Conagra Brands
Annual Report
2020
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222 Merchandise Mart Plaza
Suite 1300
Chicago, IL 60654
©Conagra Brands, Inc. All rights reserved.
DEAR FELLOW SHAREHOLDERS
BOARD OF DIRECTORS
On behalf of Conagra Brands, I want to express my hopes
that you and your families are healthy and safe in these
unprecedented times. While no one could have predicted
how fiscal 2020 would develop, today I can say I am
inspired by and thankful for our team’s response to the
COVID-19 pandemic. As an essential business during this
time of great challenge, the Conagra team’s dedication
to supporting our customers, consumers, communities
and each other has been—and continues to be—a true
reflection of the Conagra Way in action.
As we enter fiscal 2021, we are optimistic. The degree to
which consumer demand will return to historical norms is
uncertain, as is the timing of any changes in consumer
demand. And, in the immediate future, our Foodservice
business will remain challenged. However, we believe our
portfolio is optimally positioned to succeed. Consumers
are discovering and re-discovering the pleasures,
conveniences and tremendous value proposition of dining
at home. The work we have done in recent years to invest
in our portfolio breadth and food quality is paying off.
For five years you have heard me discuss the Conagra
Way, which is how we deliver long-term, profitable growth.
We perpetually reshape our portfolio for better growth and
margins, we invest in differentiated capabilities, we stay
focused on the consumer and we work to build the most
energized culture in food. Our transformation, rooted in the
Conagra Way, continued during fiscal 2020 and prepared
us to effectively respond to the COVID-19 crisis.
As we entered the fourth quarter of our fiscal 2020, we
were met with extraordinary circumstances. Restaurants
closed, schools shifted to virtual learning, people sheltered
in place, consumers increasingly cooked and ate at home
and demand for our products reached an all-time high.
Staple brands like Chef Boyardee® and Hunt’s,® frozen
leaders such as Bird’s Eye,® Healthy Choice® and
Marie Callender’s,® snack brands like Slim Jim® and
Duncan Hines® and emerging brands, including Gardein,™
Frontera® and Angie’s BOOMCHICKAPOP,® all took on
new importance to consumers.
I’m proud to report that our broad portfolio, strengthened
by the fiscal 2019 acquisition of Pinnacle Foods, our agile
culture and our dedicated workforce enabled us to deliver
for consumers and deliver strong financial results:
• Our organic net sales1 increased 5.6% during fiscal
2020, with strong growth across our portfolio.
• We delivered a 13.4% increase in adjusted diluted
earnings per share (EPS) from continuing operations
versus a year ago.
• We exceeded our free cash flow guidance for the
year, generating more than $1.4 billion in fiscal 2020.
This allowed us to accelerate our progress on reducing
debt; we have reduced our total gross debt by more
than $1.8 billion from the closing of the Pinnacle
acquisition through the end of fiscal 2020.
We are also optimistic about our financial strength.
We remain committed to achieving our net leverage
ratio target of 3.5x to 3.6x by the end of fiscal 2021 and
remain committed to maintaining a solid investment grade
credit rating.
Fiscal 2021 also brings opportunity to further our corporate
social responsibility (CSR) agenda. Our citizenship report,
published on ConagraBrands.com, details our four CSR
focus areas: Good Food, Better Planet, Responsible
Sourcing and Stronger Communities. In the report, you
can read inspiring stories of employees across Conagra
contributing to our water conservation, zero waste, and
packaging initiatives.
As fiscal 2021 progresses, you will hear more from us
with respect to our Stronger Communities pillar. Like
you, we have been deeply saddened by recent events
in the U.S. It’s heartbreaking and unacceptable that
racism and prejudice persist, but we can be a part of the
solution. Building stronger communities embodies how we
view our culture. With recent calls for racial justice across
America changing how people view their roles in advancing
equality, we know that we can play a part. Our first step
has been to work with an external diversity and inclusion
(D&I) consultancy to help us consolidate a comprehensive
understanding of our foundational D&I efforts and identify
specific opportunities that can make Conagra stronger. We
look forward to continuing to share updates of our progress
along the way.
Here at Conagra, we talk about infusing a “refuse to lose”
attitude in all that we do, and I think this year has shown
the value of that refrain. I would therefore like to close
by recognizing our manufacturing employees across
North America. Never have we seen a team make such
extraordinary efforts. On behalf of all Conagra employees
and stakeholders, thank you.
Thank you for your ongoing investment in Conagra Brands.
• We paid nearly $414 million in cash dividends during
the year.
Sincerely,
1 Organic net sales excludes the impact of foreign exchange and divested businesses, as well as acquisitions (until the anniversary date of the acquisitions). Organic net sales growth excludes the impact
of fiscal 2020’s 53rd week, which was calculated as one-sixth of our last month’s net sales (which included a total of six weeks).
Sean M. Connolly, President and Chief Executive Officer
Anil Arora
San Francisco, CA
Director and Former Vice Chairman of
Envestnet, Inc.; Former Chief Executive
of Envestnet | Yodlee
Director since 2018
Richard H. Lenny
Chicago, IL
Former Chairman and Chief Executive
Officer of The Hershey Company
Director since 2009 and Non-Executive
Chairman since 2018
Thomas K. Brown
Dearborn, MI
Retired Group Vice President of Global
Purchasing at Ford Motor Company
Director since 2013
Stephen G. Butler
Leawood, KS
Retired Chairman and
Chief Executive Officer of KPMG LLP
Director since 2003
Sean M. Connolly
Chicago, IL
President and Chief Executive Officer
of Conagra Brands, Inc.
since 2015
Director since 2015
Joie A. Gregor
Scottsdale, AZ
Retired Managing Director
for Leadership Development
at Warburg Pincus, LLC
Director since 2009
Rajive Johri
Greenwich, CT
Former President and Director
of First National Bank of Omaha
Director since 2009
Melissa Lora
Newport Beach, CA
Retired President of Taco Bell
International, a part of YUM!
Brands, Inc.
Director since 2019
Ruth Ann Marshall
Fisher Island, FL
Retired President of MasterCard
International’s Americas division
Director since 2007
Craig P. Omtvedt
Palm Beach, FL
Retired Senior Vice President
and Chief Financial Officer of
Fortune Brands, Inc.
Director since 2016
Scott Ostfeld
New York, NY
Partner of JANA Partners LLC
and Co-Portfolio Manager of JANA
Strategic Investments
Director since 2019
THIS IS A GREENER
ANNUAL REPORT
The paper for this publication is
FSC® certified and meets the strict
standards of the Forest Stewardship
Council,® which promotes
environmentally appropriate, socially
beneficial and economically viable
management of the world’s forests.
LEADERSHIP
Sean Connolly
Chief Executive Officer
and President
Colleen Batcheler
Executive Vice President,
General Counsel and
Corporate Secretary
Dave Biegger
Executive Vice President,
Chief Supply Chain Officer
Charisse Brock
Executive Vice President,
Chief Human Resources Officer
Derek De La Mater
Executive Vice President,
Chief Customer Officer
Jon Harris
Senior Vice President,
Chief Communications Officer
David Marberger
Executive Vice President,
Chief Financial Officer
Tom McGough
Executive Vice President,
Co-Chief Operating Officer
Darren Serrao
Executive Vice President,
Co-Chief Operating Officer
Mindy Simon
Senior Vice President,
Chief Information Officer
Robert Wise
Senior Vice President,
Corporate Controller
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2020
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)
CAG
Name of each exchange on which registered
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 ☑ No ☐
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 ☐ No ☑
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 ☐
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
☐
☐
☐
Smaller reporting company
Emerging growth company
Non-accelerated filer
Accelerated filer
☑
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting common stock of Conagra Brands, Inc. held by non-affiliates on November 22, 2019 (the last business day of the
Registrant's most recently completed second fiscal quarter) was approximately $13,986,160,847 based upon the closing sale price on the New York Stock Exchange
on such date.
At June 28, 2020, 487,243,684 common shares were outstanding.
Documents Incorporated by Reference
Portions of the Registrant’s definitive Proxy Statement for the Registrant's 2020 Annual Meeting of Stockholders (the "2020 Proxy Statement") are
incorporated by reference into Part III.
Table of Contents
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
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
Item 8 Financial Statements and Supplementary Data
Consolidated Statements of Earnings for the Fiscal Years Ended May 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended May 2020, 2019, and 2018
Consolidated Balance Sheets as of May 31, 2020 and May 26, 2019
Consolidated Statements of Common Stockholders' Equity for the Fiscal Years Ended May 2020, 2019, and
2018
Consolidated Statements of Cash Flows for the Fiscal Years Ended May 2020, 2019, and 2018
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
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accountant Fees and Services
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. The Company's portfolio is evolving 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 1976. Over time, we
transformed into the branded, pure-play consumer packaged goods food company we are today. Growing our food businesses has
also been fueled by innovation, organic growth of our brands, and expansion into adjacent categories, including through
acquisitions. 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.
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.
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.
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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.
Unconsolidated Equity Investments
We have two unconsolidated equity investments. Our most significant equity method investment is Ardent Mills, a milling
business.
Acquisitions
On October 26, 2018, we completed the acquisition of Pinnacle, a branded packaged foods company specializing in shelf-
stable and frozen foods. 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 $7.03 billion of the purchase
price was allocated to goodwill and approximately $3.52 billion was 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. In the first quarter of fiscal 2020, we
reorganized our reporting segments to incorporate the Pinnacle operations into our legacy reporting segment in order to better reflect
how the business is now being managed. Prior periods have been reclassified to conform to the revised segment presentation and
the results of the Pinnacle business are now included in each of our reporting segments outlined above.
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.
Divestitures
During the third quarter of fiscal 2020, we completed the sale of our Lender's® bagel business for net proceeds of $33.2
million, subject to final working capital adjustments. The results of operations of the divested Lender's® bagel business were
primarily included in our Refrigerated & Frozen segment, and to a lesser extent within our Foodservice segment, for the periods
preceding the completion of the transaction. 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 second quarter of fiscal 2020, we completed the sale of our Direct Store Delivery ("DSD") snacks business for net
proceeds of $137.5 million, including working capital adjustments. The results of operations of the divested DSD snacks business
were included in our Grocery & Snacks segment for the periods preceding the completion of the transaction. 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 Italian-based frozen pasta business, Gelit, for proceeds
net of cash divested of $80.1 million, including final working capital adjustments. The results of operations of this divested business
were primarily included in our Refrigerated & Frozen segment for the periods preceding the completion of the transaction.
4
During the fourth quarter of fiscal 2019, we completed the sale of our Wesson® oil business for net proceeds of $168.3 million,
including final working capital adjustments. The results of operations of the divested Wesson® oil business were 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 were included in our
International segment for the periods preceding the completion of the transaction.
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. For example,
sales of frozen foods tend to be marginally higher during the winter months, seafood sales are highest during Lent, in advance of
the Easter holiday, and production of certain of our products occurs seasonally, during or immediately following the purchase of
agricultural crops.
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 intellectual property rights, including our trademarks, licensing agreements, trade secrets, patents, and copyrights are of
material importance to our business and we attempt to protect such 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. Some of our food items are sold under brands that have been licensed
from others, including P.F. Chang’s®, Bertolli®, and Libby’s® trademarks. We also own certain intellectual property rights that are
licensed to third parties, such as the Alexia® trademark. 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. 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 26% of consolidated net sales for fiscal
2020 and 24% of consolidated net sales for each of fiscal 2019 and 2018.
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As of May 31, 2020, Conagra Brands and its subsidiaries had approximately 16,500 employees, primarily in the United States.
Approximately 52% of our employees are parties to collective bargaining agreements. Of the employees subject to collective
bargaining agreements, approximately 5% are parties to collective bargaining agreements scheduled to expire during fiscal 2021.
We believe our relationships with employees and their representative organizations are good.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The names, ages, and positions of our executive officers as of July 24, 2020 are listed below:
Name
Title & Capacity
Sean M. Connolly
David S. Marberger
Colleen R. Batcheler
David B. Biegger
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, General Counsel and Corporate Secretary
Executive Vice President, Chief Supply Chain Officer
Charisse Brock
Thomas M. McGough
Executive Vice President, Chief Human Resources Officer
Executive Vice President and Co-Chief Operating Officer
Darren C. Serrao
Robert G. Wise
Executive Vice President and Co-Chief Operating Officer
Senior Vice President, Corporate Controller
Year First
Appointed an
Executive
Officer
2015
2016
2008
2015
2015
2013
2015
2012
Age
54
55
46
61
58
55
54
52
Sean M. Connolly has served as our President and Chief Executive Officer and a member of the Board of Directors 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 (a manufacturer and supplier of baked goods) 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, he served in various roles at Campbell Soup Company (a branded food products 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 (a branded food products 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 The Procter
& Gamble Company (a consumer packaged goods company).
6
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 (a branded food
products 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 (a food processing company), 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 (a branded food
products 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 20 "Business Segments and Related Information" to the consolidated
financial statements contained in this report.
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.
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Risks Relating to our Business
The COVID-19 pandemic could have an adverse impact on our business, financial condition and results of operations.
In December 2019, there was an outbreak of a novel strain of coronavirus (COVID-19) in China that has since spread to
nearly all regions of the world. The outbreak was subsequently declared a pandemic by the World Health Organization in March
2020. To date, the COVID-19 outbreak and preventative measures taken to contain or mitigate the outbreak have caused, and are
continuing to cause, business slowdowns or shutdowns in affected areas and significant disruption in the financial markets both
globally and in the United States.
In response to the COVID-19 pandemic and related mitigation measures, we created an internal COVID-19 pandemic team
in order to review and assess the evolving COVID-19 pandemic and began implementing changes in our business in March 2020
to protect our employees and customers, and to support appropriate health and safety protocols. For example, we installed physical
barriers between employees in production facilities, implemented extensive cleaning and sanitation processes for both production
and office spaces, and implemented broad work-from-home initiatives for office personnel. While all of these measures have been
necessary and appropriate, they have resulted in additional costs, which we expect will continue in fiscal 2021 as we work to address
employee safety.
Although we have experienced some challenges in connection with the COVID-19 pandemic, including temporary closings
of production facilities and reduced demand for certain of our products, at this time, we have not experienced a net negative impact
on our liquidity or results of operations. While we generally expect demand levels for our products to return to historical norms as
we progress through fiscal 2021, we are unable to predict the ultimate impact of the COVID-19 outbreak, including the nature and
timing of when such demand normalization may occur. The continued spread of COVID-19 could negatively impact our business,
financial condition and results of operations in a number of ways in the future, including but not limited to:
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further shutdowns or slowdowns of one or more of our production facilities;
disruptions in our supply chain and our ability to obtain ingredients, packaging and other sourced materials due to labor
shortages, governmental restrictions or the failure of our suppliers, distributors or manufacturers to meet their
obligations to us;
strains on our supply chain due to increased consumer demand for certain of our products as a result of increased at-
home consumption;
increases in raw material and commodity costs;
the inability of a significant portion of our workforce, including our management team, to work as a result of illness or
government restrictions;
shifts and volatility in consumer spending and purchasing behaviors due to the economic downturn;
decreased consumer traffic in away-from-home food outlets; and
reduced availability of credit or financing upon acceptable terms or at all.
The situation surrounding the COVID-19 pandemic remains fluid, and given its inherent uncertainty, we expect that it could
have an adverse impact on our business in the future. The duration and extent of the impact from the COVID-19 pandemic depends
on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the
extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, suppliers,
distributors and manufacturers. Should these conditions persist for a prolonged period, the COVID-19 pandemic, including any of
the above factors and others that are currently unknown, could have a material adverse effect on our business, financial condition
and results of operations. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Item 1A, Risk
Factors, any of which could have a material effect on us.
Deterioration of general economic conditions could harm our business and results of operations.
Our business and results of operations may be adversely affected by changes in national or global economic conditions,
including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs (including
fuel surcharges), the negative impacts caused by pandemics and public health crises (including the COVID-19 pandemic), and the
effects of governmental initiatives to manage economic conditions.
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Volatility in financial markets and deterioration of national and global economic conditions could impact our business and
operations in a variety of ways, including as follows:
consumers may shift purchases to more generic, lower-priced, or other value offerings, or may forego certain purchases
altogether during economic downturns, which could result in a reduction in sales of higher margin products or a shift
in our product mix to lower margin offerings adversely affecting the results of our operations;
restrictions on public gatherings or interactions may limit the opportunity for our customers and consumers to purchase
our products;
decreased demand in the restaurant business (including due to the COVID-19 pandemic), 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 31, 2020, we had total debt of approximately $9.75 billion, including approximately $9.44 billion aggregate
principal amount of senior notes. 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 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, 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.
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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 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 Earnings 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.
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If we do not achieve the appropriate cost structure in the highly competitive food industry, our profitability could decrease.
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
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
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
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
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
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
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
our competitive position. If we do not continue to effectively manage costs and achieve additional efficiencies, our competitiveness
and our profitability could decrease.
and our profitability could decrease.
We may not realize the benefits that we expect from our restructuring plans, including the Pinnacle Integration Restructuring
We may not realize the benefits that we expect from our restructuring plans, including the Pinnacle Integration Restructuring
Plan.
Plan.
In fiscal 2019, we announced a restructuring and integration plan related to the ongoing integration of Pinnacle for the purpose
In fiscal 2019, we announced a restructuring and integration plan related to the ongoing integration of Pinnacle for the purpose
of achieving significant cost synergies (the "Pinnacle Integration Restructuring Plan"). We expect to incur material charges for exit
of achieving significant cost synergies (the "Pinnacle Integration Restructuring Plan"). We expect to incur material charges for exit
and disposal activities under U.S. generally accepted accounting principles.
and disposal activities under U.S. generally accepted accounting principles.
The successful design and implementation of the Pinnacle Integration Restructuring Plan presents significant organizational
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
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
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
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
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
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, 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
Integration Restructuring Plan in accordance with our expectations could adversely affect our financial condition, results of
operations, and cash flows.
operations, and cash flows.
In addition, the complexity of the Pinnacle Integration Restructuring Plan will require a substantial amount of management
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
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
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
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,
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.
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 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
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
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
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.
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
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
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
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
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.
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
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 and the Food Safety
Drug Administration and other federal, state, and local government agencies. The Food, Drug & Cosmetic Act and the Food Safety
Modernization Act and their respective regulations govern, among other things, the manufacturing, composition and ingredients,
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
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
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
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.
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.
We must identify changing consumer preferences and develop and offer food products to meet their preferences.
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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
Consumer preferences evolve over time and the success of our food products depends on our ability to identify the tastes and
and wellness, obesity, product attributes, and ingredients. Introduction of new products and product extensions requires significant
dietary habits of consumers and to offer products that appeal to their preferences, including concerns of consumers regarding health
development and marketing investment. If our products fail to meet consumer preferences, or we fail to introduce new and improved
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and wellness, obesity, product attributes, and ingredients. Introduction of new products and product extensions requires significant
products on a timely basis, then the return on that investment will be less than anticipated and our strategy to grow sales and profits
development and marketing investment. If our products fail to meet consumer preferences, or we fail to introduce new and improved
with investments in acquisitions, marketing, and innovation will be less successful. Similarly, demand for our products could be
products on a timely basis, then the return on that investment will be less than anticipated and our strategy to grow sales and profits
affected by consumer concerns or perceptions regarding the health effects of ingredients such as sodium, trans fats, sugar, processed
with investments in acquisitions, marketing, and innovation will be less successful. Similarly, demand for our products could be
wheat, or other product ingredients or attributes.
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.
Changes in our relationships with significant customers or suppliers could adversely affect us.
During fiscal 2020, our largest customer, Walmart, Inc. and its affiliates, accounted for approximately 26% of our consolidated
net sales. There can be no assurance that Walmart, Inc. and other significant customers will continue to purchase our products in
During fiscal 2020, our largest customer, Walmart, Inc. and its affiliates, accounted for approximately 26% of our consolidated
the same quantities or on the same terms as in the past, particularly as increasingly powerful retailers continue to demand lower
net sales. There can be no assurance that Walmart, Inc. and other significant customers will continue to purchase our products in
pricing. The loss of a significant customer or a material reduction in sales to a significant customer could materially and adversely
the same quantities or on the same terms as in the past, particularly as increasingly powerful retailers continue to demand lower
affect our product sales, financial condition, and results of operations.
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.
The sophistication and buying power of our customers could have a negative impact on profits.
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
Our customers, such as supermarkets, warehouse clubs, and food distributors, have continued to consolidate, resulting in
customers have produced large, sophisticated customers with increased buying power and negotiating strength who are more
fewer customers on which we can rely for business. These consolidations, the growth of supercenters, and the growth of e-commerce
capable of resisting price increases and can demand lower pricing, increased promotional programs, or specialty tailored products.
customers have produced large, sophisticated customers with increased buying power and negotiating strength who are more
In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to
capable of resisting price increases and can demand lower pricing, increased promotional programs, or specialty tailored products.
develop and market their own retailer brands. These customers may also in the future use more of their shelf space, currently used
In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to
for our products, for their store brand products. We continue to implement initiatives to counteract these pressures. However, if the
develop and market their own retailer brands. These customers may also in the future use more of their shelf space, currently used
larger size of these customers results in additional negotiating strength and/or increased private label or store brand competition,
for our products, for their store brand products. We continue to implement initiatives to counteract these pressures. However, if the
our profitability could decline.
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
Consolidation also increases the risk that adverse changes in our customers' business operations or financial performance will
they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases.
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.
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
From time to time, we evaluate acquisition candidates that may strategically fit our business objectives. If we are unable to
adversely affected. Moreover, we may incur asset impairment charges related to acquisitions that reduce our profitability.
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
Our acquisition activities may present financial, managerial, and operational risks. Those risks include diversion of
immediate implementation of control environment processes across our employee population, adverse effects on existing business
management attention from existing businesses, difficulties integrating personnel and financial and other systems, effective and
relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and
immediate implementation of control environment processes across our employee population, adverse effects on existing business
amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or key
relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and
employees of acquired businesses, and indemnities and potential disputes with the sellers. Any of these factors could affect our
amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or key
product sales, financial condition, and results of operations.
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.
If we are unable to complete our proposed divestitures, our financial results could be materially and adversely affected.
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,
From time to time, we may divest businesses that do not meet our strategic objectives or do not meet our growth or profitability
or lost operating income from, those businesses may affect our profitability and margins. Moreover, we may incur asset impairment
targets. We may not be able to complete desired or proposed divestitures on terms favorable to us. Gains or losses on the sales of,
charges related to divestitures that reduce our profitability.
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
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
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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
providing transition services to buyers, adverse effects on existing business relationships with suppliers and customers and
management attention from existing businesses, difficulties separating personnel and financial and other systems, possible need for
indemnities and potential disputes with the buyers. Any of these factors could adversely affect our product sales, financial condition,
providing transition services to buyers, adverse effects on existing business relationships with suppliers and customers and
and results of operations.
indemnities and potential disputes with the buyers. Any of these factors could adversely affect our product sales, financial condition,
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and results of operations.
