirement of debt,
a charge of $67.1 million related to the impairment of the Chef Boyardee® brand intangible,
expenses of $46.4 million in connection with our SCAE Plan,
charges of $30.9 million related to the planned divestiture of our Wesson® oil business, including an impairment
charge of $27.6 million related to the production assets of the business that were not initially included in the assets
held for sale, and
•
a benefit of $5.7 million in connection with a legal matter.
Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service
income, interest expense, net, income taxes, and equity method investment earnings)
($ in millions)
Reporting Segment
Grocery & Snacks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Refrigerated & Frozen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foodservice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2018
Operating
Profit
Fiscal 2017
Operating
Profit
% Inc
(Dec)
724.8
$
655.4
479.4
86.5
121.8
—
445.8
(168.9)
105.1
202.6
11 %
8 %
N/A
16 %
(100)%
Grocery & Snacks operating profit for fiscal 2018 was $724.8 million, an increase of $69.4 million, or 11%, compared
to fiscal 2017. Gross profits were $21.9 million lower in fiscal 2018 than in fiscal 2017. The lower gross profit was driven by
investments with retailers (i.e., trade spending reflected as a reduction of net sales), as well as higher input costs and
transportation expenses, partially offset by supply chain realized productivity. The Frontera acquisition, Thanasi acquisition,
and the acquisition of Angie's Artisan Treats, LLC, which occurred in September 2016, April 2017, and October 2017,
respectively, contributed $47.4 million to Grocery & Snacks gross profit during fiscal 2018 through the one-year anniversaries
of the acquisitions (if reached). Advertising and promotion expenses for fiscal 2018 decreased by $19.5 million compared to
fiscal 2017. Operating profit of the Grocery & Snacks segment was impacted by charges totaling $4.0 million in fiscal 2018
for the impairment of our HK Anderson®, Red Fork®, and Salpica® brand assets and $68.3 million in fiscal 2017 primarily
for the impairment of our Chef Boyardee® brand asset. Grocery & Snacks also incurred $11.4 million of expenses in fiscal
2018 related to acquisitions and divestitures, charges of $31.4 million in fiscal 2017 related to the pending divestiture of the
Wesson® oil business, and charges of $14.1 million and $23.6 million in connection with our restructuring plans in fiscal 2018
and 2017, respectively.
Refrigerated & Frozen operating profit for fiscal 2018 was $479.4 million, an increase of $33.6 million, or 8%, compared
to fiscal 2017. Gross profits were $3.6 million lower in fiscal 2018 than in fiscal 2017, driven by continuing increases in input
costs and transportation inflation as well as investments to drive distribution, enhanced shelf presence, and trial, partially
offset by increased sales volumes and supply chain realized productivity. The acquisition of the Sandwich Bros. of Wisconsin®
business contributed $4.6 million to gross profit in the segment during fiscal 2018. Advertising and promotion expenses for
fiscal 2018 decreased by $23.4 million compared to fiscal 2017. Operating profit of the Refrigerated & Frozen segment was
impacted by charges totaling approximately $7.7 million in fiscal 2017 related to a product recall, as well as charges of $0.1
million and $6.2 million in connection with our restructuring plans in fiscal 2018 and 2017, respectively.
International operating profit for fiscal 2018 was $86.5 million, compared to an operating loss of $168.9 million for fiscal
2017. The operating loss in fiscal 2017 includes charges totaling $235.9 million for the impairment of goodwill and an intangible
brand asset in our Canadian and Mexican operations. Gross profits were $18.6 million higher in fiscal 2018 than in fiscal
2017, as a result of improved price/mix, the favorable impact of foreign exchange, and the planned discontinuations of certain
32
lower-performing products. Operating profit of the International segment was impacted by charges of $1.5 million and $0.9
million in connection with our restructuring plans, in fiscal 2018 and 2017, respectively.
Foodservice operating profit for fiscal 2018 was $121.8 million, an increase of $16.7 million, or 16%, compared to fiscal
2017. Gross profits were $13.9 million higher in fiscal 2018 than in fiscal 2017, primarily reflecting the impact of inflation-
driven increases in pricing and supply chain realized productivity, partially offset by lower sales volumes and increased input
costs. Operating profit of the Foodservice segment was impacted by charges of $1.8 million in fiscal 2017 in connection with
our restructuring plans.
Commercial operating profit was $202.6 million in fiscal 2017. The Company sold the Spicetec and JM Swank businesses
in the first quarter of fiscal 2017, recognizing pre-tax gains totaling $197.4 million. The Spicetec and JM Swank businesses
comprise the entire Commercial segment following the presentation of Lamb Weston as discontinued operations. There are
no further operations in the Commercial segment.
Interest Expense, Net
In fiscal 2018, net interest expense was $158.7 million, a decrease of $36.8 million, or 19%, from fiscal 2017. The decrease
reflects the repayment of $550.0 million aggregate principal amount of outstanding senior notes in the first quarter of fiscal
2017, $473.0 million aggregate principal amount of outstanding senior notes in the third quarter of fiscal 2017, $119.6 million
aggregate principal amount of outstanding senior notes in the third quarter of fiscal 2018, $70.0 million aggregate principal
amount of outstanding senior notes in the fourth quarter of fiscal 2018, as well as the exchange of $1.44 billion 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 and the
borrowing of $300.0 million under our term loan agreement during the fourth quarter of fiscal 2018. For more information
about the debt exchange, see Note 4 "Long-Term Debt" to the consolidated financial statements contained in this report.
Income Taxes
Our income tax expense was $174.6 million and $254.7 million in fiscal 2018 and 2017, respectively. The effective tax
rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method
investment earnings) was approximately 18% for fiscal 2018 and 32% for fiscal 2017.
The Tax Act was enacted into law on December 22, 2017. The changes to U.S. tax law include, but are not limited to:
•
•
•
•
•
•
reducing the federal statutory income tax rate from 35% to 21%, effective January 1, 2018;
eliminating the deduction for domestic manufacturing activities, which began impacting us in fiscal 2019;
requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries;
repealing the exception for deductibility of performance-based compensation to covered employees, along with
expanding the number of covered employees;
allowing immediate expensing of machinery and equipment contracted for purchase after September 27, 2017; and
changing taxation of multinational companies, including a new minimum tax on Global Intangible Low-Taxed
Income, a new Base Erosion Anti-Abuse Tax, and a new U.S. corporate deduction for Foreign-Derived Intangible
Income, all of which became effective for us beginning in 2019.
As a result of our off-calendar fiscal year-end, the lower U.S. statutory federal income tax rate resulted in a blended U.S.
federal statutory rate of 29.3% for the fiscal year ended May 27, 2018. Our federal statutory rate was 21% in fiscal 2019.
The effective tax rate in fiscal 2018 reflects the following:
•
•
the impact of U.S. tax reform, as noted above,
an adjustment of valuation allowance associated with the termination of the agreement for the proposed sale of our
Wesson® oil business,
•
an indirect cost of the pension contribution made on February 26, 2018,
33
•
•
•
additional expense related to the settlement of an audit of the impact of a law change in Mexico,
an income tax benefit allowed upon the vesting/exercise of employee stock compensation awards by our employees,
beyond that which is attributable to the original fair value of the awards upon the date of grant, and
additional expense related to undistributed foreign earnings for which the indefinite reinvestment assertion is no
longer made.
The effective tax rate in fiscal 2017 reflects the following:
•
•
•
•
•
additional tax expense associated with non-deductible goodwill sold in connection with the divestitures of the Spicetec
and JM Swank businesses,
additional tax expense associated with non-deductible goodwill in our Mexican and Canadian businesses, for which
an impairment charge was recognized,
an income tax benefit for the adjustment of a valuation allowance associated with the planned divestiture of the
Wesson® oil business,
an income tax benefit for excess tax benefits allowed upon the vesting/exercise of employee stock compensation
awards by our employees, beyond that which is attributable to the original fair value of the awards upon the date of
grant, and
an income tax benefit associated with a tax planning strategy that allowed us to utilize certain state tax attributes and
certain foreign incentives.
Equity Method Investment Earnings
We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates. Our
most significant affiliate is the Ardent Mills joint venture. Our share of earnings from our equity method investment earnings
were $97.3 million and $71.2 million for fiscal 2018 and 2017, respectively. A benefit of $4.3 million was included in the
earnings of fiscal 2018 in connection with a gain on the substantial liquidation of an international joint venture. In addition,
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.
Results of Discontinued Operations
Our discontinued operations generated after-tax income of $14.3 million and $102.0 million in fiscal 2018 and 2017,
respectively. During fiscal 2018, a $14.5 million income tax benefit was recorded due to an adjustment of the estimated
deductibility of the costs incurred associated with effecting the Spinoff of Lamb Weston. The prior-year period results reflected
the operations of Lamb Weston through the date of its Spinoff in November 2016. We incurred significant costs associated
with effecting the Spinoff of Lamb Weston. These costs are included in results of discontinued operations.
Earnings Per Share
Diluted earnings per share in fiscal 2018 were $1.98, including earnings of $1.95 per diluted share from continuing
operations and $0.03 per diluted share from discontinued operations. Diluted earnings per share in fiscal 2017 were $1.46,
including earnings of $1.25 per diluted share from continuing operations and $0.21 per diluted share from discontinued
operations. See "Items Impacting Comparability" above as several significant items affected the comparability of year-over-
year results of operations.
34
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital
The primary objective of our financing strategy is to maintain a prudent capital structure that provides us flexibility to
pursue our growth objectives. If necessary, 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 May 26, 2019, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial
institutions providing for a maximum aggregate principal amount outstanding at any one time of $1.6 billion (subject to
increase to a maximum aggregate principal amount of $2.1 billion with the consent of the lenders). We have historically used
a credit facility principally as a back-up for our commercial paper program. As of May 26, 2019, there were no outstanding
borrowings under the Revolving Credit Facility.
At May 26, 2019, we had no amounts outstanding under our commercial paper program. The highest level of borrowings
during fiscal 2019 was $408.7 million. As of May 27, 2018, we had $277.0 million outstanding under our commercial paper
program.
On October 22, 2018, in connection with the Pinnacle acquisition, we issued senior unsecured notes in the aggregate
principal amount of $7.025 billion. These notes were issued in seven tranches: floating rate senior notes due October 22, 2020
in an aggregate principal amount of $525.0 million with an interest equal to three-month LIBOR plus 0.75%; 3.8% senior
notes due October 22, 2021 in an aggregate principal amount of $1.2 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 $1.3 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.
On October 26, 2018, in connection with the Pinnacle acquisition, we borrowed $1.3 billion under our Term Loan
Agreement. The three-year tranche loans mature on October 26, 2021, and the five-year tranche loans mature on October 26,
2023. The term loans bear interest at, at the Company's election, either (a) LIBOR plus a percentage spread (ranging from 1%
to 1.625% for three-year tranche loans and 1.125% to 1.75% for five-year tranche loans) based on the Company's senior
unsecured long-term indebtedness ratings or (b) the alternate base rate, described in the Term Loan Agreement as the greatest
of (i) Bank of America's prime rate, (ii) the federal funds rate plus 0.50%, and (iii) one-month LIBOR plus 1.00%, plus a
percentage spread (ranging from 0% to 0.625% for three-year tranche loans and 0.125% to 0.75% for five-year tranche loans)
based on the Company's senior unsecured long-term indebtedness ratings.
The Company may voluntarily prepay term loans under the Term Loan Agreement, in whole or in part, without penalty,
subject to certain conditions. During fiscal 2019, we repaid $900.0 million of our borrowings under the Term Loan Agreement,
which consisted of $450.0 million of the three-year tranche loans and $450.0 million of the five-year tranche loans. Subsequent
to fiscal 2019, we repaid an additional $100.0 million of the three-year tranche loans and $100.0 million of the five-year
tranche loans.
The Revolving Credit Facility and the Term Loan Agreement generally require that our ratio of EBITDA (earnings before
interest, taxes, depreciation, and amortization) to interest expense not be less than 3.0 to 1.0 and our ratio of funded debt to
EBITDA not exceed certain decreasing specified levels, ranging from 5.875 through the first quarter of fiscal 2020 to 3.75
from the second quarter of fiscal 2023 and thereafter. Each ratio is to be calculated on a rolling four-quarter basis. As of
May 26, 2019, we were in compliance with these financial covenants.
As of the end of fiscal 2019, our senior long-term debt ratings were all investment grade. A significant downgrade in our
credit ratings would not affect our ability to borrow amounts under the Revolving Credit Facility, although borrowing costs
would increase. A downgrade of our short-term credit ratings would impact our ability to borrow under our commercial paper
program by negatively impacting borrowing costs and causing shorter durations, as well as making access to commercial
paper more difficult, or impossible.
35
On October 12, 2018, we issued approximately 16.3 million shares of our common stock in an underwritten public offering
for proceeds of $555.7 million, net of related fees.
Proceeds from the issuance of long-term debt and common stock in the second quarter of fiscal 2019 were used for the
payment of the cash portion of the Merger Consideration, the repayment of Pinnacle debt acquired, the refinancing of certain
Conagra Brands debt, and the payment of related fees and expenses.
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. 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. The Company plans to repurchase shares
under its authorized program only at times and in amounts as are consistent with the prioritization of achieving its leverage
targets. The Company's total remaining share repurchase authorization as of May 26, 2019, was $1.41 billion.
On April 16, 2019, we announced that our Board of Directors authorized a quarterly dividend payment of $0.2125 per
share, which was paid on May 31, 2019 to shareholders of record as of the close of business on April 30, 2019. Subject to
market and other conditions and the approval of our Board of Directors, we intend to maintain our quarterly dividend at the
current annual rate of $0.85 per share during fiscal 2020.
We have access to our Revolving Credit Facility, our commercial paper program, and the capital markets. We believe we
also have access to additional bank loan facilities, if needed.
We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt upon maturity, as market
conditions warrant, from operating cash flows, our commercial paper program, proceeds from any divestitures and other
disposition transactions, access to capital markets, and our Revolving Credit Facility.
Cash Flows
In fiscal 2019, we generated $108.6 million of cash, which was the net result of $1.13 billion generated from operating
activities, $5.17 billion used in investing activities, $4.15 billion generated from financing activities, and a decrease of $0.7
million due to the effects of changes in foreign currency exchange rates.
Cash generated from operating activities of continuing operations totaled $1.11 billion in fiscal 2019, as compared to
$919.7 million generated in fiscal 2018. The increase in operating cash flows was primarily the net result of decreased pension
plan payments, additional cash generated from Pinnacle operations since the Pinnacle acquisition, proceeds from the settlement
of interest rate swaps in fiscal 2019, reduced tax payments, and changes in working capital, partially offset by increased interest
payments and costs associated with the Pinnacle acquisition. Pension plan payments in fiscal 2018 included a voluntary
contribution totaling $300.0 million. Net income tax payment reductions totaling $30.3 million were impacted by corporate
tax rate reductions resulting from the Tax Act signed into law during the third quarter of fiscal 2018. Interest payments increased
by $211.1 million resulting from debt issued in connection with the Pinnacle acquisition and the repayment of amounts accrued
by Pinnacle prior to the acquisition.
Cash used in investing activities of continuing operations totaled $5.17 billion in fiscal 2019 compared to $576.2 million
in fiscal 2018. Investing activities of continuing operations of fiscal 2019 consisted primarily of the purchase of Pinnacle for
$5.12 billion, net of cash acquired, capital expenditures of $353.1 million, and proceeds from the divestiture of our Del Monte®
processed fruit and vegetable business, our Wesson® oil business, and our Italian-based frozen pasta business, Gelit, for
combined proceeds of $281.5 million, net of cash divested. Investing activities in fiscal 2018 consisted mainly of the purchases
of the Sandwich Bros. of Wisconsin® business and Angie's Artisan Treats, LLC for a total of $337.1 million, net of cash acquired,
and capital expenditures totaling $251.6 million.
Cash generated from financing activities of continuing operations totaled $4.15 billion in fiscal 2019 compared to $506.9
million used in financing activities of continuing operations in fiscal 2018. During fiscal 2019, in connection with the Pinnacle
acquisition, we issued long-term debt that generated $8.31 billion in gross proceeds and issued common stock for net proceeds
of $555.7 million. This was reduced by debt issuance costs and bridge financing fees totaling $95.2 million. We repaid $3.97
billion of long-term debt, reduced our short-term borrowings mainly related to our commercial paper program by $277.3
million, and paid cash dividends of $356.2 million. Financing activities of continuing operations in fiscal 2018 consisted
principally of common stock repurchases totaling $967.3 million, gross proceeds from the issuance of long-term debt totaling
36
$800.0 million, cash dividends paid of $342.3 million, repayments of long-term debt of $242.3 million, and a net increase in
short-term borrowings of $249.1 million.
The Company had cash and cash equivalents of $236.6 million at May 26, 2019 and $128.0 million at May 27, 2018, of
which $144.8 million at May 26, 2019, and $121.6 million at May 27, 2018, was held in foreign countries. We believe that
our foreign subsidiaries have invested or will invest any undistributed earnings indefinitely, or that any undistributed earnings
will be remitted in a tax-neutral transaction, and, therefore, do not provide deferred taxes on the cumulative undistributed
earnings of our foreign subsidiaries.
Our preliminary estimate of capital expenditures for fiscal 2020 is approximately $400 million.
Management believes that existing cash balances, cash flows from operations, existing credit facilities, and access to
capital markets will provide sufficient liquidity to meet our repayment of debt, including any repayment of debt or refinancing
of debt, working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the
next twelve months.
OFF-BALANCE SHEET ARRANGEMENTS
We use off-balance sheet arrangements (e.g., leases accounted for as operating leases) where sound business principles
warrant their use. We also periodically enter into guarantees and other similar arrangements as part of transactions in the
ordinary course of business. These are described further in "Obligations and Commitments" below.
Variable Interest Entities Not Consolidated
We lease or leased certain office buildings from entities that we have determined to be variable interest entities. The lease
agreements with these entities include fixed-price purchase options for the assets being leased. The lease agreements also
contain contingent put options (the "lease put options") that allow or allowed the lessors to require us to purchase the buildings
at the greater of original construction cost, or fair market value, without a lease agreement in place (the "put price") in certain
limited circumstances. As a result of substantial impairment charges related to our divested Private Brands operations, these
lease put options became exercisable. We are amortizing the difference between the put price and the estimated fair value
(without a lease agreement in place) of the property over the remaining lease term within SG&A expenses. During fiscal 2018,
we purchased two buildings that were subject to lease put options and recognized net losses totaling $48.2 million for the
early exit of unfavorable lease contracts. During fiscal 2017, one of these lease agreements expired, and we reversed the
applicable accrual and recognized a benefit of $6.7 million in SG&A expenses.
As of May 26, 2019 and May 27, 2018, there was one remaining leased building subject to a lease put option for which
the put option price exceeded the estimated fair value of the property by $8.2 million, of which we had accrued $1.6 million
and $1.2 million, respectively. This lease is accounted for as an operating lease, and accordingly, there are no material assets
and liabilities, other than the accrued portion of the put price, associated with this entity included in the Consolidated Balance
Sheets. We have determined that we do not have the power to direct the activities that most significantly impact the economic
performance of this entity. In making this determination, we have considered, among other items, the terms of the lease
agreement, the expected remaining useful life of the asset leased, and the capital structure of the lessor entity.
OBLIGATIONS AND COMMITMENTS
As part of our ongoing operations, we enter into 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 capital lease obligations, which totaled $10.72
billion as of May 26, 2019, were recognized as liabilities in our Consolidated Balance Sheets. Operating lease obligations and
unconditional purchase obligations, which totaled $1.75 billion as of May 26, 2019, were not recognized as liabilities in our
Consolidated Balance Sheets, in accordance with U.S. GAAP.
37
A summary of our contractual obligations as of May 26, 2019, was as follows:
Payments Due by Period
(in millions)
Contractual Obligations
Long-term debt . . . . . . . . . . . . . . . . . $
Capital lease obligations . . . . . . . . . .
Operating lease obligations . . . . . . . .
Purchase obligations1 and other
contracts . . . . . . . . . . . . . . . . . . . . . .
Notes payable . . . . . . . . . . . . . . . . . .
Total
Less than
1 Year
1-3 Years
3-5 Years
After 5
Years
10,556.6
$
— $
2,747.6
$
2,287.0
$
5,522.0
165.4
312.6
1,483.5
1.0
20.6
52.1
1,195.3
1.0
41.0
86.4
223.4
—
29.4
59.7
53.2
—
74.4
114.4
11.6
—
Total . . . . . . . . . . . . . . . . . . . . . . . . $
12,519.1
$
1,269.0
$
3,098.4
$
2,429.3
$
5,722.4
1
Amount includes open purchase orders and agreements, some of which are not legally binding and/or may be cancellable. Such agreements are generally
settleable in the ordinary course of business in less than one year.
We are also contractually obligated to pay interest on our long-term debt and capital lease obligations. The weighted-
average coupon interest rate of the long-term debt obligations outstanding as of May 26, 2019, was approximately 4.7%.
As of May 26, 2019, we had aggregate unfunded pension and postretirement benefit obligations totaling $131.7 million
and $87.8 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 timing of any future required
contributions to 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 $14.2 million and
$10.8 million over the next twelve months to fund our pension and postretirement plans, respectively. See Note 19 "Pension
and Postretirement Benefits" to the consolidated financial statements and "Critical Accounting Estimates - Employment Related
Benefits" contained in this report for further discussion of our pension obligations and factors that could affect estimates of
this liability.
As part of our ongoing operations, we also enter into arrangements that obligate us to make future cash payments only
upon the occurrence of a future event (e.g., guarantees of debt or lease payments of a third party should the third party be
unable to perform). In accordance with U.S. GAAP, such commercial commitments are not recognized as liabilities in our
Consolidated Balance Sheets. As of May 26, 2019, we had other commercial commitments totaling $5.3 million, of which
$3.7 million expire in less than one year and $1.6 million expire in one to three years.
In addition to the other commercial commitments, as of May 26, 2019, we had $56.4 million of standby letters of credit
issued on our behalf. These standby letters of credit are primarily related to our self-insured workers compensation programs
and are not reflected in our Consolidated Balance Sheets.
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 May 26, 2019, the
remaining terms of these arrangements did not exceed four years and the maximum amount of future payments we have
guaranteed was $1.2 million. In addition, we guarantee a lease resulting from an exited facility. As of May 26, 2019, the
remaining term of this arrangement did not exceed eight years and the maximum amount of future payments we have guaranteed
was $19.1 million.
We also guarantee an obligation of the Lamb Weston business pursuant to a guarantee arrangement that existed prior to
the Spinoff and remained in place following completion of the Spinoff until such guarantee obligation is substituted for
guarantees issued by Lamb Weston. Pursuant to the separation and distribution agreement, dated as of November 8, 2016 (the
"Separation Agreement"), between us and Lamb Weston, this guarantee arrangement is deemed a liability of Lamb Weston
that was 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 this guarantee arrangement, Lamb Weston is obligated to indemnify us for any such liability, reduced by any
insurance proceeds received by us, in accordance with the terms of the indemnification provisions under the Separation
Agreement.
Lamb Weston is a party to an agricultural sublease agreement with a third party for certain farmland through 2020 (subject,
at Lamb Weston's option, to extension for two additional five-year periods). Under the terms of the sublease agreement, Lamb
38
Weston is required to make certain rental payments to the sublessor. We have guaranteed Lamb Weston's performance and
the payment of all amounts (including indemnification obligations) owed by Lamb Weston under the sublease agreement, up
to a maximum of $75.0 million. We believe the farmland associated with this sublease agreement is readily marketable for
lease to other area farming operators. As such, we believe that any financial exposure to the company, in the event that we
were required to perform under the guaranty, would be largely mitigated.
The obligations and commitments tables above do not include any reserves for uncertainties in income taxes, as we are
unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes. The liability for
gross unrecognized tax benefits at May 26, 2019 was $44.1 million. The net amount of unrecognized tax benefits at May 26,
2019, that, if recognized, would favorably impact our effective tax rate was $37.3 million. Recognition of these tax benefits
would have a favorable impact on our effective tax rate.
CRITICAL ACCOUNTING ESTIMATES
The process of preparing financial statements requires the use of estimates on the part of management. The estimates
used by management are based on our historical experiences combined with management's understanding of current facts and
circumstances. Certain of our accounting estimates are considered critical as they are both important to the portrayal of our
financial condition and results and require significant or complex judgment on the part of management. The following is a
summary of certain accounting estimates considered critical by management.
Our Audit/Finance Committee has reviewed management's development, selection, and disclosure of the critical
accounting estimates.
Marketing Costs—We offer various forms of trade promotions which are mostly recorded as a reduction in revenue. The
methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which
range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. Our
promotional activities are conducted either through the retail trade or directly with consumers and include activities such as
in-store displays and events, feature price discounts, consumer coupons, and loyalty programs. The costs of these activities
are recognized as a reduction of revenue at the time the related revenue is recorded, which normally precedes the actual cash
expenditure. The recognition of these costs, therefore, requires management judgment regarding the volume of promotional
offers that will be redeemed by either the retail trade or consumer. These estimates are made using various techniques including
historical data on performance of similar promotional programs. Differences between estimated expense and actual
redemptions are recognized as a change in management estimate in a subsequent period.
We have recognized trade promotion liabilities of $143.6 million as of May 26, 2019. Changes in the assumptions used
in estimating the cost of any individual customer marketing program would not result in a material change in our results of
operations or cash flows.
Income Taxes—Our income tax expense is based on our income, statutory tax rates, and tax planning opportunities
available in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by
the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our income tax
expense and in evaluating our tax positions, including evaluating uncertainties. Management reviews tax positions at least
quarterly and adjusts the balances as new information becomes available. Deferred income tax assets represent amounts
available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences
between the tax bases of assets and liabilities and their carrying amounts in our consolidated balance sheets, as well as from
net operating loss and tax credit carryforwards. Management evaluates the recoverability of these future tax deductions by
assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences,
forecasted operating earnings, and available tax planning strategies. These estimates of future taxable income inherently
require significant judgment. Management uses historical experience and short and long-range business forecasts to develop
such estimates. Further, we employ various prudent and feasible tax planning strategies to facilitate the recoverability of future
deductions. To the extent management does not consider it more likely than not that a deferred tax asset will be recovered, a
valuation allowance is established.
Further information on income taxes is provided in Note 15 "Pre-tax Income and Income Taxes" to the consolidated
financial statements contained in this report.
Environmental Liabilities—Environmental liabilities are accrued when it is probable that obligations have been incurred
and the associated amounts can be reasonably estimated. Management works with independent third-party specialists in order
39
to effectively assess our environmental liabilities. Management estimates our environmental liabilities based on evaluation
of investigatory studies, extent of required clean-up, our known volumetric contribution, other potentially responsible parties,
and our experience in remediating sites. Environmental liability estimates may be affected by changing governmental or other
external determinations of what constitutes an environmental liability or an acceptable level of clean-up. Management's
estimate as to our potential liability is independent of any potential recovery of insurance proceeds or indemnification
arrangements. Insurance companies and other indemnitors are notified of any potential claims and periodically updated as to
the general status of known claims. We do not discount our environmental liabilities as the timing of the anticipated cash
payments is not fixed or readily determinable. To the extent that there are changes in the evaluation factors identified above,
management's estimate of environmental liabilities may also change.
We have recognized a reserve of approximately $56.8 million for environmental liabilities as of May 26, 2019. The reserve
for each site is determined based on an assessment of the most likely required remedy and a related estimate of the costs
required to effect such remedy.
Employment-Related Benefits—We incur certain employment-related expenses associated with pensions, postretirement
health care benefits, and workers' compensation. In order to measure the annual expense associated with these employment-
related benefits, management must make a variety of estimates including, but not limited to, discount rates used to measure
the present value of certain liabilities, assumed rates of return on assets set aside to fund these expenses, compensation increases,
employee turnover rates, anticipated mortality rates, anticipated health care costs, and employee accidents incurred but not
yet reported to us. The estimates used by management are based on our historical experience as well as current facts and
circumstances. We use third-party specialists to assist management in appropriately measuring the expense associated with
these employment-related benefits. Different estimates used by management could result in us recognizing different amounts
of expense over different periods of time.