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
Disruption of our supply chain could have an adverse impact on our business, financial condition, and results of operations.
third-party manufacturing or transportation and distribution capabilities, due to weather, including any potential effects of climate
Our ability to make, move, and sell our products is critical to our success. Damage or disruption to our supply chain, including
change, natural disaster, fire or explosion, terrorism, pandemics (such as the coronavirus (COVID-19) pandemic), strikes,
third-party manufacturing or transportation and distribution capabilities, due to weather, including any potential effects of climate
government action, or other reasons beyond our control or the control of our suppliers and business partners, could impair our ability
change, natural disaster, fire or explosion, terrorism, pandemics (such as the coronavirus (COVID-19) pandemic), strikes,
to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or
government action, or other reasons beyond our control or the control of our suppliers and business partners, could impair our ability
to effectively manage such events if they occur, particularly when a product is sourced from a single supplier or location, could
to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or
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
to effectively manage such events if they occur, particularly when a product is sourced from a single supplier or location, could
affect our product sales, financial condition, and results of operations.
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
In particular, we are actively monitoring the recent COVID-19 pandemic and its potential impact on our supply chain and our
affect our product sales, financial condition, and results of operations.
consolidated results of operations. Although our products are manufactured in North America and we source the significant majority
In particular, we are actively monitoring the recent COVID-19 pandemic and its potential impact on our supply chain and our
of our ingredients and raw materials from North America, due to restrictions resulting from the pandemic, global supply may become
consolidated results of operations. Although our products are manufactured in North America and we source the significant majority
constrained, which may cause the price of certain ingredients and raw materials used in our products to increase and/or we may
of our ingredients and raw materials from North America, due to restrictions resulting from the pandemic, global supply may become
experience disruptions to our operations.
constrained, which may cause the price of certain ingredients and raw materials used in our products to increase and/or we may
experience disruptions to our operations.
Any damage to our reputation could have a material adverse effect on our business, 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
Maintaining a good reputation globally is critical to selling our products. Product contamination or tampering, the failure to
operations.
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
Maintaining a good reputation globally is critical to selling our products. Product contamination or tampering, the failure to
products or cause production and delivery disruptions. Our reputation could also be adversely impacted by any of the following, or
maintain high standards for product quality, safety, and integrity, including with respect to raw materials and ingredients obtained
by adverse publicity (whether or not valid) relating thereto: the failure to maintain high ethical, social, and environmental standards
from suppliers, or allegations of product quality issues, mislabeling, or contamination, even if untrue, may reduce demand for our
for all of our operations and activities; the failure to achieve any stated goals with respect to the nutritional profile of our products;
products or cause production and delivery disruptions. Our reputation could also be adversely impacted by any of the following, or
our research and development efforts; or our environmental impact, including use of agricultural materials, packaging, energy use,
by adverse publicity (whether or not valid) relating thereto: the failure to maintain high ethical, social, and environmental standards
and waste management. Moreover, the growing use of social and digital media by consumers has greatly increased the speed and
for all of our operations and activities; the failure to achieve any stated goals with respect to the nutritional profile of our products;
extent that information or misinformation and opinions can be shared. Failure to comply with local laws and regulations, to maintain
our research and development efforts; or our environmental impact, including use of agricultural materials, packaging, energy use,
an effective system of internal controls or to provide accurate and timely financial information could also hurt our reputation.
and waste management. Moreover, the growing use of social and digital media by consumers has greatly increased the speed and
Damage to our reputation or loss of consumer confidence in our products for any of these or other reasons could result in decreased
extent that information or misinformation and opinions can be shared. Failure to comply with local laws and regulations, to maintain
demand for our products and could have a material adverse effect on our business, financial condition, and results of operations, as
an effective system of internal controls or to provide accurate and timely financial information could also hurt our reputation.
well as require additional resources to rebuild 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.
If we fail to comply with the many laws applicable to our business, we may face lawsuits or incur significant fines and penalties.
Our business is subject to a variety of governmental laws and regulations, including food and drug laws, environmental laws,
In addition, changes in such laws may lead to increased costs.
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
Our business is subject to a variety of governmental laws and regulations, including food and drug laws, environmental laws,
subject to many laws and regulations administered by the United States Department of Agriculture, the Federal Food and Drug
laws related to advertising and marketing practices, accounting standards, taxation requirements, competition laws, employment
Administration, the Occupational Safety and Health Administration, and other federal, state, local, and foreign governmental
laws, data privacy laws, and anti-corruption laws, among others, in and outside of the United States. Our facilities and products are
agencies relating to the processing, packaging, storage, distribution, advertising, labeling, quality, and safety of food products, the
subject to many laws and regulations administered by the United States Department of Agriculture, the Federal Food and Drug
health and safety of our employees, and the protection of the environment. Our failure to comply with applicable laws and
Administration, the Occupational Safety and Health Administration, and other federal, state, local, and foreign governmental
regulations could subject us to lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our
agencies relating to the processing, packaging, storage, distribution, advertising, labeling, quality, and safety of food products, the
products. In addition, changes in applicable laws and regulations, including changes in taxation requirements and new or increased
health and safety of our employees, and the protection of the environment. Our failure to comply with applicable laws and
tariffs on products imported from certain countries, may lead to increased costs and could negatively affect our business, financial
regulations could subject us to lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our
condition, and results of operations.
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
Our operations are also subject to extensive and increasingly stringent regulations administered by the Environmental
condition, and results of operations.
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
Our operations are also subject to extensive and increasingly stringent regulations administered by the Environmental
publicity. Changes in applicable laws or regulations or evolving interpretations thereof, including increased government regulations
Protection Agency, which pertain to the discharge of materials into the environment and the handling and disposition of wastes.
to limit carbon dioxide and other greenhouse gas emissions as a result of concern over climate change, may result in increased
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
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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
compliance costs, capital expenditures, and other financial obligations for us, which could affect our profitability or impede the
publicity. Changes in applicable laws or regulations or evolving interpretations thereof, including increased government regulations
production or distribution of our products, and affect our net operating revenues.
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.
Our business operations could be disrupted if our information technology systems fail to perform adequately.
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We rely on information technology networks and systems, including the Internet, to process, transmit, and store information,
Our business operations could be disrupted if our information technology systems fail to perform adequately.
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
We rely on information technology networks and systems, including the Internet, to process, transmit, and store information,
damage, interruption, or shutdown due to any number of causes outside of our control such as catastrophic events, natural disasters,
to manage and support a variety of business processes and activities, and to comply with regulatory, legal, and tax requirements.
fires, power outages, systems failures, telecommunications failures, employee error or malfeasance, security breaches, computer
Our information technology systems, some of which are dependent on services provided by third parties, may be vulnerable to
viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, hacking, and other
damage, interruption, or shutdown due to any number of causes outside of our control such as catastrophic events, natural disasters,
cyberattacks. While we have experienced threats to our data and systems, to date, we are not aware that we have experienced a
fires, power outages, systems failures, telecommunications failures, employee error or malfeasance, security breaches, computer
material breach. However, over time, and particularly recently, the sophistication of these threats continues to increase. Sophisticated
viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, hacking, and other
cybersecurity threats pose a potential risk to the security and viability of our information technology systems, as well as the
cyberattacks. While we have experienced threats to our data and systems, to date, we are not aware that we have experienced a
confidentiality, integrity, and availability of the data stored on those systems, including cloud-based platforms. In addition, new
material breach. However, over time, and particularly recently, the sophistication of these threats continues to increase. Sophisticated
technology that could result in greater operational efficiency may further expose our computer systems to the risk of cyber-attacks.
cybersecurity threats pose a potential risk to the security and viability of our information technology systems, as well as the
If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure and
confidentiality, integrity, and availability of the data stored on those systems, including cloud-based platforms. In addition, new
associated automated and manual control processes, we could be subject to billing and collection errors, business disruptions, or
technology that could result in greater operational efficiency may further expose our computer systems to the risk of cyber-attacks.
damage resulting from security breaches. If any of our significant information technology systems suffer severe damage, disruption,
If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure and
or shutdown, and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial
associated automated and manual control processes, we could be subject to billing and collection errors, business disruptions, or
condition, and results of operations may be materially and adversely affected, and we could experience delays in reporting our
damage resulting from security breaches. If any of our significant information technology systems suffer severe damage, disruption,
financial results. In addition, there is a risk of business interruption, violation of data privacy laws and regulations, litigation, and
or shutdown, and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial
reputational damage from leakage of confidential information. Any interruption of our information technology systems could have
condition, and results of operations may be materially and adversely affected, and we could experience delays in reporting our
operational, reputational, legal, and financial impacts that may have a material adverse effect on our business.
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.
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,
Additionally, we regularly move data across national borders to conduct our operations and, consequently, are subject to a
including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data, including the
variety of laws and regulations in the United States and other jurisdictions regarding privacy, data protection, and data security,
European Union General Data Protection Regulation. Our efforts to comply with privacy and data protection laws may impose
including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data, including the
significant costs and challenges that are likely to increase over time.
European Union General Data Protection Regulation. Our efforts to comply with privacy and data protection laws 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
We rely on our management team and other key personnel.
management team. In addition, our ability to achieve our operating goals depends on our ability to identify, hire, train, and retain
We depend on the skills, working relationships, and continued services of key personnel, including our experienced
qualified individuals. We compete with other companies both within and outside of our industry for talented personnel, and we may
management team. In addition, our ability to achieve our operating goals depends on our ability to identify, hire, train, and retain
lose key personnel or fail to attract, train, and retain other talented personnel. Any such loss or failure could adversely affect our
qualified individuals. We compete with other companies both within and outside of our industry for talented personnel, and we may
product sales, financial condition, and operating results.
lose key personnel or fail to attract, train, and retain other talented personnel. Any such loss or failure could adversely affect our
product sales, financial condition, and operating results.
In particular, our continued success will depend in part on our ability to retain the talents and dedication of key employees. If
key employees terminate their employment, become ill as a result of the COVID-19 pandemic, or if an insufficient number of
In particular, our continued success will depend in part on our ability to retain the talents and dedication of key employees. If
employees is retained to maintain effective operations, our business activities may be adversely affected and our management team's
key employees terminate their employment, become ill as a result of the COVID-19 pandemic, or if an insufficient number of
attention may be diverted. In addition, we may not be able to locate suitable replacements for any key employees who leave, or
employees is retained to maintain effective operations, our business activities may be adversely affected and our management team's
offer employment to potential replacements on reasonable terms, all of which could adversely affect our product sales, financial
attention may be diverted. In addition, we may not be able to locate suitable replacements for any key employees who leave, or
condition, and operating results.
offer employment to potential replacements on reasonable terms, all of which could adversely affect our product sales, financial
condition, and operating results.
Impairment in the carrying value of goodwill or other intangibles could result in the incurrence of impairment charges and
negatively impact our net worth.
Impairment in the carrying value of goodwill or other intangibles could result in the incurrence of impairment charges and
As of May 31, 2020, we had goodwill of $11.44 billion and other intangibles of $4.32 billion. The net carrying value of
negatively impact our net worth.
goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date (or
As of May 31, 2020, we had goodwill of $11.44 billion and other intangibles of $4.32 billion. The net carrying value of
subsequent impairment date, if applicable). The net carrying value of other intangibles represents the fair value of trademarks,
goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date (or
customer relationships, and other acquired intangibles as of the acquisition date (or subsequent impairment date, if applicable), net
subsequent impairment date, if applicable). The net carrying value of other intangibles represents the fair value of trademarks,
of accumulated amortization. Goodwill and other acquired intangibles expected to contribute indefinitely to our cash flows are not
customer relationships, and other acquired intangibles as of the acquisition date (or subsequent impairment date, if applicable), net
amortized, but must be evaluated by management at least annually for impairment. Amortized intangible assets are evaluated for
of accumulated amortization. Goodwill and other acquired intangibles expected to contribute indefinitely to our cash flows are not
impairment whenever events or changes in circumstance indicate that the carrying amounts of these assets may not be recoverable.
amortized, but must be evaluated by management at least annually for impairment. Amortized intangible assets are evaluated for
Impairments to goodwill and other intangible assets may be caused by factors outside our control, such as the inability to quickly
impairment whenever events or changes in circumstance indicate that the carrying amounts of these assets may not be recoverable.
replace lost co-manufacturing business, increasing competitive pricing pressures, lower than expected revenue and profit growth
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
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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.
rates, changes in industry EBITDA (earnings before interest, taxes, depreciation and amortization) multiples, changes in discount
Impairments to goodwill and other intangible assets may be caused by factors outside our control, such as the inability to quickly
rates based on changes in cost of capital (interest rates, etc.), or the bankruptcy of a significant customer and could result in the
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
incurrence of impairment charges and negatively impact our net worth.
rates based on changes in cost of capital (interest rates, etc.), or the bankruptcy of a significant customer and could result in the
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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
Our results could be adversely impacted as a result of increased pension, labor, and people-related expenses.
effect on our operating results or financial condition. Our labor costs include the cost of providing employee benefits in the U.S.
Inflationary pressures and any shortages in the labor market could increase labor costs, which could have a material adverse
and foreign jurisdictions, including pension, health and welfare, and severance benefits. Changes in interest rates, mortality rates,
effect on our operating results or financial condition. Our labor costs include the cost of providing employee benefits in the U.S.
health care costs, early retirement rates, investment returns, and the market value of plan assets can affect the funded status of our
and foreign jurisdictions, including pension, health and welfare, and severance benefits. Changes in interest rates, mortality rates,
defined benefit plans and cause volatility in the future funding requirements of the plans. A significant increase in our obligations
health care costs, early retirement rates, investment returns, and the market value of plan assets can affect the funded status of our
or future funding requirements could have a negative impact on our results of operations and cash flows from operations.
defined benefit plans and cause volatility in the future funding requirements of the plans. A significant increase in our obligations
Additionally, the annual costs of benefits vary with increased costs of health care and the outcome of collectively-bargained wage
and benefit agreements.
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.
Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business and
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on
operations.
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
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on
pricing for certain commodities that are necessary for our products, such as corn, wheat, and potatoes. Adverse weather conditions
global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that
and natural disasters can reduce crop size and crop quality, which in turn could reduce our supplies of raw materials, lower recoveries
such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable
of usable raw materials, increase the prices of our raw materials, increase our cost of transporting and storing raw materials, or
pricing for certain commodities that are necessary for our products, such as corn, wheat, and potatoes. Adverse weather conditions
disrupt our production schedules.
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
We may also be subjected to decreased availability or less favorable pricing for water as a result of such change, which could
disrupt our production schedules.
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
We may also be subjected to decreased availability or less favorable pricing for water as a result of such change, which could
more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the
impact our manufacturing and distribution operations. In addition, natural disasters and extreme weather conditions may disrupt the
event that such regulation is enacted and is more aggressive than the sustainability measures that we are currently undertaking to
productivity of our facilities or the operation of our supply chain. The increasing concern over climate change also may result in
monitor our emissions and improve our energy efficiency, we may experience significant increases in our costs of operation and
more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the
delivery. In particular, increasing regulation of fuel emissions could substantially increase the distribution and supply chain costs
event that such regulation is enacted and is more aggressive than the sustainability measures that we are currently undertaking to
associated with our products. As a result, climate change could negatively affect our business and operations.
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
Due to the seasonality of the business, our revenue and operating results may vary from quarter to quarter.
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
Our sales and cash flows are affected by seasonal cyclicality. Sales of frozen foods, including frozen vegetables and frozen
seasonal, occurring during and immediately following the purchase of such crops. For these reasons, sequential quarterly
complete bagged meals, tend to be marginally higher during the winter months. Seafood sales peak during Lent, in advance of the
comparisons are not a good indication of our performance or how we may perform in the future. If we are unable to obtain access
Easter holiday. Since many of the raw materials we process are agricultural crops, production of these products is predominantly
to working capital or if seasonal fluctuations are greater than anticipated, there could be a material adverse effect on our financial
seasonal, occurring during and immediately following the purchase of such crops. For these reasons, sequential quarterly
condition, results of operations, or cash flows.
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.
The termination or expiration of current co-manufacturing arrangements could reduce our sales volume and adversely affect
our results of operations.
The termination or expiration of current co-manufacturing arrangements could reduce our sales volume and adversely affect
Our businesses periodically enter into co-manufacturing arrangements with manufacturers of products. The terms of these
our results of operations.
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,
Our businesses periodically enter into co-manufacturing arrangements with manufacturers of products. The terms of these
none of which are under our direct control. Our future ability to enter into co-manufacturing arrangements is not guaranteed, and a
agreements vary but are generally for relatively short periods of time. Volumes produced under each of these agreements can
decrease in current co-manufacturing levels could have a significant negative impact on sales volume.
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.
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
As we outsource certain functions, we become more dependent on the third parties performing those functions.
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
As part of a concerted effort to achieve cost savings and efficiencies, we have entered into agreements with third-party service
not perform according to the terms of the agreements, or if we fail to adequately monitor their performance, we may not be able to
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
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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
achieve the expected cost savings or we may have to incur additional costs to correct errors made by such service providers, and
enter into managed services agreements with respect to other functions in the future. If any of these third-party service providers do
our reputation could be harmed. Depending on the function involved, such errors may also lead to business interruption, damage or
not perform according to the terms of the agreements, or if we fail to adequately monitor their performance, we may not be able to
disruption of information technology systems, processing inefficiencies, the loss of or damage to intellectual property or non-public
achieve the expected cost savings or we may have to incur additional costs to correct errors made by such service providers, and
company sensitive information through security breaches or otherwise, effects on financial reporting, litigation or remediation costs,
our reputation could be harmed. Depending on the function involved, such errors may also lead to business interruption, damage or
or damage to our reputation, any of which could have a material adverse effect on our business. In addition, if we transition functions
disruption of information technology systems, processing inefficiencies, the loss of or damage to intellectual property or non-public
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to one or more new, or among existing, external service providers, we may experience challenges that could have a material adverse
company sensitive information through security breaches or otherwise, effects on financial reporting, litigation or remediation costs,
effect on our results of operations or financial condition.
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 are valuable, and any inability to protect them could have an adverse impact on our business,
Our intellectual property rights, including our trademarks, licensing agreements, trade secrets, patents, and copyrights, are a
financial condition, and results of operations.
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
Our intellectual property rights, including our trademarks, licensing agreements, trade secrets, patents, and copyrights, are a
assignment agreements and policing of third-party misuses of our intellectual property. If we fail to adequately protect the
significant and valuable aspect of our business. We attempt to protect our intellectual property rights by pursuing remedies available
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 us under trademark, copyright, trade secret, and patent laws, as well as entering into licensing, third-party nondisclosure and
to reduce or remove the current legal protections of our intellectual property, then our financial results could be materially and
assignment agreements and policing of third-party misuses of our intellectual property. If we fail to adequately protect the
adversely affected.
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
Certain of our intellectual property rights, including the P.F. Chang's®, Bertolli®, and Libby's® trademarks, are owned by third
adversely affected.
parties and licensed to us, and others, such as Alexia®, are owned by us and licensed to third parties. While many of these licensing
Certain of our intellectual property rights, including the P.F. Chang's®, Bertolli®, and Libby's® trademarks, are owned by third
arrangements are perpetual in nature, others must be periodically renegotiated or renewed pursuant to the terms of such licensing
parties and licensed to us, and others, such as Alexia®, are owned by us and licensed to third parties. While many of these 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.
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
There is also a risk that other parties may have intellectual property rights covering some of our brands, products, or
claims, we may be subject to, among other things, significant damages, injunctions against development and sale of certain products,
technology. If any third parties bring a claim of intellectual property infringement against us, we may be subject to costly and time-
or we may be required to enter into costly licensing agreements, any of which could have an adverse impact on our business,
consuming litigation, diverting the attention of management and our employees. If we are unsuccessful in defending against such
financial condition, and results of operations.
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.
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.
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 market price of our common stock could fluctuate significantly for many reasons, including reasons not specifically
the price you paid or at all, and you could lose all or part of your investment as a result.
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
The market price of our common stock could fluctuate significantly for many reasons, including reasons not specifically
performance or actions taken by our competitors, as well as general economic and industry conditions. Our common stock price is
related to our performance, such as industry or market trends, reports by industry analysts and other third parties, investor
also affected by announcements we make about our business, market data that is available to subscribers, analyst reports related to
perceptions, actions by credit rating agencies, negative announcements by our customers or competitors regarding their own
our Company, changes in financial estimates by analysts, whether or not we meet the financial estimates of analysts who follow our
performance or actions taken by our competitors, as well as general economic and industry conditions. Our common stock price is
Company, rating agency announcements about our business, variations in our quarterly results of operations and those of our
also affected by announcements we make about our business, market data that is available to subscribers, analyst reports related to
competitors, general economic and stock market conditions, future sales of our common stock, perceptions of the investment
our Company, changes in financial estimates by analysts, whether or not we meet the financial estimates of analysts who follow our
opportunity associated with our common stock relative to other investment alternatives, the public's reaction to our public
Company, rating agency announcements about our business, variations in our quarterly results of operations and those of our
announcements and filings with the SEC, actual or anticipated growth rates relative to our competitors, and speculation by the
competitors, general economic and stock market conditions, future sales of our common stock, perceptions of the investment
investment community regarding our business, among other factors.
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
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
industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition,
they purchase our common stock. In addition, the stock market in general has experienced extreme price and volume fluctuations
in the past, some companies that have had volatile market prices for their securities have been subject to class action or derivative
that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and
lawsuits. The filing of a lawsuit against us, regardless of the outcome, could have a negative effect on our business, financial
industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition,
condition and results of operations, as it could result in substantial legal costs and a diversion of management's attention and
in the past, some companies that have had volatile market prices for their securities have been subject to class action or derivative
resources.
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
We may not realize the growth opportunities and cost synergies that are anticipated from the acquisition of Pinnacle.
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
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
16
16
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
difficulty and management distraction inherent in the process of integrating a company as sizable as Pinnacle. The process of
growth opportunities and cost synergies as the result of the acquisition. Our success in realizing these growth opportunities and cost
integrating operations could cause an interruption of, or loss of momentum in, our activities. Members of our senior management
synergies, and the timing of this realization, depends on the successful integration of Pinnacle. There is a significant degree of
may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to
difficulty and management distraction inherent in the process of integrating a company as sizable as Pinnacle. The process of
manage the Company, service existing customers, attract new customers, and develop new products or strategies. If senior
integrating operations could cause an interruption of, or loss of momentum in, our activities. Members of our senior management
16
management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a
may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to
result of the integration process, our business could suffer. There can be no assurance that we will successfully or cost-effectively
manage the Company, service existing customers, attract new customers, and develop new products or strategies. If senior
integrate Pinnacle. The failure to do so could have a material adverse effect on our business, financial condition, and results of
management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a
operations.
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
Even if we are able to integrate Pinnacle successfully, this integration may not result in the realization of the full benefits that
time frames or at all. For example, we may not be able to eliminate duplicative costs. Moreover, we may incur substantial expenses
are currently expected from this acquisition, and there can be no guarantee that these benefits will be achieved within the anticipated
in connection with the integration of Pinnacle. While it is anticipated that certain expenses will be incurred to achieve cost synergies,
time frames or at all. For example, we may not be able to eliminate duplicative costs. Moreover, we may incur substantial expenses
such expenses are difficult to estimate accurately, and may exceed current estimates. Accordingly, the benefits from the acquisition
in connection with the integration of Pinnacle. While it is anticipated that certain expenses will be incurred to achieve cost synergies,
may be offset by costs incurred to, or delays in, integrating the business.
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
We may be exposed to claims and liabilities or incur operational difficulties as a result of the Spinoff.
associated with the provision of transitional services. In connection with the Spinoff, we entered into a separation and distribution
The Spinoff continues to involve a number of risks, including, among other things, certain indemnification risks and risk
agreement and various other agreements (including a transition services agreement, a tax matters agreement, an employee matters
associated with the provision of transitional services. In connection with the Spinoff, we entered into a separation and distribution
agreement, and a trademark license agreement), which we refer to as the Lamb Weston agreements. The Lamb Weston agreements
agreement and various other agreements (including a transition services agreement, a tax matters agreement, an employee matters
govern the Spinoff and the relationship between the two companies going forward. They also provide for the performance of services
agreement, and a trademark license agreement), which we refer to as the Lamb Weston agreements. The Lamb Weston agreements
by each company for the benefit of the other for a period of time.
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
The Lamb Weston agreements provide for indemnification obligations designed to make Lamb Weston financially responsible
any pending or future litigation. It is possible that a court would disregard the allocation agreed to between us and Lamb Weston
for certain liabilities that may exist relating to its business activities, whether incurred prior to or after the distribution, including
and require us to assume responsibility for obligations allocated to Lamb Weston. Third parties could also seek to hold us responsible
any pending or future litigation. It is possible that a court would disregard the allocation agreed to between us and Lamb Weston
for any of these liabilities or obligations, and the indemnity rights we have under the separation and distribution agreement may not
and require us to assume responsibility for obligations allocated to Lamb Weston. Third parties could also seek to hold us responsible
be sufficient to fully cover all of these liabilities and obligations. Even if we are successful in obtaining indemnification, we may
for any of these liabilities or obligations, and the indemnity rights we have under the separation and distribution agreement may not
have to bear costs temporarily. In addition, our indemnity obligations to Lamb Weston may be significant. These risks could
be sufficient to fully cover all of these liabilities and obligations. Even if we are successful in obtaining indemnification, we may
negatively affect our business, financial condition, or results of operations.
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
In addition, certain of the Lamb Weston agreements provide for the performance of services by each company for the benefit
diverted by the provision of transitional services. The Lamb Weston agreements could also lead to disputes over rights to certain
of the other for a period of time. As such, there is continued risk that management's and our employees' attention will be significantly
shared property and rights and over the allocation of costs and revenues for products and operations. If Lamb Weston is unable to
diverted by the provision of transitional services. The Lamb Weston agreements could also lead to disputes over rights to certain
satisfy its obligations under these agreements, including its indemnification obligations, we could incur losses. Our inability to
shared property and rights and over the allocation of costs and revenues for products and operations. If Lamb Weston is unable to
effectively manage separation activities and related events could adversely affect our business, financial condition, or results of
satisfy its obligations under these agreements, including its indemnification obligations, we could incur losses. Our inability to
operations.
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 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters are located in Chicago, Illinois. Other general offices, shared service centers, and product development
ITEM 2. PROPERTIES
facilities are located in Nebraska and the District of Columbia. We also lease a limited number of domestic sales offices.
Our headquarters are located in Chicago, Illinois. Other general offices, shared service centers, and product development
International general offices are located in Canada, China, Mexico, Panama, and the Philippines.
facilities are located in Nebraska and the District of Columbia. We also lease a limited number of domestic sales offices.
International general offices are located in Canada, China, 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.
We maintain a number of stand-alone distribution facilities. In addition, there are warehouses at most of our manufacturing
facilities.
17
17
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 24, 2020, we had forty-one domestic manufacturing facilities located in Arkansas, California, Colorado, Illinois,
Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, 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, Bangladesh, Sri Lanka, 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 have included suits against a number of lead paint and pigment manufacturers, including ConAgra Grocery Products
Company, LLC, a wholly owned subsidiary of the Company ("ConAgra Grocery Products") as alleged successor to W. P. Fuller &
Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967. These lawsuits
generally seek damages for personal injury, property damage, economic loss, and governmental expenditures allegedly caused by
the use of lead-based paint, and/or injunctive relief for inspection and abatement. When such lawsuits have been brought, ConAgra
Grocery Products has denied liability, both on the merits of the claims and on the basis that we do not believe it to be the successor
to any liability attributable to W. P. Fuller & Co. Decisions favorable to us were rendered in Rhode Island, New Jersey, Wisconsin,
and Ohio. ConAgra Grocery Products was held liable for the abatement of a public nuisance in California, and the case was
dismissed pursuant to settlement in July 2019 as discussed in the following paragraph. We remain a defendant in one active suit in
Illinois. The Illinois suit seeks class-wide relief for reimbursement of costs associated with the testing of lead levels in blood. We
do not believe it is probable that we have incurred any liability with respect to the Illinois case, nor is it possible to estimate any
potential exposure.
In California, a number of cities and counties joined in a consolidated action seeking abatement of an alleged public nuisance
in the form of lead-based paint potentially present on the interior of residences, regardless of its condition. On September 23, 2013,
a trial of the California case concluded in the Superior Court of California for the County of Santa Clara, and on January 27, 2014,
the court entered a judgment (the "Judgment") against ConAgra Grocery Products and two other defendants ordering the creation
of a California abatement fund in the amount of $1.15 billion. Liability was 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 was approved
by the trial court on July 24, 2019, and the action against ConAgra Grocery Products was 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. As part of the settlement, ConAgra Grocery Products has provided a guarantee of up to $15.0 million in the
event co-defendant, NL Industries, Inc., defaults on its payment obligations.
We have accrued $11.5 million and $63.1 million, within other accrued liabilities and other noncurrent liabilities, respectively,
for this matter as of May 31, 2020. 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
18
resolution of the lead paint and pigment 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 was remanded to the trial court for further
proceedings. On April 4, 2019, the trial court granted preliminary approval of a settlement in this matter. In the second quarter of
fiscal 2020, a single objecting class member appealed the court's decision approving the settlement to the United States Court of
Appeals for the Ninth Circuit. The settlement will not be final until the appeal has been resolved.
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 year 2019. The first of these lawsuits, captioned West Palm Beach Firefighters'
Pension Fund v. Conagra Brands, Inc., et al., with which subsequent lawsuits alleging similar facts have been consolidated, was
filed on February 22, 2019 in the U.S. District Court for the Northern District of Illinois. In addition, on May 9, 2019, a shareholder
filed a derivative action on behalf of the Company against the Company's directors captioned Klein v. Arora, et al. in the U.S.
District Court for the Northern District of Illinois asserting harm to the Company due to alleged breaches of fiduciary duty and
mismanagement in connection with the Pinnacle acquisition. On July 9, 2019, September 20, 2019, and March 10, 2020, the
Company received three separate demands from stockholders under Delaware law to inspect the Company's books and records
related to the Board of Directors' review of the Pinnacle business, acquisition, and the Company's public statements related to them.
On July 22, 2019 and August 6, 2019, respectively, two additional shareholder derivative lawsuits captioned Opperman v. Connolly,
et al. and Dahl v. Connolly, et al. were filed in the U.S. District Court for the Northern District of Illinois asserting similar facts and
claims as the Klein v. Arora, et al. matter. On October 21, 2019, the Company received an additional demand from a stockholder
under Delaware law to appoint a special committee to investigate the conduct of certain officers and directors in connection with
the Pinnacle acquisition and the Company's public statements. We have put the Company's insurance carriers on notice of each of
these securities and shareholder matters. While we cannot predict with certainty the results of these or any other legal proceedings,
we do not expect these matters to have a material adverse effect on our financial condition, results of operations, or business.
Environmental Matters
We are a party to certain environmental proceedings relating to our acquisition of Beatrice in fiscal 1991. Such proceedings
include proceedings related to businesses divested by Beatrice prior to our acquisition of Beatrice. The current environmental
proceedings associated with Beatrice include litigation and administrative proceedings involving Beatrice's possible status as a
potentially responsible party at approximately 40 Superfund, proposed Superfund, or state-equivalent sites (the "Beatrice sites").
These sites involve locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides,
fertilizers, dyes, inks, solvents, polycholorinated biphenyls, acids, lead, sulfur, tannery wastes, and/or other contaminants. Reserves
for these Beatrice environmental proceedings have been established based on our best estimate of the undiscounted remediation
liabilities, which estimates include evaluation of investigatory studies, extent of required clean-up, the known volumetric
contribution of Beatrice and other potentially responsible parties, and its experience in remediating sites. The accrual for Beatrice-
19
related environmental matters totaled $57.7 million as of May 31, 2020, a majority of which relates to the Superfund and state-
equivalent sites referenced above. During the third quarter of fiscal 2017, a final Remedial Investigation/Feasibility Study was
submitted for the Southwest Properties portion ("Operating Unit 4") of the Wells G&H Superfund site, which is one of the Beatrice
sites. The U.S. Environmental Protection Agency ("EPA") issued a Record of Decision ("ROD") for the Southwest Properties
portion of the site on September 29, 2017 and has entered into negotiations with potentially responsible parties to determine final
responsibility for implementing the ROD. Additionally, in conjunction with the conclusion of the fifth Five-Year Review period for
Operating Unit 1 of the Wells G&H site, which spanned from October 1, 2014 to September 30, 2019, we are negotiating with the
EPA to allow us to begin testing different environmental remediation methods to improve the efficiency and effectiveness of our
current cleanup efforts affecting both Operating Units 1 and 2. As a result, in the second quarter of fiscal 2020, we increased our
environmental reserves by $6.6 million associated with these expected cleanup efforts.
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 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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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 28,
2020, there were approximately 15,508 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 2020.
ITEM 6. SELECTED FINANCIAL DATA
For the Fiscal Years Ended May
Dollars in millions, except per share amounts
Net sales (1)
$ 11,054.4 $ 9,538.4 $ 7,938.3 $ 7,826.9 $ 8,664.1
Income from continuing operations (1)
128.5
$
Net income (loss) attributable to Conagra Brands, Inc. (2) $
(677.0 )
Basic earnings per share:
680.3 $
678.3 $
546.0 $
639.3 $
841.8 $
840.1 $
797.5 $
808.4 $
2018
2016
2020
2019
2017
Income from continuing operations attributable to
Conagra Brands, Inc. common stockholders (1)
Net income (loss) attributable to Conagra Brands, Inc.
common stockholders (2)
$
$
1.72 $
1.53 $
1.97 $
1.26 $
0.29
1.72 $
1.53 $
2.00 $
1.48 $
(1.57 )
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)
$
$
$
1.72 $
1.53 $
1.95 $
1.25 $
0.29
1.72 $
0.85 $
1.52 $
0.85 $
1.98 $
0.85 $
1.46 $
0.90 $
(1.56 )
1.00
$ 22,304.0 $ 22,213.8 $ 10,389.5 $ 10,096.3 $ 13,390.6
$ 8,900.8 $ 10,459.8 $ 3,035.6 $ 2,573.3 $ 4,685.5
195.9
$
195.9 $
195.9 $
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 for fiscal 2016.
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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 31, 2020 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 acquisitions and divestitures; risks associated
with general economic and industry conditions; risks associated with our ability to successfully execute our 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 impact of the recent
coronavirus (COVID-19) pandemic on our business, suppliers, consumers, customers and employees; risks related to the availability
and prices of raw materials, including any negative effects caused by inflation, weather conditions, or health pandemics; disruptions
or inefficiencies in our supply chain and/or operations, including from the recent COVID-19 pandemic; 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 2020 are not necessarily indicative of results that may be attained in the future.
EXECUTIVE OVERVIEW
Conagra Brands, Inc. (the "Company", "Conagra Brands", "we", "us", or "our"), headquartered in Chicago, is one of North
America's leading branded food companies. Guided by an entrepreneurial spirit, the Company combines a rich heritage of making
great food with a sharpened focus on innovation. The Company's portfolio is evolving to satisfy people's changing food preferences.
Its iconic brands such as Birds Eye®, Marie Callender's®, 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.
22
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 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 issued approximately $8.33 billion of long-term debt and received cash
proceeds of $575.0 million ($555.7 million net of related fees) from the issuance of common stock 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 $305 million per year when
the integration is concluded.
In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle operations into our
legacy reporting segments in order to better reflect how the business is now being managed. Prior periods have been reclassified to
conform to the revised segment presentation.
Fiscal 2020 Results
Fiscal 2020 performance compared to fiscal 2019 reflected an increase in net sales, including the impact of recent acquisitions,
with organic (excludes the impacts of foreign exchange, divested businesses and acquisitions, including the Pinnacle acquisition
(until the anniversary date of the acquisitions), as well as the impact of the 53rd week of our fiscal year) increases in all of our
operating segments with the exception of our Foodservice segment, in each case compared to fiscal 2019. Organic net sales for our
retail segments (inclusive of Grocery & Snacks, Refrigerated & Frozen, and International) were positively impacted by the increase
in at-home food consumption as a result of the COVID-19 pandemic, with sales declines in our Foodservice segment due to lower
traffic in away-from-home food outlets.
Overall gross margin increased with the addition of Pinnacle's gross profit, organic net sales growth, supply chain realized
productivity, cost synergies, and the inclusion of the 53rd week of our fiscal year. These benefits were partially offset by higher
input and transportation costs, lost profits due to divested businesses, pandemic-related costs, and the impact of foreign exchange
rates. Overall segment operating profit increased in all of our operating segments with the exception of our Foodservice segment.
Corporate expenses decreased due to items impacting comparability, as discussed below. We experienced a slight decrease in equity
method investment earnings, a decrease in income tax expense, and an increase in interest expense, in each case compared to fiscal
2019.
Diluted earnings per share in fiscal 2020 were $1.72. 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 were affected by higher net income, partially offset by an increase in the number of shares as well as several
significant items affecting the comparability of year-over-year results of continuing operations (see "Items Impacting
Comparability" below).
Items Impacting Comparability
Items of note impacting comparability of results from continuing operations for fiscal 2020 included the following:
charges totaling $165.5 million ($127.0 million after-tax) related to the impairment of intangible assets,
charges totaling $139.5 million ($106.8 million after-tax) in connection with our restructuring plans,
charges totaling $59.0 million ($55.0 million after-tax) related to the impairment of businesses held for sale,
an income tax benefit of $51.2 million associated primarily related to the reorganization of various legacy Pinnacle
legal entities and state tax planning strategies,
charges totaling $42.9 million ($32.1 million after-tax) related to pension plan lump-sum settlements and a
remeasurement of our hourly and non-qualified pension plan liability,
a gain of $11.9 million ($8.9 million after-tax) related to a contract settlement,
23
charges totaling $10.1 million ($7.6 million after-tax) related to legal and environmental matters, and
charges totaling $5.3 million ($3.9 million after-tax) associated with costs incurred for acquisitions and divestitures.
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,
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.
In addition, fiscal 2020 earnings per share benefited by approximately $0.05 as a result of the fiscal year including 53 weeks.
Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs
and economic hedging of foreign currency exchange rate risks of anticipated transactions are discussed in the segment review below.
Acquisitions
On October 26, 2018, we completed the Pinnacle acquisition. 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 $7.03 billion of the
purchase price was allocated to goodwill and approximately $3.52 billion was 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.
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.
24
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.
Divestitures
During the third quarter of fiscal 2020, we completed the sale of our Lender's® bagel business for net proceeds of $33.2
million, subject to final working capital adjustments. The results of operations of the divested Lender’s® bagel business were
primarily included in our Refrigerated & Frozen segment, and to a lesser extent within our Foodservice segment for the periods
preceding the completion of the transaction. 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 second quarter of fiscal 2020, we completed the sale of our Direct Store Delivery ("DSD") snacks business, for
net proceeds of $137.5 million, including final working capital adjustments. The results of operations of the divested DSD snacks
business were included in our Grocery & Snacks segment for the periods preceding the completion of the transaction. 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 Italian-based frozen pasta business, Gelit, for proceeds
net of cash divested of $80.1 million, including final working capital adjustments. The results of operations of the divested Gelit
business were 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 $168.3
million, including final working capital adjustments. The results of operations of the divested Wesson® oil business were 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 were included in our
International segment for the periods preceding the completion of the transaction.
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 have approved the incurrence of up to
$360.0 million ($255.0 million of cash charges and $105.0 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 2020, including the estimated amounts or range of amounts for each
major type of cost expected to be incurred, and the charges that have resulted or will result in cash outflows. We have incurred or
expect to incur approximately $360.2 million of charges ($277.2 million of cash charges and $83.0 million of non-cash charges) for
actions identified to date under the Pinnacle Integration Restructuring Plan. We recognized charges of $73.8 million and $168.2
million in connection with the Pinnacle Integration Restructuring Plan in fiscal 2020 and 2019, respectively. We expect to incur
costs related to the Pinnacle Integration Restructuring Plan through fiscal 2022.
In fiscal 2019, management initiated a 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. Although we remain unable to make good faith estimates relating to the entire Conagra Restructuring Plan,
we are reporting on actions initiated through the end of fiscal 2020, including the estimated amounts or range of amounts for each
major type of cost expected to be incurred, and the charges that have resulted or will result in cash outflows. As of May 31, 2020,
we have approved the incurrence of $131.1 million ($38.2 million of cash charges and $92.9 million of non-cash charges) for several
projects associated with the Conagra Restructuring Plan. We have incurred or expect to incur $129.5 million of charges ($40.1
million of cash charges and $89.4 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan.
25
We recognized charges of $64.4 million and $2.2 million in connection with the Conagra Restructuring Plan in fiscal 2020 and
2019, respectively.
COVID-19
We are closely monitoring the impact of the outbreak of the novel coronavirus (COVID-19) on all aspects of our business.
We experienced significantly higher sales during the fourth quarter of fiscal 2020 for our products in both of our Grocery & Snacks
and Refrigerated & Frozen segments due to the COVID-19 pandemic, as consumers increased their at-home consumption. We
continue to see increased orders from retail customers in North America subsequent to the end of fiscal 2020 in response to increased
consumer demand for food at home and expect that trend to continue for at least a portion of fiscal 2021 as work-from-home
arrangements are extended in response to the continued spread of COVID-19. However, the increased consumer demand may
reverse in the coming months as consumer purchasing behavior changes as a result of the economic downturn. During the fourth
quarter of fiscal 2020, we experienced reduced demand for our foodservice products across all of our major markets as consumer
traffic in away-from-home food outlets decreased as a result of the COVID-19 pandemic. We expect this trend to continue for at
least a portion of fiscal 2021, which will continue to negatively impact our net sales to customers in our Foodservice segment. While
we generally expect retail and foodservice demand levels to return to historical norms as we progress through fiscal 2021, given the
inherent uncertainty of the situation surrounding the COVID-19 pandemic, we are unable to predict the nature and timing of when
such normalization may occur.
During the fourth quarter of fiscal 2020, our operating margins saw improvement largely due to favorable overhead absorption
at our manufacturing facilities, lower advertising and promotion costs, and reduced travel expenses. That benefit was largely offset
by several factors including higher transportation and warehousing costs, temporary plant closures, employee safety and sanitation
costs, and employee compensation costs, which accounted for an estimated $40 million of incremental costs in the fourth quarter.
We created an internal COVID-19 pandemic team in order to review and assess the evolving COVID-19 pandemic, and to
recommend risk mitigation actions for the health and safety of our employees. In order to enhance the safety of our employees
during the COVID-19 pandemic, we have implemented various measures, including the installation of physical barriers between
employees in production facilities, extensive cleaning and sanitation of both production and office spaces, and implementation of
broad work-from-home initiatives for office personnel. While all of these measures have been necessary and appropriate, they have
resulted in additional costs, which we expect to continue to incur throughout fiscal 2021 to continue to address employee safety.
The implementation of such safety measures has not resulted in any meaningful change to our control environment.
As mentioned above, we have experienced some challenges in connection with the COVID-19 pandemic, including temporary
closings of production facilities and reduced demand for certain of our products. Despite these challenges, there has been minimal
disruption to our supply chain network to date, including the supply of our ingredients, packaging, or other sourced materials.
However, we are continuing to closely monitor the potential impacts of the COVID-19 pandemic, as we cannot predict its ultimate
impact on our suppliers, distributors, and manufacturers.
At this time, we have not experienced a net negative impact on our liquidity or results of operations and we believe we have
sufficient liquidity to satisfy our cash needs. We will continue to evaluate the nature and extent of the impact to our business,
consolidated results of operations, financial condition, and liquidity.
SEGMENT REVIEW
During fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business into our legacy reporting
segments in order to better reflect how the business is now being managed. We now reflect our results of operations in four reporting
segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice. Prior periods have been reclassified to
conform to the revised segment presentation.
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.
26
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, that are packaged for sale to restaurants and other foodservice establishments
primarily in the United States.
Presentation of Derivative Gains (Losses) from Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment.
We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives are 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, under this methodology:
($ in millions)
Net derivative losses incurred
Less: Net derivative losses allocated to reporting segments
$
Net derivative gains (losses) recognized in general corporate expenses $
$
Net derivative gains (losses) allocated to Grocery & Snacks
Net derivative losses allocated to Refrigerated & Frozen
Net derivative gains (losses) allocated to International
Net derivative losses allocated to Foodservice
Net derivative losses included in segment operating profit
$
Fiscal 2020
Fiscal 2019
Fiscal 2018
(12.9 ) $
(7.4 )
(5.5 ) $
(4.7 ) $
(2.5 )
0.1
(0.3 )
(7.4 ) $
(3.6 ) $
(1.8 )
(1.8 ) $
(2.5 ) $
(1.5 )
2.8
(0.6 )
(1.8 ) $
(0.9 )
(7.1 )
6.2
0.2
(0.3 )
(6.9 )
(0.1 )
(7.1 )
As of May 31, 2020, the cumulative amount of net derivative losses from economic hedges that had been recognized in
general corporate expenses and not yet allocated to reporting segments was $4.1 million. This amount reflected net losses of $4.5
million incurred during the fiscal year ended May 31, 2020, as well as net gains of $0.4 million incurred prior to fiscal 2020. Based
on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results
net losses of $2.1 million in fiscal 2021 and $2.0 million in fiscal 2022 and thereafter.