Beginning in fiscal 2017, the Company has elected to use a split discount rate (the "spot-rate approach") for the U.S.
plans and certain foreign plans. Historically, a single weighted-average discount rate was used in the calculation of service
and interest costs, both of which are components of pension benefit costs. The spot-rate approach applies separate discount
rates for each projected benefit payment in the calculation of pension service and interest cost. This change is considered a
change in accounting estimate and has been applied prospectively. The pre-tax reduction in total pension benefit cost associated
with this change in fiscal 2017 was approximately $27.0 million.
We have recognized a pension liability of $192.9 million and $171.5 million, a postretirement liability of $90.6 million
and $118.2 million, and a workers' compensation liability of $61.1 million and $39.4 million, as of the end of fiscal 2019 and
2018, respectively. We also have recognized a pension asset of $61.2 million and $103.0 million as of the end of fiscal 2019
and 2018, respectively, as certain individual plans of the Company had a positive funded status.
We recognize cumulative changes in the fair value of pension plan assets and net actuarial gains or losses in excess of
10% of the greater of the fair value of plan assets or the plan's projected benefit obligation ("the corridor") in current period
expense annually as of our measurement date, which is our fiscal year-end, or when measurement is required otherwise under
U.S. GAAP.
We recognized pension benefit, including activities of discontinued operations, from Company plans of $22.7 million,
$56.1 million, and $12.9 million in fiscal 2019, 2018, and 2017, respectively. Such amounts reflect the year-end write-off of
actuarial losses in excess of 10% of our pension liability of $5.1 million, $3.4 million, and $1.2 million in fiscal 2019, 2018,
and 2017, respectively. This also reflected expected returns on plan assets of $174.4 million, $218.3 million, and $207.4
million in fiscal 2019, 2018, and 2017, respectively. We contributed $14.7 million, $312.6 million, and $163.0 million to the
pension plans of our continuing operations in fiscal 2019, 2018, and 2017, respectively. We anticipate contributing
approximately $14.2 million to our pension plans in fiscal 2020.
One significant assumption for pension plan accounting is the discount rate. We use a spot-rate approach, discussed above.
This approach focuses on measuring the service cost and interest cost components of net periodic benefit cost by using
individual spot rates derived from a high-quality corporate bond yield curve and matched with separate cash flows for each
future year instead of a single weighted-average discount rate approach.
Based on this information, the discount rate selected by us for determination of pension expense was 4.15% for fiscal
2019, 3.90% for fiscal 2018, and 3.83% for fiscal 2017. We selected a weighted-average discount rate of 4.04% and 3.51%
for determination of service and interest expense, respectively, for fiscal 2020. A 25 basis point increase in our discount rate
assumption as of the end of fiscal 2019 would have resulted in an increase of $4.0 million in our pension expense for fiscal
2019. A 25 basis point decrease in our discount rate assumption as of the end of fiscal 2019 would have resulted in a decrease
40
of $4.3 million in our pension expense for fiscal 2019. For our year-end pension obligation determination, we selected discount
rates of 3.88% and 4.14% for fiscal years 2019 and 2018, respectively.
Another significant assumption used to account for our pension plans is the expected long-term rate of return on plan
assets. In developing the assumed long-term rate of return on plan assets for determining pension expense, we consider long-
term historical returns (arithmetic average) of the plan's investments, the asset allocation among types of investments, estimated
long-term returns by investment type from external sources, and the current economic environment. Based on this information,
we selected 5.17% for the weighted-average expected long-term rate of return on plan assets for determining our fiscal 2019
pension expense. A 25 basis point increase/decrease in our weighted-average expected long-term rate of return assumption
as of the beginning of fiscal 2019 would decrease/increase annual pension expense for our pension plans by $8.2 million. We
selected a weighted-average expected rate of return on plan assets of 4.77% to be used to determine our pension expense for
fiscal 2020. A 25 basis point increase/decrease in our expected long-term rate of return assumption as of the beginning of
fiscal 2020 would decrease/increase annual pension expense for our pension plans by $8.8 million.
During fiscal 2018, we approved an amendment of our salaried and non-qualified pension plans. The amendment froze
the compensation and service periods used to calculate pension benefits for active employees who participate in those plans.
As a result of this amendment, we changed our salaried and non-qualified pension asset investment strategy to align our related
pension plan assets with our projected benefit obligation to reduce volatility.
In October 2016, The Society of Actuaries' Retirement Plan Experience Committee published updated mortality
improvement scales and recommended their use with base mortality tables for the measurement of U.S. pension plan
obligations. With the assistance of our third-party actuary, in measuring our pension obligations as of May 28, 2017, we
incorporated a revised improvement scale to be used with our current base mortality tables that generally reflect the mortality
improvement inherent in these new tables.
During 2018, we conducted a mortality experience study and, with the assistance of our third-party actuary, adopted new
company-specific mortality tables used in measuring our pension obligations as of May 27, 2018. In addition, we incorporated
a revised mortality improvement scale to be used with the new company-specific mortality tables that reflects the mortality
improvement inherent in these tables.
We also provide certain postretirement health care benefits. We recognized postretirement benefit expense (benefit) of
$(1.3) million, $0.7 million, and $(1.2) million in fiscal 2019, 2018, and 2017, respectively. We reflected liabilities of $90.6
million and $118.2 million in our balance sheets as of May 26, 2019 and May 27, 2018, respectively. We anticipate contributing
approximately $10.8 million to our postretirement health care plans in fiscal 2020.
The postretirement benefit expense and obligation are also dependent on our assumptions used for the actuarially
determined amounts. These assumptions include discount rates (discussed above), health care cost trend rates, inflation rates,
retirement rates, mortality rates (also discussed above), and other factors. The health care cost trend assumptions are developed
based on historical cost data, the near-term outlook, and an assessment of likely long-term trends. Assumed inflation rates are
based on an evaluation of external market indicators. Retirement and mortality rates are based primarily on actual plan
experience. The discount rate we selected for determination of postretirement expense was 3.81% for fiscal 2019, 3.33% for
fiscal 2018, and 3.18% for fiscal 2017. We have selected a weighted-average discount rate of 3.48% for determination of
postretirement expense for fiscal 2020. A 25 basis point increase/decrease in our discount rate assumption as of the beginning
of fiscal 2018 would not have resulted in a material change to postretirement expense for our plans. We have assumed the
initial year increase in cost of health care to be 7.20%, with the trend rate decreasing to 4.5% by 2024. A one percentage point
change in the assumed health care cost trend rate would have the following effects:
($ in millions)
Effect on total service and interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on postretirement benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
One Percent
Increase
One Percent
Decrease
$
0.1
1.5
(0.1)
(1.3)
We provide workers' compensation benefits to our employees. The measurement of the liability for our cost of providing
these benefits is largely based upon actuarial analysis of costs. One significant assumption we make is the discount rate used
to calculate the present value of our obligation. The weighted-average discount rate used at May 26, 2019 was 2.48%. A 25
basis point increase/decrease in the discount rate assumption would not have a material impact on workers' compensation
expense or the liability.
41
Business Combinations, Impairment of Long-Lived Assets (including property, plant and equipment), Identifiable
Intangible Assets, and Goodwill—We use the acquisition method in accounting for acquired businesses. Under the acquisition
method, our financial statements reflect the operations of an acquired business starting from the closing of the acquisition.
The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition.
Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result,
in the case of significant acquisitions we normally obtain the assistance of a third-party valuation specialist in estimating fair
values of tangible and intangible assets. The fair value estimates are based on available historical information and on
expectations and assumptions about the future, considering the perspective of marketplace participants. While management
believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or
macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and
assumptions.
We reduce the carrying amounts of long-lived assets (including property, plant and equipment) to their fair values when
their carrying amount is determined to not be recoverable. We generally compare undiscounted estimated future cash flows
of an asset or asset group to the carrying values of the asset or asset group. If the undiscounted estimated future cash flows
exceed the carrying values of the asset or asset group, no impairment is recognized. If the undiscounted estimated future cash
flows are less than the carrying values of the asset or asset group, we write-down the asset or assets to their estimated fair
values. The estimates of fair value are generally in the form of appraisal, or by discounting estimated future cash flows of the
asset or asset group.
Determining the useful lives of intangible assets also requires management judgment. Certain brand intangibles are
expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands,
while other acquired intangible assets (e.g., customer relationships) are expected to have determinable useful lives. Our
estimates of the useful lives of definite-lived intangible assets are primarily based upon historical experience, the competitive
and macroeconomic environment, and our operating plans. The costs of definite-lived intangibles are amortized to expense
over their estimated life.
We reduce the carrying amounts of indefinite-lived intangible assets, and goodwill to their fair values when the fair value
of such assets is determined to be less than their carrying amounts (i.e., assets are deemed to be impaired). Fair value is
typically estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to
be generated by the particular asset being tested for impairment as well as to select a discount rate to measure the present
value of the anticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to
reflect current and anticipated operating conditions. Estimating future cash flows requires significant judgment by management
in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures.
The use of different assumptions or estimates for future cash flows could produce different impairment amounts (or none at
all) for long-lived assets and identifiable intangible assets.
In assessing other intangible assets not subject to amortization for impairment, we have the option to perform a qualitative
assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than
not that the fair value of such an intangible asset is less than its carrying amount. If we determine that it is not more likely
than not that the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform
any additional tests for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform
the qualitative assessment, then we are required to perform a quantitative impairment test that involves a comparison of the
estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair
value, an impairment loss is recognized in an amount equal to that excess.
If we perform a quantitative impairment test in evaluating impairment of our indefinite lived brands/trademarks, we utilize
a "relief from royalty" methodology. The methodology determines the fair value of each brand through use of a discounted
cash flow model that incorporates an estimated "royalty rate" we would be able to charge a third party for the use of the
particular brand. When determining the future cash flow estimates, we estimate future net sales and a fair market royalty rate
for each applicable brand and an appropriate discount rate to measure the present value of the anticipated cash flows. Estimating
future net sales requires significant judgment by management in such areas as future economic conditions, product pricing,
and consumer trends. In determining an appropriate discount rate to apply to the estimated future cash flows, we consider the
current interest rate environment and our estimated cost of capital.
Goodwill is tested annually for impairment of value and whenever events or changes in circumstances indicate the carrying
amount of the asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment
42
has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in
which an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative
or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may
differ from that used to evaluate the impairment of goodwill.
In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence
of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value
of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an
impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further
analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative
impairment test.
Under the qualitative assessment, various events and circumstances that would affect the estimated fair value of a reporting
unit are identified (similar to impairment indicators above). Furthermore, management considers the results of the most recent
two-step quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital between
the current and prior years for each reporting unit.
Under the quantitative impairment test, the evaluation involves comparing the current fair value of each reporting unit
to its carrying value, including goodwill. Fair value is typically estimated using a discounted cash flow analysis, which requires
us to estimate the future cash flows anticipated to be generated by the reporting unit being tested for impairment as well as
to select a risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future
cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. We estimate
cash flows for the reporting unit over a discrete period (typically four or five years) and the terminal period (considering
expected long term growth rates and trends). Estimating future cash flows requires significant judgment by management in
such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures.
The use of different assumptions or estimates for future cash flows or significant changes in risk-adjusted discount rates due
to changes in market conditions could produce substantially different estimates of the fair value of the reporting unit.
Prior to the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeded its fair value, we completed
a second step of the test to determine the amount of goodwill impairment loss, if any, to be recognized. In the second step,
we estimated an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of
the assets and liabilities other than goodwill (including any unrecognized intangible assets). The impairment loss was equal
to the excess of the carrying value of the goodwill over the implied fair value of that goodwill. As a result of adopting Accounting
Standards Update ("ASU") 2017-04, Simplifying the Test for Goodwill Impairment, beginning in the fourth quarter of fiscal
2017, if the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference
between the carrying value and estimated fair value of the reporting unit.
As of May 26, 2019, we have goodwill of $11.50 billion, indefinite-lived intangibles of $3.68 billion, and definite-lived
intangibles of $983.4 million. The amount of goodwill and intangibles increased significantly during fiscal 2019 as a result
of the Pinnacle acquisition. During fiscal 2020, as part of our organizational realignment and integration activities, we intend
to allocate Pinnacle intangibles to the applicable Conagra reporting units. Historically, we have experienced impairments in
brand intangibles and goodwill as a result of declining sales and other economic conditions. For instance, in fiscal 2019 we
recorded total intangibles impairments of $89.6 million, primarily related to our Chef Boyardee® brand intangible. With the
addition of Pinnacle intangibles, we have significant indefinite-lived brand intangibles such as Birds Eye®, Duncan Hines®,
and Wishbone®, among others, that were recorded at fair value in purchase accounting. Accordingly, we could be more
susceptible to impairment charges in the future if our long-term sales forecasts and other assumptions change as a result of
lower than expected performance or other economic conditions. We currently believe that the fair value of each intangible
asset equals or exceeds its carrying value.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases, Topic 842, which
requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is
for fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that this standard
will have on our consolidated financial statements and related disclosures. We have identified an accounting system to support
the future state lease accounting process and continue to develop the future state process design as part of the overall system
implementation. We have populated the accounting system with lease data and have validated the completeness and accuracy
of such data. We expect the adoption of this standard to result in an increase in total assets and liabilities related to operating
43
leases that are currently not recorded on our consolidated balance sheet, however, we do not expect there to be a material
impact to our earnings or cash flows. See Note 16 "Leases" to the consolidated financial statements contained in this report
for the total amount of our noncancelable operating lease commitments. The standard can be applied using the modified
retrospective method or entities may also elect the optional transition method provided under ASU 2018-11, Leases, Topic
842: Targeted Improvement, issued in July 2018, allowing for application of the standard at the adoption date, with recognition
of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We will adopt this
ASU on the first day of our fiscal year 2020 using the optional transition method and will elect certain practical expedients
permitted under the transition guidance, including not reassessing whether existing contracts contain leases and carrying
forward the historical classification of leases.
In August 2018, the FASB issued ASU No. 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, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendments
in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of
adoption. We do not expect ASU 2018-15 to have a material impact to our consolidated financial statements and related
disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks affecting us during fiscal 2019 and 2018 were exposures to price fluctuations of commodity
and energy inputs, interest rates, and foreign currencies.
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.
As of May 26, 2019 and May 27, 2018, the fair value of our long-term debt (including current installments) was estimated
at $11.24 billion and $3.76 billion, respectively, based on current market rates. As of May 26, 2019 and May 27, 2018, a 1%
increase in interest rates would decrease the fair value of our fixed rate debt by approximately $637.7 million and $168.1
million, respectively, while a 1% decrease in interest rates would increase the fair value of our fixed rate debt by approximately
$724.7 million and $185.7 million, respectively.
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
44
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-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 for fiscal 2019 and 2018.
In Millions
Processing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy commodities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Agriculture commodities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair Value Impact
Average
During the Fiscal Year
Ended May 26, 2019
Average
During the Fiscal Year
Ended May 27, 2018
$
0.4
0.4
0.1
0.7
0.2
0.4
—
0.7
45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Conagra Brands, Inc. and Subsidiaries
Consolidated Statements of Operations
(in millions, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Costs and expenses:
For the Fiscal Years Ended May
2019
2018
2017
9,538.4
$
7,938.3
$
7,826.9
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . .
Pension and postretirement non-service income. . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,885.4
1,473.4
(35.1)
391.4
5,586.8
1,398.4
(80.4)
158.7
5,483.1
1,474.0
(55.2)
195.5
Income from continuing operations before income taxes and equity
method investment earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity method investment earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Net income attributable to noncontrolling interests . . . . . . . . . . . .
Net income attributable to Conagra Brands, Inc. . . . . . . . . . . . . . . . . $
Earnings per share — basic
Income from continuing operations attributable to Conagra Brands,
Inc. common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income from discontinued operations attributable to Conagra Brands,
Inc. common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Conagra Brands, Inc. common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings per share — diluted
Income from continuing operations attributable to Conagra Brands,
Inc. common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations attributable to Conagra
Brands, Inc. common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Conagra Brands, Inc. common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
823.3
218.8
75.8
680.3
(1.9)
678.4
0.1
678.3
$
$
874.8
174.6
97.3
797.5
14.3
811.8
3.4
808.4
$
$
1.53
$
1.97
$
—
0.03
1.53
$
2.00
$
1.53
$
1.95
$
(0.01)
0.03
1.52
$
1.98
$
729.5
254.7
71.2
546.0
102.0
648.0
8.7
639.3
1.26
0.22
1.48
1.25
0.21
1.46
The accompanying Notes are an integral part of the consolidated financial statements.
46
Conagra Brands, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in millions)
For the Fiscal Years Ended May
2019
2018
2017
Pre-Tax
Amount
Tax
(Expense)
Benefit
After-
Tax
Amount
Pre-Tax
Amount
Tax
(Expense)
Benefit
After-
Tax
Amount
Pre-Tax
Amount
Tax
(Expense)
Benefit
After-
Tax
Amount
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 900.0 $
Other comprehensive income:
Derivative adjustments: . . . . . . . . . . . . . .
(221.6) $ 678.4
$
972.3 $
(160.5) $ 811.8
$
989.2 $
(341.2) $ 648.0
Unrealized derivative adjustments
45.5
(11.4)
34.1
(1.9)
—
0.5
—
(1.4)
—
2.9
0.1
1.1
(0.9)
2.0
(1.0)
0.4
(0.6)
—
(0.3)
0.1
0.8
(0.2)
0.1
(0.1)
0.5
(0.2)
0.3
Reclassification for derivative
adjustments included in net
income. . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment: . . . . . . .
Unrealized currency translation
gains (losses). . . . . . . . . . . . . . . . .
Reclassification for currency
translation losses included in net
income. . . . . . . . . . . . . . . . . . . . . .
Pension and post-employment benefit
obligations: . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized pension and post-
employment benefit obligations . .
Reclassification for pension and
post-employment benefit
obligations included in net
income. . . . . . . . . . . . . . . . . . . . . .
(10.2)
—
(10.2)
0.8
(0.1)
0.7
(13.6)
0.2
(13.4)
10.4
—
10.4
—
—
—
—
—
—
(43.8)
10.9
(32.9)
157.3
(45.0)
112.3
209.2
(80.6)
128.6
(1.5)
0.4
(1.1)
0.9
(0.2)
0.7
10.4
(4.0)
6.4
Comprehensive income. . . . . . . . . . . . . . . . . . . . .
898.5
(221.2)
677.3
1,135.4
(207.0)
928.4
1,194.5
(425.3)
769.2
Comprehensive income (loss) attributable
to noncontrolling interests . . . . . . . . . . . . . .
(1.7)
(0.1)
(1.8)
0.7
(1.2)
(0.5)
12.6
(0.7)
11.9
Comprehensive income attributable to Conagra
Brands, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 900.2 $
(221.1) $ 679.1
$ 1,134.7 $
(205.8) $ 928.9
$ 1,181.9 $
(424.6) $ 757.3
The accompanying Notes are an integral part of the consolidated financial statements.
47
Conagra Brands, Inc. and Subsidiaries
Consolidated Balance Sheets
(in millions, except share data)
May 26,
2019
May 27,
2018
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receivables, less allowance for doubtful accounts of $3.3 and $1.7 . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment
Land and land improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings, machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures, office equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brands, trademarks and other intangibles, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current installments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior long-term debt, excluding current installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 17)
Common stockholders' equity
Common stock of $5 par value, authorized 1,200,000,000 shares; issued 584,219,229. . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less treasury stock, at cost, 98,133,747 and 177,078,193 common shares. . . . . . . . . . . . . . . . .
Total Conagra Brands, Inc. common stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
236.6
831.7
1,571.7
93.8
—
2,733.8
144.1
4,013.9
678.2
173.9
5,010.1
(2,614.8)
2,395.3
11,499.6
4,661.4
915.5
8.2
22,213.8
1.0
20.6
1,255.3
174.1
691.6
—
2,142.6
10,459.8
195.9
1,951.8
—
14,750.1
2,921.2
2,286.0
5,047.9
(110.3)
(2,760.2)
7,384.6
79.1
7,463.7
22,213.8
$
$
$
$
128.0
569.4
988.7
184.9
67.9
1,938.9
107.1
3,205.9
610.2
85.3
4,008.5
(2,419.0)
1,589.5
4,487.4
1,282.8
906.3
184.6
10,389.5
277.3
307.0
905.3
161.7
671.0
13.9
2,336.2
3,035.6
195.9
1,060.8
4.4
6,632.9
2,839.7
1,180.0
4,744.9
(110.5)
(4,977.9)
3,676.2
80.4
3,756.6
10,389.5
The accompanying Notes are an integral part of the consolidated financial statements.
48
Conagra Brands, Inc. and Subsidiaries
Consolidated Statements of Common Stockholders' Equity
(in millions)
Conagra Brands, Inc. Stockholders' Equity
Common
Shares
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
567.9
$ 2,839.7
$
1,136.3
$ 3,218.3
36.4
(1.3)
(3.9)
783.3
Accumulated
Other
Comprehensive
Income (Loss)
$
(344.5) $(3,136.2) $
Treasury
Stock
Noncontrolling
Interests
Total
Equity
Balance at May 29, 2016 . . . . .
Stock option and incentive plans
Adoption of ASU 2016-09 . . . . .
Spinoff of Lamb Weston. . . . . . .
Currency translation adjustment,
net . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common shares . .
Unrealized gain on securities . . .
Derivative adjustment, net of
reclassification adjustment . . . . .
Activities of noncontrolling
interests. . . . . . . . . . . . . . . . . . . .
Pension and postretirement
healthcare benefits . . . . . . . . . . .
Dividends declared on common
stock; $0.90 per share. . . . . . . . .
Net income attributable to
Conagra Brands, Inc. . . . . . . . . .
Balance at May 28, 2017 . . . . .
Stock option and incentive plans
Spinoff of Lamb Weston. . . . . . .
Adoption of ASU 2018-02 . . . . .
Currency translation adjustment,
net . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common shares . .
Unrealized gain on securities . . .
Derivative adjustment, net of
reclassification adjustment . . . . .
Activities of noncontrolling
interests. . . . . . . . . . . . . . . . . . . .
Pension and postretirement
healthcare benefits . . . . . . . . . . .
Dividends declared on common
stock; $0.85 per share. . . . . . . . .
Net income attributable to
Conagra Brands, Inc. . . . . . . . . .
Balance at May 27, 2018 . . . . .
Stock option and incentive plans
Adoption of ASU 2016-01 . . . . .
Adoption of ASU 2014-09 . . . . .
Currency translation adjustment,
net . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of treasury shares . . . . .
Derivative adjustment, net of
reclassification adjustment . . . . .
Activities of noncontrolling
interests. . . . . . . . . . . . . . . . . . . .
Pension and postretirement
healthcare benefits . . . . . . . . . . .
Dividends declared on common
stock; $0.85 per share. . . . . . . . .
Net income attributable to
Conagra Brands, Inc. . . . . . . . . .
Balance at May 26, 2019 . . . . .
(0.8)
567.9
2,839.7
1,171.9
10.0
(1.9)
567.9
2,839.7
1,180.0
(6.7)
638.2
474.2
0.3
(388.7)
639.3
4,247.0
(0.8)
14.8
17.4
(341.9)
808.4
4,744.9
0.1
0.6
0.5
(376.5)
678.3
Issuance of common stock . . . . .
16.3
81.5
81.3
(1,000.0)
13.6
(16.6)
0.3
(0.7)
135.0
(212.9)
(4,054.9)
44.3
(967.3)
(17.4)
4.6
0.8
2.1
(0.7)
113.0
(110.5)
(4,977.9)
39.6
2,178.1
(0.6)
2.1
32.7
(34.0)
81.2
$ 3,794.8
116.4
(3.9)
796.9
3.2
(13.4)
(1,000.0)
0.3
(0.7)
2.6
1.8
87.0
0.2
(3.9)
135.0
(388.7)
639.3
4,077.8
53.7
14.8
—
0.7
(967.3)
0.8
2.1
(2.9)
(5.5)
80.4
0.1
(1.9)
0.5
113.0
(341.9)
808.4
3,756.6
33.1
—
0.5
0.2
2,816.3
555.7
32.7
0.8
(34.0)
(376.5)
678.3
584.2
$ 2,921.2
$
2,286.0
$ 5,047.9
$
(110.3) $(2,760.2) $
79.1
$ 7,463.7
The accompanying Notes are an integral part of the consolidated financial statements.
49
Conagra Brands, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in millions)
For the Fiscal Years Ended May
2019
2018
2017
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile income from continuing operations to net cash flows from
operating activities:
$
678.4
(1.9)
680.3
$
811.8
14.3
797.5
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease cancellation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Significant litigation accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the settlement of interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . .
Novation of a legacy guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings of affiliates in excess of distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-settled share-based payments expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contributions to pension plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in operating assets and liabilities excluding effects of business acquisitions
and dispositions:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes and income taxes payable, net . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows from operating activities - continuing operations . . . . . . . . . .
Net cash flows from operating activities - discontinued operations . . . . . . . .
Net cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from divestitures, net of cash divested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of marketable securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of marketable securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows from investing activities - continuing operations . . . . . . . . . .
Net cash flows from investing activities - discontinued operations . . . . . . . .
Net cash flows from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Net short-term borrowings (repayments) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs and bridge financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of intangible asset financing arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of Conagra Brands, Inc. common shares, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of Conagra Brands, Inc. common shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options and issuance of other stock awards, including tax withholdings.
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash flows from financing activities - continuing operations . . . . . . . . . .
Net cash flows from financing activities - discontinued operations. . . . . . . . .
Net cash flows from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents and restricted cash. . . . . . . . . . . .
Net change in cash and cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Cash balance included in assets held for sale and discontinued operations at
beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Cash balance included in assets held for sale and discontinued operations at end of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents and restricted cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents and restricted cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
50
333.0
93.8
(69.4)
—
5.5
(39.3)
47.5
(27.3)
(20.8)
33.7
(14.7)
(22.7)
12.3
(69.1)
78.0
83.7
(19.1)
38.2
0.1
(9.4)
1,114.3
11.2
1,125.5
(353.1)
22.5
(5,119.2)
281.5
(61.0)
52.2
11.1
(5,166.0)
—
(5,166.0)
(277.3)
8,310.5
(3,972.7)
(95.2)
(14.0)
555.7
—
(356.2)
(1.6)
0.6
4,149.8
—
4,149.8
(0.7)
108.6
—
—
257.0
14.7
—
48.2
—
151.0
—
—
(34.8)
37.9
(312.6)
(56.1)
(34.0)
(4.7)
(62.8)
10.5
3.2
144.9
(8.0)
(32.2)
919.7
34.5
954.2
(251.6)
8.0
(337.1)
—
—
—
4.5
(576.2)
—
(576.2)
249.1
800.0
(242.3)
(3.0)
(14.4)
—
(967.3)
(342.3)
14.9
(1.6)
(506.9)
—
(506.9)
5.5
(123.4)
—
—
129.0
237.6
$
252.4
129.0
$
648.0
102.0
546.0
268.0
343.3
(197.4)
—
93.3
—
—
—
(3.0)
36.1
(163.0)
(21.4)
34.6
104.7
123.3
52.3
15.0
71.0
(52.4)
(114.9)
1,135.5
34.7
1,170.2
(242.1)
13.2
(325.7)
489.0
—
—
5.3
(60.3)
(123.7)
(184.0)
14.3
—
(1,064.5)
—
(14.9)
—
(1,000.0)
(415.0)
73.8
(1.9)
(2,408.2)
839.1
(1,569.1)
(0.2)
(583.1)
36.4
—
799.1
252.4
The accompanying Notes are an integral part of the consolidated financial statements.