Fiscal 2020 compared to Fiscal 2019
Net Sales
($ in millions)
Reporting Segment
Grocery & Snacks
Refrigerated & Frozen
International
Foodservice
Total
Fiscal 2020
Net Sales
Fiscal 2019
Net Sales
% Inc
(Dec)
$
$
4,617.1 $
4,559.6
925.3
952.4
11,054.4 $
3,923.6
3,735.4
864.4
1,015.0
9,538.4
18 %
22 %
7 %
(6 )%
16 %
Overall, our net sales were $11.05 billion in fiscal 2020, an increase of 16% compared to fiscal 2019.
27
Grocery & Snacks net sales for fiscal 2020 were $4.62 billion, an increase of $693.5 million, or 18%, compared to fiscal
2019. Volume, excluding the impact of acquisitions and divestitures, increased 10% in fiscal 2020 compared to the prior-year period.
This result reflected an increase across multiple categories, primarily in the fourth quarter of fiscal 2020, as consumers increased
their at-home food consumption in connection with the COVID-19 pandemic. Price/mix decreased 1% compared to the prior year
due to incremental trade and strategic investments with certain customers and brands. The inclusion of an additional week of results
in fiscal 2020 accounted for 2% of the increase in net sales. The acquisition of Pinnacle in the second quarter of fiscal 2019
contributed $406.3 million, or 10%, to Grocery & Snacks net sales during fiscal 2020, through the one-year anniversary of the
acquisition. Fiscal 2020 and 2019 included $23.1 million and $39.5 million, respectively, of net sales related to our private label
peanut butter business, which we exited in the third quarter of fiscal 2020. Fiscal 2020 and 2019 included $46.1 million and $59.6
million, respectively, of net sales related to our DSD snacks business, which was sold in the second quarter of fiscal 2020. 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.
Refrigerated & Frozen net sales for fiscal 2020 were $4.56 billion, an increase of $824.2 million, or 22%, compared to fiscal
2019. Results for fiscal 2020 reflected a 5% increase in volume compared to fiscal 2019, excluding the impact of acquisitions and
divestitures. The increase in sales volumes was a result of consumers increasing their at-home food consumption in the fourth
quarter of fiscal 2020 in connection with the COVID-19 pandemic and new innovation during the current fiscal year. Price/mix
increased 1% compared to fiscal 2019. The inclusion of an additional week of results in fiscal 2020 accounted for 2% of the increase
in net sales. The acquisition of Pinnacle contributed $567.6 million, or 15%, to Refrigerated & Frozen net sales for fiscal 2020,
through the one-year anniversary of the acquisition. Fiscal 2020 included $23.2 million of net sales related to our Lender's® bagel
business, which was sold in the third quarter of fiscal 2020. Fiscal 2019 included $24.0 million of net sales related to this business.
Fiscal 2019 also included $56.7 million of net sales related to our Italian-based frozen pasta business, Gelit, which was sold in the
fourth quarter of fiscal 2019.
International net sales for fiscal 2020 were $925.3 million, an increase of $60.9 million, or 7%, compared to fiscal 2019.
Results for fiscal 2020 reflected a 4% increase in volume, excluding the impact of acquisitions and divestitures, a 2% decrease due
to foreign exchange rates, a 2% increase due to the inclusion of an additional week of results, and a 1% increase in price/mix, in
each case compared to fiscal 2019. The volume increases for fiscal 2020 were driven by elevated demand related to the impacts of
the COVID-19 pandemic, partially offset by lower volumes in India due to the country-wide closure of manufacturing plants and
stores during the fourth quarter. The acquisition of Pinnacle contributed $46.0 million, or 5%, to International net sales for fiscal
2020, through the one-year anniversary of the acquisition. Fiscal 2019 included $17.1 million of net sales related to our divested
Wesson® oil business. Fiscal 2019 also 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.
Foodservice net sales for fiscal 2020 were $952.4 million, a decrease of $62.6 million, or 6%, compared to fiscal 2019. Results
for fiscal 2020 reflected a 13% decrease in volume, excluding the impact of acquisitions and divestitures. The decline in volume
reflected lower restaurant traffic as a result of the COVID-19 pandemic and continued execution of the segment's value-over-volume
strategy. Price/mix increased 3% in fiscal 2020 compared to fiscal 2019, reflecting inflation-related pricing and the value-over-
volume strategy. The decrease in net sales was offset by a 1% increase attributable to an additional week of results in fiscal 2020.
The acquisition of Pinnacle contributed $57.7 million, or 6%, for fiscal 2020, through the one-year anniversary of the acquisition.
Fiscal 2020 and 2019 included $6.6 million and $6.2 million, respectively, of net sales related to our Lender's® bagel business,
which was sold in the third quarter of fiscal 2020. Fiscal 2020 included $4.6 million of net sales related to our private label peanut
butter business, which we exited in the third quarter of fiscal 2020. Fiscal 2019 included $8.8 million of net sales related to this
business. 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 2019 also included net sales of $2.0 million related to our Trenton, Missouri production facility, which was
sold in the second quarter of fiscal 2019.
SG&A Expenses (Includes general corporate expenses)
SG&A expenses totaled $1.62 billion for fiscal 2020, an increase of $149.1 million compared to fiscal 2019. SG&A expenses
for fiscal 2020 reflected the following:
Items impacting comparability of earnings
expenses of $165.5 million related to the impairment of intangible assets,
expenses of $105.7 million in connection with our restructuring plans,
expense of $59.0 million related to the impairment of businesses held for sale,
a benefit of $11.9 million related to a contract settlement,
28
charges totaling $10.1 million related to legal and environmental matters,
expenses of $5.3 million associated with costs incurred for acquisitions and divestitures, and
a net loss of $1.7 million related to divestitures of businesses.
Other changes in expenses compared to fiscal 2019
an increase in incentive compensation expense of $44.8 million, due to exceeding certain performance targets,
an increase in share-based payment and deferred compensation expense of $33.0 million, due to an increase in stock
price and exceeding certain performance targets,
a decrease in advertising and promotion expense of $22.7 million, largely as spending was reduced in the fourth quarter
with elevated sales demand,
an increase of $11.5 million in information technology-related expenses,
a decrease in self-insured workers' compensation and product liability expense of $10.9 million,
an increase of $10.7 million of amortization of definite lived intangible assets, attributable to the Pinnacle acquisition,
an increase in charitable contributions of $7.3 million, in part due to the recent COVID-19 pandemic,
a decrease in professional fees of $7.2 million,
a decrease in royalty expense of $7.2 million, in part due to the expiration of a royalty agreement,
a decrease in depreciation expense of $5.8 million,
a decrease in travel and entertainment expense of $4.4 million, in part due to reduced travel from the COVID-19
pandemic,
a decrease in commission expense of $3.8 million, and
an increase in transaction services agreement income of $3.4 million.
SG&A expenses for fiscal 2019 included the following items impacting the 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 $8.9 million related to costs associated with the integration of Pinnacle.
Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income,
interest expense, net, income taxes, and equity method investment earnings)
($ in millions)
Reporting Segment
Grocery & Snacks
Refrigerated & Frozen
International
Foodservice
Fiscal 2020
Operating
Profit
Fiscal 2019
Operating
Profit
% Inc
(Dec)
$
915.2 $
702.2
100.6
97.6
762.6
645.1
99.8
134.3
20 %
9 %
1 %
(27 )%
29
Grocery & Snacks operating profit for fiscal 2020 was $915.2 million, an increase of $152.6 million, or 20%, compared to
Grocery & Snacks operating profit for fiscal 2020 was $915.2 million, an increase of $152.6 million, or 20%, compared to
fiscal 2019. Gross profits were $229.0 million higher in fiscal 2020 than in fiscal 2019. The higher gross profit was driven by the
fiscal 2019. Gross profits were $229.0 million higher in fiscal 2020 than in fiscal 2019. The higher gross profit was driven by the
increase in at-home food consumption in connection with the COVID-19 pandemic, the addition of Pinnacle, the impact of the 53rd
increase in at-home food consumption in connection with the COVID-19 pandemic, the addition of Pinnacle, the impact of the 53rd
week of our fiscal year, and the benefits of supply chain realized productivity, partially offset by the impacts of higher input costs,
week of our fiscal year, and the benefits of supply chain realized productivity, partially offset by the impacts of higher input costs,
a reduction in profit associated with the divestiture of our DSD snacks and Wesson® oil businesses, the exit of our private label
a reduction in profit associated with the divestiture of our DSD snacks and Wesson® oil businesses, the exit of our private label
peanut butter business, and pandemic-related costs. Pandemic-related costs included investments in employee safety protocols,
peanut butter business, and pandemic-related costs. Pandemic-related costs included investments in employee safety protocols,
bonuses paid to supply chain employees, and costs necessary to meet elevated levels of demand. Operating profit of the Grocery &
bonuses paid to supply chain employees, and costs necessary to meet elevated levels of demand. Operating profit of the Grocery &
Snacks segment was impacted by expense of $58.4 million and $6.1 million related to our restructuring plans in fiscal 2020 and
Snacks segment was impacted by expense of $58.4 million and $6.1 million related to our restructuring plans in fiscal 2020 and
2019, respectively. Fiscal 2020 and 2019 included brand intangible impairment charges of $46.4 million and $76.5 million,
2019, respectively. Fiscal 2020 and 2019 included brand intangible impairment charges of $46.4 million and $76.5 million,
respectively. Fiscal 2020 also included a charge of $31.4 million related to the impairment of a business held for sale, a benefit of
respectively. Fiscal 2020 also included a charge of $31.4 million related to the impairment of a business held for sale, a benefit of
$11.9 million related to a contract settlement, and costs of $3.0 million related to divestitures. Fiscal 2019 included a gain of $33.1
$11.9 million related to a contract settlement, and costs of $3.0 million related to divestitures. Fiscal 2019 included a gain of $33.1
million related to the sale of our Wesson® oil business and $30.2 million of incremental cost of goods sold due to the impact of
million related to the sale of our Wesson® oil business and $30.2 million of incremental cost of goods sold due to the impact of
writing Pinnacle inventory to fair value as part of our acquisition accounting and the subsequent sale of that inventory.
writing Pinnacle inventory to fair value as part of our acquisition accounting and the subsequent sale of that inventory.
Refrigerated & Frozen operating profit for fiscal 2020 was $702.2 million, an increase of $57.1 million, or 9%, compared to
Refrigerated & Frozen operating profit for fiscal 2020 was $702.2 million, an increase of $57.1 million, or 9%, compared to
fiscal 2019. Gross profits were $227.1 million higher in fiscal 2020 than in fiscal 2019, due to the increase in at-home food
fiscal 2019. Gross profits were $227.1 million higher in fiscal 2020 than in fiscal 2019, due to the increase in at-home food
consumption resulting from the COVID-19 pandemic, the addition of Pinnacle, the impact of the 53rd week of our fiscal year, and
consumption resulting from the COVID-19 pandemic, the addition of Pinnacle, the impact of the 53rd week of our fiscal year, and
supply chain realized productivity, partially offset by higher input costs, lost profit from the divestiture of our Lender's® bagel and
supply chain realized productivity, partially offset by higher input costs, lost profit from the divestiture of our Lender's® bagel and
Italian-based frozen pasta businesses, and pandemic-related costs. Operating profit of the Refrigerated & Frozen segment was
Italian-based frozen pasta businesses, and pandemic-related costs. Operating profit of the Refrigerated & Frozen segment was
impacted by charges of $110.8 million related to the impairment of certain brand intangible assets during fiscal 2020. Fiscal 2020
impacted by charges of $110.8 million related to the impairment of certain brand intangible assets during fiscal 2020. Fiscal 2020
and 2019 included $15.8 million and $2.9 million, respectively, of charges related to our restructuring plans. In addition, operating
and 2019 included $15.8 million and $2.9 million, respectively, of charges related to our restructuring plans. In addition, operating
profit of the Refrigerated & Frozen segment included $27.6 million related to the impairment of a business held for sale in fiscal
profit of the Refrigerated & Frozen segment included $27.6 million related to the impairment of a business held for sale in fiscal
2020. Fiscal 2019 included a gain of $23.1 million related to the sale of our Italian-based frozen pasta business, and $21.9 million
2020. Fiscal 2019 included a gain of $23.1 million related to the sale of our Italian-based frozen pasta business, and $21.9 million
of incremental cost of goods sold due to the impact of writing Pinnacle inventory to fair value as part of our acquisition accounting
of incremental cost of goods sold due to the impact of writing Pinnacle inventory to fair value as part of our acquisition accounting
and the subsequent sale of that inventory. Advertising and promotion expenses for fiscal 2020 decreased by $13.7 million compared
and the subsequent sale of that inventory. Advertising and promotion expenses for fiscal 2020 decreased by $13.7 million compared
to fiscal 2019.
to fiscal 2019.
International operating profit for fiscal 2020 was $100.6 million, an increase of $0.8 million, or 1%, compared to fiscal 2019.
International operating profit for fiscal 2020 was $100.6 million, an increase of $0.8 million, or 1%, compared to fiscal 2019.
Gross profits were $6.4 million lower in fiscal 2020 compared to fiscal 2019, due to higher input costs, increased retailer
Gross profits were $6.4 million lower in fiscal 2020 compared to fiscal 2019, due to higher input costs, increased retailer
investments, the sales of our Del Monte® Canadian and Wesson® oil businesses, and pandemic-related costs, partially offset by the
investments, the sales of our Del Monte® Canadian and Wesson® oil businesses, and pandemic-related costs, partially offset by the
increased demand related to the COVID-19 pandemic, the addition of Pinnacle, the impact of the 53rd week of our fiscal year, and
increased demand related to the COVID-19 pandemic, the addition of Pinnacle, the impact of the 53rd week of our fiscal year, and
realized productivity. International gross profits also reflected a decrease of $13.7 million due to foreign exchange rates compared
realized productivity. International gross profits also reflected a decrease of $13.7 million due to foreign exchange rates compared
to the prior-year period. Operating profit of the International segment was impacted by charges of $8.3 million and $13.1 million
to the prior-year period. Operating profit of the International segment was impacted by charges of $8.3 million and $13.1 million
related to the impairment of certain brand intangible assets during fiscal 2020 and 2019, respectively. Fiscal 2020 and 2019 included
related to the impairment of certain brand intangible assets during fiscal 2020 and 2019, respectively. Fiscal 2020 and 2019 included
expense of $1.6 million and $4.9 million, respectively, related to our restructuring plans. In addition, fiscal 2019 included a gain of
expense of $1.6 million and $4.9 million, respectively, related to our restructuring plans. In addition, fiscal 2019 included a gain of
$13.2 million related to the sale of our Del Monte® Canadian business and expense of $2.9 million related to costs incurred for
$13.2 million related to the sale of our Del Monte® Canadian business and expense of $2.9 million related to costs incurred for
divestitures.
divestitures.
Foodservice operating profit for fiscal 2020 was $97.6 million, a decrease of $36.7 million, or 27%, compared to fiscal 2019.
Foodservice operating profit for fiscal 2020 was $97.6 million, a decrease of $36.7 million, or 27%, compared to fiscal 2019.
Gross profits were $29.4 million lower in fiscal 2020 than in fiscal 2019, reflecting lower restaurant traffic due to the COVID-19
Gross profits were $29.4 million lower in fiscal 2020 than in fiscal 2019, reflecting lower restaurant traffic due to the COVID-19
pandemic, higher inventory write-offs, higher input costs, the sales of our Wesson® oil and Lender's® bagel businesses, the exit of
pandemic, higher inventory write-offs, higher input costs, the sales of our Wesson® oil and Lender's® bagel businesses, the exit of
our private label peanut butter business, and the sale of our Trenton, Missouri facility. These were slightly offset by the addition of
our private label peanut butter business, and the sale of our Trenton, Missouri facility. These were slightly offset by the addition of
Pinnacle, the impact of the 53rd week of our fiscal year, and supply chain realized productivity.
Pinnacle, the impact of the 53rd week of our fiscal year, and supply chain realized productivity.
Pension and Postretirement Non-service Income
Pension and Postretirement Non-service Income
In fiscal 2020, pension and postretirement non-service income was $9.9 million, a decrease of $25.2 million compared to
In fiscal 2020, pension and postretirement non-service income was $9.9 million, a decrease of $25.2 million compared to
fiscal 2019. The decrease was driven by a charge of $44.8 million in fiscal 2020 compared to a charge of $5.1 million in fiscal 2019
fiscal 2019. The decrease was driven by a charge of $44.8 million in fiscal 2020 compared to a charge of $5.1 million in fiscal 2019
related to the year-end write-off of actuarial losses in excess of 10% of our pension liability. The increase in losses outside of the
related to the year-end write-off of actuarial losses in excess of 10% of our pension liability. The increase in losses outside of the
10% corridor was driven by a reduction of the discount rate used to remeasure the pension obligations to present value and a
10% corridor was driven by a reduction of the discount rate used to remeasure the pension obligations to present value and a
reduction in asset values for certain plan assets. Excluding our year-end actuarial losses outside the corridor, our pension income
increased due to lower interest costs as a result of declining interest rates.
Interest Expense, Net
In fiscal 2020, net interest expense was $487.1 million, an increase of $95.7 million, or 25%, from fiscal 2019. The increase
reflected the issuance of $7.025 billion aggregate principal amount of unsecured senior notes and borrowings of $1.30 billion under
our unsecured term loan agreement with a syndicate of financial institutions providing for a $650.0 million tranche of three-year
30
30
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 acquisition of Pinnacle in the second quarter of fiscal 2019. As of May 31, 2020, we repaid all of our borrowings
under the Term Loan Agreement.
reduction in asset values for certain plan assets. Excluding our year-end actuarial losses outside the corridor, our pension income
increased due to lower interest costs as a result of declining interest rates.
reduction in asset values for certain plan assets. Excluding our year-end actuarial losses outside the corridor, our pension income
Interest Expense, Net
increased due to lower interest costs as a result of declining interest rates.
In fiscal 2020, net interest expense was $487.1 million, an increase of $95.7 million, or 25%, from fiscal 2019. The increase
reflected the issuance of $7.025 billion aggregate principal amount of unsecured senior notes and borrowings of $1.30 billion under
our unsecured term loan agreement with a syndicate of financial institutions providing for a $650.0 million tranche of three-year
Interest Expense, Net
term loans and a $650.0 million tranche of five-year term loans to the Company (the "Term Loan Agreement"), in each case in
In fiscal 2020, net interest expense was $487.1 million, an increase of $95.7 million, or 25%, from fiscal 2019. The increase
connection with the acquisition of Pinnacle in the second quarter of fiscal 2019. As of May 31, 2020, we repaid all of our borrowings
reflected the issuance of $7.025 billion aggregate principal amount of unsecured senior notes and borrowings of $1.30 billion under
under the Term Loan Agreement.
our unsecured term loan agreement with a syndicate of financial institutions providing for a $650.0 million tranche of three-year
In addition, fiscal 2019 included $11.9 million of interest expense related to the amortization of costs incurred to secure fully
term loans and a $650.0 million tranche of five-year term loans to the Company (the "Term Loan Agreement"), in each case in
committed bridge financing in connection with the then-pending Pinnacle acquisition. The bridge financing was subsequently
connection with the acquisition of Pinnacle in the second quarter of fiscal 2019. As of May 31, 2020, we repaid all of our borrowings
terminated in connection with our incurrence of permanent financing to fund the Pinnacle acquisition, and we recognized the
under the Term Loan Agreement.
remaining unamortized financing costs of $33.8 million within SG&A expenses.
In addition, fiscal 2019 included $11.9 million of interest expense 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
Income Taxes
remaining unamortized financing costs of $33.8 million within SG&A expenses.
Our income tax expense was $201.3 million and $218.8 million in fiscal 2020 and 2019, 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 19% and 24% for fiscal 2020 and 2019, respectively.
Income Taxes
Our income tax expense was $201.3 million and $218.8 million in fiscal 2020 and 2019, respectively. The effective tax rate
The effective tax rate in fiscal 2020 reflects the following:
(calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment
earnings) was approximately 19% and 24% for fiscal 2020 and 2019, respectively.
the impact of a legal entity reorganization,
an adjustment of the valuation allowance associated with the Wesson® oil business,
The effective tax rate in fiscal 2020 reflects the following:
additional state income tax expense related to uncertain tax positions,
the impact of a legal entity reorganization,
a benefit from the settlement of tax issues that were previously reserved,
an adjustment of the valuation allowance associated with the Wesson® oil business,
additional benefit due to a change in the deferred state tax rates relating to the integration of Pinnacle activity for income
additional state income tax expense related to uncertain tax positions,
tax purposes,
a benefit from the settlement of tax issues that were previously reserved,
an income tax benefit associated with a tax planning strategy that will allow us to utilize certain state tax attributes,
additional benefit due to a change in the deferred state tax rates relating to the integration of Pinnacle activity for income
additional income tax expense associated with non-deductible goodwill related to assets held for sale, for which an
tax purposes,
impairment charge was recognized,
an income tax benefit associated with a tax planning strategy that will allow us to utilize certain state tax attributes,
a tax benefit resulting from law changes,
additional income tax expense associated with non-deductible goodwill related to assets held for sale, for which an
a benefit from statute lapses on tax issues that were previously reserved, and
impairment charge was recognized,
an income tax benefit associated with a deduction of a prior year federal income tax matter.
a tax benefit resulting from law changes,
The effective tax rate in fiscal 2019 reflects the following:
a benefit from statute lapses on tax issues that were previously reserved, and
an income tax benefit associated with a deduction of a prior year federal income tax matter.
the impact of legal entity reorganization resulting in a benefit related to undistributed foreign earnings for which the
indefinite reinvestment assertion is no longer made,
The effective tax rate in fiscal 2019 reflects the following:
additional tax expense on the repatriation of certain foreign earnings,
the impact of legal entity reorganization resulting in a benefit related to undistributed foreign earnings for which the
an adjustment of valuation allowance associated with the expected capital gains from the divestiture of the Wesson® oil
indefinite reinvestment assertion is no longer made,
and Gelit businesses,
additional tax expense on the repatriation of certain foreign earnings,
additional tax expense on non-deductible facilitative costs associated with the Pinnacle acquisition,
an adjustment of valuation allowance associated with the expected capital gains from the divestiture of the Wesson® oil
a benefit recognized due to the non-taxability of the novation of a legacy guarantee,
and Gelit businesses,
a benefit recognized due to a reduction in the fair value of equity awards subject to limitations on deductibility that
additional tax expense on non-deductible facilitative costs associated with the Pinnacle acquisition,
were issued to Pinnacle executives as replacement awards at the time of the acquisition,
a benefit recognized due to the non-taxability of the novation of a legacy guarantee,
an increase to the deemed repatriation tax liability,
a benefit recognized due to a reduction in the fair value of equity awards subject to limitations on deductibility that
additional tax expense due to foreign and domestic restructuring, and
were issued to Pinnacle executives as replacement awards at the time of the acquisition,
a state tax benefit from integration of the Pinnacle business.
an increase to the deemed repatriation tax liability,
31
We expect our effective tax rate in fiscal 2021, exclusive of any unusual transactions or tax events, to be approximately 23%-
31
24%.
Equity Method Investment Earnings
additional tax expense due to foreign and domestic restructuring, and
a state tax benefit from integration of the Pinnacle business.
We expect our effective tax rate in fiscal 2021, exclusive of any unusual transactions or tax events, to be approximately 23%-
additional tax expense due to foreign and domestic restructuring, and
24%.
a state tax benefit from integration of the Pinnacle business.
Equity Method Investment Earnings
24%.
We expect our effective tax rate in fiscal 2021, exclusive of any unusual transactions or tax events, to be approximately 23%-
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 $73.2
million and $75.8 million for fiscal 2020 and 2019, respectively. Results for fiscal 2020 and 2019 included a gain of $4.1 million
Equity Method Investment Earnings
and $15.1 million, respectively, from the sale of assets by the Ardent Mills joint venture. Ardent Mills earnings for fiscal 2020
We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates. Our most
reflected increased retail demand in the fourth quarter, which more than offset reduced foodservice demand and unfavorable market
significant affiliate is the Ardent Mills joint venture. Our share of earnings from our equity method investment earnings were $73.2
conditions during the first three quarters of the year after adjusting for the items mentioned above.
million and $75.8 million for fiscal 2020 and 2019, respectively. Results for fiscal 2020 and 2019 included a gain of $4.1 million
and $15.1 million, respectively, from the sale of assets by the Ardent Mills joint venture. Ardent Mills earnings for fiscal 2020
Earnings Per Share
reflected increased retail demand in the fourth quarter, which more than offset reduced foodservice demand and unfavorable market
conditions during the first three quarters of the year after adjusting for the items mentioned above.
Diluted earnings per share in fiscal 2020 were $1.72. 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. The
increase in diluted earnings per share reflected higher net income, partially offset by an increase in the number of shares. In addition,
Earnings Per Share
see "Items Impacting Comparability" above as several significant items affected the comparability of year-over-year results of
Diluted earnings per share in fiscal 2020 were $1.72. Diluted earnings per share in fiscal 2019 were $1.52, including earnings
operations.
of $1.53 per diluted share from continuing operations and a loss of $0.01 per diluted share from discontinued operations. The
increase in diluted earnings per share reflected higher net income, partially offset by an increase in the number of shares. In addition,
Fiscal 2019 compared to Fiscal 2018
see "Items Impacting Comparability" above as several significant items affected the comparability of year-over-year results of
operations.
Net Sales
$
$
$
$
% Inc
(Dec)
Fiscal 2018
Net Sales
Fiscal 2019
Net Sales
Fiscal 2019
Net Sales
Fiscal 2018
Net Sales
% Inc
(Dec)
Overall, our net sales were $9.54 billion in fiscal 2019, an increase of 20% compared to fiscal 2018.
Overall, our net sales were $9.54 billion in fiscal 2019, an increase of 20% compared to fiscal 2018.
3,281.0
2,753.0
843.5
1,060.8
3,281.0
7,938.3
2,753.0
843.5
1,060.8
7,938.3
3,923.6 $
3,735.4
864.4
1,015.0
3,923.6 $
9,538.4 $
3,735.4
864.4
1,015.0
9,538.4 $
($ in millions)
Fiscal 2019 compared to Fiscal 2018
Reporting Segment
Net Sales
Grocery & Snacks
Refrigerated & Frozen
($ in millions)
International
Reporting Segment
Foodservice
Grocery & Snacks
Total
Refrigerated & Frozen
International
Foodservice
Total
20 %
36 %
3 %
(4 )%
20 %
20 %
36 %
3 %
(4 )%
20 %
Grocery & Snacks net sales for fiscal 2019 were $3.92 billion, an increase of $642.6 million, or 20%, 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
Grocery & Snacks net sales for fiscal 2019 were $3.92 billion, an increase of $642.6 million, or 20%, compared to fiscal
was flat compared to the prior year as unfavorable mix, coupled with increases in brand building investments with retailers were
2018. Volume, excluding the impact of acquisitions and divestitures, was flat in fiscal 2019 compared to the prior-year period. This
offset by the impact of higher pricing. The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $646.7 million,
result reflected merchandising changes and price elasticity-related declines in certain brands, as well as isolated production
or 20%, to Grocery & Snacks net sales during fiscal 2019. The acquisition of Angie's Artisan Treats, LLC, which was completed
challenges, partially offset by the continued benefit from momentum and innovation successes in the snacks businesses. Price/mix
in October 2017, contributed $41.3 million to Grocery & Snacks net sales during fiscal 2019, through the one-year anniversary of
was flat compared to the prior year as unfavorable mix, coupled with increases in brand building investments with retailers were
the acquisition. Fiscal 2019 results included $115.9 million of net sales related to our Wesson®
oil business, which was sold in the
offset by the impact of higher pricing. The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $646.7 million,
fourth quarter of fiscal 2019. Fiscal 2018 results included $156.4 million of net sales related to this divested business.
or 20%, to Grocery & Snacks net sales during fiscal 2019. 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
Refrigerated & Frozen net sales for fiscal 2019 were $3.74 billion, an increase of $982.4 million, or 36%, compared to fiscal
the acquisition. Fiscal 2019 results included $115.9 million of net sales related to our Wesson®
oil business, which was sold in the
2018. Results for fiscal 2019 reflected a 1% increase in volume compared to fiscal 2018, excluding the impact of acquisitions and
fourth quarter of fiscal 2019. Fiscal 2018 results included $156.4 million of net sales related to this divested business.
divestitures. 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
Refrigerated & Frozen net sales for fiscal 2019 were $3.74 billion, an increase of $982.4 million, or 36%, compared to fiscal
2018, as continued delivery of top-line accretive innovation in several brands was partially offset by brand building investments
2018. Results for fiscal 2019 reflected a 1% increase in volume compared to fiscal 2018, excluding the impact of acquisitions and
with retailers. The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $931.4 million, or 34%, to Refrigerated
divestitures. The increase in sales volumes was a result of innovation across multiple brands, which was partially offset by the
& Frozen net sales during fiscal 2019. The acquisition of the Sandwich Bros. of Wisconsin® business, which was completed in
effects of reduced merchandising spend and the impact of a recall during the fourth quarter. Price/mix was flat compared to fiscal
February 2018, contributed $25.7 million to Refrigerated & Frozen's net sales during fiscal 2019, through the one-year anniversary
2018, as continued delivery of top-line accretive innovation in several brands was partially offset by brand building investments
of the acquisition.
with retailers. The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $931.4 million, or 34%, to Refrigerated
32
& Frozen net sales during fiscal 2019. The acquisition of the Sandwich Bros. of Wisconsin® business, which was completed in
International net sales for fiscal 2019 were $864.4 million, an increase of $20.9 million, or 3%, 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
32
for fiscal 2019 were driven by growth in the Canadian snacks and frozen businesses. The acquisition of Pinnacle in the second
quarter of fiscal 2019 contributed $70.9 million, or 8%, to International net sales during fiscal 2019. 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
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 $864.4 million, an increase of $20.9 million, or 3%, compared to fiscal 2018.
February 2018, contributed $25.7 million to Refrigerated & Frozen's net sales during fiscal 2019, through the one-year anniversary
Results for fiscal 2019 reflected a 2% increase in volume, excluding the impact of acquisitions and divestitures, a 4% decrease due
of the acquisition.
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 Pinnacle in the second
International net sales for fiscal 2019 were $864.4 million, an increase of $20.9 million, or 3%, compared to fiscal 2018.
quarter of fiscal 2019 contributed $70.9 million, or 8%, to International net sales during fiscal 2019. The acquisition of Angie's
Results for fiscal 2019 reflected a 2% increase in volume, excluding the impact of acquisitions and divestitures, a 4% decrease due
Artisan Treats, LLC contributed $3.7 million to International net sales for fiscal 2019, through the one-year anniversary of the
to foreign exchange rates, and a 2% increase in price/mix, in each case compared to fiscal 2018. The volume and price/mix increases
acquisition. Fiscal 2019 included $4.1 million of net sales related to our Del Monte® processed fruit and vegetable business in
for fiscal 2019 were driven by growth in the Canadian snacks and frozen businesses. The acquisition of Pinnacle in the second
Canada, which was sold in the first quarter of fiscal 2019. Fiscal 2018 results included $48.9 million of net sales related to this
quarter of fiscal 2019 contributed $70.9 million, or 8%, to International net sales during fiscal 2019. The acquisition of Angie's
divested business. In addition, fiscal 2019 and 2018 results included $17.1 million and $24.5 million, respectively, related to our
Artisan Treats, LLC contributed $3.7 million to International net sales for fiscal 2019, through the one-year anniversary of the
divested Wesson® oil business.
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
Foodservice net sales for fiscal 2019 were $1.02 billion, a decrease of $45.8 million, or 4%, compared to fiscal 2018. Results
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.
for fiscal 2019 reflected a 7% 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 4% in fiscal 2019 compared to fiscal 2018. The increase in price/mix for fiscal 2019 reflected favorable
Foodservice net sales for fiscal 2019 were $1.02 billion, a decrease of $45.8 million, or 4%, compared to fiscal 2018. Results
product and customer mix, the impact of inflation-driven increases in pricing, and the execution of the segment's value-over-volume
for fiscal 2019 reflected a 7% decrease in volume, excluding divestitures. The decline in volume reflected the continued execution
strategy. The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $78.6 million, or 7%, to Foodservice net sales
of the segment's value-over-volume strategy and the sale of our Trenton, Missouri production facility in the first quarter of fiscal
during fiscal 2019. Fiscal 2019 included $34.2 million of net sales related to our Wesson® oil business, which was sold in the fourth
2019. Price/mix increased 4% in fiscal 2019 compared to fiscal 2018. The increase in price/mix for fiscal 2019 reflected favorable
quarter of fiscal 2019. Fiscal 2018 results included $53.4 million of net sales related to this divested business. Net sales declined by
product and customer mix, the impact of inflation-driven increases in pricing, and the execution of the segment's value-over-volume
approximately 7% in fiscal 2019 due to the sale of our Trenton, Missouri production facility.
strategy. The acquisition of Pinnacle in the second quarter of fiscal 2019 contributed $78.6 million, or 7%, to Foodservice net sales
during fiscal 2019. 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
SG&A Expenses (Includes general corporate expenses)
approximately 7% in fiscal 2019 due to the sale of our Trenton, Missouri production facility.
SG&A expenses totaled $1.47 billion for fiscal 2019, a decrease of $75.0 million compared to fiscal 2018. SG&A expenses
for fiscal 2019 reflected the following:
SG&A Expenses (Includes general corporate expenses)
SG&A expenses totaled $1.47 billion for fiscal 2019, a decrease of $75.0 million compared to fiscal 2018. SG&A expenses
Items impacting comparability of earnings
for fiscal 2019 reflected the following:
expenses of $170.3 million in connection with our restructuring plans,
Items impacting comparability of earnings
expenses of $106.2 million associated with costs incurred for acquisitions and divestitures,
expenses of $170.3 million in connection with our restructuring plans,
expenses of $89.6 million related to intangible impairments,
expenses of $106.2 million associated with costs incurred for acquisitions and divestitures,
gains of $69.4 million related to the divestitures of businesses,
expenses of $89.6 million related to intangible impairments,
a benefit of $39.1 million related to legal matters,
gains of $69.4 million related to the divestitures of businesses,
a benefit of $27.3 million related to the novation of a legacy guarantee,
a benefit of $39.1 million related to legal matters,
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
a benefit of $27.3 million related to the novation of a legacy guarantee,
expenses of $8.9 million related to costs associated with the integration of Pinnacle.
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
Other changes in expenses compared to fiscal 2018
expenses of $8.9 million related to costs associated with the integration of Pinnacle.
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,
Other changes in expenses compared to fiscal 2018
a decrease in advertising and promotion expense of $25.2 million, including $34.0 million of expense attributable to
an increase of $81.9 million related to Pinnacle SG&A expenses not included in other items noted herein, representing
Pinnacle,
such costs incurred from October 26, 2018 through May 26, 2019,
an increase in salary and wage expense of $61.6 million, including $60.2 million attributable to Pinnacle,
a decrease in advertising and promotion expense of $25.2 million, including $34.0 million of expense 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,
an increase in salary and wage expense of $61.6 million, including $60.2 million attributable to Pinnacle,
a decrease in pension and postretirement service expense of $9.6 million,
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,
an increase in defined contribution plan expense of $6.9 million, including $2.4 million attributable to Pinnacle,
33
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,
33
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.
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 pension and postretirement service expense of $9.6 million,
a decrease in incentive compensation expense of $4.3 million, including $6.4 million attributable to Pinnacle,
an increase in defined contribution plan expense of $6.9 million, including $2.4 million attributable to Pinnacle,
an increase in self-insured workers' compensation and product liability expense of $3.3 million, and
a decrease in charitable contributions of $5.4 million,
a decrease in transaction services agreement income of $2.9 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
SG&A expenses for fiscal 2018 included the following items impacting the comparability of earnings:
a decrease in transaction services agreement income of $2.9 million.
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,
SG&A expenses for fiscal 2018 included the following items impacting the comparability of earnings:
expenses of $30.2 million in connection with our SCAE Plan,
charges totaling $151.0 million related to certain litigation matters,
expenses of $15.1 million associated with costs incurred for acquisitions and divestitures, and
a charge of $34.9 million related to the early termination of an unfavorable lease contract,
charges totaling $4.8 million related to the impairment of other intangible assets.
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
Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income,
interest expense, net, income taxes, and equity method investment earnings)
charges totaling $4.8 million related to the impairment of other intangible assets.
$
$
% Inc
(Dec)
% Inc
(Dec)
Fiscal 2018
Operating
Profit
Fiscal 2019
Operating
Profit
Fiscal 2018
Operating
Profit
Fiscal 2019
Operating
Profit
722.5
479.4
86.5
124.1
722.5
479.4
86.5
124.1
762.6 $
645.1
99.8
134.3
762.6 $
645.1
99.8
134.3
Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income,
($ in millions)
interest expense, net, income taxes, and equity method investment earnings)
Reporting Segment
6 %
Grocery & Snacks
35 %
Refrigerated & Frozen
($ in millions)
Reporting Segment
15 %
International
8 %
6 %
Foodservice
Grocery & Snacks
35 %
Refrigerated & Frozen
15 %
International
Grocery & Snacks operating profit for fiscal 2019 was $762.6 million, an increase of $40.1 million, or 6%, compared to fiscal
8 %
Foodservice
2018. Gross profits were $70.6 million higher in fiscal 2019 than in fiscal 2018. The higher gross profit was driven by profit
contribution of acquisitions and supply chain realized productivity, partially offset by higher input costs, transportation inflation,
and a reduction in profit associated with the divestiture of the Wesson® oil business. The acquisition of Pinnacle contributed $125.1
Grocery & Snacks operating profit for fiscal 2019 was $762.6 million, an increase of $40.1 million, or 6%, compared to fiscal
million to Grocery & Snacks gross profit in fiscal 2019. The acquisition of Angie's Artisan Treats, LLC contributed $12.6 million
2018. Gross profits were $70.6 million higher in fiscal 2019 than in fiscal 2018. The higher gross profit was driven by profit
to Grocery & Snacks gross profit in fiscal 2019, through the one-year anniversary of the acquisition. Advertising and promotion
contribution of acquisitions and supply chain realized productivity, partially offset by higher input costs, transportation inflation,
expenses for fiscal 2019 decreased by $18.4 million compared to fiscal 2018. Operating profit of the Grocery & Snacks segment
and a reduction in profit associated with the divestiture of the Wesson® oil business. The acquisition of Pinnacle contributed $125.1
was impacted by charges totaling $76.5 million in fiscal 2019 for the impairment of our Chef Boyardee® and Red Fork® brand assets
million to Grocery & Snacks gross profit in fiscal 2019. The acquisition of Angie's Artisan Treats, LLC contributed $12.6 million
and $4.0 million in fiscal 2018 for the impairment of our HK Anderson®, Red Fork®, and Salpica® brand assets. Grocery & Snacks
to Grocery & Snacks gross profit in fiscal 2019, through the one-year anniversary of the acquisition. Advertising and promotion
also recognized a $33.1 million gain on the sale of our Wesson® oil business in fiscal 2019. Operating profit of the Grocery & Snacks
expenses for fiscal 2019 decreased by $18.4 million compared to fiscal 2018. Operating profit of the Grocery & Snacks segment
segment included $1.0 million and $11.4 million of expenses in fiscal 2019 and 2018, respectively, related to acquisitions and
was impacted by charges totaling $76.5 million in fiscal 2019 for the impairment of our Chef Boyardee® and Red Fork® brand assets
divestitures and charges of $6.1 million and $14.1 million in connection with our restructuring plans in fiscal 2019 and 2018,
and $4.0 million in fiscal 2018 for the impairment of our HK Anderson®, Red Fork®, and Salpica® brand assets. Grocery & Snacks
respectively. Grocery & Snacks operating profit also included incremental cost of goods sold of $30.2 million due to the impact of
also recognized a $33.1 million gain on the sale of our Wesson® oil business in fiscal 2019. Operating profit of the Grocery & Snacks
writing inventory to fair value as part of our acquisition accounting for Pinnacle and the subsequent sale of that inventory.
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 $6.1 million and $14.1 million in connection with our restructuring plans in fiscal 2019 and 2018,
Refrigerated & Frozen operating profit for fiscal 2019 was $645.1 million, an increase of $165.7 million, or 35%, compared
respectively. Grocery & Snacks operating profit also included incremental cost of goods sold of $30.2 million due to the impact of
to fiscal 2018. Gross profits were $216.4 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle and
writing inventory to fair value as part of our acquisition accounting for Pinnacle and the subsequent sale of that inventory.
supply chain realized productivity, partially offset by increased input costs and transportation inflation. Advertising and promotion
expenses for fiscal 2019 decreased by $5.5 million compared to fiscal 2018. Operating profit of the Refrigerated & Frozen segment
Refrigerated & Frozen operating profit for fiscal 2019 was $645.1 million, an increase of $165.7 million, or 35%, compared
included a gain of $23.1 million in fiscal 2019 related to the sale of our Italian-based frozen pasta business, Gelit, and incremental
to fiscal 2018. Gross profits were $216.4 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle and
cost of goods sold of $21.9 million due to the impact of writing inventory to fair value as part of our acquisition accounting for
supply chain realized productivity, partially offset by increased input costs and transportation inflation. Advertising and promotion
Pinnacle and the subsequent sale of that inventory.
expenses for fiscal 2019 decreased by $5.5 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, and incremental
International operating profit for fiscal 2019 was $99.8 million, an increase of $13.3 million, or 15%, compared to fiscal
cost of goods sold of $21.9 million due to the impact of writing inventory to fair value as part of our acquisition accounting for
2018. Gross profits were $13.9 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle. Included in the
Pinnacle and the subsequent sale of that inventory.
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
International operating profit for fiscal 2019 was $99.8 million, an increase of $13.3 million, or 15%, compared to fiscal
34
charges of $2.9 million related to divestitures. In addition, operating profit was impacted by charges of $4.9 million and $1.5 million
2018. Gross profits were $13.9 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle. Included in the
in connection with our restructuring plans, in fiscal 2019 and 2018, respectively.
Foodservice operating profit for fiscal 2019 was $134.3 million, an increase of $10.2 million, or 8%, compared to fiscal 2018.
34
Gross profits were $8.6 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle and supply chain realized
productivity, partially offset by lower volume (including the sale of our Trenton, Missouri production facility) and higher input
costs.
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 $4.9 million and $1.5 million
in connection with our restructuring plans, in fiscal 2019 and 2018, respectively.
International segment fiscal 2019 operating profit was a gain of $13.2 million related to the sale of our Del Monte® processed fruit
Foodservice operating profit for fiscal 2019 was $134.3 million, an increase of $10.2 million, or 8%, compared to fiscal 2018.
and vegetable business in Canada, charges of $13.1 million for the impairment of our Aylmer® and Sundrop® brand assets, and
Gross profits were $8.6 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle and supply chain realized
charges of $2.9 million related to divestitures. In addition, operating profit was impacted by charges of $4.9 million and $1.5 million
productivity, partially offset by lower volume (including the sale of our Trenton, Missouri production facility) and higher input
in connection with our restructuring plans, in fiscal 2019 and 2018, respectively.
costs.
Foodservice operating profit for fiscal 2019 was $134.3 million, an increase of $10.2 million, or 8%, compared to fiscal 2018.
Pension and Postretirement Non-service Income
Gross profits were $8.6 million higher in fiscal 2019 than in fiscal 2018, driven by the addition of Pinnacle and supply chain realized
productivity, partially offset by lower volume (including the sale of our Trenton, Missouri production facility) and higher input
In fiscal 2019, pension and postretirement non-service income was $35.1 million, a decrease of $45.3 million compared to
costs.
fiscal 2018. The decrease was primarily related to lower expected return on plan assets as we changed our investment strategy to
more fixed income securities.
Pension and Postretirement Non-service Income
Interest Expense, Net
In fiscal 2019, pension and postretirement non-service income was $35.1 million, a decrease of $45.3 million compared to
fiscal 2018. The decrease was primarily related to lower expected return on plan assets as we changed our investment strategy to
In fiscal 2019, net interest expense was $391.4 million, an increase of $232.7 million, or 147%, from fiscal 2018. The increase
more fixed income securities.
reflected the following:
Interest Expense, Net
the issuance of $7.025 billion aggregate principal amount of unsecured senior notes and borrowings of $1.30 billion
under our 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
In fiscal 2019, net interest expense was $391.4 million, an increase of $232.7 million, or 147%, from fiscal 2018. The increase
Agreement"), in each case in connection with the Pinnacle acquisition,
reflected the following:
the repayment of a total of $900.0 million of our borrowings under the Term Loan Agreement in the third and fourth
the issuance of $7.025 billion aggregate principal amount of unsecured senior notes and borrowings of $1.30 billion
quarters of fiscal 2019,
under our 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
the borrowing of $300.0 million under our prior term loan agreement during the fourth quarter of fiscal 2018, which
Agreement"), in each case in connection with the Pinnacle acquisition,
borrowing was subsequently repaid in connection with the Pinnacle acquisition,
the repayment of a total of $900.0 million of our borrowings under the Term Loan Agreement in the third and fourth
the issuance of $500.0 million aggregate principal amount of floating rate notes due 2020 during the second quarter of
quarters of fiscal 2019,
fiscal 2018,
the borrowing of $300.0 million under our prior term loan agreement during the fourth quarter of fiscal 2018, which
the repayment of $70.0 million aggregate principal amount of outstanding senior notes in the fourth quarter of fiscal
borrowing was subsequently repaid in connection with the Pinnacle acquisition,
2018, and
the issuance of $500.0 million aggregate principal amount of floating rate notes due 2020 during the second quarter of
the repayment of $119.6 million aggregate principal amount of outstanding notes in the third quarter of fiscal 2018.
fiscal 2018,
In addition, fiscal 2019 included $11.9 million related to the amortization of costs incurred to secure fully committed bridge
the repayment of $70.0 million aggregate principal amount of outstanding senior notes in the fourth quarter of fiscal
financing in connection with the then-pending Pinnacle acquisition. The bridge financing was subsequently terminated in
2018, and
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.