The accompanying Notes are an integral part of the consolidated financial statements.
Notes to Consolidated Financial Statements
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year — The fiscal year of Conagra Brands, Inc. ("Conagra Brands", "Company", "we", "us", or "our") ends the
last Sunday in May. The fiscal years for the consolidated financial statements presented consist of 52-week periods for fiscal
years 2019, 2018, and 2017.
Basis of Consolidation — The consolidated financial statements include the accounts of Conagra Brands, Inc. and all
majority-owned subsidiaries. In addition, the accounts of all variable interest entities for which we have been determined to
be the primary beneficiary are included in our consolidated financial statements from the date such determination is made.
All significant intercompany investments, accounts, and transactions have been eliminated.
On November 9, 2016, we completed the spinoff of Lamb Weston Holdings, Inc. ("Lamb Weston") through a distribution
of 100% of our interest in Lamb Weston to holders of shares of our common stock as of November 1, 2016 (the "Spinoff").
In accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), the results of operations of the Lamb Weston
operations are presented as discontinued operations and, as such, have been excluded from continuing operations and segment
results for all periods presented (see Note 6 for additional discussion).
Investments in Unconsolidated Affiliates — The investments in, and the operating results of, 50%-or-less-owned entities
not required to be consolidated are included in the consolidated financial statements on the basis of the equity method of
accounting or the cost method of accounting, depending on specific facts and circumstances.
We review our investments in unconsolidated affiliates for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the investments may not be fully recoverable. Evidence of a loss in value
that is other than temporary includes, but is not limited to, the absence of an ability to recover the carrying amount of the
investment, the inability of the investee to sustain an earnings capacity which would justify the carrying amount of the
investment, or, where applicable, estimated sales proceeds which are insufficient to recover the carrying amount of the
investment. Management's assessment as to whether any decline in value is other than temporary is based on our ability and
intent to hold the investment and whether evidence indicating the carrying value of the investment is recoverable within a
reasonable period of time outweighs evidence to the contrary. Management generally considers our investments in equity
method investees to be strategic long-term investments. Therefore, management completes its assessments with a long-term
viewpoint. If the fair value of the investment is determined to be less than the carrying value and the decline in value is
considered to be other than temporary, an appropriate write-down is recorded based on the excess of the carrying value over
the best estimate of fair value of the investment.
Cash and Cash Equivalents — Cash and all highly liquid investments with an original maturity of three months or less
at the date of acquisition, including short-term time deposits and government agency and corporate obligations, are classified
as cash and cash equivalents.
Receivables — Receivables from customers generally do not bear interest. Terms and collection vary by location and
channel. The allowance for doubtful accounts represents our estimate of probable non-payments and credit losses in our
existing receivables, as determined based on a review of past due balances and other specific account data. Account balances
are written off against the allowance when we deem them uncollectible.
51
51
52
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
The following table details the balances of our allowance for doubtful accounts and changes therein:
Balance at
Beginning
of Period
Additions
Charged
to Costs and
Expenses
Year ended May 26, 2019. . . . . . . . . . . . . . . . . . . . . . .
Year ended May 27, 2018. . . . . . . . . . . . . . . . . . . . . . .
Year ended May 28, 2017 . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
1.7
2.9
3.0
0.6
0.8
1.0
(1) Primarily relates to the acquisition of Pinnacle.
(2) Bad debts charged off and adjustments to previous reserves, less recoveries.
Deductions
from
Reserves
Balance at
Close of
Period
0.6 (2) $
2.0 (2) $
1.1 (2) $
3.3
1.7
2.9
Other
1.6 (1)
—
—
Inventories — We use the lower of cost (determined using the first-in, first-out method) or market for valuing inventories.
Property, Plant and Equipment — Property, plant and equipment are carried at cost. Depreciation has been calculated
using the straight-line method over the estimated useful lives of the respective classes of assets as follows:
Land improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures, office equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 - 40 years
15 - 40 years
3 - 20 years
5 - 15 years
We review property, plant and equipment for impairment whenever events or changes in business circumstances indicate
that the carrying amount of the assets may not be fully recoverable. Recoverability of an asset considered "held-and-used" is
determined by comparing the carrying amount of the asset to the undiscounted net cash flows expected to be generated from
the use of the asset. If the carrying amount is greater than the undiscounted net cash flows expected to be generated by the
asset, the asset's carrying amount is reduced to its estimated fair value. An asset considered "held-for-sale" is reported at the
lower of the asset's carrying amount or fair value.
Goodwill and Other Identifiable Intangible Assets — Goodwill and other identifiable intangible assets with indefinite
lives (e.g., brands or trademarks) are not amortized and are tested annually for impairment of value and whenever events or
changes in circumstances indicate the carrying amount of the asset may be impaired. A significant amount of judgment is
involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general
economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have negative
effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The
fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill and
other intangible assets.
In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence
of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value
of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an
impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further
analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative
impairment test.
Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value
of a reporting unit are identified (similar to impairment indicators above). Furthermore, management considers the results of
the most recent quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital
between the current and prior years for each reporting unit.
Under the goodwill quantitative impairment test, the evaluation of impairment involves comparing the current fair value
of each reporting unit to its carrying value, including goodwill. We estimate the fair value using level 3 inputs as defined by
the fair value hierarchy. Refer to Note 20 for the definition of the levels in the fair value hierarchy. The inputs used to calculate
52
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
the fair value include a number of subjective factors, such as estimates of future cash flows, estimates of our future cost
structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time
horizon of cash flow forecasts. Prior to the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeded its
fair value, we completed a second step of the test to determine the amount of goodwill impairment loss, if any, to be recognized.
In the second step, we estimated an implied fair value of the reporting unit's goodwill by allocating the fair value of the
reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The
impairment loss was equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill.
Beginning in the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeds its fair value, we recognize an
impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit.
In assessing other intangible assets not subject to amortization for impairment, we have the option to perform a qualitative
assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than
not that the fair value of such an intangible asset is less than its carrying amount. If we determine that it is not more likely
than not that the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform
any additional tests for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform
the qualitative assessment, then we are required to perform a quantitative impairment test that involves a comparison of the
estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair
value, an impairment loss is recognized in an amount equal to that excess.
In fiscal 2019, 2018, and 2017 we elected to perform a quantitative impairment test for other intangible assets not subject
to amortization. The estimates of fair value of intangible assets not subject to amortization are determined using a "relief from
royalty" methodology, which is used in estimating the fair value of our brands/trademarks. Discount rate assumptions are
based on an assessment of the risk inherent in the projected future cash flows generated by the respective intangible assets.
Also subject to judgment are assumptions about royalty rates.
Identifiable intangible assets with definite lives (e.g., licensing arrangements with contractual lives or customer
relationships) are amortized over their estimated useful lives and tested for impairment whenever events or changes in
circumstances indicate the carrying amount of the asset may be impaired. Identifiable intangible assets with definite lives are
evaluated for impairment using a process similar to that used in evaluating elements of property, plant and equipment. If
impaired, the asset is written down to its fair value.
Refer to Note 9 for discussion of the impairment charges related to goodwill and intangible assets in fiscal 2019, 2018,
and 2017.
Fair Values of Financial Instruments — Unless otherwise specified, we believe the carrying value of financial instruments
approximates their fair value.
Environmental Liabilities — Environmental liabilities are accrued when it is probable that obligations have been incurred
and the associated amounts can be reasonably estimated. We use third-party specialists to assist management in appropriately
measuring the obligations associated with environmental liabilities. Such liabilities are adjusted as new information develops
or circumstances change. We do not discount our environmental liabilities as the timing of the anticipated cash payments is
not fixed or readily determinable. Management's estimate of our potential liability is independent of any potential recovery
of insurance proceeds or indemnification arrangements. We do not reduce our environmental liabilities for potential insurance
recoveries.
Employment-Related Benefits — Employment-related benefits associated with pensions, postretirement health care
benefits, and workers' compensation are expensed as such obligations are incurred. The recognition of expense is impacted
by estimates made by management, such as discount rates used to value these liabilities, future health care costs, and employee
accidents incurred but not yet reported. We use third-party specialists to assist management in appropriately measuring the
obligations associated with employment-related benefits.
We recognize changes in the fair value of pension plan assets and net actuarial gains or losses in excess of 10% of the
greater of the market-related value of plan assets or the plan's projected benefit obligation (the "corridor") in current period
expense annually as of our measurement date, which is our fiscal year-end, or when measurement is required otherwise under
U.S. GAAP.
53
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
Revenue Recognition — Our revenues primarily consist of the sale of food products that are sold to retailers and
foodservice customers through direct sales forces, broker, and distributor arrangements. These revenue contracts generally
have single performance obligations. Revenue, which includes shipping and handling charges billed to the customer, is reported
net of variable consideration and consideration payable to our customers, including applicable discounts, returns, allowances,
trade promotion, consumer coupon redemption, unsaleable product, and other costs. Amounts billed and due from our customers
are classified as receivables and require payment on a short-term basis and, therefore, we do not have any significant financing
components.
We recognize revenue when (or as) performance obligations are satisfied by transferring control of the goods to customers.
Control is transferred upon delivery of the goods to the customer. Shipping and/or handling costs that occur before the customer
obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. We assess the
goods 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 in-store displays and events, feature price discounts, consumer
coupons, and loyalty programs. The costs of these activities are recognized at the time the related revenue is recorded, which
normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment
regarding the volume of promotional offers that will be redeemed by either the retail trade or consumer. These estimates are
made using various techniques including historical data on performance of similar promotional programs. Differences between
estimated expense and actual redemptions are recognized as a change in management estimate in a subsequent period.
Advertising Costs — Advertising costs are expensed as incurred. Advertising and promotion expenses totaled $253.4
million, $278.6 million, and $328.3 million in fiscal 2019, 2018, and 2017, respectively, and are included in selling, general
and administrative ("SG&A") expenses.
Research and Development — We incurred expenses of $56.1 million, $47.3 million, and $44.6 million for research and
development activities in fiscal 2019, 2018, and 2017, respectively.
Comprehensive Income — Comprehensive income includes net income, currency translation adjustments, certain
derivative-related activity, changes in the value of available-for-sale investments (prior to the adoption of Accounting Standards
Update ("ASU") 2016-01), and changes in prior service cost and net actuarial gains (losses) from pension (for amounts not
in excess of the 10% "corridor") and postretirement health care plans. On foreign investments we deem to be essentially
permanent in nature, we do not provide for taxes on currency translation adjustments arising from converting an investment
denominated in a foreign currency to U.S. dollars. When we determine that a foreign investment, as well as undistributed
earnings, are no longer permanent in nature, estimated taxes will be provided for the related deferred tax liability (asset), if
any, resulting from currency translation adjustments.
The following table details the accumulated balances for each component of other comprehensive income, net of tax:
2019
2018
2017
Currency translation losses, net of reclassification adjustments . . . $
Derivative adjustments, net of reclassification adjustments. . . . . . .
Unrealized gains (losses) on available-for-sale securities . . . . . . . .
Pension and post-employment benefit obligations, net of
reclassification adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss 1 . . . . . . . . . . . . . . . . . . . . . $
(90.9) $
34.0
—
(53.4)
(110.3) $
(94.7) $
1.0
0.6
(17.4)
(110.5) $
(98.6)
(1.1)
(0.3)
(112.9)
(212.9)
1 Net of unrealized gains on available-for-sale securities reclassified to retained earnings as a result of the adoption of ASU 2016-01 in fiscal 2019 and net
of stranded tax effects from change in tax rate as a result of the early adoption of ASU 2018-02 in fiscal 2018 in the amount of $0.6 million and $17.4 million,
respectively.
54
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
The following table summarizes the reclassifications from accumulated other comprehensive loss into income:
2019
2018
2017
Affected Line Item in the Consolidated
Statement of Operations1
Net derivative adjustment, net of tax:
Cash flow hedges . . . . . . . . . . . . . . . . . . . . . $
(1.9) $
(1.9)
0.5
Amortization of pension and postretirement
healthcare liabilities:
$
(1.4) $
0.1
0.1
—
0.1
$
$
Interest expense, net
(0.2)
(0.2) Total before tax
0.1
(0.1) Net of tax
Income tax expense
Net prior service cost (benefit) . . . . . . . . . . . $
0.9
$
(0.4) $
(3.9)
Pension settlement . . . . . . . . . . . . . . . . . . . . .
—
Postretirement healthcare settlement . . . . . . .
Net actuarial loss (gain) . . . . . . . . . . . . . . . . .
(1.0)
(1.4)
(1.5)
0.4
$
(1.1) $
1.3
—
—
0.9
(0.2)
0.7
$
13.8
—
0.5
Pension and postretirement non-service
income
Pension and postretirement non-service
income
Pension and postretirement non-service
income
Pension and postretirement non-service
income
Total before tax
10.4
(4.0)
6.4 Net of tax
Income tax expense
Currency translation losses . . . . . . . . . . . . . . . . $
10.4
10.4
—
—
—
$ — $ —
Selling, general and administrative
expenses
— Total before tax
— Income tax expense
1
Amounts in parentheses indicate income recognized in the Consolidated Statements of Operations.
$
10.4
$ — $ — Net of tax
Foreign Currency Transaction Gains and Losses — We recognized net foreign currency transaction losses from
continuing operations of $2.3 million, $1.4 million, and $1.5 million in fiscal 2019, 2018, and 2017, respectively, in SG&A
expenses.
Business Combinations — We use the acquisition method in accounting for acquired businesses. Under the acquisition
method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition.
The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition.
Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
Reclassifications and other changes — Certain prior year amounts have been reclassified to conform with current year
presentation.
Use of Estimates — Preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions. These estimates and assumptions affect reported amounts of assets, liabilities, revenues, and
expenses as reflected in the consolidated financial statements. Actual results could differ from these estimates.
Accounting Changes — In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue
from Contracts with Customers ("Topic 606"), which replaces most existing revenue recognition guidance in U.S. GAAP,
including industry-specific requirements. Topic 606 provides companies with a single revenue recognition model for
recognizing revenue with customers; specifically requiring an entity to recognize the amount of revenue to which it expects
to be entitled for the transfer of promised goods or services to customers.
We utilized a comprehensive approach to evaluate and document the impact of the guidance on our current accounting
policies and practices in order to identify material differences, if any, that would result from applying the new requirements
55
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
to our revenue contracts. We did not identify any material differences resulting from applying the new requirements to our
revenue contracts. In addition, we did not identify any significant changes to our business processes, systems, and controls
to support recognition and disclosure requirements under the new guidance. We adopted the provisions of Topic 606 in fiscal
2019 utilizing the modified retrospective method. We recorded a $0.5 million cumulative effect adjustment, net of tax, to the
opening balance of fiscal 2019 retained earnings, a decrease to receivables of $7.6 million, an increase to inventories of $2.8
million, an increase to prepaid expenses and other current assets of $6.9 million, an increase to other accrued liabilities of
$1.4 million, and an increase to other noncurrent liabilities of $0.2 million. The adjustments primarily related to the timing
of recognition of certain customer charges, trade promotional expenditures, and volume discounts.
The effect of the changes made to our Consolidated Balance Sheet as of May 26, 2019 for the adoption of Topic 606 was
as follows:
Current assets
Receivables, less allowance for doubtful accounts . . . . . . $
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . .
Current liabilities
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
As Reported
Adjustments
Balances without
Adoption of Topic 606
$
831.7
1,571.7
93.8
691.6
1,951.8
$
8.7
(3.1)
(16.6)
(1.1)
(2.5)
840.4
1,568.6
77.2
690.5
1,949.3
The effect of the changes made to our Consolidated Statement of Earnings for the adoption of Topic 606 was as follows:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes
and equity method investment earnings . . . . . . . . . . . . . . .
$
9,538.4
6,885.4
823.3
15.5
24.5
(9.0)
Fiscal 2019
As Reported
Adjustments
Balances without
Adoption of Topic 606
9,553.9
$
6,909.9
814.3
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of
Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and
disclosure of financial instruments. The effective date for this standard is for fiscal years beginning after December 31, 2017.
We adopted this ASU in fiscal 2019. The adoption of this guidance did not have a material impact to our consolidated financial
statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and
Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement
of cash flows. We adopted this ASU retrospectively in fiscal 2019. The adoption of this guidance did not have a material
impact to our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which provides
amendments to current guidance to address the classifications and presentation of changes in restricted cash in the statement
of cash flows. We adopted this ASU retrospectively in fiscal 2019. The adoption of this guidance did not have a material
impact to our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which
provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of
assets or businesses. We adopted this ASU prospectively in fiscal 2019. The adoption of this guidance did not have a material
impact to our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Retirement Benefits: Improving the Presentation of Net Periodic Pension
Cost and Net Periodic Postretirement Benefit Cost, which requires companies to present the service cost component of net
56
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
benefit cost in the same line items in which they report compensation cost. Companies are required to present all other
components of net benefit cost outside operating income, if this subtotal is presented. In addition, the new standard requires
that only the service cost component of net periodic benefit expense is eligible for capitalization. The new standard requires
retrospective adoption of the presentation of net periodic benefit expense and prospective application of the capitalization of
the service cost component. We adopted this ASU in fiscal 2019. As a result, the following amounts were reclassified in fiscal
2018 and 2017 to correspond to the current year presentation:
Reclassified from Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Reclassified from Selling, general and administrative expense . . . . . . . . . . . . . . . . . . . . . . . .
Reclassified to Pension and postretirement non-service income . . . . . . . . . . . . . . . . . . . . . . . $
— $
80.4
80.4
$
1.7
53.5
55.2
2018
2017
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for
Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of
an entity's risk management activities in its financial statements and make certain targeted improvements to simplify the
application of the hedge accounting guidance in current U.S. GAAP. The amendments in this update better align an entity's
risk management activities and financial reporting for hedging relationships through changes to both the designation and
measurement guidance for qualifying hedging relationships and presentation of hedge results. The effective date for the
standard is for fiscal years beginning after December 15, 2018. We elected to early adopt this ASU in fiscal 2019. The adoption
of this guidance did not have a material impact to our consolidated financial statements. See Note 18 for a discussion of our
derivatives.
In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General
(Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies
the disclosure requirements for defined benefit pension plans and other post-retirement plans. The effective date for this
standard is for fiscal years beginning after December 15, 2020, with early adoption permitted. We elected to early adopt this
ASU in fiscal 2019. The adoption of this guidance did not have a material impact to our consolidated financial statements and
related disclosures.
Recently Issued Accounting Standards — In February 2016, the FASB issued ASU 2016-02, Leases, Topic 842, which
requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is
for fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that this standard
will have on our consolidated financial statements and related disclosures. We have identified an accounting system to support
the future state lease accounting process and continue to develop the future state process design as part of the overall system
implementation. We have populated the accounting system with lease data and have validated the completeness and accuracy
of such data. We expect the adoption of this standard to result in an increase in total assets and liabilities related to operating
leases that are currently not recorded on our consolidated balance sheet, however, we do not expect there to be a material
impact to our earnings or cash flows. See Note 16 for the total amount of our noncancelable operating lease commitments.
The standard can be applied using the modified retrospective method or entities may also elect the optional transition method
provided under ASU 2018-11, Leases, Topic 842: Targeted Improvement, issued in July 2018, allowing for application of the
standard at the adoption date, with recognition of a cumulative-effect adjustment to the opening balance of retained earnings
in the period of adoption. We will adopt this ASU on the first day of our fiscal year 2020 using the optional transition method
and will elect certain practical expedients permitted under the transition guidance, including not reassessing whether existing
contracts contain leases and carrying forward the historical classification of leases.
In August 2018, the FASB issued ASU No. 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, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendments
in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of
adoption. We do not expect ASU 2018-15 to have a material impact to our consolidated financial statements and related
disclosures.
57
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
2. ACQUISITIONS
On October 26, 2018, we acquired Pinnacle Foods Inc. ("Pinnacle"), a branded packaged foods company specializing in
shelf-stable and frozen foods, which is now a wholly-owned subsidiary of the Company. 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 shares of 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 14)
of $51.1 million.
In connection with the acquisition, we issued long-term debt of $8.33 billion (see Note 4) (which includes funding under
the new term loan agreement) and received cash proceeds of $575.0 million ($555.7 million net of related fees) from the
issuance of common stock in an underwritten public offering. We used such proceeds for the payment of the cash portion of
the Merger Consideration, the repayment of Pinnacle debt acquired, the refinancing of certain Conagra Brands debt, and the
payment of related fees and expenses.
The following table summarizes our current allocation of the total purchase consideration to the estimated fair values of
the assets acquired and liabilities assumed at the acquisition date.
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brands, trademarks and other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior long-term debt, excluding current installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired and liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
October 26,
2018
47.2
202.8
653.7
14.9
721.2
7,015.9
3,519.5
24.3
(605.5)
(2,671.3)
(814.1)
(74.6)
8,034.0
During fiscal 2019, we made adjustments to our initial allocations, which resulted in an increase to goodwill of $353.9
million. This goodwill increase resulted primarily from reductions in values of brands, trademarks and other intangibles of
$355.6 million, property, plant and equipment of $20.8 million, and deferred tax liabilities of $32.3 million as we refine our
fair value estimates. These changes did not have a significant impact on our net income for the fiscal year ended May 26,
2019.
Goodwill represents the excess of the consideration transferred over the preliminary estimate of fair values of the assets
acquired and liabilities assumed and is primarily attributable to synergies and intangible assets such as assembled workforce
which are not separately recognizable. Of the total goodwill, $236.7 million is deductible for tax purposes. Amortizable brands,
trademarks and other intangibles totaled $668.7 million and have a weighted average estimated useful life of 25 years. We
are currently completing our fair value assessment of the acquired assets and liabilities with the assistance of third-party
valuation specialists and any adjustments identified in the measurement period, which will not exceed one year from the
acquisition date, will be accounted for prospectively. Until we complete our fair value assessments and further integration
activities and organizational structural changes occur, our Pinnacle business is considered a separate reportable segment and
58
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
all goodwill was preliminarily allocated to reporting units within this segment.
The results of operations of Pinnacle are reported in the Company's consolidated financial statements from the date of
acquisition and include $1.73 billion of total net sales and $238.2 million of operating profit for fiscal 2019, which are included
in the Pinnacle Foods segment's financial results.
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 unaudited pro forma results may not
necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future
results of operations.
Pro forma net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Pro forma net income from continuing operations attributable to Conagra
Brands, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019
10,788.1
803.8
$
$
2018
11,034.2
1,089.7
The pro forma results include adjustments for amortization of acquired intangible assets, depreciation, and interest expense
on debt issued to finance the acquisition as well as the related income taxes. The pro forma results also include the following
material nonrecurring adjustments, along with the related income tax effect of the adjustments:
• Acquisition related costs incurred by the Company of $62.7 million during fiscal 2019 were excluded and assumed
to have been incurred at the beginning of fiscal 2018. Acquisition related costs incurred by Pinnacle of $66.8 million
during fiscal 2019 were excluded from the pro forma results.
• Non-recurring expense of $53.0 million for fiscal 2019 related to the fair value adjustment to acquisition-date
inventory estimated to have been sold was removed and $54.1 million of expense was included in the results for
fiscal 2018.
• Non-recurring expense of $45.7 million for fiscal 2019 related to securing bridge financing for the acquisition were
excluded and assumed to have been incurred at the beginning of fiscal 2018.
In February 2018, we acquired the Sandwich Bros. of Wisconsin® business, maker of frozen breakfast and entree flatbread
pocket sandwiches, for a cash purchase price of $87.3 million, net of cash acquired, including working capital adjustments.
Approximately $57.8 million has been classified as goodwill and $9.7 million and $7.1 million have been classified as non-
amortizing and amortizing intangible assets, respectively. The amount allocated to goodwill is deductible for tax purposes.
The business is included in the Refrigerated & Frozen segment.
In October 2017, we acquired Angie's Artisan Treats, LLC, maker of Angie's® BOOMCHICKAPOP® ready-to-eat popcorn,
for a cash purchase price of $249.8 million, net of cash acquired, including working capital adjustments. Approximately $156.7
million has been classified as goodwill, of which $95.4 million is deductible for income tax purposes. Approximately $73.8
million and $10.3 million of the purchase price have been allocated to non-amortizing and amortizing intangible assets,
respectively. The business is primarily included in the Grocery & Snacks segment, and to a lesser extent within the International
segment.
In April 2017, we acquired protein-based snacking businesses Thanasi Foods LLC, maker of Duke’s® meat snacks, and
BIGS LLC, maker of BIGS® seeds, for $217.6 million, net of cash acquired, including working capital adjustments.
Approximately $133.3 million has been classified as goodwill, of which $70.5 million is deductible for income tax purposes.
Approximately $65.1 million and $16.1 million of the purchase price have been allocated to non-amortizing and amortizing
intangible assets, respectively. These businesses are primarily included in the Grocery & Snacks segment.
In September 2016, we acquired the operating assets of Frontera Foods, Inc. and Red Fork LLC, including the Frontera®,
Red Fork®, and Salpica® brands. These businesses make authentic, gourmet Mexican food products and contemporary
American cooking sauces. We acquired the business for $108.1 million, net of cash acquired, including working capital
adjustments. Approximately $39.5 million has been classified as goodwill and $59.5 million and $7.2 million have been
classified as non-amortizing and amortizing intangible assets, respectively. The amount allocated to goodwill is deductible
for tax purposes. These businesses are reflected principally within the Grocery & Snacks and Refrigerated & Frozen segments,
and to a lesser extent within the International segment.
59
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
These acquisitions collectively contributed $319.1 million, $214.3 million, and $36.5 million to net sales during fiscal
2019, 2018, and 2017, respectively.
For each of these acquisitions, the amounts allocated to goodwill were primarily attributable to anticipated synergies,
product portfolios, and other intangibles that do not qualify for separate recognition.
3. RESTRUCTURING ACTIVITIES
Pinnacle Integration Restructuring Plan
In December 2018, our Board of Directors (the "Board") approved a restructuring and integration plan related to the
ongoing integration of the recently acquired operations of Pinnacle (the "Pinnacle Integration Restructuring Plan") for the
purpose of achieving significant cost synergies between the companies. We expect to incur material charges for exit and
disposal activities under U.S. GAAP. Although we remain unable to make good faith estimates relating to the entire Pinnacle
Integration Restructuring Plan, we are reporting on actions initiated through the end of fiscal 2019, 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. We expect to incur up to $360.0 million of operational expenditures ($285.0 million of cash charges
and $75.0 million of non-cash charges) as well as $85.0 million of capital expenditures under the Pinnacle Integration
Restructuring Plan. We have incurred or expect to incur approximately $260.1 million of charges ($254.0 million of cash
charges and $6.1 million of non-cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan.
We expect to incur costs related to the Pinnacle Integration Restructuring Plan over a three-year period.
We anticipate that we will recognize the following pre-tax expenses in association with the Pinnacle Integration
Restructuring Plan (amounts include charges recognized from plan inception through the end of fiscal 2019):
International
Pinnacle
Foods
Corporate
Total
Other cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract/lease termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting/professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other selling, general and administrative expenses . . . . . . . . . . . . .
Total selling, general and administrative expenses . . . . . . . . . . . .
Consolidated total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
—
0.7
—
—
0.2
0.1
1.0
1.0
$
5.7
5.7
0.6
—
0.8
—
—
1.4
7.1
$
— $
—
116.8
6.1
19.8
96.1
13.2
252.0
252.0
$
$
5.7
5.7
118.1
6.1
20.6
96.3
13.3
254.4
260.1
60
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
During fiscal 2019, we recognized the following pre-tax expenses for the Pinnacle Integration Restructuring Plan:
International
Pinnacle
Foods
Corporate
Total
Other cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract/lease termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting/professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other selling, general and administrative expenses . . . . . . . . . . . . .