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
Income Taxes
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
Our income tax expense was $218.8 million and $174.6 million in fiscal 2019 and 2018, respectively. The effective tax rate
unamortized financing costs of $33.8 million within SG&A expenses.
(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.
Income Taxes
federal statutory rate of 29.3% for the fiscal year ended May 27, 2018.
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
The effective tax rate in fiscal 2019 reflects the following:
earnings) was approximately 24% and 18% for fiscal 2019 and 2018, respectively.
the impact of legal entity reorganization resulting in a benefit related to undistributed foreign earnings for which the
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.
indefinite reinvestment assertion is no longer made,
federal statutory rate of 29.3% for the fiscal year ended May 27, 2018.
additional tax expense on the repatriation of certain foreign earnings,
The effective tax rate in fiscal 2019 reflects the following:
an adjustment of valuation allowance associated with the expected capital gains from the divestiture of the Wesson® oil
the impact of legal entity reorganization resulting in a benefit related to undistributed foreign earnings for which the
and Gelit businesses,
indefinite reinvestment assertion is no longer made,
additional tax expense on non-deductible facilitative costs associated with the Pinnacle acquisition,
additional tax expense on the repatriation of certain foreign earnings,
a benefit recognized due to the non-taxability of the novation of a legacy guarantee,
35
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,
35
additional tax expense due to foreign and domestic restructuring, and
a state tax benefit from integration of the Pinnacle business.
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,
an adjustment of valuation allowance associated with the expected capital gains from the divestiture of the Wesson® oil
a benefit recognized due to a reduction in the fair value of equity awards subject to limitations on deductibility that
were issued to Pinnacle executives as replacement awards at the time of the acquisition,
and Gelit businesses,
an increase to the deemed repatriation tax liability,
additional tax expense on non-deductible facilitative costs associated with the Pinnacle acquisition,
additional tax expense due to foreign and domestic restructuring, and
a benefit recognized due to the non-taxability of the novation of a legacy guarantee,
a state tax benefit from integration of the Pinnacle business.
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,
The effective tax rate in fiscal 2018 reflects the following:
an increase to the deemed repatriation tax liability,
the impact of the Tax Act,
additional tax expense due to foreign and domestic restructuring, and
an adjustment of valuation allowance associated with the termination of the agreement for the proposed divestiture of
a state tax benefit from integration of the Pinnacle business.
our Wesson® oil business,
The effective tax rate in fiscal 2018 reflects the following:
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,
the impact of the Tax Act,
an income tax benefit allowed upon the vesting/exercise of employee stock compensation awards by our employees,
an adjustment of valuation allowance associated with the termination of the agreement for the proposed divestiture of
our Wesson® oil business,
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
an indirect cost of the pension contribution made on February 26, 2018,
made.
additional expense related to the settlement of an audit of the impact of a law change in Mexico,
Equity Method Investment Earnings
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
We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates. Our most
additional expense related to undistributed foreign earnings for which the indefinite reinvestment assertion is no longer
significant affiliate is the Ardent Mills joint venture. Our share of earnings from our equity method investment earnings were $75.8
made.
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
Equity Method Investment Earnings
in the earnings of fiscal 2018 in connection with a gain on the substantial liquidation of an international joint venture.
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
Results of Discontinued Operations
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
Our discontinued operations generated an after-tax loss of $1.9 million and a gain of $14.3 million in fiscal 2019 and 2018,
margins and the timing of certain customer contracts that negatively impacted performance. A benefit of $4.3 million was included
respectively. During fiscal 2018, a $14.5 million income tax benefit was recorded due to an adjustment of the estimated deductibility
in the earnings of fiscal 2018 in connection with a gain on the substantial liquidation of an international joint venture.
of the costs incurred associated with effecting the Spinoff of Lamb Weston.
Results of Discontinued Operations
Earnings Per Share
Our discontinued operations generated an after-tax loss of $1.9 million and a gain of $14.3 million in fiscal 2019 and 2018,
Diluted earnings per share in fiscal 2019 were $1.52, including earnings of $1.53 per diluted share from continuing operations
respectively. During fiscal 2018, a $14.5 million income tax benefit was recorded due to an adjustment of the estimated deductibility
and a loss of $0.01 per diluted share from discontinued operations. Diluted earnings per share in fiscal 2018 were $1.98, including
of the costs incurred associated with effecting the Spinoff of Lamb Weston.
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.
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.
36
36
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 a solid investment grade credit rating.
At May 31, 2020, 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 31, 2020, there were no outstanding borrowings under the Revolving
Credit Facility.
We had no amounts outstanding under our commercial paper program as of May 31, 2020 and May 26, 2019. The highest
level of borrowings during fiscal 2020 was $145.0 million.
During the fourth quarter of fiscal 2020, we entered into an unsecured term loan agreement (the "Credit Agreement") with a
financial institution. The Credit Agreement provides for delayed draw term loans to the Company in an aggregate principal amount
not in excess of $600 million (subject to increase to a maximum aggregate principal amount of $750 million). The Credit Agreement
matures on May 21, 2023. As of May 31, 2020, there were no outstanding borrowings under the Credit Agreement.
Borrowings under the Credit Agreement will bear interest at, at the Company's election, either (a) LIBOR plus a percentage
spread (ranging from 1.125% to 1.75%) based on the Company's senior unsecured long-term indebtedness ratings or (b) the alternate
base rate, described in the Credit Agreement as the greatest of (i) the 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%) based on the Company's senior unsecured long-
term indebtedness ratings and may be voluntarily prepaid, in whole or in part, without penalty, subject to certain conditions.
During fiscal 2020 we repaid the remaining $400.0 million outstanding principal balance of our borrowings under our $1.30
billion Term Loan Agreement. Payments totaling $200.0 million each were made in the first and third quarters of fiscal 2020 on our
three-year tranche loans and our five-year tranche loans, respectively. The Term Loan Agreement was terminated after these
repayments.
During fiscal 2020 we also redeemed the entire outstanding $525.0 million aggregate principal amount of our floating rate
notes due October 22, 2020 in two separate redemptions totaling $250.0 million and $275.0 million in the third and fourth quarter
of fiscal 2020, respectively.
We have $844.8 million of long-term debt maturing in the next 12 months. 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 undrawn
Credit Agreement, our commercial paper program, access to the capital markets, and our Revolving Credit Facility. However, the
disruption in the capital markets caused by the COVID-19 pandemic could make any refinancing more challenging and there can
be no assurance that we will be able to successfully refinance any debt on commercially reasonable terms or at all.
As of the end of fiscal 2020, our senior long-term debt ratings were all investment grade. A significant downgrade in our
credit ratings would not affect our ability to borrow amounts under the Revolving Credit Facility, 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.
Our most restrictive covenants (the Revolving Credit Facility) generally require 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 5.25 through the first quarter of fiscal 2021 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 31, 2020, we were in compliance
with all financial covenants.
37
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. We plan to repurchase shares under our
authorized program only at times and in amounts as are consistent with the prioritization of achieving our leverage targets. Our total
remaining share repurchase authorization as of May 31, 2020, was $1.41 billion.
On April 16, 2020, we announced that our Board had authorized a quarterly dividend payment of $0.2125 per share, which
was paid on June 3, 2020, to shareholders of record as of the close of business on April 30, 2020. Subject to market and other
conditions and the approval of our Board, we intend to maintain our quarterly dividend at the current annual rate of $0.85 per share
during fiscal 2021.
Cash Flows
In fiscal 2020, we generated $316.7 million of cash, which was the net result of $1.84 billion generated from operating
activities, $153.8 million used in investing activities, $1.37 billion used in financing activities, and a decrease of $1.7 million due
to the effects of changes in foreign currency exchange rates.
Cash generated from operating activities of continuing operations totaled $1.84 billion in fiscal 2020, as compared to $1.11
billion generated in fiscal 2019. Operating cash flows for fiscal 2020 reflected additional operating results from the acquisition of
Pinnacle and the impact of increased sales from COVID-19 pandemic-related demand. The timing of the increased demand in the
fourth quarter also created working capital favorability for fiscal 2020 driven primarily by the combination of decreased inventory
levels and increased accounts payable balances resulting from longer supplier payment terms. We expect that a significant portion
of this working capital favorability will reverse in fiscal 2021 as demand returns to more historic levels. In the fourth quarter of
fiscal 2020, we also improved working capital due to approximately $47 million in tax payments that were deferred until the first
quarter of fiscal 2021 as a result of recent tax legislation. Despite the deferral of such tax payments, we still had $44.2 million of
additional tax payments in the current year. The above working capital favorability was further offset by a $119.0 million increase
in interest payments and the comparative impact of cash proceeds from the settlement of interest rate swaps in fiscal 2019 totaling
$47.5 million. Lastly, we extended payment terms with certain Foodservice customers (ranging from 15-30 days) as a result of the
COVID-19 pandemic which partly gave rise to an increase in our accounts receivable at year-end.
Cash used in investing activities totaled $153.8 million in fiscal 2020 compared to $5.17 billion in fiscal 2019. Investing
activities in fiscal 2020 consisted primarily of capital expenditures totaling $369.5 million and the net proceeds from divestitures
totaling $194.6 million, including the sales of our DSD snacks and Lender's® bagel businesses. Investing activities in 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.
Cash used in financing activities totaled $1.37 billion in fiscal 2020, compared to cash provided by financing activities of
$4.15 billion in fiscal 2019. Financing activities in fiscal 2020 consisted principally of the repayment of long-term debt totaling
$947.5 million and cash dividends paid of $413.6 million. 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. During fiscal 2019, we also 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.
The Company had cash and cash equivalents of $553.3 million at May 31, 2020, and $236.6 million at May 26, 2019, of
which $80.5 million at May 31, 2020, and $144.8 million at May 26, 2019, 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 2021 is approximately $505 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,
38
working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve
months.
OBLIGATIONS AND COMMITMENTS
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such
as lease agreements, debt agreements, and unconditional purchase obligations (i.e., obligations to transfer funds in the future for
fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-pay" contracts). The unconditional
purchase obligation arrangements are entered into in our normal course of business in order to ensure adequate levels of sourced
product are available. Of these items, debt, notes payable, finance lease obligations, and operating lease obligations were recognized
as liabilities in our Consolidated Balance Sheets contained in this report as of May 31, 2020.
A summary of our contractual obligations as of May 31, 2020, was as follows:
Payments Due by Period
(in millions)
Total
Less than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
Contractual Obligations
Long-term debt
Finance lease obligations
Operating lease obligations
Purchase obligations1 and other contracts
Notes payable
Total
822.5 $ 2,287.0 $ 1,000.1 $ 5,522.0
64.8
22.2
118.6
53.0
37.1
1,122.8
—
1.1
$ 11,492.4 $ 2,021.6 $ 2,588.3 $ 1,140.0 $ 5,742.5
1Amount 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. Purchase obligations and other contracts, which totaled $1.38 billion as of May 31, 2020, were not recognized
as liabilities in the Consolidated Balance Sheets contained in this report, in accordance with U.S. GAAP.
$ 9,631.6 $
155.1
297.9
1,406.7
1.1
39.4
78.6
183.3
—
28.7
47.7
63.5
—
We are also contractually obligated to pay interest on our long-term debt and finance lease obligations. The weighted-average
coupon interest rate of the long-term debt obligations outstanding as of May 31, 2020 was approximately 4.8%.
The operating lease obligations noted in the table above have not been reduced by non-cancellable sublease rentals of $5.9
million.
As of May 31, 2020, we had aggregate unfunded pension and postretirement benefit obligations totaling $52.1 million and
$86.4 million, respectively. Our unfunded pension obligation decreased by $79.6 million in fiscal 2020 primarily due to lump-sum
payments to plan participants and actual return on plan assets exceeding expected returns, principally on fixed income securities.
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 $32.2 million and $10.0 million over the next twelve months to
fund our pension and postretirement plans, respectively. See Note 18 "Pension and Postretirement Benefits" to the consolidated
financial statements and "Critical Accounting Estimates – Employment-Related Benefits" contained in this report for further
discussion of our pension 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. As of May 31, 2020, we had $52.2 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 31, 2020, the remaining
terms of these arrangements did not exceed three years and the maximum amount of future payments we have guaranteed was $0.6
million. In addition, we guarantee a lease resulting from an exited facility. As of May 31, 2020, the remaining term of this
arrangement did not exceed seven years and the maximum amount of future payments we have guaranteed was $16.5 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
39
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 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 31, 2020 was $35.8 million. The net amount of unrecognized tax benefits at May 31, 2020, that,
if recognized, would favorably impact our effective tax rate was $30.3 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 included 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 $165.6 million as of May 31, 2020. 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 14 "Pre-tax Income and Income Taxes" to the consolidated financial
statements contained in this report.
40
Environmental Liabilities—Environmental liabilities are accrued when it is probable that obligations have been incurred and
the associated amounts can be reasonably estimated. Management works with independent third-party specialists in order to
effectively assess our environmental liabilities. Management estimates our environmental liabilities based on evaluation of
investigatory studies, extent of required clean-up, our known volumetric contribution, other potentially responsible parties, and our
experience in remediating sites. Environmental liability estimates may be affected by changing governmental or other external
determinations of what constitutes an environmental liability or an acceptable level of clean-up. Management's estimate as to our
potential liability is independent of any potential recovery of insurance proceeds or indemnification arrangements. Insurance
companies and other indemnitors are notified of any potential claims and periodically updated as to the general status of known
claims. We do not discount our environmental liabilities as the timing of the anticipated cash payments is not fixed or readily
determinable. To the extent that there are changes in the evaluation factors identified above, management's estimate of
environmental liabilities may also change.
We have recognized a reserve of approximately $63.7 million for environmental liabilities as of May 31, 2020. 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.
The Company uses a split discount rate (the "spot-rate approach") for the U.S. plans and certain foreign plans. The spot-rate
approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost.
We have recognized a pension liability of $254.5 million and $192.9 million, a postretirement liability of $89.3 million and
$90.6 million, and a workers' compensation liability of $55.5 million and $61.1 million, as of the end of fiscal 2020 and 2019,
respectively. We also have recognized a pension asset of $202.4 million and $61.2 million as of the end of fiscal 2020 and 2019,
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. generally
accepted accounting principles ("U.S. GAAP").
We recognized pension expense (benefit) from Company plans of $5.9 million, $(22.7) million, and $(56.1) million in fiscal
2020, 2019, and 2018, respectively. Such amounts reflect the year-end write-off of actuarial losses in excess of 10% of our pension
liability of $44.8 million, $5.1 million, and $3.4 million in fiscal 2020, 2019, and 2018, respectively. This also reflected expected
returns on plan assets of $170.2 million, $174.4 million, and $218.3 million in fiscal 2020, 2019, and 2018, respectively. We
contributed $17.5 million, $14.7 million, and $312.6 million to the pension plans of our continuing operations in fiscal 2020, 2019,
and 2018, respectively. We anticipate contributing approximately $32.2 million to our pension plans in fiscal 2021.
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 3.88% for fiscal 2020,
4.15% for fiscal 2019, and 3.90% for fiscal 2018. We selected a weighted-average discount rate of 3.35% and 2.30% for
determination of service and interest expense, respectively, for fiscal 2021. A 25 basis point increase in our discount rate assumption
as of the end of fiscal 2020 would have resulted in an increase of $5.1 million in our pension expense for fiscal 2020. A 25 basis
point decrease in our discount rate assumption as of the end of fiscal 2020 would have resulted in a decrease of $5.5 million in our
pension expense for fiscal 2020. For our year-end pension obligation determination, we selected discount rates of 2.98% and 3.88%
for fiscal years 2020 and 2019, respectively.
41
Another significant assumption used to account for our pension plans is the expected long-term rate of return on plan assets.
Another significant assumption used to account for our pension plans is the expected long-term rate of return on plan assets.
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
In developing the assumed long-term rate of return on plan assets for determining pension expense, we consider long-term historical
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
returns (arithmetic average) of the plan's investments, the asset allocation among types of investments, estimated long-term returns
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 4.77%
by investment type from external sources, and the current economic environment. Based on this information, we selected 4.77%
by investment type from external sources, and the current economic environment. Based on this information, we selected 4.77%
for the weighted-average expected long-term rate of return on plan assets for determining our fiscal 2020 pension expense. A 25
for the weighted-average expected long-term rate of return on plan assets for determining our fiscal 2020 pension expense. A 25
for the weighted-average expected long-term rate of return on plan assets for determining our fiscal 2020 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
basis point increase/decrease in our weighted-average expected long-term rate of return assumption as of the beginning of fiscal
basis point increase/decrease in our weighted-average 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. We selected a weighted-average
2020 would decrease/increase annual pension expense for our pension plans by $8.8 million. We selected a weighted-average
2020 would decrease/increase annual pension expense for our pension plans by $8.8 million. We selected a weighted-average
expected rate of return on plan assets of 3.74% to be used to determine our pension expense for fiscal 2021. A 25 basis point
expected rate of return on plan assets of 3.74% to be used to determine our pension expense for fiscal 2021. A 25 basis point
expected rate of return on plan assets of 3.74% to be used to determine our pension expense for fiscal 2021. A 25 basis point
increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2021 would decrease/increase
increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2021 would decrease/increase
increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2021 would decrease/increase
annual pension expense for our pension plans by $9.3 million.
annual pension expense for our pension plans by $9.3 million.
annual pension expense for our pension plans by $9.3 million.
During fiscal 2018, we approved an amendment of our salaried and non-qualified pension plans. The amendment froze the
During fiscal 2018, we approved an amendment of our salaried and non-qualified pension plans. The amendment froze the
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
compensation and service periods used to calculate pension benefits for active employees who participate in those plans. As a result
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
of this amendment, we changed our salaried and non-qualified pension asset investment strategy to align our related pension plan
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.
assets with our projected benefit obligation to reduce volatility.
assets with our projected benefit obligation to reduce volatility.
During 2018, we conducted a mortality experience study and, with the assistance of our third-party actuary, adopted new
During 2018, we conducted a mortality experience study and, with the assistance of our third-party actuary, adopted new
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
company-specific mortality tables used in measuring our pension obligations as of May 27, 2018. In addition, we incorporated a
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
revised mortality improvement scale to be used with the new company-specific mortality tables that reflects the mortality
revised mortality improvement scale to be used with the new company-specific mortality tables that reflects the mortality
improvement inherent in these tables.
improvement inherent in these tables.
improvement inherent in these tables.
We also provide certain postretirement health care benefits. We recognized postretirement benefit expense (benefit) of $(4.2)
We also provide certain postretirement health care benefits. We recognized postretirement benefit expense (benefit) of $(4.2)
million, $(1.3) million, and $0.7 million in fiscal 2020, 2019, and 2018, respectively. We anticipate contributing approximately
million, $(1.3) million, and $0.7 million in fiscal 2020, 2019, and 2018, respectively. We anticipate contributing approximately
We also provide certain postretirement health care benefits. We recognized postretirement benefit expense (benefit) of $(4.2)
$10.0 million to our postretirement health care plans in fiscal 2021.
$10.0 million to our postretirement health care plans in fiscal 2021.
million, $(1.3) million, and $0.7 million in fiscal 2020, 2019, and 2018, respectively. We anticipate contributing approximately
$10.0 million to our postretirement health care plans in fiscal 2021.
The postretirement benefit expense and obligation are also dependent on our assumptions used for the actuarially determined
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,
amounts. These assumptions include discount rates (discussed above), health care cost trend rates, inflation rates, retirement rates,
The postretirement benefit expense and obligation are also dependent on our assumptions used for the actuarially determined
mortality rates (also discussed above), and other factors. The health care cost trend assumptions are developed based on historical
mortality rates (also discussed above), and other factors. The health care cost trend assumptions are developed based on historical
amounts. These assumptions include discount rates (discussed above), health care cost trend rates, inflation rates, retirement rates,
cost data, the near-term outlook, and an assessment of likely long-term trends. Assumed inflation rates are based on an evaluation
cost data, the near-term outlook, and an assessment of likely long-term trends. Assumed inflation rates are based on an evaluation
mortality rates (also discussed above), and other factors. The health care cost trend assumptions are developed based on historical
of external market indicators. Retirement and mortality rates are based primarily on actual plan experience. The discount rate we
of external market indicators. Retirement and mortality rates are based primarily on actual plan experience. The discount rate we
cost data, the near-term outlook, and an assessment of likely long-term trends. Assumed inflation rates are based on an evaluation
selected for determination of postretirement expense was 3.48% for fiscal 2020, 3.81% for fiscal 2019, and 3.33% for fiscal 2018.
selected for determination of postretirement expense was 3.48% for fiscal 2020, 3.81% for fiscal 2019, and 3.33% for fiscal 2018.
of external market indicators. Retirement and mortality rates are based primarily on actual plan experience. The discount rate we
We have selected a weighted-average discount rate of 2.39% for determination of postretirement expense for fiscal 2021. A 25 basis
We have selected a weighted-average discount rate of 2.39% for determination of postretirement expense for fiscal 2021. A 25 basis
selected for determination of postretirement expense was 3.48% for fiscal 2020, 3.81% for fiscal 2019, and 3.33% for fiscal 2018.
point increase/decrease in our discount rate assumption would not have resulted in a material change to postretirement expense for
point increase/decrease in our discount rate assumption would not have resulted in a material change to postretirement expense for
We have selected a weighted-average discount rate of 2.39% for determination of postretirement expense for fiscal 2021. A 25 basis
our plans. We have assumed the initial year increase in cost of health care to be 6.22%, with the trend rate decreasing to 4.43% by
our plans. We have assumed the initial year increase in cost of health care to be 6.22%, with the trend rate decreasing to 4.43% by
point increase/decrease in our discount rate assumption would not have resulted in a material change to postretirement expense for
2024. A one percentage point change in the assumed health care cost trend rate would have the following effects:
2024. A one percentage point change in the assumed health care cost trend rate would have the following effects:
our plans. We have assumed the initial year increase in cost of health care to be 6.22%, with the trend rate decreasing to 4.43% by
2024. A one percentage point change in the assumed health care cost trend rate would have the following effects:
One Percent
One Percent
Increase
Increase
One Percent
Increase
One Percent
One Percent
Decrease
Decrease
One Percent
Decrease
($ in millions)
($ in millions)
(0.1 )
(0.1 )
Effect on total service and interest cost
Effect on total service and interest cost
($ in millions)
(0.1 )
Effect on total service and interest cost
(1.4 )
Effect on postretirement benefit obligation
(1.4 )
Effect on postretirement benefit obligation
Effect on postretirement benefit obligation
(1.4 )
We provide workers' compensation benefits to our employees. The measurement of the liability for our cost of providing these
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
benefits is largely based upon actuarial analysis of costs. One significant assumption we make is the discount rate used to calculate
We provide workers' compensation benefits to our employees. The measurement of the liability for our cost of providing these
the present value of our obligation. The weighted-average discount rate used at May 31, 2020 was 2.11%. A 25 basis point
the present value of our obligation. The weighted-average discount rate used at May 31, 2020 was 2.11%. A 25 basis point
benefits is largely based upon actuarial analysis of costs. One significant assumption we make is the discount rate used to calculate
increase/decrease in the discount rate assumption would not have a material impact on workers' compensation expense or the
increase/decrease in the discount rate assumption would not have a material impact on workers' compensation expense or the
the present value of our obligation. The weighted-average discount rate used at May 31, 2020 was 2.11%. A 25 basis point
liability.
liability.
increase/decrease in the discount rate assumption would not have a material impact on workers' compensation expense or the
liability.
0.1 $
0.1 $
0.1 $
1.6
1.6
1.6
$
$
$
Business Combinations, Impairment of Long-Lived Assets (including property, plant and equipment), Identifiable
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
Intangible Assets, and Goodwill—We use the acquisition method in accounting for acquired businesses. Under the acquisition
Business Combinations, Impairment of Long-Lived Assets (including property, plant and equipment), Identifiable
method, our financial statements reflect the operations of an acquired business starting from the closing of the acquisition. The
method, our financial statements reflect the operations of an acquired business starting from the closing of the acquisition. The
Intangible Assets, and Goodwill—We use the acquisition method in accounting for acquired businesses. Under the acquisition
assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess
assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess
method, our financial statements reflect the operations of an acquired business starting from the closing of the acquisition. The
of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant
of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant
assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess
judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of
judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of
of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant
significant acquisitions we normally obtain the assistance of a third-party valuation specialist in estimating fair values of tangible
significant acquisitions we normally obtain the assistance of a third-party valuation specialist in estimating fair values of tangible
judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of
and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions
and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions
significant acquisitions we normally obtain the assistance of a third-party valuation specialist in estimating fair values of tangible
about the future, considering the perspective of marketplace participants. While management believes those expectations and
about the future, considering the perspective of marketplace participants. While management believes those expectations and
and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions
assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may
assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may
about the future, considering the perspective of marketplace participants. While management believes those expectations and
occur, which could affect the accuracy or validity of the estimates and assumptions.
occur, which could affect the accuracy or validity of the estimates and assumptions.
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
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
carrying amount is determined to not be recoverable. We generally compare undiscounted estimated future cash flows of an asset
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
42
42
42
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.
-
or asset group to the carrying values of the asset or asset group. If the undiscounted estimated future cash flows exceed the carrying
We reduce the carrying amounts of long-lived assets (including property, plant and equipment) to their fair values when their
values of the asset or asset group, no impairment is recognized. If the undiscounted estimated future cash flows are less than the
carrying amount is determined to not be recoverable. We generally compare undiscounted estimated future cash flows of an asset
carrying values of the asset or asset group, we write-down the asset or assets to their estimated fair values. The estimates of fair
or asset group to the carrying values of the asset or asset group. If the undiscounted estimated future cash flows exceed the carrying
value are generally in the form of appraisal, or by discounting estimated future cash flows of the asset or asset group.
values of the asset or asset group, no impairment is recognized. If the undiscounted estimated future cash flows are less than the
42
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
Determining the useful lives of intangible assets also requires management judgment. Certain brand intangibles are expected
definite-lived intangible assets are primarily based upon historical experience, the competitive and macroeconomic environment,
to have indefinite lives based on their history and our plans to continue to support and build the acquired brands, while other acquired
and our operating plans. The costs of definite-lived intangibles are amortized to expense over their estimated life.
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
We reduce the carrying amounts of indefinite-lived intangible assets, and goodwill to their fair values when the fair value of
the particular asset being tested for impairment as well as to select a discount rate to measure the present value of the anticipated
such assets is determined to be less than their carrying amounts (i.e., assets are deemed to be impaired). Fair value is typically
cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated
estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to be generated by
operating conditions. Estimating future cash flows requires significant judgment by management in such areas as future economic
the particular asset being tested for impairment as well as to select a discount rate to measure the present value of the anticipated
conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or
cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated
estimates for future cash flows could produce different impairment amounts (or none at all) for long-lived assets and identifiable
operating conditions. Estimating future cash flows requires significant judgment by management in such areas as future economic
intangible assets.
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
In assessing other intangible assets not subject to amortization for impairment, we have the option to perform a qualitative
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
assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not
the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform any additional tests
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
for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment,
the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform any additional tests
then we are required to perform a quantitative impairment test that involves a comparison of the estimated fair value of the intangible
for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment,
asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in
then we are required to perform a quantitative impairment test that involves a comparison of the estimated fair value of the intangible
an amount equal to that excess.
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
If we perform a quantitative impairment test in evaluating impairment of our indefinite lived brands/trademarks, we utilize a
model that incorporates an estimated "royalty rate" we would be able to charge a third party for the use of the particular brand.
"relief from royalty" methodology. The methodology determines the fair value of each brand through use of a discounted cash flow
When determining the future cash flow estimates, we estimate future net sales and a fair market royalty rate for each applicable
model that incorporates an estimated "royalty rate" we would be able to charge a third party for the use of the particular brand.
brand and an appropriate discount rate to measure the present value of the anticipated cash flows. Estimating future net sales requires
When determining the future cash flow estimates, we estimate future net sales and a fair market royalty rate for each applicable
significant judgment by management in such areas as future economic conditions, product pricing, and consumer trends. In
brand and an appropriate discount rate to measure the present value of the anticipated cash flows. Estimating future net sales requires
determining an appropriate discount rate to apply to the estimated future cash flows, we consider the current interest rate
significant judgment by management in such areas as future economic conditions, product pricing, and consumer trends. In
environment and our estimated cost of capital.
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
Goodwill is tested annually for impairment of value and whenever events or changes in circumstances indicate the carrying
has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which
amount of the asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment
an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining
has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which
cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that
an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining
used to evaluate the impairment of goodwill.
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
In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence
reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is
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
more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We
reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is
also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.
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
Under the qualitative assessment, various events and circumstances that would affect the estimated fair value of a reporting
quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital between the current
unit are identified (similar to impairment indicators above). Furthermore, management considers the results of the most recent
and prior years for each reporting unit.
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
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
43
43
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
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
estimate the future cash flows anticipated to be generated by the reporting unit being tested for impairment as well as to select a
carrying value, including goodwill. Fair value is typically estimated using a discounted cash flow analysis, which requires us to
risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates,
estimate the future cash flows anticipated to be generated by the reporting unit being tested for impairment as well as to select a
we consider historical results adjusted to reflect current and anticipated operating conditions. We estimate cash flows for the
risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates,
reporting unit over a discrete period (typically five years) and the terminal period (considering expected long term growth rates and
43
we consider historical results adjusted to reflect current and anticipated operating conditions. We estimate cash flows for the
trends). Estimating future cash flows requires significant judgment by management in such areas as future economic conditions,
reporting unit over a discrete period (typically five years) and the terminal period (considering expected long term growth rates and
industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for
trends). Estimating future cash flows requires significant judgment by management in such areas as future economic conditions,
future cash flows or significant changes in risk-adjusted discount rates due to changes in market conditions could produce
industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for
substantially different estimates of the fair value of the reporting unit.
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.
As of May 31, 2020, we have goodwill of $11.44 billion, indefinite-lived intangibles of $3.40 billion and definite-lived
intangibles of $919.6 million. The amount of goodwill and intangibles increased significantly during fiscal 2019 as a result of the
As of May 31, 2020, we have goodwill of $11.44 billion, indefinite-lived intangibles of $3.40 billion and definite-lived
Pinnacle acquisition. In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business
intangibles of $919.6 million. The amount of goodwill and intangibles increased significantly during fiscal 2019 as a result of the
into our legacy reporting segments, to reflect how the business is now being managed. We tested goodwill for impairment both prior
Pinnacle acquisition. In the first quarter of fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business
to and subsequent to the reallocation of Pinnacle goodwill and there were no impairments of goodwill.
into our legacy reporting segments, to reflect how the business is now being managed. We tested goodwill for impairment both prior
to and subsequent to the reallocation of Pinnacle goodwill and there were no impairments of goodwill.
Historically, we have experienced impairments in brand intangibles and goodwill as a result of declining sales and other
economic conditions. For instance, in fiscal 2020, we recorded total intangibles impairments of $165.5 million, primarily related to
Historically, we have experienced impairments in brand intangibles and goodwill as a result of declining sales and other
our recently acquired Pinnacle brands. In fiscal 2019, we recorded total intangibles impairments of $89.6 million, primarily related
to our Chef Boyardee® brand intangible.
economic conditions. For instance, in fiscal 2020, we recorded total intangibles impairments of $165.5 million, primarily related to
our recently acquired Pinnacle brands. 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 that were recorded at fair value in the prior year, we continue to be more susceptible
to impairment charges in the future if our long-term sales forecasts, royalty rates, and other assumptions change as a result of lower
With the addition of Pinnacle intangibles that were recorded at fair value in the prior year, we continue to be more susceptible
than expected performance or other economic conditions. We will monitor these assumptions as management continues to achieve
to impairment charges in the future if our long-term sales forecasts, royalty rates, and other assumptions change as a result of lower
expected synergies, gross margin improvement, and long-term sales growth on certain key brands acquired in the acquisition
including, but not limited to, Birds Eye®, Duncan Hines®, and Gardein®.
than expected performance or other economic conditions. We will monitor these assumptions as management continues to achieve
expected synergies, gross margin improvement, and long-term sales growth on certain key brands acquired in the acquisition
including, but not limited to, Birds Eye®, Duncan Hines®, and Gardein®.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2016-13, Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), to update the
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2016-13, Financial
methodology used to measure current expected credit losses ("CECL"). This ASU applies to financial assets measured at amortized
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), to update the
cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain
methodology used to measure current expected credit losses ("CECL"). This ASU applies to financial assets measured at amortized
off-balance sheet credit exposures, such as loan commitments. This ASU replaces the current incurred loss impairment methodology
cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain
with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to
off-balance sheet credit exposures, such as loan commitments. This ASU replaces the current incurred loss impairment methodology
explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-
with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to
effect adjustment to retained earnings in the period of adoption. This ASU will be effective beginning in the first quarter of our
explain credit loss estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-
fiscal year 2021. We do not expect ASU 2016-13 to have a material impact to our consolidated financial statements and related
effect adjustment to retained earnings in the period of adoption. This ASU will be effective beginning in the first quarter of our
disclosures.
fiscal year 2021. We do not expect ASU 2016-13 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 2020 and 2019 were exposures to price fluctuations of commodity and
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
energy inputs, interest rates, and foreign currencies.
The principal market risks affecting us during fiscal 2020 and 2019 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
Commodity Market Risk
gas, electricity, and packaging materials to be used in our operations. These commodities are subject to price fluctuations that may
We purchase commodity inputs such as wheat, corn, oats, soybean meal, soybean oil, meat, dairy products, nuts, sugar, natural
create price risk. We enter into commodity hedges to manage this price risk using physical forward contracts or derivative
gas, electricity, and packaging materials to be used in our operations. These commodities are subject to price fluctuations that may
instruments. We have policies governing the hedging instruments our businesses may use. These policies include limiting the dollar
create price risk. We enter into commodity hedges to manage this price risk using physical forward contracts or derivative
risk exposure for each of our businesses. We also monitor the amount of associated counter-party credit risk for all non-exchange-
instruments. We have policies governing the hedging instruments our businesses may use. These policies include limiting the dollar
traded transactions.
risk exposure for each of our businesses. We also monitor the amount of associated counter-party credit risk for all non-exchange-
traded transactions.
44
44
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 31, 2020 and May 26, 2019, the fair value of our long-term debt (including current installments) was estimated at
$11.35 billion and $11.24 billion, respectively, based on current market rates. As of May 31, 2020 and May 26, 2019, a 1% increase
in interest rates would decrease the fair value of our fixed rate debt by approximately $704.8 million and $637.7 million,
respectively, while a 1% decrease in interest rates would increase the fair value of our fixed rate debt by approximately
$809.5 million and $724.7 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
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 2020 and 2019.
In Millions
Processing Activities
Energy commodities
Agriculture commodities
Other commodities
Foreign exchange
Fair Value Impact
Average
During the Fiscal Year
Ended May 31, 2020
Average
During the Fiscal Year
Ended May 26, 2019
$
0.4 $
0.5
0.1
0.8
0.4
0.4
0.1
0.7
45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Conagra Brands, Inc. and Subsidiaries
Consolidated Statements of Earnings
(in millions, except per share amounts)
$
$
$
Net sales
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Pension and postretirement non-service income
Interest expense, net
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
For the Fiscal Years Ended May
2019
2018
2020
11,054.4 $
9,538.4 $
7,938.3
7,984.8
1,622.5
(9.9 )
487.1
6,885.4
1,473.4
(35.1 )
391.4
5,586.8
1,398.4
(80.4 )
158.7
969.9
201.3
73.2
841.8
—
841.8 $
1.7
840.1 $
823.3
218.8
75.8
680.3
(1.9 )
678.4 $
0.1
678.3 $
$
1.72 $
1.53 $
—
—
$
1.72 $
1.53 $
$
1.72 $
1.53 $
—
(0.01 )
$
1.72 $
1.52 $
874.8
174.6
97.3
797.5
14.3
811.8
3.4
808.4
1.97
0.03
2.00
1.95
0.03
1.98
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)
2020
Tax
(Expense)
Benefit
For the Fiscal Years Ended May
2019
Tax
(Expense)
Benefit
After-
Tax
Amount
Pre-Tax
Amount
After
-Tax
Amount
Pre-Tax
Amount
(201.3 ) $ 841.8 $ 900.0 $
(221.6 ) $ 678.4 $ 972.3 $
2018
Tax
(Expense)
Benefit
After-
Tax
Amount
(160.5 ) $ 811.8
Pre-Tax
Amount
$ 1,043.1 $
Net income
Other comprehensive income:
Derivative adjustments:
Unrealized derivative adjustments
Reclassification for derivative
adjustments included in net
income
Unrealized gains on available-for-sale
securities
Currency translation adjustments:
Unrealized currency translation
gains (losses)
Reclassification for currency
translation losses included in net
income
Pension and postretirement benefit
obligations:
(7.1 )
1.8
(5.3 )
45.5
(11.4 )
34.1
2.9
(0.9 )
2.0
(3.3 )
0.9
(2.4 )
(1.9 )
0.5
(1.4 )
0.1
—
0.1
—
—
—
—
—
—
1.1
(0.3 )
0.8
(42.7 )
1.4
(41.3 )
(10.2 )
—
(10.2 )
0.8
(0.1 )
0.7
—
—
—
10.4
—
10.4
—
—
—
63.2
(15.9 )
47.3
(43.8 )
10.9
(32.9 ) 157.3
(45.0 )
112.3
Unrealized pension and
postretirement benefit obligations
Reclassification for pension and
postretirement benefit obligations
included in net income
Comprehensive income
Comprehensive loss attributable to
noncontrolling interests
Comprehensive income attributable to
Conagra Brands, Inc.
(5.5 )
1,047.7
1.4
(1.5 )
(211.7 ) 836.0 898.5
(4.1 )
0.4
0.9
(221.2 ) 677.3 1,135.4
(1.1 )
(0.2 )
0.7
(207.0 ) 928.4
(3.9 )
(0.9 )
(4.8 )
(1.7 )
(0.1 )
(1.8 )
0.7
(1.2 )
(0.5 )
$ 1,051.6 $
(210.8 ) $ 840.8 $ 900.2 $
(221.1 ) $ 679.1 $ 1,134.7 $
(205.8 ) $ 928.9
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 31, 2020
May 26, 2019
ASSETS
Current assets
Cash and cash equivalents
Receivables, less allowance for doubtful accounts of $2.6 and $2.2
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
Total liabilities
Commitments and contingencies (Note 16)
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, 97,057,311 and 98,133,747 common shares
Total Conagra Brands, Inc. common stockholders' equity
Noncontrolling interests
Total stockholders' equity
$
$
$
$
553.3 $
860.8
1,377.9
93.9
—
2,885.9
145.3
4,144.6
656.2
243.8
5,189.9
(2,800.3 )
2,389.6
11,436.3
4,315.7
1,273.4
3.1
22,304.0 $
1.1 $
845.5
1,525.6
189.4
725.8
—
3,287.4
8,900.8
—
2,165.1
14,353.3
2,921.2
2,323.2
5,471.2
(109.6 )
(2,729.9 )
7,876.1
74.6
7,950.7
22,304.0 $
236.6
818.2
1,548.9
93.4
36.7
2,733.8
141.7
3,915.1
677.5
172.0
4,906.3
(2,578.9 )
2,327.4
11,435.4
4,539.3
915.5
262.4
22,213.8
1.0
20.6
1,252.1
173.2
690.6
5.1
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
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
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Noncontrolling
Interests
Total
Equity
567.9 $ 2,839.7 $
10.0
1,171.9 $ 4,247.0 $
(0.8 )
14.8
17.4
(1.9 )
567.9
2,839.7
1,180.0
(6.7 )
16.3
81.5
638.2
474.2
0.3
584.2
2,921.2
2,286.0
37.2
(341.9 )
808.4
4,744.9
0.1
0.6
0.5
(376.5 )
678.3
5,047.9
(2.9 )
(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 )
87.0 $ 4,077.8
53.7
0.2
14.8
—
0.7
(967.3 )
(3.9 )
0.8
2.1
(2.9 )
(5.5 )
113.0
(341.9 )
808.4
3,756.6
33.1
—
0.5
0.2
2,816.3
555.7
32.7
80.4
0.1
(1.9 )
0.5
0.8
(34.0 )
(376.5 )
678.3
7,463.7
64.6
(41.3 )
(7.7 )
(110.3 )
(2,760.2 )
30.3
(34.8 )
(7.7 )
79.1
(6.5 )
43.2
(413.9 )
2.0
2.0
43.2
(413.9 )
584.2 $ 2,921.2 $
840.1
2,323.2 $ 5,471.2 $
(109.6 ) $ (2,729.9 ) $
840.1
74.6 $ 7,950.7
Balance at May 28, 2017
Stock option and incentive plans
Spinoff of Lamb Weston
Adoption of ASU 2018-02
Currency translation adjustments
Repurchase of common shares
Unrealized gain on available-for-
sale securities
Derivative adjustments
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 adjustments
Issuance of treasury shares
Issuance of common stock
Derivative adjustments
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
Stock option and incentive plans
Currency translation adjustments
Derivative adjustments
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 31, 2020
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)
2020
For the Fiscal Years Ended May
2019
2018
$
841.8 $
—
841.8
678.4 $
(1.9 )
680.3
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:
Depreciation and amortization
Asset impairment charges
Loss (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 expense (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
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
Effect of exchange rate changes on cash and cash equivalents and restricted cash
Net change in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of year
$
388.9
259.9
2.2
—
—
—
—
—
(21.8 )
59.2
(17.5 )
5.9
11.3
(43.8 )
163.5
23.1
(13.6 )
234.4
15.9
(66.8 )
1,842.6
—
1,842.6
(369.5 )
14.0
—
194.6
(46.8 )
53.8
0.1
(153.8 )
0.1
—
(947.5 )
—
(13.6 )
—
—
(413.6 )
4.8
(0.6 )
(1,370.4 )
(1.7 )
316.7
237.6
554.3 $
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 )
(277.3 )
8,310.5
(3,972.7 )
(95.2 )
(14.0 )
555.7
—
(356.2 )
(1.6 )
0.6
4,149.8
(0.7 )
108.6
129.0
237.6 $
811.8
14.3
797.5
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 )
249.1
800.0
(242.3 )
(3.0 )
(14.4 )
—
(967.3 )
(342.3 )
14.9
(1.6 )
(506.9 )
5.5
(123.4 )
252.4
129.0
The accompanying Notes are an integral part of the consolidated financial statements.
50
Notes to Consolidated Financial Statements
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year — The fiscal year of Conagra Brands, Inc. ("Conagra Brands", "Company", "we", "us", or "our") ends the last
Sunday in May. The fiscal years for the consolidated financial statements presented consist of a 53-week period for fiscal 2020 and
52-week periods for fiscal years 2019 and 2018.
Basis of Consolidation — The consolidated financial statements include the accounts of Conagra Brands, Inc. and all
majority-owned subsidiaries. All significant intercompany investments, accounts, and transactions have been eliminated.
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.
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.
The following table details the balances of our allowance for doubtful accounts and changes therein:
Year ended May 31, 2020
Year ended May 26, 2019
Year ended May 27, 2018
Balance at
Beginning
of Period
Additions
Charged
to Costs and
Expenses
$
$
$
2.2
1.7
2.9
1.2
0.6
0.8
Other
Deductions
from
Reserves
Balance at
Close of
Period
0.1 (1)
0.5 (1)
—
0.9 (2) $
0.6 (2) $
2.0 (2) $
2.6
2.2
1.7
(1)
(2)
Primarily relates to the acquisition of Pinnacle and translation.
Bad debts charged off and adjustments to previous reserves, less recoveries.
51
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
Inventories — We use the lower of cost (determined using the first-in, first-out method) or market for valuing inventories.
Property, Plant and Equipment — Property, plant and equipment are carried at cost. Depreciation has been calculated using
the straight-line method over the estimated useful lives of the respective classes of assets as follows:
Land improvements
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 19 for the definition of the levels in the fair value hierarchy. The inputs used to calculate 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.
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 2020, 2019, and 2018 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
52
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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 8 for discussion of the impairment charges related to goodwill and intangible assets in fiscal 2020, 2019, and
2018.
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.
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
53
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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 $230.7 million,
$253.4 million, and $278.6 million in fiscal 2020, 2019, and 2018, respectively, and are included in selling, general and
administrative ("SG&A") expenses.