Total selling, general and administrative expenses . . . . . . . . . . . .
Consolidated total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
—
0.7
—
—
0.2
0.1
1.0
1.0
$
3.7
3.7
0.6
—
0.8
—
—
1.4
5.1
$
— $
—
110.8
4.7
0.3
38.1
8.2
162.1
$
162.1
$
3.7
3.7
112.1
4.7
1.1
38.3
8.3
164.5
168.2
Included in the above results are $163.5 million of charges that have resulted or will result in cash outflows and $4.7
million in non-cash charges.
Liabilities recorded for the Pinnacle Integration Restructuring Plan and changes therein for fiscal 2019 were as follows:
Balance at
May 27,
2018
Costs Incurred
and Charged
to Expense
Costs Paid
or Otherwise
Settled
Changes in
Estimates
Balance at
May 26,
2019
Severance and related costs . . . . . . . . . . . . . . . . $
Contract/lease termination . . . . . . . . . . . . . . . . .
Consulting/professional fees . . . . . . . . . . . . . . .
Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $
121.2
$
—
—
—
1.1
38.3
12.0
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
172.6
$
(35.2) $
(0.1)
(19.9)
(10.8)
(66.0) $
(9.1) $
—
—
—
(9.1) $
76.9
1.0
18.4
1.2
97.5
Conagra Restructuring Plan
During fiscal 2019, management initiated a new restructuring plan (the "Conagra Restructuring Plan") for costs in
connection with actions taken to improve SG&A effectiveness and efficiencies and to optimize our supply chain network. We
have incurred or expect to incur $4.3 million of charges ($2.4 million of cash charges and $1.9 million of non-cash charges)
for actions identified to date under the Conagra Restructuring Plan. We are unable to quantify the scope of the entire Conagra
Restructuring Plan at this time. During fiscal 2019, we recognized charges of $2.2 million ($1.4 million of cash charges and
$0.8 million in non-cash charges) in connection with the Conagra Restructuring Plan.
Supply Chain and Administrative Efficiency Plan
As of May 26, 2019, we had substantially completed our restructuring activities related to our Supply Chain and
Administrative Efficiency Plan (the "SCAE Plan"). We recognized charges of $9.6 million, $38.0 million, and $63.6 million
in connection with the SCAE Plan related to our continuing operations in fiscal 2019, 2018, and 2017, respectively. We have
recognized $469.9 million in pre-tax expenses ($103.3 million in cost of goods sold, $364.3 million in SG&A expenses, and
$2.3 million in pension and postretirement non-service income) from the inception of the SCAE Plan through May 26, 2019,
related to our continuing operations. Included in these results were $319.9 million of cash charges and $150.0 million of non-
cash charges. Our total pre-tax expenses for the SCAE Plan related to our continuing operations are expected to be $471.0
million ($321.0 million of cash charges and $150.0 million of non-cash charges).
61
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
4. LONG-TERM DEBT
May 26, 2019 May 27, 2018
5.4% senior debt due November 2048 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.65% senior debt due January 2043 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.625% senior debt due August 2039 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.3% senior debt due November 2038 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.25% senior debt due September 2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.85% senior debt due November 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.0% senior debt due October 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.7% senior debt due August 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.125% senior debt due October 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.6% senior debt due November 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3% senior debt due May 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIBOR plus 1.50% term loan due October 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2% senior debt due January 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.25% senior debt due September 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIBOR plus 1.375% term loan due October 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.8% senior debt due October 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.75% subordinated debt due March 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIBOR plus 0.75% senior debt due October 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIBOR plus 0.50% senior debt due October 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.95% senior debt due August 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIBOR plus 0.75% term loan due February 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.00% to 9.59% lease financing obligations due on various dates through 2033. . . . .
Other indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total face value of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized fair value adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment due to hedging activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current installments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,000.0
$
176.7
91.4
1,000.0
300.0
1,300.0
382.2
9.2
262.5
1,000.0
1,000.0
200.0
837.0
250.0
200.0
1,200.0
195.9
525.0
500.0
126.6
—
165.4
0.1
—
176.7
91.4
—
300.0
—
382.2
9.2
262.5
—
—
—
837.0
250.0
—
—
195.9
—
500.0
126.6
300.0
94.7
0.2
10,722.0
24.5
(19.0)
(52.1)
0.9
(20.6)
10,655.7
$
3,526.4
27.6
(5.8)
(11.3)
1.6
(307.0)
3,231.5
The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years following May 26,
2019, are as follows:
2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.6
1,368.2
1,420.4
1,103.4
1,213.0
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
62
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
financing of $45.7 million to be amortized over the commitment period. Our net interest expense included $11.9 million for
fiscal 2019 as a result of this amortization. The bridge facility was terminated in connection with the acquisition, and we
recognized $33.8 million of expense within SG&A expenses for the remaining unamortized financing costs.
Also in the first quarter of fiscal 2019, we entered into 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, as well as deal-contingent forward starting interest rate swap contracts (see Note 18) to hedge a portion of the interest
rate risk related to our anticipated issuance of long-term debt to help finance the acquisition of Pinnacle.
During the second quarter of fiscal 2019, to finance a portion of our acquisition of Pinnacle, we (i) issued new senior
unsecured notes in an aggregate principal amount of $7.025 billion and (ii) borrowed $1.30 billion under the Term Loan
Agreement.
We issued the new senior unsecured notes in seven tranches: floating rate senior 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.
Our $1.30 billion of borrowings under the Term Loan Agreement consisted of a $650.0 million tranche of three-year term
loans and a $650.0 million tranche of five-year term loans. The three-year tranche loans mature on October 26, 2021, and the
five-year tranche loans mature on October 26, 2023.
These term loans bear interest at, at the Company's election, either (a) LIBOR plus a percentage spread (ranging from
1% to 1.625% for three-year tranche loans and 1.125% to 1.75% for five-year tranche loans) based on the Company's senior
unsecured long-term indebtedness ratings or (b) the alternate base rate, described in the Term Loan Agreement as the greatest
of (i) Bank of America's prime rate, (ii) the federal funds rate plus 0.50%, and (iii) one-month LIBOR plus 1.00%, plus a
percentage spread (ranging from 0% to 0.625% for three-year tranche loans and 0.125% to 0.75% for five-year tranche loans)
based on the Company's senior unsecured long-term indebtedness ratings. The Company may voluntarily prepay term loans
under the Term Loan Agreement, in whole or in part, without penalty, subject to certain conditions.
During fiscal 2019, we repaid $900.0 million of our borrowings under the Term Loan Agreement, which repayment
consisted of $450.0 million of the three-year tranche loans and $450.0 million of the five-year tranche loans. Subsequent to
fiscal 2019, we repaid an additional $100.0 million of the three-year tranche loans and $100.0 million of the five-year tranche
loans.
In the second quarter of fiscal 2019, in connection with the Pinnacle acquisition, 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 as a cost of early retirement of debt.
Also, in connection with the financing for the Pinnacle acquisition, we capitalized $49.6 million of debt issuance costs.
Our net interest expense in fiscal 2019 was reduced by $2.0 million due to the impact of the interest rate swap contracts
entered into in the first quarter of fiscal 2019. During the second quarter of fiscal 2019, we terminated the interest rate swap
contacts 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.
Other Long-Term Debt
During the third quarter of fiscal 2018, we entered into a term loan agreement (the "Prior Term Loan Agreement") with
a financial institution. The Prior Term Loan Agreement provided for term loans to the Company in an aggregate principal
amount not to exceed $300.0 million, maturing on February 26, 2019. During the fourth quarter of fiscal 2018, we borrowed
the full amount of the $300.0 million provided for under the Prior Term Loan Agreement. During the second quarter of fiscal
2019, we repaid in full the principal balance of all term loans outstanding under the Prior Term Loan Agreement. This did not
result in a significant gain or loss.
63
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
During the fourth quarter of fiscal 2018, we repaid the remaining principal balance of $70.0 million of our 2.1% senior
notes on the maturity date of March 15, 2018.
During the third quarter of fiscal 2018, we repaid the remaining principal balance of $119.6 million of our 1.9% senior
notes on the maturity date of January 25, 2018.
During the third quarter of fiscal 2018, we repaid the remaining capital lease liability balance of $28.5 million in connection
with the early exit of an unfavorable lease contract.
During the second quarter of fiscal 2018, we issued $500.0 million aggregate principal amount of floating rate notes due
October 9, 2020. The notes bear interest at a rate equal to three-month LIBOR plus 0.50% per annum.
During the third quarter of fiscal 2017, we repaid the remaining principal balance of $224.8 million of our 5.819% senior
notes due 2017 and $248.2 million principal amount of our 7.0% senior notes due 2019, in each case prior to maturity, resulting
in a net loss on early retirement of debt of $32.7 million.
In connection with the Spinoff of Lamb Weston (see Note 6), Lamb Weston issued to us $1.54 billion aggregate principal
amount of senior notes (the "Lamb Weston notes"). On November 9, 2016, we exchanged the Lamb Weston notes for $250.2
million aggregate principal amount of our 5.819% senior notes due 2017, $880.4 million aggregate principal amount of our
1.9% senior notes due 2018, $154.9 million aggregate principal amount of our 2.1% senior notes due 2018, $86.9 million
aggregate principal amount of our 7.0% senior notes due 2019, and $71.1 million aggregate principal amount of our 4.95%
senior notes due 2020 (collectively, the "Conagra notes"), which had been purchased in the open market by certain investment
banks prior to the Spinoff. Following the exchange, we cancelled the Conagra notes. These actions resulted in a net loss of
$60.6 million as a cost of early retirement of debt.
During the first quarter of fiscal 2017, we repaid the entire principal balance of $550.0 million of our floating rate notes
on the maturity date of July 21, 2016.
General
The Revolving Credit Facility (as defined in Note 5) and the Term Loan Agreement generally require 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 5.875 through the first quarter
of fiscal 2020 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 May 26, 2019, we were in compliance with all financial covenants under the Revolving Credit Facility
and the Term Loan Agreement.
Net interest expense consists of:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2019
2018
2017
385.9
$
161.2
$
15.0
(6.8)
(2.7)
391.4
$
4.8
(3.8)
(3.5)
158.7
$
203.6
0.6
(3.7)
(5.0)
195.5
Interest paid from continuing operations was $375.6 million, $164.5 million, and $223.7 million in fiscal 2019, 2018,
and 2017, respectively.
5. CREDIT FACILITIES AND BORROWINGS
At May 26, 2019, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial
institutions providing for a maximum aggregate principal amount outstanding at any one time of $1.6 billion (subject to
increase to a maximum aggregate principal amount of $2.1 billion 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
64
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
one-year or two-year periods from the then-applicable maturity date on an annual basis. In the fourth quarter of fiscal 2019,
the Company entered into an amendment to extend the existing termination date under the Revolving Credit Facility for one
additional year, effective July 11, 2019. As of May 26, 2019, there were no outstanding borrowings under the Revolving Credit
Facility.
The Revolving Credit Facility contains events of default customary for unsecured investment grade credit facilities with
corresponding grace periods. The Revolving Credit Facility contains customary affirmative and negative covenants for
unsecured investment grade credit facilities of this type. It generally requires our ratio of EBITDA to interest expense not to
be less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to exceed certain decreasing specified levels, ranging from
5.875 through the first quarter of fiscal 2020 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 May 26, 2019, we were in compliance with all financial covenants under
the Revolving Credit Facility.
We finance our short-term liquidity needs with bank borrowings, commercial paper borrowings, and bankers' acceptances.
As of May 26, 2019, there were no outstanding borrowings under our commercial paper program. As of May 27, 2018, we
had $277.0 million outstanding under our commercial paper program at an average weighted interest rate of 2.08%.
6. DISCONTINUED OPERATIONS AND OTHER DIVESTITURES
Lamb Weston Spinoff
On November 9, 2016, we completed the Spinoff of our Lamb Weston business. As of such date, we did not beneficially
own any equity interest in Lamb Weston and no longer consolidated Lamb Weston into our financial results. The business
results were previously reported in the Commercial segment. We reflected the results of this business as discontinued operations
for all periods presented.
The summary comparative financial results of the Lamb Weston business through the date of the Spinoff, included within
discontinued operations, were as follows:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations before income taxes and equity
method investment earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) before income taxes and equity method investment earnings . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity method investment earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interests . . . . . . . . . . . . . . . . .
2019
2018
2017
— $
— $
1,407.9
— $
—
2.8
—
(2.8)
—
(0.3) $
(0.3)
(14.6)
—
14.3
—
172.3
172.3
87.5
15.9
100.7
6.8
Net income (loss) from discontinued operations attributable to Conagra
Brands, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(2.8) $
14.3
$
93.9
During fiscal 2017, we incurred $74.8 million of expenses in connection with the Spinoff primarily related to professional
fees and contract services associated with preparation of regulatory filings and separation activities. These expenses are
reflected in income from discontinued operations. During fiscal 2019 and 2018, we recognized income tax expense of $2.8
million and an income tax benefit of $14.5 million, respectively, due to adjustments of the estimated deductibility of these
costs.
In connection with the Spinoff, total assets of $2.28 billion and total liabilities of $2.98 billion (including debt of $2.46
billion) were transferred to Lamb Weston. As part of the consideration for the Spinoff, the Company received a cash payment
from Lamb Weston in the amount of $823.5 million. See Note 4 for discussion of the debt-for-debt exchange related to the
Spinoff.
65
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
We entered into a transition services agreement in connection with the Lamb Weston Spinoff and recognized $2.2 million
and $4.2 million of income for the performance of services during fiscal 2018 and 2017, respectively, classified within SG&A
expenses.
Private Brands Operations
On February 1, 2016, pursuant to the Stock Purchase Agreement, dated as of November 1, 2015, we completed the
disposition of our Private Brands operations to TreeHouse Foods, Inc. ("TreeHouse").
The summary comparative financial results of the Private Brands business, included within discontinued operations, were
as follows:
Loss on sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income from discontinued operations before income taxes and equity method
investment earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes and equity method investment earnings . . . . . . . . .
Income tax expense (benefit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . $
2019
2018
2017
— $
— $
0.9
0.9
—
0.9
$
0.4
0.4
0.5
(0.1) $
(1.6)
3.9
2.3
(0.3)
2.6
We entered into a transition services agreement with TreeHouse and recognized $2.2 million and $16.9 million of income
for the performance of services during fiscal 2018 and 2017, respectively, classified within SG&A expenses.
ConAgra Mills Operations
On May 29, 2014, the Company, Cargill, Incorporated ("Cargill"), and CHS, Inc. ("CHS") completed the formation of
the Ardent Mills joint venture. In connection with the formation, we contributed to Ardent Mills all of the assets of ConAgra
Mills, our milling operations. Our equity in the earnings of Ardent Mills is reflected in our continuing operations.
In fiscal 2017, we adjusted a multi-employer pension withdrawal liability related to our former milling operations by
$2.0 million ($1.3 million after-tax). This expense was recognized within discontinued operations.
Other Divestitures
During the first quarter of fiscal 2019, we completed the sale of our Del Monte® processed fruit and vegetable business
in Canada, which was included in our International segment, to Bonduelle Group for combined proceeds of $32.2 million.
We recognized a gain on the sale of $13.2 million, included within SG&A expenses. The assets of this business have been
reclassified as assets held for sale within our Consolidated Balance Sheets for all periods presented prior to the divestiture.
The assets classified as held for sale reflected in our Consolidated Balance Sheets related to the Del Monte® processed
fruit and vegetable business in Canada were as follows:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Noncurrent assets (including goodwill of $5.8 million). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.1
11.5
May 27, 2018
During the fourth quarter of fiscal 2019, we completed the sale of our Wesson® oil business for net proceeds of $171.8
million, subject to final working capital adjustments. The business results were previously reported primarily in our Grocery
& Snacks segment, and to a lesser extent within the Foodservice and International segments. We recognized a gain on the sale
of $33.1 million included within SG&A expenses. The assets of this business have been reclassified as assets held for sale
within our Consolidated Balance Sheets for all periods presented prior to the divestiture.
66
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
We recognized an impairment charge of $27.6 million within SG&A expenses in fiscal 2017, as a production facility was
not initially included in the assets to be sold, and we did not expect to recover the carrying value of this facility through future
associated cash flows. This production facility was included in the assets transferred in the final Wesson® oil business divestiture
transaction.
The assets classified as held for sale reflected in our Consolidated Balance Sheets related to the Wesson® oil business
were as follows:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Noncurrent assets (including goodwill of $74.5 million). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37.7
101.0
May 27, 2018
On May 24, 2019, we completed the sale of our Italian-based frozen pasta business, Gelit, for proceeds net of cash divested
of $77.5 million, subject to final working capital adjustments. The business results were previously reported in our Refrigerated
& Frozen segment. We recognized a gain on the sale of $23.1 million included within SG&A expenses. The assets and liabilities
of this business have been reclassified as assets and liabilities held for sale within our Consolidated Balance Sheets for all
periods presented prior to the divestiture.
The assets and liabilities classified as held for sale reflected in our Consolidated Balance Sheets related to Gelit were as
follows:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Noncurrent assets (including goodwill of $15.1 million). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.5
43.3
13.9
4.4
May 27, 2018
During the first quarter of fiscal 2017, we completed the sales of our Spicetec Flavors & Seasonings business ("Spicetec")
and our JM Swank business, each of which was part of our Commercial segment, for $329.7 million and $159.3 million,
respectively, in cash, net of cash included in the dispositions. We recognized pre-tax gains from the sales of $144.8 million
and $52.6 million, respectively. We entered into transition services agreements in connection with the sales of these businesses
and recognized $0.2 million and $1.9 million of income during fiscal 2018 and fiscal 2017, respectively, classified within
SG&A expenses.
From time to time we actively market certain other assets. Balances totaling $8.2 million and $29.4 million at May 26,
2019 and May 27, 2018, respectively, have been reclassified as assets held for sale within our Consolidated Balance Sheets
for periods prior to the disposal of these individual asset groups.
7. INVESTMENTS IN JOINT VENTURES
The total carrying value of our equity method investments at the end of fiscal 2019 and 2018 was $796.3 million and
$776.2 million, respectively. These amounts are included in other assets and reflect our 44% ownership interest in Ardent
Mills and 50% ownership interests in other joint ventures. Due to differences in fiscal reporting periods, we recognized the
equity method investment earnings on a lag of approximately one month.
In fiscal 2019, we had purchases from our equity method investees of $39.4 million. Total dividends received from equity
method investments in fiscal 2019 were $55.0 million.
In fiscal 2018, we had purchases from our equity method investees of $34.9 million. Total dividends received from equity
method investments in fiscal 2018 were $62.5 million.
In fiscal 2017, we had purchases from our equity method investees of $41.8 million. Total dividends received from equity
method investments in fiscal 2017 were $68.2 million.
67
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
Summarized combined financial information for our equity method investments on a 100% basis is as follows:
2019
2018
2017
Net Sales:
Ardent Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,476.0
195.4
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,671.4
Gross margin:
Ardent Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 281.9
45.5
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 327.4
Earnings after income taxes:
$3,344.1
198.8
$3,542.9
$ 3,180.0
177.7
$ 3,357.7
$ 386.5
34.8
$ 421.3
$ 340.3
34.6
$ 374.9
Ardent Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 151.9
18.1
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total earnings after income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170.0
$ 197.0
10.1
$ 207.1
$ 152.0
10.1
$ 162.1
May 26,
2019
May 27,
2018
Ardent Mills:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
952.6
1,669.8
361.2
496.9
Others:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89.2
19.0
43.4
0.7
$
$
974.6
1,675.7
355.6
510.9
76.4
15.5
37.5
0.1
8. VARIABLE INTEREST ENTITIES
Variable Interest Entities Not Consolidated
We lease or leased certain office buildings from entities that we have determined to be variable interest entities. The lease
agreements with these entities include fixed-price purchase options for the assets being leased. The lease agreements also
contain contingent put options (the "lease put options") that allow or allowed the lessors to require us to purchase the buildings
at the greater of original construction cost, or fair market value, without a lease agreement in place (the "put price") in certain
limited circumstances. As a result of substantial impairment charges related to our divested Private Brands operations, these
lease put options became exercisable. We are amortizing the difference between the put price and the estimated fair value
(without a lease agreement in place) of the property over the remaining lease term within SG&A expenses. During fiscal 2018,
we purchased two buildings that were subject to lease put options and recognized net losses totaling $48.2 million for the
early exit of unfavorable lease contracts. During fiscal 2017, one of these lease agreements expired, and we reversed the
applicable accrual and recognized a benefit of $6.7 million in SG&A expenses.
As of May 26, 2019 and May 27, 2018, there was one remaining leased building subject to a lease put option for which
the put option price exceeded the estimated fair value of the property by $8.2 million, of which we had accrued $1.6 million
and $1.2 million, respectively. This lease is accounted for as an operating lease, and accordingly, there are no material assets
and liabilities, other than the accrued portion of the put price, associated with this entity included in the Consolidated Balance
Sheets. We have determined that we do not have the power to direct the activities that most significantly impact the economic
performance of this entity. In making this determination, we have considered, among other items, the terms of the lease
agreement, the expected remaining useful life of the asset leased, and the capital structure of the lessor entity.
68
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
9. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for fiscal 2019 and 2018 was as follows:
Grocery &
Snacks
Refrigerated
& Frozen
International
Foodservice
Pinnacle
Foods
Total
$
1,022.8
$
247.8
$
571.1
$
— $ 4,280.8
Balance as of May 28, 2017 . . . . . . . . . . $ 2,439.1
Acquisitions . . . . . . . . . . . . . . . . . . . . . .
155.2
Purchase accounting adjustments . . . . . .
(1.5)
Currency translation . . . . . . . . . . . . . . . .
—
Balance as of May 27, 2018 . . . . . . . . . . $ 2,592.8
Acquisitions . . . . . . . . . . . . . . . . . . . . . .
—
Purchase accounting adjustments . . . . . .
1.5
57.8
—
—
$
1,080.6
$
—
—
Currency translation . . . . . . . . . . . . . . . .
—
Balance as of May 26, 2019 . . . . . . . . . . $ 2,594.3
$
—
1,080.6
$
Other identifiable intangible assets were as follows:
—
—
(4.9)
242.9
—
—
(2.4)
240.5
—
—
—
$
571.1
$
—
—
—
571.1
$
$
—
—
213.0
(1.5)
(4.9)
— $ 4,487.4
—
7,015.9
—
(2.8)
7,013.1
7,015.9
1.5
(5.2)
$11,499.6
Gross
Carrying
Amount
Non-amortizing intangible assets . . . . . . . . . . . . . . . . . . . . . . . . $ 3,678.0
Amortizing intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,244.2
$ 4,922.2
2019
2018
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
$
— $
260.8
918.3
576.6
260.8
$ 1,494.9
$
$
—
212.1
212.1
Non-amortizing intangible assets are comprised of brands and trademarks.
Amortizing intangible assets, carrying a remaining weighted-average life of approximately 20 years, are principally
composed of customer relationships, and acquired intellectual property. For fiscal 2019, 2018, and 2017, we recognized
amortization expense of $49.1 million, $34.9 million, and $33.6 million, respectively. Based on amortizing assets recognized
in our Consolidated Balance Sheet as of May 26, 2019, amortization expense is estimated to average $58.3 million for each
of the next five years, with a high expense of $59.9 million in fiscal 2020 and decreasing to a low expense of $54.2 million
in fiscal 2024.
During fiscal 2019, in conjunction with the divestiture of our Italian-based frozen pasta business, Gelit, we reclassified
$15.1 million and $1.7 million of goodwill and other identifiable intangible assets, respectively, to noncurrent assets held for
sale for periods prior to the divestiture.
During fiscal 2019, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment
charges of $76.5 million for our Chef Boyardee® and Red Fork® brands in our Grocery & Snacks segment. We also recognized
impairment charges of $13.1 million for our Aylmer® and Sundrop® brands in our International segment.
During fiscal 2018, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment
charges of $4.0 million for our HK Anderson®, Red Fork®, and Salpica® brands in our Grocery & Snacks segment. We also
recognized an impairment charge of $0.8 million for our Aylmer® brand in our International segment.
During fiscal 2017, we recorded goodwill impairment charges in our International reporting segment totaling $198.9
million, of which $139.2 million related to our Canadian reporting unit and $59.7 million related to our Mexican reporting
unit. These impairment charges resulted from a change in reporting segments, which occurred in the first quarter of fiscal
2017 when we were required to determine new reporting units at a lower level, and from further deterioration in forecasted
sales and profits during fiscal 2017, which were caused primarily by changes in foreign exchange rates.
69
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
In fiscal 2017, due to declining sales of certain brands, we elected to perform a quantitative impairment test for indefinite
lived intangibles of those brands. During fiscal 2017, we recognized impairment charges of $31.5 million for our Del Monte®
brand and $5.5 million for our Aylmer® brand in our International segment. We also recognized impairment charges of $67.1
million for our Chef Boyardee® brand and $1.1 million for our Fiddle Faddle® brand in our Grocery & Snacks segment.
10. 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:
2019
2018
2017
Net income available to Conagra Brands, Inc. common stockholders:
Income from continuing operations attributable to Conagra Brands, Inc.
common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income (loss) from discontinued operations, net of tax, attributable to Conagra
Brands, Inc. common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Conagra Brands, Inc. common stockholders . . . . . $
Less: Increase in redemption value of noncontrolling interests in excess of
earnings allocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
680.2
$
794.1
$
544.1
(1.9)
678.3
14.3
95.2
$
808.4
$
639.3
—
—
0.8
Net income available to Conagra Brands, Inc. common stockholders . . . . . . . $
678.3
$
808.4
$
638.5
Weighted average shares outstanding:
Basic weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
444.0
403.9
431.9
Add: Dilutive effect of stock options, restricted stock unit awards, and other
dilutive securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.6
445.6
3.5
407.4
4.1
436.0
For fiscal 2019, 2018, and 2017, there were 2.0 million, 1.3 million, and 0.8 million stock options outstanding, respectively,
that were excluded from the computation of diluted weighted average shares because the effect was antidilutive.
11. INVENTORIES
The major classes of inventories were as follows:
Raw materials and packaging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
276.5
$
126.9
1,099.1
69.2
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,571.7
$
202.9
91.8
647.8
46.2
988.7
May 26, 2019 May 27, 2018
70
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
12. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consisted of:
Postretirement health care and pension obligations. . . . . . . . . . . . . . . . . . . . . . . . $
Noncurrent income tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Self-insurance liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environmental liabilities (see Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology agreement liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
May 26, 2019
May 27, 2018
262.5
1,349.0
42.9
56.8
28.7
211.9
1,951.8
$
$
261.7
487.3
27.1
56.0
42.7
186.0
1,060.8
13. CAPITAL STOCK
The total number of shares we are authorized to issue is 1,218,050,000 shares, which shares may be issued as follows:
1,200,000,000 shares of common stock, par value $5.00 per share; 150,000 shares of Class B Preferred Stock, par value
$50.00 per share; 250,000 shares of Class C Preferred Stock, par value $100.00 per share; 1,100,000 shares of Class D
Preferred Stock, no par value per share; and 16,550,000 shares of Class E Preferred Stock, no par value per share. There were
no preferred shares issued or outstanding as of May 26, 2019.
We have repurchased our shares of common stock from time to time after considering market conditions and in accordance
with repurchase limits authorized by our Board. In May 2017 and May 2018, our Board approved increases to our share
repurchase authorization of $1.0 billion each. We repurchased 27.4 million shares of our common stock for approximately
$967.3 million in fiscal 2018 and 25.1 million shares of our common stock for approximately $1.0 billion in fiscal 2017 under
this program.
14. SHARE-BASED PAYMENTS
In accordance with stockholder-approved equity incentive plans, we grant stock-based compensation awards, including
restricted stock units, cash-settled restricted stock units, performance shares, performance-based restricted stock units, stock
options, and stock appreciation rights. The shares delivered upon vesting or lapse of restriction under any such arrangement
may consist, in whole or part, of treasury stock or authorized but unissued stock, not reserved for any other purpose.
On September 19, 2014, our stockholders approved the Conagra Brands, Inc. 2014 Stock Plan (as amended effective
December 11, 2017, the "Plan"). The Plan authorizes the issuance of up to 40.3 million shares of Conagra Brands common
stock as well as certain shares of Conagra Brands common stock subject to outstanding awards under predecessor stock plans
that expire, lapse, are cancelled, terminated, forfeited, otherwise become unexercisable, or are settled for cash. At May 26,
2019, approximately 40.9 million shares were reserved for granting new share-based awards.
All amounts below are of continuing and discontinued operations.
Share Unit Awards
In accordance with stockholder-approved equity incentive plans, we grant awards of restricted stock units and cash-settled
restricted stock units ("share units") to employees and directors. These awards generally have requisite service periods of
three years. Under each such award, stock or cash (as applicable) is issued without direct cost to the employee. We estimate
the fair value of the share units based upon the market price of our stock at the date of grant. Certain share unit grants do not
provide for the payment of dividend equivalents to the participant during the requisite service period (the "vesting period").
For those grants, the value of the grants is reduced by the net present value of the foregone dividend equivalent payments.
We recognize compensation expense for share unit awards on a straight-line basis over the requisite service period,
accounting for forfeitures as they occur. All cash-settled restricted stock units are marked-to-market and presented within
other current and noncurrent liabilities in our Consolidated Balance Sheets. The compensation expense for our stock-settled
71
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
share unit awards totaled $23.9 million, $21.8 million, and $18.2 million for fiscal 2019, 2018, and 2017, respectively, including
discontinued operations of $1.4 million for fiscal 2017. The tax benefit related to the stock-settled share unit award
compensation expense for fiscal 2019, 2018, and 2017 was $6.0 million, $7.2 million, and $7.0 million, respectively. The
compensation expense for our cash-settled share unit awards totaled $17.5 million, $5.8 million, and $20.9 million for fiscal
2019, 2018, and 2017, respectively, including discontinued operations of $2.6 million for fiscal 2017. The tax benefit related
to the cash-settled share unit award compensation expense for fiscal 2019, 2018, and 2017 was $4.4 million, $1.9 million,
and $8.0 million, respectively.
During the second quarter of fiscal 2019, in connection with the completion of the Pinnacle acquisition, we granted 2.0
million cash-settled share unit awards at a grant date fair value of $36.37 per share unit to Pinnacle employees in replacement
of their unvested restricted share unit awards that were outstanding as of the closing date. Included in the compensation expense
described above for fiscal 2019 is expense of $18.9 million for accelerated vesting of awards related to Pinnacle integration
restructuring activities, net of the impact of marking-to-market these awards based on a lower market price of shares of Conagra
Brands common stock. Approximately $36.3 million of the fair value of the replacement share unit awards granted to Pinnacle
employees was attributable to pre-combination service and was included in the purchase price and established as a liability.
Included in the expense for cash-settled share unit awards above is income of $6.7 million related to the mark-to-market of
this liability. As of May 26, 2019, our liability for the replacement awards was $15.9 million, which includes post-combination
service expense, the mark-to-market of the liability, and the impact of payouts since completing the Pinnacle acquisition. Post-
combination expense of approximately $3.9 million, based on the market price of shares of Conagra Brands common stock
as of May 26, 2019, is expected to be recognized related to the replacement awards over the remaining post-combination
service period of approximately two years.
The following table summarizes the nonvested share units as of May 26, 2019 and changes during the fiscal year then
ended:
Share Units
Nonvested share units at May 27, 2018 . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested/Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested share units at May 26, 2019 . . . . . . . . . . . . . . . . . . . . . . . .
Stock-Settled
Cash-Settled
Weighted
Average
Share Units
Grant-Date
(in Millions)
Fair Value
34.20
$
1.78
35.43
0.89
$
(0.72) $
33.29
(0.14) $
35.08
34.89
$
1.81
Weighted
Average
Share Units
Grant-Date
(in Millions)
Fair Value
34.58
$
0.71
36.37
1.95
$
(1.64) $
35.55
(0.05) $
36.07
36.20
$
0.97
During fiscal 2019, 2018, and 2017, we granted 0.9 million, 0.9 million, and 0.6 million stock-settled share units,
respectively, with a weighted average grant date fair value of $35.43, $34.16, and $46.79 per share unit, respectively. During
fiscal 2017, we granted 0.4 million cash-settled share units with a weighted average grant date fair value of $48.07 per share
unit. No cash-settled share unit awards were granted in fiscal 2018.
The total intrinsic value of stock-settled share units vested was $24.6 million, $18.5 million, and $27.0 million during
fiscal 2019, 2018, and 2017, respectively. The total intrinsic value of cash-settled share units vested was $50.5 million, $14.2
million, and $24.0 million during fiscal 2019, 2018, and 2017, respectively.
At May 26, 2019, we had $25.2 million and $4.2 million of total unrecognized compensation expense that will be
recognized over a weighted average period of 1.9 years and 1.5 years, related to stock-settled share unit awards and cash-
settled share unit awards, respectively.
Performance Share Awards
In accordance with stockholder-approved equity incentive plans, we grant performance shares 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 shares for the three-year performance period ending in fiscal 2019 (the
"2019 performance period") is based on our fiscal 2017 EBITDA return on capital, subject to certain adjustments. The fiscal
2017 EBITDA return on capital target, when set, excluded the results of Lamb Weston. The performance goal for the final
72
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
two-thirds of the target number of performance shares granted for the 2019 performance period is based on our diluted EPS
compound annual growth rate ("CAGR"), subject to certain adjustments, measured over the two-year period ending in fiscal
2019. In addition, for certain participants, all performance shares for the 2019 performance period are subject to an overarching
EPS goal that must be met in each fiscal year of the 2019 performance period before any payout on the performance shares
can be made to such participants. The awards actually earned for the 2019 performance period will range from zero to two
hundred percent of the targeted number of performance shares for that period.
The performance goal for each of the three-year performance period ending in fiscal 2020 (the "2020 performance period")
and the three-year performance period ending in 2021 ("2021 performance period") is based on our diluted EPS CAGR, subject
to certain adjustments, measured over the defined performance period. In addition, for certain participants, all performance
shares for the 2020 performance period are subject to an overarching EPS goal that must be met in each fiscal year of the
2020 performance period before any payout on the performance shares can be made to such participants. For each of the 2020
performance period and the 2021 performance period, the awards actually earned will range from zero to two hundred percent
of the targeted number of performance shares for such performance period.
Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in our 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. Forfeitures are accounted for as they occur.
A summary of the activity for performance share awards as of May 26, 2019 and changes during the fiscal year then
ended is presented below:
Performance Shares
Nonvested performance shares at May 27, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for performance results attained and dividend equivalents . . . . . . . . . . . . . . . . . . . .
Vested/Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested performance shares at May 26, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Share Units
Grant-Date
(in Millions)
Fair Value
33.40
$
1.00
35.96
$
0.45
31.03
0.18
$
(0.43) $
31.03
(0.05) $
34.54
34.89
$
1.15
The compensation expense for our performance share awards totaled $8.2 million, $11.8 million, and $13.3 million for
fiscal 2019, 2018, and 2017, respectively. The tax benefit related to the compensation expense for fiscal 2019, 2018, and 2017
was $2.1 million, $3.9 million, and $5.1 million, respectively.
The total intrinsic value of performance shares vested (including shares paid in lieu of dividends) during fiscal 2019,
2018, and 2017 was $15.7 million, $11.2 million, and $2.8 million, respectively.
Based on estimates at May 26, 2019, we had $13.2 million of total unrecognized compensation expense related to
performance shares that will be recognized over a weighted average period of 1.7 years.
Performance-Based Restricted Stock Unit Awards
On April 15, 2019 (the "grant date"), we made grants of performance-based restricted stock unit ("PBRSU") awards to
the Company's named executive officers and a limited group of other senior officers of the Company. A total of 0.2 million
PBRSU awards were granted with a grant date fair value of $41.82 per PBRSU.
The PBRSU awards are awards of share units with vesting contingent on our achievement of certain absolute total
shareholder return performance ("TSR") goals over a performance period beginning on the grant date and ending May 27,
2022 (the "PBRSU performance period"). If PBRSUs are earned based on absolute TSR and absolute TSR meets or exceeds
a predetermined rate, they become eligible for an upward adjustment of 25% based on our relative TSR for the PBRSU
73
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
performance period versus the median TSR of the S&P 500 Index ("RTSR"). Each PBRSU award payout can range from 0%
to 500% of the initial target grant and will not exceed 8.6 times the grant value of each grantee's PBRSU award (including
earned dividend equivalents).
Compensation expense for the awards is recognized over the PBRSU performance period based upon the grant date fair
value. The grant date fair value was estimated using a Monte-Carlo simulation model with a risk-free rate of 2.35% and an
expected volatility of 24.92%. The model includes no expected dividend yield as the PBRSUs earn dividend equivalents.
We recognize compensation expense using the straight-line method over the requisite service period, accounting for
forfeitures as they occur. The compensation expense for our PBRSU awards totaled $0.3 million for fiscal 2019. The tax
benefit related to the compensation expense for fiscal 2019 was $0.1 million. Based on estimates at May 26, 2019, we had
$7.4 million of total unrecognized compensation expense related to the PBRSU awards that will be recognized over a period
of 3 years.
Stock Option Awards
In accordance with stockholder-approved equity incentive plans, we granted stock options to employees and directors
for the purchase of common stock at prices equal to its fair value at the date of grant. Stock options become exercisable under
various vesting schedules (typically three years) and generally expire seven to ten years after the date of grant. No stock
options were granted in fiscal 2019 or 2018.
The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model with the
following weighted average assumptions for stock options granted:
Expected volatility (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rates (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of stock option (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
19.15
2.33
1.03
4.94
The expected volatility is based on the historical market volatility of our stock over the expected life of the stock options
granted. The expected life represents the period of time that the awards are expected to be outstanding and is based on the
contractual term of each instrument, taking into account employees' historical exercise and termination behavior.
A summary of the option activity as of May 26, 2019 and changes during the fiscal year then ended is presented below:
Options
Outstanding at May 27, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at May 26, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at May 26, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of Options
(in Millions)
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value (in
Millions)
5.1
$
(0.6) $
(0.1) $
$
4.4
4.1
$
28.11
20.75
29.84
29.00
28.38
$
$
$
5.47
5.32
7.9
9.9
9.9
We recognize compensation expense using the straight-line method over the requisite service period, accounting for
forfeitures as they occur. During fiscal 2017, we granted 1.1 million stock options with a weighted average grant date fair
value of $6.12 per share. The total intrinsic value of stock options exercised was $7.9 million, $15.8 million, and $29.8 million
for fiscal 2019, 2018, and 2017, respectively. The closing market price of our common stock on the last trading day of fiscal
2019 was $28.83 per share.
Compensation expense for stock option awards totaled $2.2 million, $4.2 million, and $6.2 million for fiscal 2019, 2018,
and 2017, respectively, including discontinued operations of $0.2 million for fiscal 2017. Included in the compensation expense
74
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
for stock option awards for fiscal 2019, 2018, and 2017 was $0.2 million, $0.4 million, and $0.9 million, respectively, related
to stock options granted by a subsidiary in the subsidiary's shares to the subsidiary's employees. The tax benefit related to the
stock option expense for fiscal 2019, 2018, and 2017 was $0.5 million, $1.4 million, and $2.4 million, respectively.
At May 26, 2019, we had $0.2 million of total unrecognized compensation expense related to stock options that will be
recognized over a weighted average period of 0.1 years.
Cash received from stock option exercises for fiscal 2019, 2018, and 2017 was $12.4 million, $25.1 million, and $84.4
million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $2.3 million, $5.3
million, and $19.5 million for fiscal 2019, 2018, and 2017, respectively.
Stock Appreciation Rights Awards
During the second quarter of fiscal 2019, in connection with the completion of the Pinnacle acquisition, we granted 2.3
million cash-settled stock appreciation rights with a fair value estimated at closing date using a Black-Scholes option-pricing
model and a grant date price of $36.37 per share to Pinnacle employees in replacement of their unvested stock option awards
that were outstanding as of the closing date. Approximately $14.8 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 May 26, 2019, the liability of the replacement stock appreciation rights was $0.9 million, which includes
post-combination service expense, the mark-to-market of the liability, and the impact of payouts since acquisition.
The compensation income for our cash-settled stock appreciation rights totaled $13.7 million for fiscal 2019. Included
in this amount is income of $14.0 million related to the mark-to-market of the liability established in connection with the
Pinnacle acquisition and expense of $0.2 million for accelerated vesting of awards related to Pinnacle integration restructuring
activities, net of the impact of marking-to-market these awards based on a lower market price of Conagra common shares.
The related tax expense for fiscal 2019 was $3.4 million.
A summary of the stock appreciation rights activity as of May 26, 2019 and changes during the fiscal year then ended is
presented below:
Stock Appreciation Rights
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at May 26, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable at May 26, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number
of Options
(in Millions)
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value (in
Millions)
2.3
$
(0.1) $
(1.8) $
$
0.4
$
0.4
27.09
24.79
26.92
28.13
28.13
$
$
$
0.16
0.16
0.1
0.6
0.6
15. PRE-TAX INCOME AND INCOME TAXES
The U.S. Tax Cuts and Jobs Act ("Tax Act") was signed into law on December 22, 2017. The changes to U.S. tax law
include, but are not limited to, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions,
imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and changing how foreign earnings are
subject to U.S. tax.
Beginning in fiscal 2019, the Tax Act created a provision known as global intangible low-tax income ("GILTI") that
imposes a tax on certain earnings of foreign subsidiaries. We have made an accounting policy election to treat GILTI taxes as
a current period expense.
Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following:
75
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
2019
2018
2017
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The provision for income taxes included the following:
$
2019
Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
826.6
72.5
899.1
125.4
22.6
21.6
169.6
40.1
19.0
(9.9)
49.2
218.8
$
$
$
$
2018
902.5
69.6
972.1
153.1
17.8
32.5
203.4
(43.7)
17.4
(2.5)
(28.8)
174.6
$
$
$
$
2017
883.5
(82.8)
800.7
201.5
6.7
6.5
214.7
62.1
(5.3)
(16.8)
40.0
254.7
Income taxes computed by applying the U.S. Federal statutory rates to income from continuing operations before income
taxes are reconciled to the provision for income taxes set forth in the Consolidated Statements of Operations as follows:
Computed U.S. Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . $
State income taxes, net of U.S. Federal tax impact . . . . . . . . . . . . .
Remeasurement of U.S. deferred taxes . . . . . . . . . . . . . . . . . . . . . .
Transition tax on foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits and domestic manufacturing deduction. . . . . . . . . . . . .
Federal rate differential on legal reserve . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible impairments . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal entity reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State tax impact of combining Pinnacle business
Change of valuation allowance on capital loss carryforward . . . . .
Change in estimate related to tax methods used for certain
international sales, federal credits, and state credits . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
2017
188.8
$
285.3
$
34.1
—
(4.6)
(5.6)
—
12.5
(2.1)
16.9
(12.0)
(32.2)
—
23.0
18.0
(241.6)
19.8
(20.6)
12.6
—
(5.7)
—
—
78.6
—
28.2
$
218.8
$
174.6
$
280.2
22.4
—
—
(19.8)
—
104.7
(18.8)
—
—
(84.1)
(8.0)
(21.9)
254.7
Income taxes paid, net of refunds, were $133.8 million, $164.1 million, and $213.0 million in fiscal 2019, 2018, and
2017, respectively.
76
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
The tax effect of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and
liabilities consisted of the following:
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, trademarks and other intangible assets . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation related liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and other postretirement benefits . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . .
Other liabilities that will give rise to future tax deductions . . . . . . . .
Net capital and operating loss carryforwards . . . . . . . . . . . . . . . . . . .
Federal credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
May 26, 2019
May 27, 2018
Assets
Liabilities
Assets
Liabilities
— $
240.7
$
— $
141.0
15.2
—
11.8
35.9
54.6
—
123.5
766.5
18.0
37.6
1,063.1
(738.1)
325.0
—
1,187.0
—
—
—
185.4
—
—
—
24.0
1,637.1
—
$ 1,637.1
$
2.6
—
15.5
34.1
45.8
—
109.7
762.5
3.5
23.6
997.3
(739.6)
257.7
—
406.2
—
—
—
165.8
—
—
—
9.5
722.5
—
$
722.5
The liability for gross unrecognized tax benefits at May 26, 2019 was $44.1 million, excluding a related liability of $11.7
million for gross interest and penalties. Included in the balance at May 26, 2019 are $1.0 million of tax positions for which
the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because
of the impact of deferred tax accounting, the disallowance of the shorter deductibility period would not affect the annual
effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. Any associated interest
and penalties imposed would affect the tax rate. As of May 27, 2018, our gross liability for unrecognized tax benefits was
$32.5 million, excluding a related liability of $7.7 million for gross interest and penalties. Interest and penalties recognized
in the Consolidated Statements of Operations was an expense of $1.2 million in fiscal 2019, an expense of $1.6 million in
fiscal 2018, and a benefit of $0.3 million in fiscal 2017.
The net amount of unrecognized tax benefits at May 26, 2019 and May 27, 2018 that, if recognized, would favorably
impact our effective tax rate was $37.3 million and $27.8 million, respectively.
We accrue interest and penalties associated with uncertain tax positions as part of income tax expense.
We conduct business and file tax returns in numerous countries, states, and local jurisdictions. The U.S. Internal Revenue
Service ("IRS") has completed its audit of the Company for tax years through fiscal 2017. All resulting significant items for
fiscal 2017 and prior years have been settled with the IRS, with the exception of fiscal 2016. Statutes of limitation for pre-
acquisition tax years of Pinnacle generally remain open for calendar year 2002 and subsequent years principally related to
net operating losses. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from
three to five years.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $20.7
million over the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes
of limitations. Of this amount, approximately $6.7 million would reverse through results of discontinued operations.
77
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
The change in the unrecognized tax benefits for the year ended May 26, 2019 was:
Beginning balance on May 27, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.5
Acquired business positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.6
Increases from positions established during prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases relating to settlements with taxing authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases from positions established during the current period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases from positions established during prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.7
(3.4)
4.2
(5.2)
(3.3)
Other adjustments to liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.0
Ending balance on May 26, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44.1
Reductions resulting from lapse of applicable statute of limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
We have approximately $30.1 million of foreign net operating loss carryforwards ($15.0 million will expire between
fiscal 2020 and 2040 and $15.1 million have no expiration dates) and $146.2 million of Federal net operating loss carryforwards
which expire between fiscal 2022 and 2027. Federal capital loss carryforwards related to the Private Brands divestiture of
approximately $2.6 billion will expire in fiscal 2021. Included in net deferred tax liabilities are $49.0 million of tax effected
state net operating loss carryforwards which expire in various years ranging from fiscal 2020 to 2038 and $169.0 million of
tax effected state capital loss carryforwards related to the divestiture of Private Brands, the vast majority of which expire in
fiscal 2021. Foreign tax credits of $7.6 million will expire between fiscal 2025 and 2029. State tax credits of approximately
$11.5 million will expire in various years ranging from fiscal 2020 to 2029.
We have recognized a valuation allowance for the portion of the net operating loss carryforwards, capital loss
carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized.
The net change in the valuation allowance for fiscal 2019 was a decrease of $1.5 million. For fiscal 2018 and 2017, changes
in the valuation allowance were a decrease of $273.8 million and a decrease of $420.1 million, respectively. The current year
change principally relates to increases in the valuation allowances for state and foreign net operating losses and credits offset
by the release of valuation allowances on capital loss due to capital gains from the divestiture of the Wesson® oil and Gelit
businesses.
We believe that our foreign subsidiaries have invested or will invest any undistributed earnings indefinitely, or the earnings
will be remitted in a tax-neutral transaction, and, therefore, do not provide deferred taxes on the cumulative undistributed
earnings of our foreign subsidiaries. Historically, we had determined that previously undistributed earnings of certain foreign
subsidiaries no longer met the requirement for indefinite reinvestment and therefore recorded certain tax liabilities in our
current tax expense. The net change in deferred taxes on cumulative undistributed earnings of our foreign subsidiaries for
fiscal 2019 was a decrease of $5.9 million.
16. LEASES
We lease certain facilities, land, and transportation equipment under agreements that expire at various dates. Rent expense
under all operating leases from continuing operations was $83.5 million, $62.5 million, and $71.2 million in fiscal 2019, 2018,
and 2017, respectively. These amounts are inclusive of certain charges recognized at the cease-use date for remaining lease
payments associated with exited properties.
78
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
A summary of non-cancellable operating lease commitments for fiscal years following May 26, 2019, was as follows:
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
52.1
48.4
38.0
34.1
25.6
114.4
312.6
At May 26, 2019 and May 27, 2018, assets under capital and financing leases totaling $157.1 million, net of accumulated
depreciation of $37.6 million, and $82.9 million, net of $32.1 million of accumulated depreciation, respectively, were included
in Property, plant and equipment. Charges resulting from the depreciation of assets held under capital and financing leases
are recognized within depreciation expense in the Consolidated Statements of Operations.
Non-cash issuances of capital and financing lease obligations totaling $23.5 million, $1.3 million, and $0.5 million, are
excluded from cash flows from investing and financing activities on the Consolidated Statements of Cash Flows for fiscal
2019, 2018, and 2017, respectively.
17. CONTINGENCIES
Litigation Matters
We are a party to certain litigation matters relating to our acquisition of Beatrice Company ("Beatrice") in fiscal 1991,
including litigation proceedings related to businesses divested by Beatrice prior to our acquisition of the company. These
proceedings 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") as alleged successor to W. P.
Fuller & Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967.
These lawsuits generally seek damages for personal injury, property damage, economic loss, and governmental expenditures
allegedly caused by the use of lead-based paint, and/or injunctive relief for inspection and abatement. Although decisions
favorable to us have been rendered in Rhode Island, New Jersey, Wisconsin, and Ohio, we remain a defendant in active suits
in Illinois and California. ConAgra Grocery Products has denied liability in both suits, both on the merits of the claims and
on the basis that we do not believe it to be the successor to any liability attributable to W. P. Fuller & Co. The California suit
is discussed in the following paragraph. The Illinois suit seeks class-wide relief for reimbursement of costs associated with
the testing of lead levels in blood. We do not believe it is probable that we have incurred any liability with respect to the
Illinois case, nor is it possible to estimate any potential exposure.
In California, a number of cities and counties joined in a consolidated action seeking abatement of an alleged public
nuisance in the form of lead-based paint potentially present on the interior of residences, regardless of its condition. On
September 23, 2013, a trial of the California case concluded in the Superior Court of California for the County of Santa Clara,
and on January 27, 2014, the court entered a judgment (the "Judgment") against ConAgra Grocery Products and 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. The Court of Appeal remanded the case to the trial court with directions to
recalculate the amount of the abatement fund estimated to be necessary to cover the cost of remediating pre-1951 homes, and
to hold an evidentiary hearing regarding appointment of a suitable receiver. ConAgra Grocery Products and the other defendants
petitioned the California Supreme Court for review of the decision, which we believe to be an unprecedented expansion of
current California law. On February 14, 2018, the California Supreme Court denied the petition and declined to review the
merits of the case, and the case was remanded to the trial court for further proceedings. ConAgra Grocery Products and the
other defendants sought further review of certain issues from the Supreme Court of the United States, but on October 15,
2018, the Supreme Court declined to review the case. On September 4, 2018, the trial court recalculated its estimate of the
amount needed to remediate pre-1951 homes in the plaintiff jurisdictions to be $409.0 million. As of July 10, 2019, the parties
reached an agreement in principle to resolve this matter, which agreement remains subject to approval by the trial court. Once
79
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
approved, the action against ConAgra Grocery Products will be dismissed with prejudice. Pursuant to the settlement, ConAgra
Grocery Products will pay a total of $101.7 million in seven installments to be paid annually from fiscal 2020 through fiscal
2026. ConAgra Grocery Products will further provide a guarantee of up to $15.0 million in the event co-defendant, NL
Industries, Inc., defaults on its payment obligations.
We have accrued $25.3 million and $74.1 million, within other accrued liabilities and other noncurrent liabilities,
respectively, for this matter as of May 26, 2019. The extent of insurance coverage is uncertain and the Company's carriers are
on notice; however, any possible insurance recovery has not been considered for purposes of determining our liability. We
cannot assure that the final resolution of these matters will not have a material adverse effect on our 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 Wesson®
oils as 100% natural is false and misleading because the oils contain genetically modified plants and organisms. In February
2015, the U.S. District Court for the Central District of California granted class certification to permit plaintiffs to pursue state
law claims. The Company appealed to the United States Court of Appeals for the Ninth Circuit, which affirmed class certification
in January 2017. The Supreme Court of the United States declined to review the decision and the case has been remanded to
the trial court for further proceedings. On April 4, 2019, the trial court granted preliminary approval of a settlement in this
matter.
We are party to matters challenging the Company's wage and hour practices. These matters include a number of 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 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 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. The shareholder derivative lawsuit asserts harm to
the Company due to alleged breaches of fiduciary duty and mismanagement in connection with the Pinnacle acquisition. On
July 9, 2019, the Company received a stockholder demand 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. 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, PCBs, acids, lead, sulfur, tannery wastes, and/or other contaminants. Reserves for
80
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
these Beatrice environmental proceedings have been established based on our best estimate of the undiscounted remediation
liabilities, which estimates include evaluation of investigatory studies, extent of required clean-up, the known volumetric
contribution of Beatrice and other potentially responsible parties, and its experience in remediating sites. The accrual for
Beatrice-related environmental matters totaled $52.8 million as of May 26, 2019, 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 of the Wells G&H Superfund site, which is one of the Beatrice sites.
The U.S. Environmental Protection Agency (the "EPA") issued a Record of Decision (the "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.
Guarantees and Other Contingencies
We guarantee an obligation of the Lamb Weston business pursuant to a guarantee arrangement that existed prior to the
Spinoff and remained in place following completion of the Spinoff until such guarantee obligations is substituted for guarantees
issued by Lamb Weston. Pursuant to the separation and distribution agreement, dated as of November 8, 2016 (the "Separation
Agreement"), between us and Lamb Weston, this guarantee arrangement is deemed a liability of Lamb Weston that was
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 this guarantee arrangement, Lamb Weston is obligated to indemnify us for any such liability, reduced by any insurance
proceeds received by us, in accordance with the terms of the indemnification provisions under the Separation Agreement.
Lamb Weston is a party to an agricultural sublease agreement with a third party for certain farmland through 2020 (subject,
at Lamb Weston's option, to extension for two additional five-year periods). Under the terms of the sublease agreement, Lamb
Weston is required to make certain rental payments to the sublessor. We have guaranteed the sublessor Lamb Weston's
performance and the payment of all amounts (including indemnification obligations) owed by Lamb Weston under the sublease
agreement, up to a maximum of $75.0 million. We believe the farmland associated with this sublease agreement is readily
marketable for lease to other area farming operators. As such, we believe that any financial exposure to the Company, in the
event that we were required to perform under the guarantee, would be largely mitigated.
We lease or leased certain office buildings from entities that we have determined to be variable interest entities. The lease
agreements with these entities include fixed-price purchase options for the assets being leased. The lease agreements also
contain contingent put options (the "lease put options") that allow or allowed the lessors to require us to purchase the buildings
at the greater of original construction cost, or fair market value, without a lease agreement in place (the "put price") in certain
limited circumstances. As a result of substantial impairment charges related to our divested Private Brands operations, these
lease put options became exercisable. We are amortizing the difference between the put price and the estimated fair value
(without a lease agreement in place) of the property over the remaining lease term within SG&A expenses. During fiscal 2018,
we purchased two buildings that were subject to lease put options and recognized net losses totaling $48.2 million for the
early exit of unfavorable lease contracts. During fiscal 2017, one of these lease agreements expired, and we reversed the
applicable accrual and recognized a benefit of $6.7 million in SG&A expenses.
As of May 26, 2019 and May 27, 2018, there was one remaining leased building subject to a lease put option for which
the put option price exceeded the estimated fair value of the property by $8.2 million, of which we had accrued $1.6 million
and $1.2 million, respectively. This lease is accounted for as an operating lease, and accordingly, there are no material assets
and liabilities, other than the accrued portion of the put price, associated with this entity included in the Consolidated Balance
Sheets. We have determined that we do not have the power to direct the activities that most significantly impact the economic
performance of this entity. In making this determination, we have considered, among other items, the terms of the lease
agreement, the expected remaining useful life of the asset leased, and the capital structure of the lessor entity.
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 May 26, 2019, the
remaining terms of these arrangements did not exceed four years and the maximum amount of future payments we have
guaranteed was $1.2 million. In addition, we guarantee a lease resulting from an exited facility. As of May 26, 2019, the
remaining term of this arrangement did not exceed eight years and the maximum amount of future payments we have guaranteed
was $19.1 million.
81
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
General
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution
of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity; however,
it is reasonably possible that a change of the estimates of any of the foregoing matters may occur in the future and, as noted,
the lead paint matter could result in a material final judgment which could have a material adverse effect on our financial
condition, results of operations, or liquidity.
Costs of legal services associated with the foregoing matters are recognized in earnings as services are provided.
18. 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 of May 26, 2019, we had
economically hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with
expiration dates through February 2020.
In order to reduce exposures related to changes in foreign currency exchange rates, we enter into forward exchange,
option, or swap contracts from time to time for transactions denominated in a currency other than the applicable functional
currency. This includes, but is not limited to, hedging against foreign currency risk in purchasing inventory and capital
equipment, sales of finished goods, and future settlement of foreign-denominated assets and liabilities. As of May 26, 2019,
we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative
instruments with expiration dates through February 2020.
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 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 net interest expense over the lives of the related debt instruments. The unamortized
amount at May 26, 2019, was $45.5 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.
82
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
Economic Hedges of Fair Values — Foreign Currency Exchange Rate Risk
We may use options and cross currency swaps to economically hedge the fair value of certain monetary assets and liabilities
(including intercompany balances) denominated in a currency other than the functional currency. These derivatives are marked-
to-market with gains and losses immediately recognized in SG&A expenses. These substantially offset the foreign currency
transaction gains or losses recognized as values of the monetary assets or liabilities being economically hedged change.
All derivative instruments are recognized on the Consolidated Balance Sheets at fair value (refer to Note 20 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 May 26, 2019 and May 27, 2018, amounts representing an obligation to return cash collateral of $0.1 million and
$1.0 million, respectively, were included in prepaid expenses and other current assets in our Consolidated Balance Sheets.
Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or obligation to return cash
collateral were reflected in our Consolidated Balance Sheets as follows:
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5.9
1.4
4.4
0.1
May 26, 2019 May 27, 2018
The following table presents our derivative assets and liabilities at May 26, 2019, on a gross basis, prior to the setoff of
$0.5 million to total derivative assets and $0.4 million to total derivative liabilities where legal right of setoff existed:
Commodity contracts . . . . . . . . . . . .
Foreign exchange contracts . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
Total derivatives not designated
as hedging instruments . . . . . . . . .
Derivative Assets
Derivative Liabilities
Balance Sheet
Location
Prepaid expenses and other
current assets . . . . . . . . . . . . .
Prepaid expenses and other
current assets . . . . . . . . . . . . .
Prepaid expenses and other
current assets . . . . . . . . . . . . .
Fair Value
Balance Sheet
Location
Fair Value
$
4.9 Other accrued liabilities
$
1.4 Other accrued liabilities
0.1 Other accrued liabilities
$
6.4
$
0.9
0.9
—
1.8
The following table presents our derivative assets and liabilities, at May 27, 2018, on a gross basis, prior to the setoff of
$1.4 million to total derivative assets and $0.4 million to total derivative liabilities where legal right of setoff existed:
Commodity contracts. . . . . . . . . . . . .
Foreign exchange contracts . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . .
Total derivatives not designated as
hedging instruments . . . . . . . . . . . .
Derivative Assets
Derivative Liabilities
Balance Sheet
Location
Prepaid expenses and other
current assets . . . . . . . . . . . .
Prepaid expenses and other
current assets . . . . . . . . . . . .
Prepaid expenses and other
current assets . . . . . . . . . . . .
Fair Value
Balance Sheet
Location
Fair Value
$
3.7 Other accrued liabilities
$
2.1 Other accrued liabilities
— Other accrued liabilities
$
5.8
$
0.4
—
0.1
0.5
83
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
The location and amount of gains (losses) from derivatives not designated as hedging instruments in our Consolidated
Statements of Operations were as follows:
For the Fiscal Year Ended May 26, 2019
Derivatives Not Designated as Hedging Instruments
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold. . . . . . . . . . . . . . . . . . .
Location in Consolidated Statement
of Operations of
Gain (Loss) Recognized on Derivatives
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold. . . . . . . . . . . . . . . . . . .
Total loss from derivative instruments not designated
as hedging instruments . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Gain (Loss)
Recognized on
Derivatives
in Consolidated
Statement of
Operations
$
$
(5.3)
1.7
(3.6)
For the Fiscal Year Ended May 27, 2018
Derivatives Not Designated as Hedging Instruments
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . .
Location in Consolidated Statement
of Operations of
Gain (Loss) Recognized on Derivatives
Foreign exchange contracts. . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . .
Foreign exchange contracts. . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative
expense. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loss from derivative instruments not designated
as hedging instruments . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Gain (Loss)
Recognized on
Derivatives
in Consolidated
Statement of
Operations
$
$
3.0
(3.9)
0.3
(0.6)
For the Fiscal Year Ended May 28, 2017
Derivatives Not Designated as Hedging Instruments
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . .
Location in Consolidated Statement
of Operations of
Gain (Loss) Recognized on Derivatives
Foreign exchange contracts. . . . . . . . . . . . . . . . . . . . . . . Cost of goods sold . . . . . . . . . . . . . . . . . .
Foreign exchange contracts. . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative
expense. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gain from derivative instruments not
designated as hedging instruments . . . . . . . . . . . . . . .
Amount of Gain (Loss)
Recognized on
Derivatives
in Consolidated
Statement of
Operations
$
$
0.9
(0.3)
0.2
0.8
As of May 26, 2019, our open commodity contracts had a notional value (defined as notional quantity times market value
per notional quantity unit) of $140.1 million and $18.5 million for purchase and sales contracts, respectively. As of May 27,
2018, our open commodity contracts had a notional value of $100.0 million and $34.2 million for purchase and sales contracts,
respectively. The notional amount of our foreign currency forward and cross currency swap contracts as of May 26, 2019 and
May 27, 2018 was $88.2 million and $82.4 million, respectively.
We enter into certain commodity, interest rate, and foreign exchange derivatives with a diversified group of counterparties.
We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit
exposure to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these
counterparties. We have not incurred a material loss due to nonperformance in any period presented and do not expect to incur
any such material loss. We also enter into futures and options transactions through various regulated exchanges.
At May 26, 2019, the maximum amount of loss due to the credit risk of the counterparties, had the counterparties failed
to perform according to the terms of the contracts, was $2.9 million.
84
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
19. 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. Effective
August 1, 2013, our defined benefit pension plan for eligible salaried employees was closed to new hire salaried employees.
New hire salaried employees will generally be eligible to participate in our defined contribution plan.
In connection with the acquisition of Pinnacle, we now include the components of pension and postretirement expense
associated with the Pinnacle pension plans and a post-employment benefit plan in our Consolidated Statements of Earnings
from the date of the completion of the acquisition. These plans are frozen for future benefits. The tabular disclosures presented
below are inclusive of the Pinnacle plans.
During the second quarter of fiscal 2018, we approved the amendment of our salaried and non-qualified pension plans
effective as of December 31, 2017. The amendment froze the compensation and service periods used to calculate pension
benefits for active employees who participate in the plans. Beginning January 1, 2018, impacted employees do not accrue
additional benefit for future service and eligible compensation received under these plans.
As a result of the amendment, we remeasured our pension plan liability as of September 30, 2017. In connection with
the remeasurement, we updated the effective discount rate assumption from 3.90% to 3.78%. The curtailment and related
remeasurement resulted in a net decrease to the underfunded status of the pension plans by $43.5 million with a corresponding
benefit within other comprehensive income (loss) for the second quarter of fiscal 2018. In addition, we recorded charges of
$3.4 million and $0.7 million reflecting the write-off of actuarial losses in excess of 10% of our pension liability and a
curtailment charge, respectively.
We recognize the funded status of our plans and other benefits in the Consolidated Balance Sheets. For our plans, we also
recognize as a component of accumulated other comprehensive loss, the net of tax results of the actuarial gains or losses within
the corridor and prior service costs or credits that arise during the period but are not recognized in net periodic benefit cost.
For our other benefits, we also recognize as a component of accumulated other comprehensive income (loss), the net of tax
results of the gains or losses and prior service costs or credits that arise during the period but are not recognized in net periodic
benefit cost. These amounts will be adjusted out of accumulated other comprehensive income (loss) as they are subsequently
recognized as components of net periodic benefit cost. For our pension plans, we have elected to immediately recognize
actuarial gains and losses in our operating results in the year in which they occur, to the extent they exceed the corridor,
eliminating amortization. Amounts are included in the components of pension benefit and other postretirement benefit costs,
below, as recognized net actuarial loss.
The information below includes the activities of our continuing and discontinued operations.
85
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
The changes in benefit obligations and plan assets at May 26, 2019 and May 27, 2018 are presented in the following
table.
Pension Benefits
2018
2019
Other Benefits
2018
2019
$ 3,548.7
$ 119.3
$
156.9
42.8
111.1
—
0.6
(9.4)
(10.2)
(79.5)
(181.3)
0.8
—
$ 3,423.6
$ 2,983.6
$
$
249.6
312.6
—
(10.2)
(181.3)
0.8
—
0.1
3.8
2.5
(0.8)
(24.3)
(0.5)
(0.6)
(9.8)
(0.2)
1.7
91.2
3.7
0.2
7.3
2.5
(0.5)
(9.8)
—
$
$
$ 3,355.1
$
3.4
$
0.2
3.9
4.7
(17.2)
(13.2)
—
—
(16.2)
0.2
—
119.3
—
3.7
11.5
4.7
—
(16.2)
—
—
3.7
Change in Benefit Obligation
Benefit obligation at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,423.6
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.9
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants' contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132.6
—
1.4
150.1
—
Curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(191.2)
(0.6)
206.4
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,733.2
Business acquisitions and divestitures . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in Plan Assets
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . $ 3,355.1
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
252.2
Employer contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants' contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.7
—
Plan settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(191.2)
(0.6)
171.3
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . $ 3,601.5
Business acquisitions and divestitures . . . . . . . . . . . . . . . . . . . . . . . . . .
86
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
The funded status and amounts recognized in our Consolidated Balance Sheets at May 26, 2019 and May 27, 2018 were:
Funded Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts Recognized in Consolidated Balance Sheets
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Amount Recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts Recognized in Accumulated Other Comprehensive
(Income) Loss (Pre-tax)
Actuarial net loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net prior service cost (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-Average Actuarial Assumptions Used to Determine
Benefit Obligations at May 26, 2019 and May 27, 2018
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . .
Pension Benefits
2018
2019
$ (131.7)
$
(68.5)
$
61.2
(10.2)
(182.7)
$ (131.7)
$
$
115.8
12.1
127.9
$
$
$
$
103.0
(11.8)
(159.7)
(68.5)
48.8
13.8
62.6
Other Benefits
2019
(87.8)
2018
$ (115.6)
2.8
(10.8)
(79.8)
(87.8)
$
2.6
(16.2)
(102.0)
$ (115.6)
(47.8)
(17.1)
(64.9)
$
$
(25.8)
(18.4)
(44.2)
$
$
$
$
$
3.88%
N/A
4.14%
N/A
3.48%
N/A
3.81%
N/A
The accumulated benefit obligation for all defined benefit pension plans was $3.7 billion and $3.4 billion at May 26,
2019 and May 27, 2018, respectively.
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets at May 26, 2019 and May 27, 2018 were:
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
964.3
$
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
963.7
771.4
951.1
950.1
779.5
2019
2018
Components of pension benefit and other postretirement benefit costs included:
Pension Benefits
2018
2019
2017
2019
Other Benefits
2018
2017
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . .
Amortization of prior service cost (benefit) . . .
Special termination benefits . . . . . . . . . . . . . . .
Recognized net actuarial loss (gain) . . . . . . . . .
Settlement loss (gain) . . . . . . . . . . . . . . . . . . . .
Curtailment loss (gain) . . . . . . . . . . . . . . . . . . .
132.6
(174.4)
3.1
—
5.1
—
—
Benefit cost — Company plans . . . . . . . . . . . .
Pension benefit cost — multi-employer plans .
(22.7)
6.3
Total benefit (income) cost . . . . . . . . . . . . $
(16.4) $
87
10.9
$
42.8
$
56.9
$
111.1
(218.3)
2.9
—
3.4
1.3
116.8
(207.4)
2.6
1.5
1.2
13.8
0.7
(56.1)
7.1
(49.0) $
1.7
(12.9)
12.0
(0.9) $
$
0.1
3.8
—
(2.2)
—
(1.4)
(1.0)
(0.6)
(1.3)
—
(1.3) $
0.2
3.9
—
(3.4)
—
—
—
—
0.7
—
0.7
$
$
0.3
4.6
—
(6.6)
—
0.5
—
—
(1.2)
—
(1.2)
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
As a result of the Spinoff, during fiscal 2017, we recorded a pension curtailment gain of $19.5 million within other
comprehensive income (loss) and remeasured a significant qualified pension plan as of November 9, 2016. In connection with
the remeasurement, we updated the effective discount rate assumption from 3.86% to 4.04%. The remeasurement and the
curtailment gain decreased the underfunded status of the pension plans by $66.0 million with a corresponding benefit within
other comprehensive income (loss).
During fiscal 2017, we provided a voluntary lump-sum settlement offer to certain terminated vested participants in our
salaried pension plan. Lump-sum settlement payments totaling $287.5 million were distributed from pension plan assets to
such participants. Due to the pension settlement, we were required to remeasure our pension plan liability. In connection with
the remeasurement, we updated the effective discount rate assumption to 4.11%, as of December 31, 2016. The settlement
and related remeasurement resulted in the recognition of a settlement charge of $13.8 million, reflected in pension and
postretirement non-service income, as well as a benefit to accumulated other comprehensive income (loss) totaling $62.2
million.
In fiscal 2019, 2018, and 2017, the Company recorded charges of $5.1 million, $3.4 million, and $1.2 million, respectively,
reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability.
The Company recorded an expense of $0.3 million (primarily within restructuring activities), $0.6 million (primarily
within restructuring activities), and $4.0 million ($2.1 million was recorded in discontinued operations and $1.9 million was
recorded in restructuring activities) during fiscal 2019, 2018, and 2017, respectively, related to our expected incurrence of
certain multi-employer plan withdrawal costs.
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were:
Pension Benefits
2018
2019
Other Benefits
2018
2019
Net actuarial gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost (benefit). . . . . . . . . . . . . . . . . . . . . . .
Settlement and curtailment loss (gain). . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(72.1) $
(1.4)
3.1
—
5.1
(65.3) $
Weighted-Average Actuarial Assumptions Used to Determine Net Expense
120.0
(0.6)
2.9
2.0
3.4
127.7
$
$
25.1
$
0.8
(2.2)
(1.6)
(1.4)
20.7
$
16.8
17.2
(3.4)
—
—
30.6
Pension Benefits
2018
2019
2017
2019
Other Benefits
2018
2017
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term rate of return on plan assets . . . . .
Long-term rate of compensation increase . . . .
4.15%
5.17%
3.63%
3.90%
7.50%
3.63%
3.83%
7.50%
3.66%
3.81%
3.33%
3.18%
N/A
N/A
N/A
N/A
N/A
N/A
Beginning in fiscal 2017, the Company has elected to use a split discount rate (spot-rate approach) for the U.S. plans and
certain foreign plans. Historically, a single weighted-average discount rate was used in the calculation of service and interest
costs, both of which are components of pension benefit costs. The spot-rate approach applies separate discount rates for each
projected benefit payment in the calculation of pension service and interest cost. This change is considered a change in
accounting estimate and has been applied prospectively. The pre-tax reduction in total pension benefit cost associated with
this change in fiscal 2017 was approximately $27.0 million.
We amortize prior service cost for our pension plans and postretirement plans, as well as amortizable gains and losses
for our postretirement plans, in equal annual amounts over the average expected future period of vested service. For plans
with no active participants, average life expectancy is used instead of average expected useful service.
88
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
Plan Assets
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 20, as of May 26,
2019, was as follows:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.7
$
77.7
$
— $
78.4
Level 1
Level 2
Level 3
Total
Equity securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net receivables for unsettled transactions . . . . . . . . . . . . . . . . . . . . . . . .
Fair value measurement of pension plan assets in the fair value
hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments measured at net asset value . . . . . . . . . . . . . . . . . . . . . . . . .
Total pension plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56.3
87.8
—
—
—
0.4
5.6
91.8
0.4
748.3
2,255.5
31.1
—
—
—
—
—
—
—
—
—
148.1
88.2
748.3
2,255.5
31.1
0.4
5.6
$
150.8
$ 3,204.8
$
— $ 3,355.6
245.9
$ 3,601.5
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 20, as of May 27,
2018, was as follows:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.0
$
65.0
$
— $
66.0
Level 1
Level 2
Level 3
Total
Equity securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
319.8
256.5
124.0
1.0
Fixed income securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Master limited partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net receivables for unsettled transactions . . . . . . . . . . . . . . . . . . . . . . . .
Fair value measurement of pension plan assets in the fair value
hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments measured at net asset value . . . . . . . . . . . . . . . . . . . . . . . . .
Total pension plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
443.8
257.5
1,854.8
4.7
9.3
7.7
0.4
10.9
—
—
—
7.7
0.4
10.9
1,854.8
4.7
9.3
—
—
—
$
596.3
$ 2,058.8
$
— $ 2,655.1
700.0
$ 3,355.1
Level 1 assets are valued based on quoted prices in active markets for identical securities. The majority of the Level 1
assets listed above include the common stock of both U.S. and international companies, mutual funds, master limited
partnership units, and real estate investment trusts, all of which are actively traded and priced in the market.
Level 2 assets are valued based on other significant observable inputs including quoted prices for similar securities, yield
curves, indices, etc. Level 2 assets consist primarily of individual fixed income securities where values are based on quoted
prices of similar securities and observable market data.
89
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
Level 3 assets consist of investments where active market pricing is not readily available and, as such, fair value is
estimated using significant unobservable inputs.
Certain assets that are measured at fair value using the NAV (net asset value) per share (or its equivalent) practical
expedient have not been classified in the fair value hierarchy. Such investments are generally considered long-term in nature
with varying redemption availability. For certain of these investments, with a fair value of approximately $51.0 million as of
May 26, 2019, the asset managers have the ability to impose customary redemption gates which may further restrict or limit
the redemption of invested funds therein. As of May 26, 2019, funds with a fair value of $4.2 million have imposed such gates.
As of May 26, 2019, we have unfunded commitments for additional investments of $48.3 million in private equity funds
and $17.0 million in natural resources funds. We expect unfunded commitments to be funded from plan assets rather than the
general assets of the Company.
To develop the expected long-term rate of return on plan assets assumption for the pension plans, we consider the current
asset allocation strategy, the historical investment performance, and the expectations for future returns of each asset class.
Our pension plan weighted-average asset allocations by asset category were as follows:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multi-strategy hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May 26, 2019 May 27, 2018
7%
85%
1%
—%
3%
4%
100%
21%
58%
10%
4%
4%
3%
100%
Due to the salaried pension plan freeze, the Company's pension asset strategy is now designed to align our pension plan
assets with our projected benefit obligation to reduce volatility by targeting an investment strategy of approximately 90% in
fixed-income securities and approximately 10% in return seeking assets, primarily equity securities, real estate, and private
assets.
Other investments are primarily made up of cash and master limited partnerships.
Assumed health care cost trend rates have a significant effect on the benefit obligation of the postretirement plans.
Assumed Health Care Cost Trend Rates at:
Initial health care cost trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ultimate health care cost trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year that the rate reaches the ultimate trend rate. . . . . . . . . . . . . . . . . . . . . . . . . . .
May 26, 2019
May 27, 2018
7.20%
4.5%
2024
7.87%
4.5%
2024
We currently anticipate making contributions of approximately $14.2 million to our pension plans in fiscal 2020. We
anticipate making contributions of $10.8 million to our other postretirement plans in fiscal 2020. These estimates are based
on ERISA guidelines, current tax laws, plan asset performance, and liability assumptions, which are subject to change.
90
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
The following table presents estimated future gross benefit payments for our plans:
Pension
Benefits
Health Care
and Life
Insurance
Benefits
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Succeeding 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
200.7
201.3
203.9
207.1
210.0
1,074.8
10.9
10.1
9.3
8.5
7.8
30.2
Multiemployer Pension Plans
The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements
that cover certain of its union-represented employees. The risks of participating in such plans are different from the risks of
single-employer plans, in the following respects:
a. Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers.
b.
c.
If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by
the remaining participating employers.
If the Company ceases to have an obligation to contribute to a multiemployer plan in which it had been a contributing
employer, it may be required to pay to the plan an amount based on the underfunded status of the plan and on the
history of the Company's participation in the plan prior to the cessation of its obligation to contribute. The amount
that an employer that has ceased to have an obligation to contribute to a multiemployer plan is required to pay to the
plan is referred to as a withdrawal liability.
The Company's participation in multiemployer plans for the fiscal year ended May 26, 2019 is outlined in the table below.
For each plan that is individually significant to the Company the following information is provided:
• The "EIN / PN" column provides the Employer Identification Number and the three-digit plan number assigned to
a plan by the Internal Revenue Service.
• The most recent Pension Protection Act Zone Status available for 2018 and 2017 is for plan years that ended in
calendar years 2018 and 2017, respectively. The zone status is based on information provided to the Company by
each plan. A plan in the "red" zone has been determined to be in "critical status", based on criteria established under
the Internal Revenue Code ("Code"), and is generally less than 65% funded. A plan in the "yellow" zone has been
determined to be in "endangered status", based on criteria established under the Code, and is generally less than 80%
funded. A plan in the "green" zone has been determined to be neither in "critical status" nor in "endangered status",
and is generally at least 80% funded.
• The "FIP/RP Status Pending/Implemented" column indicates whether a Funding Improvement Plan, as required
under the Code to be adopted by plans in the "yellow" zone, or a Rehabilitation Plan, as required under the Code to
be adopted by plans in the "red" zone, is pending or has been implemented by the plan as of the end of the plan year
that ended in calendar year 2018.
• Contributions by the Company are the amounts contributed in the Company's fiscal periods ending in the specified
year.
• The "Surcharge Imposed" column indicates whether the Company contribution rate for its fiscal year that ended on
May 26, 2019 included an amount in addition to the contribution rate specified in the applicable collective bargaining
agreement, as imposed by a plan in "critical status", in accordance with the requirements of the Code.
91
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
• The last column lists the expiration dates of the collective bargaining agreements pursuant to which the Company
contributes to the plans.
For plans that are not individually significant to Conagra Brands the total amount of contributions is presented in the
aggregate.
Pension Fund
Bakery and Confectionary
Union and Industry
International Pension Plan
Central States, Southeast
and Southwest Areas
Pension Fund
Western Conference of
Teamsters Pension Plan
Other Plans
Total Contributions
Pension Protection Act
Zone Status
EIN / PN
2018
2017
Red,
Critical
and
Declining
Red,
Critical
and
Declining
Red,
Critical
and
Declining
52-6118572
/ 001
36-6044243
/ 001
91-6145047
/ 001
Contributions by
the Company
(millions)
FY19 FY18 FY17
Surcharge
Imposed
Expiration
Dates of
Collective
Bargaining
Agreements
FIP /
RP Status
Pending /
Implemented
RP
Implemented $ 0.1 $ 1.5 $1.8
No
2/29/2020
Red
RP
Implemented
1.8
1.8
1.8
Green
Green
N/A
3.2
0.9
2.8
0.4
4.0
0.4
$ 6.0 $6.5
$8.0
No
No
5/31/2020
06/30/2021
The Company was not listed in the Forms 5500 filed by any of the other plans or for any of the other years as providing
more than 5% of the plan's total contributions. At the date our financial statements were issued, Forms 5500 were not available
for plan years ending in calendar year 2018.
During fiscal 2019, we ceased to participate in the Bakery and Confectionary Union and Industry International Fund in
conjunction with our sale of the Trenton, Missouri plant.
In addition to the contributions listed in the table above, we recorded an additional expense of $0.3 million, $0.6 million
and $4.0 million in fiscal 2019, 2018, and 2017, respectively, related to our expected incurrence of certain withdrawal costs.
Certain of our employees are covered under defined contribution plans. The expense related to these plans was $39.9
million, $24.5 million, and $18.0 million in fiscal 2019, 2018, and 2017, respectively.
20. FAIR VALUE MEASUREMENTS
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or
liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities,
Level 2 — Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities
in active markets or quoted prices for identical assets or liabilities in inactive markets, and
Level 3 — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants
would use in pricing the asset or liability.
The fair values of our Level 2 derivative instruments were determined using valuation models that use market observable
inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and
liabilities included in Level 2 primarily represent commodity and foreign currency option and forward contracts and cross-
currency swaps.
92
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon
the level within the fair value hierarchy in which the fair value measurements fall, as of May 26, 2019:
Level 1
Level 2
Level 3
Total
Assets:
Derivative assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Liabilities:
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred compensation liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.0
$
2.9
$
— $
15.7
10.7
29.4
$
— $
70.4
70.4
$
—
—
2.9
1.4
—
1.4
$
$
$
—
—
— $
— $
—
— $
5.9
15.7
10.7
32.3
1.4
70.4
71.8
The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon
the level within the fair value hierarchy in which the fair value measurements fall, as of May 27, 2018:
Level 1
Level 2
Level 3
Total
Assets:
Derivative assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Liabilities:
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred compensation liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.7
4.8
6.5
$
$
— $
51.6
51.6
$
2.7
—
2.7
0.1
—
0.1
$
$
$
$
— $
—
— $
— $
—
— $
4.4
4.8
9.2
0.1
51.6
51.7
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 using Level 3 inputs.
We recognized charges for the impairment of certain indefinite-lived brands. The fair values of these brands were estimated
using the "relief from royalty" method (See Note 9). Impairments in our Grocery & Snacks segment totaled $76.5 million,
$4.0 million, and $68.2 million for fiscal 2019, 2018, and 2017, respectively. Impairments in our International segment totaled
$13.1 million, $0.8 million, and $37.0 million for fiscal 2019, 2018, and 2017, respectively.
We recognized charges of $2.7 million and $4.7 million in the Corporate segment for the impairment of certain long-
lived assets in fiscal 2019 and 2018, respectively. The impairment was measured based upon the estimated sales price of the
assets.
During fiscal 2017, a charge of $27.6 million was recognized in the Grocery & Snacks segment for the impairment of
our Wesson® oil production facility. The impairment was measured based upon the estimated sales price of the facility (See
Note 6).
During fiscal 2017, goodwill impairment charges totaling $198.9 million were recognized within our International
segment.
The carrying amount of long-term debt (including current installments) was $10.68 billion as of May 26, 2019 and $3.54
billion as of May 27, 2018. Based on current market rates, the fair value of this debt (level 2 liabilities) at May 26, 2019 and
May 27, 2018 was estimated at $11.24 billion and $3.76 billion, respectively.
93
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
21. BUSINESS SEGMENTS AND RELATED INFORMATION
As a result of the Pinnacle acquisition, we currently reflect our results of operations in six reporting segments: Grocery
& Snacks, Refrigerated & Frozen, International, Foodservice, Pinnacle Foods, and Commercial.
In the second quarter of fiscal 2017, we completed the Spinoff of Lamb Weston. The Lamb Weston business had previously
been included in the Commercial segment. The results of operations of the Lamb Weston business have been classified as
discontinued operations for all periods presented.
The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail
channels in the United States.
The Refrigerated & Frozen reporting segment includes branded, temperature-controlled food products sold in various
retail channels in the United States.
The International reporting segment principally includes branded food products, in various temperature states, sold in
various retail and foodservice channels outside of the United States.
The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and
a variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments
primarily in the United States.
The Pinnacle Foods reporting segment includes branded and private-labeled food products, in various temperature states,
sold in various retail and foodservice channels in the United States and Canada. Results of the Pinnacle Foods segment reflect
activity beginning on October 26, 2018, the date of the acquisition of Pinnacle.
The Commercial reporting segment included commercially branded and private label food and ingredients, which were
sold primarily to commercial, restaurant, foodservice, food manufacturing, and industrial customers. The segment's primary
food items included a variety of vegetable, spice, and frozen bakery goods, which were sold under brands such as Spicetec
Flavors & Seasonings®. The Spicetec and JM Swank businesses were sold in the first quarter of fiscal 2017. These businesses
comprised the entire Commercial segment following the presentation of Lamb Weston as discontinued operation.
We do not aggregate operating segments when determining our reporting segments.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each of the segments is
based on net sales less all identifiable operating expenses. General corporate expense, net interest expense, and income taxes
have been excluded from segment operations.
94
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
2019
2018
2017
Net sales
Grocery & Snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Refrigerated & Frozen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foodservice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pinnacle Foods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating profit
Grocery & Snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Refrigerated & Frozen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foodservice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pinnacle Foods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Equity method investment earnings
General corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement non-service income . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Net income attributable to noncontrolling interests of continuing
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations attributable to Conagra Brands, Inc. . . . . . . . $
3,279.2
2,804.0
793.4
934.2
1,727.6
—
9,538.4
689.2
502.2
94.5
117.7
238.2
—
1,641.8
75.8
462.2
35.1
391.4
218.8
680.3
0.1
680.2
$
$
$
$
$
$
3,287.0
2,753.0
843.5
1,054.8
—
—
7,938.3
724.8
479.4
86.5
121.8
—
—
1,412.5
97.3
459.4
80.4
158.7
174.6
797.5
3.4
794.1
$
$
$
$
$
$
3,208.8
2,652.7
816.0
1,078.3
—
71.1
7,826.9
655.4
445.8
(168.9)
105.1
—
202.6
1,240.0
71.2
370.2
55.2
195.5
254.7
546.0
1.9
544.1
The following table presents further disaggregation of our net sales:
Snacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other shelf-stable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Frozen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refrigerated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
2017
1,363.4
$
1,199.0
$
1,046.7
2,567.1
2,968.4
788.0
846.2
2,088.0
2,014.8
738.2
843.5
2,162.1
1,886.1
766.5
816.0
Foodservice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,005.3
1,054.8
1,078.4
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
71.1
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
9,538.4
$
7,938.3
$
7,826.9
95
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
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:
Net derivative gains (losses) incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: Net derivative gains (losses) allocated to reporting segments . . . . . . . . . .
Net derivative gains (losses) recognized in general corporate expenses . . . $
Net derivative gains (losses) allocated to Grocery & Snacks . . . . . . . . . . . . . . . $
Net derivative gains (losses) allocated to Refrigerated & Frozen . . . . . . . . . . . .
Net derivative gains (losses) allocated to International . . . . . . . . . . . . . . . . . . . .
Net derivative losses allocated to Foodservice . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative losses allocated to Pinnacle Foods . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative losses allocated to Commercial . . . . . . . . . . . . . . . . . . . . . . . . . .
Net derivative gains (losses) included in segment operating profit . . . . . . . $
2019
2018
2017
(3.6) $
(1.8)
(1.8) $
(2.1) $
(1.1)
2.8
(0.6)
(0.8)
—
(1.8) $
(0.9) $
(7.1)
6.2
$
$
0.2
(0.3)
(6.9)
(0.1)
—
—
(7.1) $
0.6
5.7
(5.1)
3.4
0.8
1.6
—
—
(0.1)
5.7
As of May 26, 2019, the cumulative amount of net derivative gains from economic hedges that had been recognized in
general corporate expenses and not yet allocated to reporting segments was $1.4 million. This amount reflected net gains of
$1.0 million incurred during the fiscal year ended May 26, 2019, as well as net gains of $0.4 million incurred prior to fiscal
2019. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment
operating results gains of $0.9 million in fiscal 2020 and $0.5 million in fiscal 2021 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 for fiscal 2019, 2018, and 2017 was $283.9 million, $222.1 million, and $234.4 million, 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 fiscal 2019, 2018, and 2017.
Foreign net sales, including sales by domestic segments to customers located outside of the United States, were approximately
$919.5 million, $918.4 million, and $887.2 million in fiscal 2019, 2018, and 2017, respectively. Our long-lived assets located
outside of the United States are not significant.
Our largest customer, Walmart, Inc. and its affiliates, accounted for approximately 24% of consolidated net sales for each
of fiscal 2019, 2018, and 2017, significantly impacting the Grocery & Snacks, Refrigerated & Frozen, and Pinnacle Foods
segments.
Walmart, Inc. and its affiliates accounted for approximately 30% and 25% of consolidated net receivables as of May 26,
2019 and May 27, 2018, respectively.
96
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017
(columnar dollars in millions except per share amounts)
We offer certain suppliers access to a third-party service that allows them to view our scheduled payments online. The
third-party service also allows suppliers to finance advances on our scheduled payments at the sole 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 May 26, 2019, $189.3 million of our total accounts payable is payable
to suppliers who utilize this third-party service.
22. QUARTERLY FINANCIAL DATA (Unaudited)
2019
2018
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
1,834.4
$
2,383.7
$
2,707.1
$
2,613.2
$
1,804.2
$
2,173.4
$
1,994.5
$
1,966.2
515.5
178.2
677.2
134.3
752.3
242.6
708.0
125.2
519.0
153.6
658.3
224.1
598.8
349.2
—
(1.9)
—
—
(0.3)
0.4
14.5
178.2
131.6
242.0
126.5
152.5
223.5
362.8
575.4
70.6
(0.3)
69.6
0.45
$
0.31
$
0.50
$
0.26
$
0.37
$
0.55
$
0.91
$
0.18
Net sales . . . . . . . . . . . . . . . $
Gross profit . . . . . . . . . . . . .
Income from continuing
operations, net of tax . . . . . .
Income (loss) from
discontinued operations, net
of tax . . . . . . . . . . . . . . . . . .
Net income attributable to
Conagra Brands, Inc. . . . . . .
Earnings per share (1):
Basic earnings per share:
Net income
attributable to
Conagra Brands, Inc.
common stockholders. $
Diluted earnings per share:
Net income
attributable to
Conagra Brands, Inc.
common stockholders. $
Dividends declared per
common share . . . . . . . . . . . $
Share price:
0.45
0.2125
$
$
$
$
$
$
0.31
0.2125
38.25
32.42
$
$
$
0.50
0.2125
32.60
20.85
$
$
$
0.26
0.2125
31.28
22.37
$
$
$
0.36
0.2125
39.95
33.07
$
$
$
0.54
0.2125
35.87
32.43
$
$
$
0.90
0.2125
38.50
35.47
0.18
0.2125
38.29
35.34
High . . . . . . . . . . . . . . $
Low. . . . . . . . . . . . . . .
38.94
34.64
(1)
Basic and diluted earnings per share are calculated independently for each of the quarters presented. Accordingly, the sum of the quarterly earnings
per share amounts may not agree with the total year.
97
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Conagra Brands, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Conagra Brands, Inc. and subsidiaries (the Company) as
of May 26, 2019 and May 27, 2018, the related consolidated statements of operations, comprehensive income, common
stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended May 26, 2019, and the
related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control
over financial reporting as of May 26, 2019, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of May 26, 2019 and May 27, 2018, and the results of its operations and its cash flows for each
of the fiscal years in the three-year period ended May 26, 2019, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of May 26, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
The Company acquired Pinnacle Foods Inc. (Pinnacle) during fiscal 2019, and management excluded from its assessment
of the effectiveness of the Company’s internal control over financial reporting as of May 26, 2019, Pinnacle’s internal
control over financial reporting associated with total assets of $12.06 billion and total net sales of $1.73 billion included in
the consolidated financial statements of the Company as of and for the year ended May 26, 2019. Our audit of internal
control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting
of Pinnacle.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained
in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
98
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2005.
Omaha, Nebraska
July 19, 2019
99
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's management carried out an evaluation, with the participation of the Company's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures
as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of May 26, 2019. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by
this report, the Company's disclosure controls and procedures were effective. We acquired Pinnacle on October 26, 2018 and
have not yet included Pinnacle in our assessment of the effectiveness of our internal control over financial reporting.
Accordingly, pursuant to the SEC's general guidance that an assessment of a recently acquired business may be omitted from
the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our disclosure controls
and procedures does not include Pinnacle. For fiscal 2019, Pinnacle accounted for $1.73 billion of our total net sales and as
of May 26, 2019 had total assets of $12.06 billion.
Internal Control Over Financial Reporting
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer,
evaluated any change in the Company's internal control over financial reporting that occurred during the quarter covered by
this report and determined that there was no change in the Company's internal control over financial reporting during the
fourth quarter of fiscal 2019 that has materially affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Management's Annual Report on Internal Control Over Financial Reporting
Conagra Brands' management is responsible for establishing and maintaining adequate internal control over financial
reporting of Conagra Brands (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Conagra
Brands' internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles. Conagra Brands' internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of Conagra Brands; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and
expenditures of Conagra Brands are being made only in accordance with the authorization of management and directors of
Conagra Brands; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of Conagra Brands' assets that could have a material effect on the financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of the
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
With the participation of Conagra Brands' Chief Executive Officer and Chief Financial Officer, management assessed
the effectiveness of Conagra Brands' internal control over financial reporting as of May 26, 2019. Management's assessment
of internal control over financial reporting as of May 26, 2019 excludes internal control over financial reporting related to
Pinnacle (acquired October 26, 2018), which accounted for approximately $12.06 billion of consolidated total assets and $1.73
billion of consolidated net sales as of and for the year ended May 26, 2019. In making this assessment, management used
criteria established in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO"). As a result of this assessment, management concluded that, as of May 26, 2019, its
internal control over financial reporting was effective.
100
The effectiveness of Conagra Brands' internal control over financial reporting as of May 26, 2019 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their report, a copy of which is included in this
annual report on Form 10-K.
/s/ SEAN M. CONNOLLY
Sean M. Connolly
President and Chief Executive Officer
July 19, 2019
/s/ DAVID S. MARBERGER
David S. Marberger
Executive Vice President and Chief Financial Officer
July 19, 2019
101
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to our directors will be set forth in the 2019 Proxy Statement under the heading "Voting Item #1:
Election of Directors," and the information is incorporated herein by reference.
Information regarding our executive officers is included in Part I of this Form 10-K under the heading "Executive Officers
of the Registrant as of July 19, 2019," as permitted by the Instruction to Item 401 of Regulation S-K.
If applicable, information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, by our directors, executive officers, and holders of more than ten percent of our equity securities will be set forth
in the 2019 Proxy Statement under the heading "Information on Stock Ownership—Section 16(a) Beneficial Ownership
Reporting Compliance," and the information is incorporated herein by reference.
Information with respect to the Audit / Finance Committee and its financial experts will be set forth in the 2019 Proxy
Statement under the heading "Voting Item #1: Election of Directors—How We Govern and are Governed—The Board's Audit /
Finance Committee," and the information is incorporated herein by reference.
We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, and Controller.
This code of ethics is available on our website at www.conagrabrands.com through the "Investors—Corporate Governance"
link. If we make any amendments to this code other than technical, administrative, or other non-substantive amendments, or
grant any waivers, including implicit waivers, from a provision of this code of conduct to our Chief Executive Officer, Chief
Financial Officer, or Controller, we will disclose the nature of the amendment or waiver, its effective date, and to whom it
applies on our website at www.conagrabrands.com through the "Investors—Corporate Governance" link.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to director and executive compensation and our Human Resources Committee will be set forth
in the 2019 Proxy Statement under the headings "Voting Item #1: Election of Directors—How We Are Paid," "Voting Item
#1: Election of Directors—How We Govern—The Board's Human Resources Committee," "Compensation Committee
Report," and "Executive Compensation," and "CEO Pay Ratio" and the information is incorporated herein by reference.
102
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners, directors and management will be set forth
in the 2019 Proxy Statement under the heading "Information on Stock Ownership," and the information is incorporated herein
by reference.
The following table provides information about shares of our common stock that may be issued upon the exercise of
options, warrants, and rights under existing equity compensation plans as of our most recent fiscal year-end, May 26, 2019.
Equity Compensation Plan Information
Plan Category
Equity compensation plans approved by
security holders (1) . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
security holders. . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants, and
Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
7,867,712
$
—
7,867,712
$
29.00
—
29.00
40,897,313
—
40,897,313
(1) Column (a) includes 1,169,063 shares that could be issued under performance shares outstanding at May 26, 2019.
The performance shares are earned and common stock issued if pre-set financial objectives are met. Included are
95,909 shares for one-third of the fiscal 2017 through 2019 performance period, for which the performance has been
determined. For the remaining performance periods, actual shares issued may be equal to, less than, or greater than
the number of outstanding performance shares included in column (a), depending on actual performance. Column
(b) does not take these awards into account because they do not have an exercise price. The number of shares reflected
in column (a) with respect to these performance shares for which the performance has not been determined assumes
the vesting criteria will be achieved at target levels. Column (c) has not been reduced for the performance shares
outstanding. Column (a) also includes 184,686 shares that could be issued under performance-based restricted stock
units outstanding at May 26, 2019. The performance-based restricted stock units are earned and common stock issued
if pre-set market-based objectives are met. Actual shares issued may be equal to, less than, or greater than the number
of outstanding performance-based restricted stock units included in column (a), depending on actual performance.
Column (b) does not take these awards into account because they do not have an exercise price. Column (c) has not
been reduced for the performance-based restricted stock units outstanding. The number of shares reflected in column
(a) with respect to these performance-based restricted stock units assumes the vesting criteria will be achieved at
target levels. Column (b) also excludes 1,810,201 restricted stock units and 278,432 deferral interests in deferred
compensation plans that are included in column (a) but do not have an exercise price. The units vest and are payable
in common stock after expiration of the time periods set forth in the related agreements. The interests in the deferred
compensation plans are settled in common stock on the schedules selected by the participants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to director independence and certain relationships and related transactions will be set forth in
the 2019 Proxy Statement under the headings "Voting Item #1: Election of Directors—How We are Selected, Evaluated and
Oranized—Director Independence," "Voting Item #1: Election of Directors—How We Govern—The Board's Audit / Finance
Committee," and "Voting Item #1: Election of Directors—How We Govern—The Board's Human Resources Committee" and
the information is incorporated herein by reference.
103
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to the principal accountant will be set forth in the 2019 Proxy Statement under the heading
"Voting Item #2: Ratification of the Appointment of Our Independent Auditor for Fiscal 2020," and the information is
incorporated herein by reference.
104
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a) List of documents filed as part of this report:
1. Financial Statements
All financial statements of the Company as set forth under Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable, not required, or because the required
information is included in the consolidated financial statements, notes thereto.
3. Exhibits
All documents referenced below were filed pursuant to the Securities Exchange Act of 1934, as amended, by
Conagra Brands, Inc. (file number 001-07275), unless otherwise noted.
EXHIBIT
DESCRIPTION
*2.1
*2.1.1
*2.1.2
*2.1.3
*2.1.4
*2.1.5
*2.2
*2.2.1
2.2.2
Master Agreement, dated as of March 4, 2013, by and among Conagra Brands, Inc. (formerly ConAgra Foods,
Inc.), Cargill, Incorporated, CHS Inc., and HM Luxembourg S.A R.L., incorporated herein by reference to
Exhibit 2.2 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013
Amendment No. 1 to Master Agreement, dated April 30, 2013, by and among Conagra Brands, Inc. (formerly
ConAgra Foods, Inc.), Cargill, Incorporated, CHS Inc., and HM Luxembourg S.A R.L., incorporated herein
by reference to Exhibit 2.2.1 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May
26, 2013
Acknowledgment and Amendment No. 2 to Master Agreement, dated May 31, 2013, by and among Conagra
Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, CHS Inc., and HM Luxembourg S.A R.L.,
incorporated herein by reference to Exhibit 2.2.2 of Conagra Brands’ Annual Report on Form 10-K for the
fiscal year ended May 26, 2013
Acknowledgment and Amendment No. 3 to Master Agreement, dated as of July 24, 2013, by and among
Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, and CHS Inc., incorporated
herein by reference to Exhibit 2.1 of Conagra Brands’ Quarterly Report on Form 10-Q for the quarter ended
February 23, 2014
Acknowledgment and Amendment No. 4 to Master Agreement, dated as of March 27, 2014, by and among
Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, and CHS Inc., incorporated
herein by reference to Exhibit 2.2.4 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended
May 25, 2014
Acknowledgment and Amendment No. 5 to Master Agreement, dated as of May 25, 2014, by and among
Conagra Brands, Inc. (formerly ConAgra Foods, Inc.), Cargill, Incorporated, and CHS Inc., incorporated
herein by reference to Exhibit 2.2.5 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended
May 25, 2014
Stock Purchase Agreement, dated as of November 1, 2015, between Conagra Brands, Inc. (formerly ConAgra
Foods, Inc.) and TreeHouse Foods, Inc., incorporated herein by reference to Exhibit 2.1 of Conagra Brands’
Current Report on Form 8-K filed with the SEC on November 2, 2015
First Amendment to Stock Purchase Agreement, dated as of January 29, 2016, by and between Bay Valley
Foods LLC (as successor in interest to TreeHouse Foods, Inc.) and Conagra Brands, Inc., incorporated herein
by reference to Exhibit 2.3.1 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May
28, 2017
Second Amendment to Stock Purchase Agreement, dated as of February 14, 2017, by and between Bay Valley
Foods LLC and Conagra Brands, Inc., incorporated herein by reference to Exhibit 2.1 of Conagra Brands’
Quarterly Report on Form 10-Q for the quarter ended February 26, 2017
105
*2.3
*2.4
3.1
3.2
4.1
4.2
4.2.1
4.2.2
Separation and Distribution Agreement, dated as of November 8, 2016, by and between Conagra Brands, Inc.
(formerly known as ConAgra Foods, Inc.) and Lamb Weston Holdings, Inc., incorporated herein by reference
to Exhibit 2.1 to Conagra Brands’ Current Report on Form 8-K filed with the SEC on November 10, 2016
Agreement and Plan of Merger, dated June 26, 2018, by and among Conagra Brands, Inc., Pinnacle Foods
Inc. and Patriot Merger Sub Inc., incorporated herein by reference to Exhibit 2.1 to Conagra Brands’ Current
Report on Form 8-K filed with the SEC on June 27, 2018
Amended and Restated Certificate of Incorporation of Conagra Brands, Inc., incorporated herein by reference
to Exhibit 3.1 to Conagra Brands’ Current Report on Form 8-K filed with the SEC on November 10, 2016
Amended and Restated By-Laws of Conagra Brands, Inc., incorporated herein by reference to Exhibit 3.1 of
Conagra Brands’ Current Report on Form 8-K filed with the SEC on May 23, 2017
Indenture, dated as of October 8, 1990, between Conagra Brands, Inc. (formerly ConAgra Foods, Inc.) and
The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A. and The Chase Manhattan Bank
(National Association)), as trustee, incorporated by reference to Exhibit 4.1 of Conagra Brands’ Registration
Statement on Form S-3 (Registration No. 033-36967)
Indenture, dated as of October 12, 2017, between Conagra Brands, Inc. and Wells Fargo Bank, National
Association, as trustee, incorporated herein by reference to Exhibit 4.1 of Conagra Brands’ Current Report on
Form 8-K filed with the SEC on October 12, 2017
First Supplemental Indenture, dated as of October 12, 2017, between Conagra Brands, Inc. and Wells Fargo
Bank, National Association, as trustee (including Form of Note), incorporated herein by reference to Exhibit
4.2 of Conagra Brands’ Current Report on Form 8-K filed with the SEC on October 12, 2017
Second Supplemental Indenture, dated October 22, 2018, by and between Conagra Brands, Inc. and Wells
Fargo Bank, National Association, as Trustee (including Forms of Notes), incorporated herein by reference
to Exhibit 4.2 to Conagra Brands' Current Report on Form 8-K filed with the SEC on October 22, 2018
4.3
Description of Securities
**10.1
**10.1.1
**10.1.2
**10.1.3
**10.1.4
**10.2
**10.3
ConAgra Foods, Inc. Non-Qualified Pension Plan (January 1, 2009 Restatement), incorporated herein by
reference to Exhibit 10.2 of Conagra Brands’ Quarterly Report on Form 10-Q for the quarter ended November
23, 2008
Amendment One dated December 3, 2009 to ConAgra Foods, Inc. Nonqualified Pension Plan, incorporated
herein by reference to Exhibit 10.2 of Conagra Brands’ Quarterly Report on Form 10-Q for the quarter ended
February 28, 2010
Amendment Two dated November 29, 2010 to the ConAgra Foods, Inc. Non-Qualified Pension Plan (January
1, 2009 Restatement), incorporated herein by reference to Exhibit 10.2 of Conagra Brands’ Quarterly Report
on Form 10-Q for the quarter ended February 27, 2011
Amendment Three to ConAgra Foods, Inc. Nonqualified Pension Plan (January 1, 2009 Restatement), dated
December 22, 2016, incorporated herein by reference to Exhibit 10.2 of Conagra Brands’ Quarterly Report
on Form 10-Q for the quarter ended February 26, 2017
Amendment Four to Conagra Brands, Inc. Nonqualified Pension Plan (January 1, 2009 Restatement), dated
December 19, 2017, incorporated herein by reference to Exhibit 10.2.4 of Conagra Brands’ Quarterly Report
on Form 10-Q for the quarter ended November 26, 2017
Conagra Brands, Inc. Directors’ Deferred Compensation Plan (2018 Restatement), effective as of May 1, 2018,
incorporated herein by reference to Exhibit 10.3.2 of Conagra Brands’ Annual Report on Form 10-K for the
fiscal year ended May 27, 2018
Conagra Brands, Inc. Voluntary Deferred Compensation Plan (Effective January 1, 2017), incorporated herein
by reference to Exhibit 10.4.7 of Conagra Brands’ Quarterly Report on Form 10-Q for the quarter ended August
27, 2017
106
**10.3.1
**10.3.2
**10.4
**10.4.1
**10.4.2
**10.4.3
**10.5
**10.5.1
**10.5.2
**10.5.3
**10.5.4
**10.5.5
**10.5.6
**10.5.7
**10.5.8
**10.5.9
First Amendment to Conagra Brands, Inc. Voluntary Deferred Compensation Plan (January 1, 2017
Restatement), incorporated herein by reference to Exhibit 10.4.8 of Conagra Brands’ Quarterly Report on
Form 10-Q for the quarter ended November 26, 2017
Second Amendment, dated as of December 5, 2018, to the Conagra Brands, Inc. Voluntary Deferred
Compensation Plan, incorporated herein by reference to Exhibit 10.1 to Conagra Brands’ Current Report on
Form 8-K filed with the SEC on December 7, 2018
ConAgra Foods 2009 Stock Plan, incorporated herein by reference to Exhibit 10.1 of Conagra Brands’ Current
Report on Form 8-K filed with the SEC on September 28, 2009
Form of Stock Option Agreement (ConAgra Foods 2009 Stock Plan) for Non-Employee Directors under the
ConAgra Foods 2009 Stock Plan, incorporated herein by reference to Exhibit 10.5 of Conagra Brands’ Quarterly
Report on Form 10-Q for the quarter ended August 30, 2009
Form of Stock Option Agreement (ConAgra Foods 2009 Stock Plan) for Employees, incorporated herein by
reference to Exhibit 10.4 of Conagra Brands’ Quarterly Report on Form 10-Q for the quarter ended August
30, 2009
Form of Stock Option Agreement (ConAgra Foods 2009 Stock Plan) for certain named executive officers,
incorporated herein by reference to Exhibit 10.6 of Conagra Brands’ Quarterly Report on Form 10-Q for the
quarter ended August 30, 2009
ConAgra Foods, Inc. 2014 Stock Plan, incorporated herein by reference to Exhibit 10.1 of Conagra Brands’
Current Report on Form 8-K filed with the SEC on September 22, 2014
First Amendment to ConAgra Foods, Inc. 2014 Stock Plan, incorporated herein by reference to Exhibit 10.1
of Conagra Brands’ Current Report on Form 8-K filed with the SEC on December 15, 2017
Form of Restricted Stock Unit Agreement for Non-Employee Directors under the ConAgra Foods, Inc. 2014
Stock Plan, incorporated herein by reference to Exhibit 10.10.1 of Conagra Brands’ Annual Report on Form
10-K for the fiscal year ended May 31, 2015
Form of Restricted Stock Unit Agreement (Cash-Settled) under the ConAgra Foods, Inc. 2014 Stock Plan,
incorporated herein by reference to Exhibit 10.10.2 of Conagra Brands’ Annual Report on Form 10-K for the
fiscal year ended May 31, 2015
Form of Restricted Stock Unit Agreement (Stock-Settled) under the ConAgra Foods, Inc. 2014 Stock Plan,
incorporated herein by reference to Exhibit 10.10.3 of Conagra Brands’ Annual Report on Form 10-K for the
fiscal year ended May 31, 2015
Form of Nonqualified Stock Option Agreement for Employees under the ConAgra Foods, Inc. 2014 Stock
Plan, incorporated herein by reference to Exhibit 10.10.4 of Conagra Brands’ Annual Report on Form 10-K
for the fiscal year ended May 31, 2015
Form of Retention Restricted Stock Unit Agreement (Stock Settled) under the ConAgra Foods, Inc. 2014
Stock Plan, incorporated herein by reference to Exhibit 10.3 of Conagra Brands’ Quarterly Report on Form
10-Q for the quarter ended August 30, 2015
Form of Restricted Stock Unit Agreement (Cash or Stock Settled) under ConAgra Foods, Inc. 2014 Stock
Plan, incorporated herein by reference to Exhibit 10.7.6 of Conagra Brands’ Quarterly Report on Form 10-Q
for the quarter ended August 27, 2017
Form of Restricted Stock Unit Agreement under the ConAgra Foods, Inc. 2014 Stock Plan, incorporated herein
by reference to Exhibit 10.4 of Conagra Brands’ Quarterly Report on Form 10-Q for the quarterly period ended
August 26, 2018
Form of Performance-Based Restricted Stock Units Agreement (for non-CEO participants), incorporated
herein by reference to Exhibit 10.1 of Conagra Brands’ Current Report on Form 8-K filed with the SEC on
April 16, 2019
**10.5.10
Form of CEO Performance-Based Restricted Stock Units Agreement, incorporated herein by reference to
Exhibit 10.2 of Conagra Brands’ Current Report on Form 8-K filed with the SEC on April 16, 2019
107
**10.5.11
Form of CEO Restricted Stock Unit Agreement
**10.6
**10.7
**10.7.1
**10.8
**10.9
**10.10
**10.11
**10.11.1
**10.11.2
**10.12
**10.13
**10.14
10.15
10.16
10.17
ConAgra Foods, Inc. 2014 Executive Incentive Plan incorporated herein by reference to Exhibit 10.2 of
Conagra Brands’ Current Report on Form 8-K filed with the SEC on September 22, 2014
ConAgra Foods, Inc. 2008 Performance Share Plan, effective July 16, 2008, incorporated herein by reference
to Exhibit 10.3 of Conagra Brands’ Quarterly Report on Form 10-Q for quarter ended August 24, 2008
First Amendment to ConAgra Foods, Inc. 2008 Performance Share Plan, dated July 19, 2017, incorporated
herein by reference to Exhibit 10.1 of Conagra Brands’ Current Report on Form 8-K filed with the SEC on
July 25, 2017
Form of Amended and Restated Change of Control Agreement between ConAgra Foods and its executives
(pre September 2011), incorporated herein by reference to Exhibit 10.14 of Conagra Brands’ Quarterly Report
on Form 10-Q for the quarter ended November 23, 2008
Form of Change of Control Agreement between ConAgra Foods and its executives (post September 2011),
as amended and restated on February 18, 2015, incorporated herein by reference to Exhibit 10.16.1 of Conagra
Brands’ Annual Report on Form 10-K for the fiscal year ended May 31, 2015
Change of Control Agreement, dated as of February 12, 2015, between Conagra Brands, Inc. (formerly
ConAgra Foods, Inc.) and Sean Connolly, incorporated herein by reference to Exhibit 10.3 of Conagra Brands’
Current Report on Form 8-K filed with the SEC on February 12, 2015
Employment Agreement, dated as of February 12, 2015, between Conagra Brands, Inc. (formerly ConAgra
Foods, Inc.) and Sean Connolly, incorporated herein by reference to Exhibit 10.2 of Conagra Brands’ Current
Report on Form 8-K filed with the SEC on February 12, 2015
Amendment to Employment Agreement dated December 31, 2015, effective January 1, 2016, by and between
Conagra Brands, Inc. (formerly ConAgra Foods, Inc.) and Sean Connolly, incorporated herein by reference
to Exhibit 10.1 of Conagra Brands’ Quarterly Report on Form 10-Q for the quarter ended February 28, 2016
Letter of Agreement, dated as of August 2, 2018, between Conagra Brands, Inc. and Sean M. Connolly,
incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the
SEC on August 8, 2018
Form of Executive Time Sharing Agreement, as adopted on February 18, 2015, incorporated herein by
reference to Exhibit 10.17 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May
31, 2015
Letter Agreement, by and between Conagra Brands, Inc. (formerly ConAgra Foods, Inc.) and David Marberger,
dated as of July 13, 2016, incorporated herein by reference to Exhibit 10.1 of Conagra Brands’ Quarterly
Report on Form 10-Q for the Quarter Ended August 28, 2016
Letter Agreement, dated September 10, 2015, by and between Conagra Brands, Inc. (formerly ConAgra Foods,
Inc.) and David Biegger, incorporated herein by reference to Exhibit 10.22 of Conagra Brands’ Annual Report
on Form 10-K for the fiscal year ended May 28, 2017
Term Loan Agreement, dated July 11, 2018, by and among Conagra Brands, Inc. and Bank of America, N.A.,
as administrative agent and a lender, Goldman Sachs Bank USA, as syndication agent and a lender, and the
other financial institutions party thereto, incorporated herein by reference to Exhibit 10.1 to Conagra Brands’
Current Report on Form 8-K filed with the SEC on July 17, 2018
Amended and Restated Revolving Credit Agreement, dated July 11, 2018, by and among Conagra Brands,
Inc. and Bank of America, N.A., as administrative agent and a lender, JPMorgan Chase Bank, N.A., as
syndication agent and a lender, and the other financial institutions party thereto, incorporated herein by
reference to Exhibit 10.2 to Conagra Brands’ Current Report on Form 8-K filed with the SEC on July 17, 2018
Tax Matters Agreement, dated as of November 8, 2016, by and between Conagra Brands, Inc. and Lamb
Weston Holdings, Inc., incorporated herein by reference to Exhibit 10.1 to Conagra Brands’ Current Report
on Form 8-K filed with the SEC on November 10, 2016
108
10.18
10.18.1
21
23
24
31.1
31.2
32
101
Trademark License Agreement, dated as of November 8, 2016, by and between ConAgra Foods RDM, Inc.
and ConAgra Foods Lamb Weston, Inc., incorporated herein by reference to Exhibit 10.4 to Conagra Brands’
Current Report on Form 8-K filed with the SEC on November 10, 2016
First Amendment to Trademark License Agreement, dated March 20, 2017, by and between ConAgra Foods
RDM, Inc. and Lamb Weston, Inc. (formerly known as ConAgra Foods Lamb Weston, Inc.), incorporated
herein by reference to Exhibit 10.32.1 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year
ended May 28, 2017
Subsidiaries of Conagra Brands, Inc.
Consent of KPMG LLP
Powers of Attorney
Section 302 Certificate
Section 302 Certificate
Section 906 Certificates
The following materials from Conagra Brands' Annual Report on Form 10-K for the year ended May 26, 2019,
formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations,
(ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the
Consolidated Statements of Common Stockholders' Equity, (v) the Consolidated Statements of Cash Flows,
(vi) Notes to Consolidated Financial Statements, and (vii) document and entity information.
* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Conagra Brands agrees to furnish
supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request.
** Management contract or compensatory plan.
Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with respect to Conagra Brands' long-term
debt are not filed with this Form 10-K. Conagra Brands will furnish a copy of any such long-term debt agreement
to the Securities and Exchange Commission upon request.
ITEM 16. FORM 10-K SUMMARY
None.
109
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Conagra Brands, Inc. has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CONAGRA BRANDS, INC.
By:
/s/ SEAN M. CONNOLLY
Sean M. Connolly
President and Chief Executive Officer
July 19, 2019
By:
/s/ DAVID S. MARBERGER
David S. Marberger
Executive Vice President and Chief Financial Officer
July 19, 2019
By:
/s/ ROBERT G. WISE
Robert G. Wise
Senior Vice President and Corporate Controller
July 19, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on the 19th day of July, 2019.
Sean M. Connolly* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Anil Arora* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas K. Brown* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stephen G. Butler* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joie A. Gregor* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajive Johri* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard H. Lenny* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Melissa Lora* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ruth Ann Marshall* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Craig P. Omtvedt* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott Ostfeld* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
* David S. Marberger, by signing his name hereto, signs this annual report on Form 10-K on behalf of each person indicated.
Powers-of-Attorney authorizing David S. Marberger to sign this annual report on Form 10-K on behalf of each of the indicated
Directors of Conagra Brands, Inc. have been filed herewith as Exhibit 24.
By:
/s/ DAVID S. MARBERGER
David S. Marberger
Attorney-In-Fact
*END OF FORM 10-K*
110
Comparative Stock Price Performance
These comparative stock price performance graphs compare the yearly percentage change in cumulative total shareholder
return on Conagra Brands common stock with (i) the cumulative total return on the Standard & Poor's (S&P) 500 Index and
(ii) the cumulative total return on the S&P 500 Packaged Foods Index, in each case for the five- and ten- year periods ended
fiscal 2019, according to Bloomberg. The graphs set the beginning value of Conagra Brands common stock and each Index
at $100. All calculations assume reinvestment of dividends. The values of each index are weighted by capitalization of
companies included in such index.
111
Reconciliation for Regulation G Purposes
Organic Net Sales
Net Sales
Impact of foreign exchange
Net sales from acquired businesses
Net sales from divested businesses
Net sales from sold Trenton plant
Organic Net Sales ex Trenton
FY19
FY18 % Change
$ 9,538.4
$ 7,938.3
20.2%
30.2
(1,798.3 )
—
—
(171.3 )
(283.2)
(2.0 )
(79.1)
$ 7,597.0
$ 7,576.0
0.3%
Adjusted Operating Margin & Adjusted Diluted EPS from Continuing Operations
Operating profit: Income from continuing operations before income taxes and equity method earnings, less interest
expense, net, plus pension and postretirement non-service income.
FY19
Reported
% of Net Sales
Restructuring plans
Acquisitions and divestitures
Integration costs
Corporate hedging losses
Inventory fair value mark-up rollout
Novation of a legacy guarantee
Fair value adjustment of cash settleable equity awards issued in connection with Pinnacle
acquisition
Pension plan remeasurement
Intangible impairment charges
Operating
profit
$ 1,179.6
12.4%
181.4
106.2
8.9
1.8
53.0
(27.3 )
(15.1 )
—
89.6
—
Gain on Ardent JV asset sale
Gain on divestiture of businesses
Legal matters
Capital loss valuation adjustment
Unusual tax items
Rounding
Adjusted
% of Net Sales (Margin)
Year-over-year change – reported
Year-over-year change – adjusted
(69.4 )
(39.1 )
—
—
—
$ 1,469.6
$
15.4 %
112
Diluted EPS from
continuing
operations
$
1.53
0.31
0.21
0.01
—
0.09
(0.06 )
(0.03 )
0.01
0.15
(0.03 )
(0.08 )
(0.07 )
(0.07 )
0.02
0.02
2.01
(21.5) %
(4.7) %
FY18
Reported
% of Net Sales
Restructuring plans
Acquisitions and divestitures
Corporate hedging gains
Pension settlement and valuation adjustment
Intangible impairment charges
Early exit of an unfavorable lease contract by purchasing the building
Gain on substantial liquidation of an international joint venture
Legal matters
Wesson valuation allowance adjustment
Tax reform adjustments
Unusual tax items
Operating
profit
$ 953.1
Diluted EPS from
continuing
operations
$
1.95
12.0%
38.0
15.7
(6.2 )
—
4.8
34.9
—
151.0
—
—
—
0.07
0.03
(0.01 )
0.01
0.01
0.06
(0.01 )
0.28
0.19
(0.57 )
0.10
—
2.11
Income from discontinued operations, net of noncontrolling interests
Adjusted
% of Net Sales (Margin)
— )
$ 1,191.3
15.0%
$
Gross Margin: Gross Profit as a % of Net sales
Adjusted Gross Margin Reconciliation
Net sales
Cost of goods sold
Gross Profit
Inventory fair value mark-up rollout
Restructuring plans included in cost of goods sold
Acquisitions and divestitures
Corporate hedging losses (gains)
Adjusted Gross Profit
Adjusted Gross Margin
Free Cash Flow
Net cash flows from operating activities - continuing operations
Additions to property, plant and equipment
Free cash flow
FY19
FY18
$
$
$
$
$
9,538.4
6,885.4
2,653.0
53.0
11.1
—
1.8
2,718.9
28.5 %
May 26, 2019
1,114.3
(353.1 )
761.2
$
$
$
$
$
7,938.3
5,586.8
2,351.5
—
7.8
0.6
(6.2 )
2,353.7
29.7 %
May 27, 2018
919.7
(251.6 )
668.1
113
INVESTOR INFORMATION
CONTACTS
Investor Relations
(312) 549-5002
(for analyst/investor inquiries)
EQ Shareowner Services
(800) 214-0349
www.shareowneronline.com
(for individual shareholder account issues)
Corporate Secretary
(402) 240-4005
shareholderservices@conagra.com
(for additional shareholder needs)
Consumer Affairs
(877) CONAGRA
(877) 266-2472
(for consumer inquiries)
CORPORATE HEADQUARTERS
Conagra Brands, Inc.
222 Merchandise Mart Plaza,
Suite 1300
Chicago, IL 60654
(312) 549-5000
CONAGRA BRANDS COMMON STOCK
Exchange: New York Stock Exchange
Ticker symbol: CAG
At the end of fiscal 2019, approximately
486 million shares of common stock were
outstanding. As of June 23, 2019, there
were approximately 16,148 stockholders of
record. During fiscal 2019, approximately
1,713 million or 1.7 billion shares were
traded with a daily average volume of
approximately 6.6 million shares.
ANNUAL REPORT ON FORM 10-K
The company’s Annual Report on Form
10-K for the fiscal year ended May 26, 2019,
which has been filed with the Securities and
Exchange Commission, is included as part
of this Annual Report.
TRANSFER AGENT AND REGISTRAR
EQ Shareowner Services
1110 Centre Point Curve
Suite 101
Mendota Heights, MN 55120
(800) 214-0349
NEWS AND PUBLICATIONS
Conagra Brands provides annual reports to
stockholders of record. Street-name holders
who would like to receive these reports
directly from us may call Investor Relations
at (312) 549-5002 and ask to be placed on
our mailing list.
COMMON STOCK DIVIDENDS
We paid a quarterly dividend of $0.2125 per
share for each of the quarters of fiscal 2019.
Investors can access information on
Conagra Brands’ performance, corporate
responsibility initiatives and other
information at www.conagrabrands.com.
ANNUAL MEETING OF STOCKHOLDERS
Thursday, September 19, 2019
1:00 p.m. CDT
Wyndham Grand Chicago Riverfront
6th Floor—Grand Ballroom
71 East Wacker Drive
Chicago, Illinois 60601
SHAREHOLDER SERVICES
Stockholders of record who have questions
about or need help with their accounts
may contact EQ Shareowner Services
by telephone at (800) 214-0349
or by logging on to their accounts at
www.shareowneronline.com.
Through Shareholder Services,
stockholders of record may make
arrangements to:
•
•
•
•
•
automatically deposit dividends
directly to bank accounts through
electronic funds transfer;
have stock certificates held
for safekeeping;
automatically reinvest dividends
in Conagra Brands common stock
(about 60% of Conagra Brands
stockholders of record participate
in the dividend reinvestment plan);
purchase additional shares of
Conagra Brands common stock through
voluntary cash investments; and
have bank accounts automatically
debited to purchase additional
Conagra Brands shares.
DEAR FELLOW SHAREHOLDERS
DEAR FELLOW SHAREHOLDERS
BOARD OF DIRECTORS
BOARD OF DIRECTORS
In each of the last four years, my letter to you has focused
In each of the last four years, my letter to you has focused
of net sales growth. Our fiscal 2019 gross profit increased
of net sales growth. Our fiscal 2019 gross profit increased
on a common theme: the incredible transformation
on a common theme: the incredible transformation
12.8%, again driven by the Pinnacle acquisition. Adjusted
12.8%, again driven by the Pinnacle acquisition. Adjusted
under way here at Conagra Brands. This year’s letter
under way here at Conagra Brands. This year’s letter
gross profit increased 15.5%.2 The impact of our financing
gross profit increased 15.5%.2 The impact of our financing
will not break from that tradition. During fiscal 2019, we
will not break from that tradition. During fiscal 2019, we
for the Pinnacle acquisition led to a 21.5% decline in diluted
for the Pinnacle acquisition led to a 21.5% decline in diluted
continued our work to strengthen Conagra’s portfolio,
continued our work to strengthen Conagra’s portfolio,
earnings per share from continuing operations (EPS)
earnings per share from continuing operations (EPS)
capabilities and culture to accelerate growth and maximize
capabilities and culture to accelerate growth and maximize
in fiscal 2019, and a decline in adjusted EPS of 4.7%.2
in fiscal 2019, and a decline in adjusted EPS of 4.7%.2
value creation. Ultimately, fiscal 2019 was another year of
value creation. Ultimately, fiscal 2019 was another year of
However, the company continued its history of strong
However, the company continued its history of strong
remarkable transition for Conagra Brands.
remarkable transition for Conagra Brands.
cash flow generation from its earnings. We generated $1.1
cash flow generation from its earnings. We generated $1.1
billion in net cash flows from operating activities (continuing
billion in net cash flows from operating activities (continuing
Transformation of our portfolio has been a key priority of
Transformation of our portfolio has been a key priority of
operations) in fiscal 2019 and $761 million2 of free cash
operations) in fiscal 2019 and $761 million2 of free cash
ours since my tenure with the company began. In fiscal
ours since my tenure with the company began. In fiscal
flow, both of which were above expectations.
flow, both of which were above expectations.
2019, we made significant strides in this regard. First, we
2019, we made significant strides in this regard. First, we
launched an expansive innovation slate, particularly in our
launched an expansive innovation slate, particularly in our
Our strong cash flow results enabled us to remain on track
Our strong cash flow results enabled us to remain on track
frozen food and snacking businesses. Terrific new products
frozen food and snacking businesses. Terrific new products
with our post-Pinnacle deleveraging plan. We reduced debt
with our post-Pinnacle deleveraging plan. We reduced debt
across brands like Healthy Choice,® Marie Callender’s® and
across brands like Healthy Choice,® Marie Callender’s® and
by $886 million from the close of the acquisition through
by $886 million from the close of the acquisition through
Banquet® enabled our frozen single-serve meals portfolio
Banquet® enabled our frozen single-serve meals portfolio
the end of the fiscal year. We remain fully committed
the end of the fiscal year. We remain fully committed
to drive growth for the entire category. Within snacks,
to drive growth for the entire category. Within snacks,
to achieving our goal of a net debt to adjusted EBITDA
to achieving our goal of a net debt to adjusted EBITDA
our innovation led growth beyond our expectations and
our innovation led growth beyond our expectations and
leverage ratio of 3.6 to 3.5 times by the end of fiscal 2021
leverage ratio of 3.6 to 3.5 times by the end of fiscal 2021
contributions from every key snacking vertical: popcorn,
contributions from every key snacking vertical: popcorn,
and maintaining a solid investment grade credit rating.
and maintaining a solid investment grade credit rating.
meat snacks, sweet treats and seeds. Our fiscal 2019
meat snacks, sweet treats and seeds. Our fiscal 2019
innovation initiatives helped Conagra deliver organic net
innovation initiatives helped Conagra deliver organic net
We also continued to prioritize returning capital to our
We also continued to prioritize returning capital to our
sales growth for the second year in a row.
sales growth for the second year in a row.
shareholders in fiscal 2019. During the year, we paid cash
shareholders in fiscal 2019. During the year, we paid cash
dividends of $356 million.
dividends of $356 million.
Beyond innovating our existing portfolio in fiscal 2019,
Beyond innovating our existing portfolio in fiscal 2019,
we accelerated the next wave of change through the
we accelerated the next wave of change through the
Delivering on financial commitments to shareholders will
Delivering on financial commitments to shareholders will
acquisition of Pinnacle Foods. Pinnacle was an obvious
acquisition of Pinnacle Foods. Pinnacle was an obvious
always remain our priority. However, we firmly believe that
always remain our priority. However, we firmly believe that
fit for Conagra, and the acquisition increased our scale,
fit for Conagra, and the acquisition increased our scale,
we can do well by doing good. During fiscal 2019 we made
we can do well by doing good. During fiscal 2019 we made
enhanced our frozen platform and added leading, iconic
enhanced our frozen platform and added leading, iconic
great progress on our Corporate Social Responsibility
great progress on our Corporate Social Responsibility
brands in attractive categories. Since completing the
brands in attractive categories. Since completing the
(CSR) agenda and I invite you to visit our website to
(CSR) agenda and I invite you to visit our website to
transaction in October 2018, we’ve made tremendous
transaction in October 2018, we’ve made tremendous
read our citizenship report. The report provides detail on
read our citizenship report. The report provides detail on
progress integrating the business, realizing synergies
progress integrating the business, realizing synergies
our four CSR focus areas—Better Planet, Good Food,
our four CSR focus areas—Better Planet, Good Food,
and positioning Pinnacle’s largest brands—Bird’s Eye,®
and positioning Pinnacle’s largest brands—Bird’s Eye,®
Stronger Communities and Responsible Sourcing.
Stronger Communities and Responsible Sourcing.
Duncan Hines® and Wish-Bone®— for a return to growth.
Duncan Hines® and Wish-Bone®— for a return to growth.
Team members across Conagra Brands have once
Team members across Conagra Brands have once
again come together to deliver against our important
again come together to deliver against our important
The Pinnacle acquisition also enhanced our portfolio of
The Pinnacle acquisition also enhanced our portfolio of
initiatives in this space.
initiatives in this space.
better-for-you brands. Particularly exciting among these
better-for-you brands. Particularly exciting among these
brands is Gardein,® the second largest plant-based meat
brands is Gardein,® the second largest plant-based meat
Looking ahead, I remain confident that Conagra Brands
Looking ahead, I remain confident that Conagra Brands
alternative brand in the marketplace today.1 We believe
alternative brand in the marketplace today.1 We believe
has the portfolio, capabilities and people to deliver
has the portfolio, capabilities and people to deliver
that Gardein is well positioned to capitalize on the
that Gardein is well positioned to capitalize on the
sustainable, profitable growth for you, our owners.
sustainable, profitable growth for you, our owners.
exciting growth in consumer interest in plant-based
exciting growth in consumer interest in plant-based
meat alternatives. Gardein already provides center-of-plate
meat alternatives. Gardein already provides center-of-plate
I want to thank all of our dedicated employees across
I want to thank all of our dedicated employees across
offerings across all day parts, and we’re excited
offerings across all day parts, and we’re excited
the globe for their commitment to creating value at
the globe for their commitment to creating value at
to bring more plant-based proteins to consumers in
to bring more plant-based proteins to consumers in
Conagra Brands, and I’d like to thank you for your
Conagra Brands, and I’d like to thank you for your
the years ahead.
the years ahead.
continued confidence in us.
continued confidence in us.
As a result of our focus on reshaping the Conagra Brands
As a result of our focus on reshaping the Conagra Brands
Sincerely,
Sincerely,
portfolio over the last several years, we enter fiscal 2020
portfolio over the last several years, we enter fiscal 2020
with a solid foundation from which to deliver for investors.
with a solid foundation from which to deliver for investors.
Turning to our fiscal 2019 financials, we delivered a net
Turning to our fiscal 2019 financials, we delivered a net
sales increase of 20.2%, driven by the Pinnacle acquisition.
sales increase of 20.2%, driven by the Pinnacle acquisition.
Sean M. Connolly
Sean M. Connolly
Organic net sales grew 0.3%,2 our second consecutive year
Organic net sales grew 0.3%,2 our second consecutive year
President and Chief Executive Officer
President and Chief Executive Officer
1 IRI MULO Current Year May 2018 - April 2019
1 IRI MULO Current Year May 2018 - April 2019
2 This measure is a non-GAAP financial measure. For a reconciliation of this measure to the most directly comparable GAAP
2 This measure is a non-GAAP financial measure. For a reconciliation of this measure to the most directly comparable GAAP
measure, please see Reconciliation For Regulation G Purposes beginning on page 112.
measure, please see Reconciliation For Regulation G Purposes beginning on page 112.
3 The inability to predict the amount and timing of the impacts of foreign exchange, acquisitions, divestitures, and other items
3 The inability to predict the amount and timing of the impacts of foreign exchange, acquisitions, divestitures, and other items
impacting comparability makes a detailed reconciliation of this forward-looking non-GAAP financial measure impracticable.
impacting comparability makes a detailed reconciliation of this forward-looking non-GAAP financial measure impracticable.
Anil Arora
Anil Arora
Director and Former Vice Chairman of
Director and Former Vice Chairman of
Envestnet, Inc.; Former Chief Executive
Envestnet, Inc.; Former Chief Executive
of Envestnet | Yodlee
of Envestnet | Yodlee
Director since July 2018
Director since July 2018
Richard H. Lenny
Richard H. Lenny
Former Chairman and Chief Executive
Former Chairman and Chief Executive
Officer of The Hershey Company
Officer of The Hershey Company
Director since March 2009 and Non-
Director since March 2009 and Non-
Executive Chairman since May 2018
Executive Chairman since May 2018
Thomas K. Brown
Thomas K. Brown
Retired Group Vice President of Global
Retired Group Vice President of Global
Purchasing at Ford Motor Company
Purchasing at Ford Motor Company
Director since October 2013
Director since October 2013
Stephen G. Butler
Stephen G. Butler
Retired Chairman and
Retired Chairman and
Chief Executive Officer of KPMG LLP
Chief Executive Officer of KPMG LLP
Director since May 2003
Director since May 2003
Sean M. Connolly
Sean M. Connolly
President and Chief Executive Officer
President and Chief Executive Officer
of Conagra Brands, Inc.
of Conagra Brands, Inc.
since April 2015
since April 2015
Director since April 2015
Director since April 2015
Melissa Lora
Melissa Lora
Retired President of Taco Bell
Retired President of Taco Bell
International, a part of
International, a part of
YUM! Brands, Inc.
YUM! Brands, Inc.
Director since January 2019
Director since January 2019
Ruth Ann Marshall
Ruth Ann Marshall
Retired President of MasterCard
Retired President of MasterCard
International’s Americas division
International’s Americas division
Director since May 2007
Director since May 2007
Craig P. Omtvedt
Craig P. Omtvedt
Retired Senior Vice President
Retired Senior Vice President
and Chief Financial Officer of
and Chief Financial Officer of
Fortune Brands, Inc.
Fortune Brands, Inc.
Director since November 2016
Director since November 2016
Joie A. Gregor
Joie A. Gregor
Retired Managing Director
Retired Managing Director
for Leadership Development
for Leadership Development
at Warburg Pincus, LLC
at Warburg Pincus, LLC
Director since February 2009
Director since February 2009
Rajive Johri
Rajive Johri
Former President and Director
Former President and Director
of First National Bank of Omaha
of First National Bank of Omaha
Director since January 2009
Director since January 2009
Scott Ostfeld
Scott Ostfeld
Partner of JANA Partners LLC
Partner of JANA Partners LLC
and co-portfolio manager of JANA’s
and co-portfolio manager of JANA’s
engagement strategy.
engagement strategy.
Director since February 2019
Director since February 2019
THIS IS A GREENER
THIS IS A GREENER
ANNUAL REPORT
ANNUAL REPORT
The paper for this publication is
The paper for this publication is
FSC® certified and meets the strict
FSC® certified and meets the strict
standards of the Forest Stewardship
standards of the Forest Stewardship
Council,® which promotes
Council,® which promotes
environmentally appropriate, socially
environmentally appropriate, socially
beneficial and economically viable
beneficial and economically viable
management of the world’s forests.
management of the world’s forests.
LEADERSHIP
LEADERSHIP
Sean Connolly
Sean Connolly
Chief Executive Officer
Chief Executive Officer
and President
and President
Colleen Batcheler
Colleen Batcheler
Executive Vice President,
Executive Vice President,
General Counsel and
General Counsel and
Corporate Secretary
Corporate Secretary
Dave Biegger
Dave Biegger
Executive Vice President,
Executive Vice President,
Chief Supply Chain Officer
Chief Supply Chain Officer
Charisse Brock
Charisse Brock
Executive Vice President,
Executive Vice President,
Chief Human Resources Officer
Chief Human Resources Officer
Derek De La Mater
Derek De La Mater
Executive Vice President,
Executive Vice President,
Chief Customer Officer
Chief Customer Officer
Jon Harris
Jon Harris
Senior Vice President,
Senior Vice President,
Chief Communications Officer
Chief Communications Officer
David Marberger
David Marberger
Executive Vice President,
Executive Vice President,
Chief Financial Officer
Chief Financial Officer
Tom McGough
Tom McGough
Executive Vice President,
Executive Vice President,
Co-Chief Operating Officer
Co-Chief Operating Officer
Darren Serrao
Darren Serrao
Executive Vice President,
Executive Vice President,
Co-Chief Operating Officer
Co-Chief Operating Officer
Mindy Simon
Mindy Simon
Senior Vice President,
Senior Vice President,
Chief Information Officer
Chief Information Officer
Robert Wise
Robert Wise
Senior Vice President,
Senior Vice President,
Corporate Controller
Corporate Controller
Conagra Brands
Annual Report
2019
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9
222 Merchandise Mart Plaza
Suite 1300
Chicago, IL 60654
©Conagra Brands, Inc. All rights reserved.
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