Research and Development — We incurred expenses of $56.4 million, $56.1 million, and $47.3 million for research and
development activities in fiscal 2020, 2019, and 2018, 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:
2020
2019
2018
Currency translation losses, net of reclassification adjustments
Derivative adjustments, net of reclassification adjustments
Unrealized gains on available-for-sale securities
Pension and postretirement benefit obligations, net of reclassification
(17.4 )
adjustments
Accumulated other comprehensive loss 1
(110.5 )
1Net 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.
(125.7 ) $
26.3
—
(90.9 ) $
34.0
—
(10.2 )
(109.6 ) $
(53.4 )
(110.3 ) $
(94.7 )
1.0
0.6
$
$
54
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The following table summarizes the reclassifications from accumulated other comprehensive loss into income:
Affected Line Item in the Consolidated
Statement of Earnings1
2020
2019
2018
$
$
(3.3 ) $
(3.3 )
0.9
(2.4 ) $
(1.9 ) $
(1.9 )
0.5
(1.4 ) $
0.1 Interest expense, net
0.1 Total before tax
— Income tax expense
0.1 Net of tax
Net derivative adjustments:
Cash flow hedges
Amortization of pension and
postretirement benefit obligations:
Net prior service cost (benefit)
$
0.6 $
0.9 $
Net actuarial gain
Pension settlement
(4.6 )
(1.4 )
(2.1 )
—
Postretirement healthcare settlement
(0.2 )
(1.0 )
Curtailment
Currency translation losses
0.8
(5.5 )
1.4
(4.1 ) $
— $
—
—
— $
—
(1.5 )
0.4
(1.1 ) $
10.4 $
10.4
—
10.4 $
$
$
$
—
1.3
(0.4 )
Pension and postretirement non-service
income
Pension and postretirement non-service
income
Pension and postretirement non-service
income
Pension and postretirement non-service
income
Pension and postretirement non-service
—
income
0.9 Total before tax
(0.2 ) Income tax expense
0.7 Net of tax
—
Selling, general and administrative
expenses
—
— Total before tax
— Income tax expense
— Net of tax
1Amounts in parentheses indicate income recognized in the Consolidated Statements of Earnings.
Foreign Currency Transaction Gains and Losses — We recognized net foreign currency transaction losses from continuing
operations of $1.7 million, $2.3 million, and $1.4 million in fiscal 2020, 2019, and 2018, 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 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. We adopted this
ASU in the first quarter of fiscal 2020 using the optional transition method provided under ASU 2018-11, Leases, Topic 842:
Targeted Improvement, issued in July 2018, allowing for application of the standard at adoption date, with recognition of a
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We also elected certain practical
expedients permitted under the transition guidance, including not reassessing whether existing contracts contain leases and carrying
55
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
forward the historical classification of leases. The most significant impact of adoption on our Consolidated Financial Statements
was the recognition of right-of-use ("ROU") assets and lease liabilities for operating leases. Our accounting for finance leases
remained substantially unchanged. Upon adoption, we had total lease assets of $238.4 million and total lease liabilities of $267.0
million. The difference is primarily due to prepaid and deferred rent balances that were reclassified to the ROU asset value. The
adoption of this ASU did not result in a cumulative-effect adjustment to the opening balance of retained earnings and did not impact
our Consolidated Statements of Earnings or our Consolidated Statements of Cash Flows. See Note 15 for additional information
related to our lease arrangements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements
that include an internal-use software license). The effective date for the standard is for fiscal years beginning after December 15,
2019 and interim periods within those fiscal years. We elected to early adopt this ASU in fiscal 2020. The adoption of this guidance
did not have a material impact to our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
which removes certain exceptions to the general principles of ASC 740 as part of an overall simplification initiative. The effective
date for the standard is for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. We elected
to early adopt this ASU in fiscal 2020. The adoption of this guidance did not have a material impact to our consolidated financial
statements and related disclosures.
Recently Issued Accounting Standards — In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), to update the methodology used to
measure current expected credit losses ("CECL"). This ASU applies to financial assets measured at amortized cost, including loans,
held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit
exposures, such as loan commitments. This ASU replaces the current incurred loss impairment methodology with a methodology
to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss
estimates. The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment
to retained earnings in the period of adoption. This ASU will be effective beginning in the first quarter of our fiscal year 2021. We
do not expect ASU 2016-13 to have a material impact to our consolidated financial statements and related disclosures.
2. ACQUISITIONS
On October 26, 2018, we acquired Pinnacle Foods Inc. ("Pinnacle"), a branded packaged foods company specializing in shelf-
stable and frozen foods. Pursuant to the Agreement and Plan of Merger, dated as of June 26, 2018 (the "Merger Agreement"), among
the Company, Pinnacle, and Patriot Merger Sub Inc., a wholly-owned subsidiary of the Company that ceased to exist at the effective
time of the merger, each outstanding share of Pinnacle common stock was converted into the right to receive $43.11 per share in
cash and 0.6494 shares of common stock, par value $5.00 per share, of the Company ("Company Shares") (together, the "Merger
Consideration"), with cash payable in lieu of fractional 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 13) of $51.1 million.
In connection with the acquisition, we issued long-term debt of $8.33 billion (see Note 4) (which included funding under a
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 final allocation of the total purchase consideration to the fair values of the assets acquired
and liabilities assumed at the acquisition date.
56
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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
47.0
202.8
649.3
15.0
719.5
7,026.0
3,519.5
25.4
(607.6 )
(2,671.3 )
(810.0 )
(81.6 )
8,034.0
$
$
During fiscal 2020, we made adjustments to our initial allocations, which resulted in an increase to goodwill of $10.1 million
primarily as the result of changes in the values of certain inventory, deferred income taxes, and other noncurrent liabilities as we
refined our fair value estimates. These changes did not have a significant impact on our net income.
Goodwill represents the excess of the consideration transferred over the 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.
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.
2019
2018
Pro forma net sales
$
Pro forma net income from continuing operations attributable to Conagra Brands, Inc. $
10,788.1 $
803.8 $
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
57
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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.
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 2020, including the estimated amounts or range of amounts for
each major type of costs expected to be incurred, and the charges that have resulted or will result in cash outflows. We have approved
the incurrence of up to $360.0 million ($255.0 million of cash charges and $105.0 million of non-cash charges) in relation to
operational expenditures under the Pinnacle Integration Restructuring Plan. We have incurred or expect to incur approximately
$360.2 million of charges ($277.2 million of cash charges and $83.0 million of non-cash charges) for actions identified to date under
the Pinnacle Integration Restructuring Plan. We recognized charges of $73.8 million and $168.2 million in connection with the
Pinnacle Integration Restructuring Plan in fiscal 2020 and 2019, respectively. We expect to incur costs related to the Pinnacle
Integration Restructuring Plan through fiscal 2022.
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 2020):
Grocery &
Snacks
Refrigerated
& Frozen
International Corporate
Total
$
Accelerated depreciation
Other cost of goods sold
Total cost of goods sold
Severance and related costs
Asset impairment (net of gains on disposal)
Accelerated depreciation
Contract/lease termination
Consulting/professional fees
Other selling, general and administrative expenses
Total selling, general and administrative expenses
Consolidated total
$
9.9 $
7.7
17.6
—
36.2
—
1.4
0.2
10.2
48.0
65.6 $
5.6 $
9.2
14.8
4.3
3.8
—
4.7
—
1.1
13.9
28.7 $
— $
0.7
0.7
1.5
—
—
0.8
0.8
0.3
3.4
4.1 $
— $
—
—
115.1
2.9
7.4
17.7
90.3
28.4
261.8
261.8 $
15.5
17.6
33.1
120.9
42.9
7.4
24.6
91.3
40.0
327.1
360.2
58
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
During fiscal 2020, we recognized the following pre-tax expenses for the Pinnacle Integration Restructuring Plan:
Grocery &
Snacks
Refrigerated
& Frozen
International Corporate
Total
$
Accelerated depreciation
Other cost of goods sold
Total cost of goods sold
Severance and related costs
Asset impairment (net of gains on disposal)
Accelerated depreciation
Contract/lease termination
Consulting/professional fees
Other selling, general and administrative expenses
Total selling, general and administrative expenses
Consolidated total
$
0.6 $
0.3
0.9
—
0.2
—
—
0.2
—
0.4
1.3 $
2.1 $
—
2.1
4.3
3.8
—
—
—
0.1
8.2
10.3 $
— $
—
—
0.2
—
—
—
0.6
0.2
1.0
1.0 $
— $
—
—
4.3
2.9
2.7
14.8
29.2
7.3
61.2
61.2 $
2.7
0.3
3.0
8.8
6.9
2.7
14.8
30.0
7.6
70.8
73.8
Included in the above results are $51.2 million of charges that have resulted or will result in cash outflows and $22.6 million
in non-cash charges.
We recognized the following cumulative (plan inception to May 31, 2020) pre-tax expenses for the Pinnacle Integration
Restructuring Plan in our Consolidated Statements of Earnings:
Grocery &
Snacks
Refrigerated
& Frozen
International Corporate
Total
$
Accelerated depreciation
Other cost of goods sold
Total cost of goods sold
Severance and related costs
Asset impairment (net of gains on disposal)
Accelerated depreciation
Contract/lease termination
Consulting/professional fees
Other selling, general and administrative expenses
Total selling, general and administrative expenses
Consolidated total
$
0.6 $
1.8
2.4
—
0.2
—
—
0.2
—
0.4
2.8 $
2.1 $
1.5
3.6
4.3
3.8
—
—
—
0.1
8.2
11.8 $
— $
0.7
0.7
1.5
—
—
0.8
0.8
0.3
3.4
4.1 $
— $
—
—
115.1
2.9
7.4
15.1
67.3
15.5
223.3
223.3 $
2.7
4.0
6.7
120.9
6.9
7.4
15.9
68.3
15.9
235.3
242.0
Included in the above results are $212.4 million of charges that have resulted or will result in cash outflows and $29.6 million
in non-cash charges.
Liabilities recorded for the Pinnacle Integration Restructuring Plan and changes therein for fiscal 2020 were as follows:
Severance and related costs
Contract/lease termination
Consulting/professional fees
Other costs
Total
Balance at
May 26,
2019
Costs
Incurred
and Charged
to Expense
Costs Paid
or Otherwise
Settled
Changes in
Estimates
Balance at
May 31,
2020
$
$
76.9 $
1.0
18.4
1.2
97.5 $
11.0 $
4.6
30.0
7.6
53.2 $
(62.1 ) $
(5.1 )
(40.9 )
(8.8 )
(116.9 ) $
(2.2 ) $
—
—
—
(2.2 ) $
23.6
0.5
7.5
—
31.6
59
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
Conagra Restructuring Plan
In fiscal 2019, management initiated a 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. Although we remain
unable to make good faith estimates relating to the entire Conagra Restructuring Plan, we are reporting on actions initiated through
the end of fiscal 2020, including the estimated amounts or range of amounts for each major type of costs expected to be incurred,
and the charges that have resulted or will result in cash outflows. As of May 31, 2020, we have approved the incurrence of $131.1
million ($38.2 million of cash charges and $92.9 million of non-cash charges) for several projects associated with the Conagra
Restructuring Plan. We have incurred or expect to incur $129.5 million of charges ($40.1 million of cash charges and $89.4 million
of non-cash charges) for actions identified to date under the Conagra Restructuring Plan. We recognized charges of $64.4 million
and $2.2 million in connection with the Conagra Restructuring Plan in fiscal 2020 and 2019, respectively. We expect to incur costs
related to the Conagra Restructuring Plan over a multi-year period.
We anticipate that we will recognize the following pre-tax expenses in association with the Conagra Restructuring Plan
(amounts include charges recognized from plan inception through the end of fiscal 2020):
Grocery &
Snacks
Refrigerated
& Frozen
International Corporate
Total
Accelerated depreciation
Other cost of goods sold
Total cost of goods sold
Severance and related costs
Asset impairment (net of gains on disposal)
Contract/lease termination
Consulting/professional fees
Other selling, general and administrative expenses
Total selling, general and administrative expenses
Total
Pension and postretirement non-service income
Consolidated total
$
$
38.0 $
9.0
47.0
12.1
25.0
0.2
—
14.3
51.6
98.6 $
20.1 $
1.0
21.1
3.5
0.2
—
—
1.9
5.6
26.7 $
— $
—
—
1.2
0.1
—
—
0.3
1.6
1.6 $
— $
—
—
0.7
—
0.1
1.2
—
2.0
2.0 $
$
58.1
10.0
68.1
17.5
25.3
0.3
1.2
16.5
60.8
128.9
0.6
129.5
During fiscal 2020, we recognized the following pre-tax expenses for the Conagra Restructuring Plan:
Grocery &
Snacks
Refrigerated
& Frozen
International Corporate
Total
Accelerated depreciation
Other cost of goods sold
Total cost of goods sold
Severance and related costs
Asset impairment (net of gains on disposal)
Contract/lease termination
Other selling, general and administrative expenses
Total selling, general and administrative expenses
Total
Pension and postretirement non-service income
Consolidated total
$
$
24.1 $
2.5
26.6
4.7
25.0
—
0.9
30.6
57.2 $
3.4 $
0.2
3.6
1.3
0.2
—
0.3
1.8
5.4 $
— $
—
—
0.5
0.1
—
—
0.6
0.6 $
— $
—
—
0.5
—
0.1
—
0.6
0.6 $
$
27.5
2.7
30.2
7.0
25.3
0.1
1.2
33.6
63.8
0.6
64.4
Included in the above results are $11.4 million of charges that have resulted or will result in cash outflows and $53.0 million
in non-cash charges.
60
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
We recognized the following cumulative (plan inception to May 31, 2020) pre-tax expenses for the Conagra Restructuring
Plan in our Consolidated Statements of Earnings:
Grocery &
Snacks
Refrigerated
& Frozen
International Corporate
Total
Accelerated depreciation
Other cost of goods sold
Total cost of goods sold
Severance and related costs
Asset impairment (net of gains on disposal)
Contract/lease termination
Other selling, general and administrative expenses
Total selling, general and administrative expenses
Total
Pension and postretirement non-service income
Consolidated total
$
$
24.1 $
2.5
26.6
4.7
25.0
—
0.9
30.6
57.2 $
4.2 $
0.2
4.4
1.8
0.2
—
0.3
2.3
6.7 $
— $
—
—
1.2
0.1
—
—
1.3
1.3 $
— $
—
—
0.7
—
0.1
—
0.8
0.8 $
$
28.3
2.7
31.0
8.4
25.3
0.1
1.2
35.0
66.0
0.6
66.6
Included in the above results are $12.8 million of charges that have resulted or will result in cash outflows and $53.8 million
in non-cash charges.
Liabilities recorded for the Conagra Restructuring Plan and changes therein for fiscal 2020 were as follows:
Severance and related costs
Contract/lease termination
Other costs
Total
Balance at
May 26,
2019
Costs
Incurred
and Charged
to Expense
Costs Paid
or Otherwise
Settled
Changes in
Estimates
Balance at
May 31,
2020
$
$
1.2 $
—
—
1.2 $
7.5 $
0.1
3.7
11.3 $
(1.7 ) $
(0.1 )
(3.7 )
(5.5 ) $
(0.5 ) $
—
—
(0.5 ) $
6.5
—
—
6.5
Supply Chain and Administrative Efficiency Plan
As of May 31, 2020, we had substantially completed our restructuring activities related to our Supply Chain and
Administrative Efficiency Plan (the "SCAE Plan"). We recognized charges of $1.3 million, $9.6 million, and $38.0 million in
connection with the SCAE Plan related to our continuing operations in fiscal 2020, 2019, and 2018, respectively. We have
recognized $471.2 million in pre-tax expenses ($103.3 million in cost of goods sold, $365.6 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 31, 2020, related to
our continuing operations. Included in these results were $322.0 million of cash charges and $149.2 million of non-cash charges.
61
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
4. LONG-TERM DEBT
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
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
May 31, 2020
May 26, 2019
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
—
837.0
250.0
—
1,200.0
195.9
—
500.0
126.6
155.1
0.1
9,786.7
21.2
(17.2 )
(44.6 )
0.2
(845.5 )
8,900.8 $
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
10,722.0
24.5
(19.0 )
(52.1 )
0.9
(20.6 )
10,655.7
$
$
The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years following May 31, 2020,
are as follows:
2021
2022
2023
2024
2025
Pinnacle Acquisition Financing
$
844.7
1,221.4
1,105.0
1,015.0
13.8
In the first quarter of fiscal 2019, in connection with the announcement of the acquisition of Pinnacle Foods Inc. (the "Pinnacle
acquisition"), we secured $9.0 billion in fully committed bridge financing. Prior to the acquisition, we capitalized financing costs
related to the bridge financing of $45.7 million to be amortized over the commitment period. Our net interest expense included
$11.9 million for fiscal 2019 as a result of this amortization. The bridge facility was terminated in connection with the acquisition,
and we recognized $33.8 million of expense within SG&A expenses in fiscal 2019 for the remaining unamortized financing costs.
62
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
During the second quarter of fiscal 2019, to finance a portion of our acquisition of Pinnacle, we issued senior unsecured notes
in an aggregate principal amount of $7.025 billion. We issued the 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.
During the second quarter of fiscal 2019, to finance a portion of our acquisition of Pinnacle, we also borrowed $1.30 billion
under a term loan agreement (the "Term Loan Agreement") with a syndicate of financial institutions providing for term loans to the
Company in an aggregate principal amount of up to $1.30 billion. Our borrowings under the Term Loan Agreement consisted of a
$650.0 million tranche of three-year term loans maturing on October 26, 2021 and a $650.0 million tranche of five-year term loans
maturing on October 26, 2023.
In connection with our acquisition of Pinnacle, we prepaid in full $2.40 billion of obligations and liabilities of Pinnacle under
or in respect of Pinnacle's credit agreement and other debt agreements. We also redeemed $350.0 million in aggregate principal
amount of Pinnacle's outstanding 5.875% senior notes due January 15, 2024 and recognized a charge of $3.9 million in fiscal 2019
as a cost of early retirement of debt.
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. During fiscal 2020, we repaid
the remaining $400.0 million outstanding principal balances of our borrowings under the Term Loan Agreement, of which
repayment consisted of $200.0 million of the three-year tranche loans and $200.0 million of the five-year tranche loans. The Term
Loan Agreement was terminated after these repayments.
During fiscal 2020, we also redeemed the entire outstanding $525.0 million aggregate principal amount of our floating rate
notes due October 22, 2020 in two separate redemptions totaling $250.0 million and $275.0 million in the third and fourth quarters
of fiscal 2020, respectively.
In the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts (see Note 17)
to hedge a portion of the interest rate risk related to our anticipated issuance of long-term debt to help finance the Pinnacle
acquisition. During the second quarter of fiscal 2019, we terminated the interest rate swap contracts and received proceeds of $47.5
million. This gain was deferred in accumulated other comprehensive income and is being amortized as a reduction of interest
expense over the lives of the related debt instruments. Our net interest expense was reduced by $3.5 million and $2.0 million in
fiscal 2020 and fiscal 2019, respectively, due to the impact of these interest rate swap contracts.
Other Long-Term Debt
During the fourth quarter of fiscal 2020, we entered into an unsecured term loan agreement (the "Credit Agreement") with a
financial institution. The Credit Agreement provides for delayed draw term loans to the Company in an aggregate principal amount
not in excess of $600.0 million (subject to increase to a maximum aggregate principal amount of $750.0 million). The Credit
Agreement matures on May 21, 2023. As of May 31, 2020, there were no outstanding borrowings under the Credit Agreement.
Borrowings under the Credit Agreement will bear interest at, at the Company's election, either (a) LIBOR plus a percentage
spread (ranging from 1.125% to 1.75%) based on the Company's senior unsecured long-term indebtedness ratings or (b) the alternate
base rate, described in the Credit Agreement as the greatest of (i) the 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%) based on the Company's senior unsecured long-
term indebtedness ratings. The Company may voluntarily prepay term loans under the Credit Agreement, in whole or in part, without
penalty, subject to certain conditions.
In 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 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
In 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, the remaining principal balance of $119.6 million of our 1.9% senior notes on the maturity date of January 25,
2018, and the remaining capital lease liability balance of $28.5 million in connection with the early exit of an unfavorable lease
contract.
In 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.
General
Our most restrictive debt agreement (the Revolving Credit Facility (as defined in Note 5)) generally requires our ratio of
earnings before interest, taxes, depreciation and amortization ("EBITDA") to interest expense not to be less than 3.0 to 1.0 and our
ratio of funded debt to EBITDA not to exceed certain decreasing specified levels, ranging from 5.25 through the first quarter of
fiscal 2021 to 3.75 from the second quarter of fiscal 2023 and thereafter, with each ratio to be calculated on a rolling four-quarter
basis. As of May 31, 2020, we were in compliance with all financial covenants under the Revolving Credit Facility.
Net interest expense consists of:
Long-term debt
Short-term debt
Interest income
Interest capitalized
2020
2019
2018
$
$
495.9 $
0.9
(3.1 )
(6.6 )
487.1 $
385.9 $
15.0
(6.8 )
(2.7 )
391.4 $
161.2
4.8
(3.8 )
(3.5 )
158.7
Interest paid from continuing operations was $494.6 million, $375.6 million, and $164.5 million in fiscal 2020, 2019, and
2018, respectively.
5. CREDIT FACILITIES AND BORROWINGS
At May 31, 2020, 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 one-year or two-year periods from the
then-applicable maturity date on an annual basis. As of May 31, 2020, 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 5.25 through the first
quarter of fiscal 2021 to 3.75 from the second quarter of fiscal 2023 and thereafter, with each ratio to be calculated on a rolling four-
quarter basis. As of May 31, 2020, 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.
There were no outstanding borrowings under our commercial paper program as of May 31, 2020 and May 26, 2019.
64
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
6. DIVESTITURES AND ASSETS HELD FOR SALE
Lender's® Bagel Business
During the third quarter of fiscal 2020, we completed the sale of our Lender's® bagel business for net proceeds of $33.2
million, subject to final working capital adjustments. The business results were previously reported primarily in our Refrigerated &
Frozen segment, and to a lesser extent within our Foodservice segment.
In connection with the sale of our Lender's® bagel business, we recognized an impairment charge of $27.6 million within
SG&A expenses in the second quarter of fiscal 2020.
The assets and liabilities classified as held for sale reflected in our Consolidated Balance Sheets related to the Lender's® bagel
business were as follows:
Current assets
Noncurrent assets (including goodwill of $19.3 million)
Current liabilities
DSD Snacks Business
May 26, 2019
$
5.4
62.3
0.5
During the second quarter of fiscal 2020, we completed the sale of our Direct Store Delivery ("DSD") snacks business for net
proceeds of $137.5 million, including final working capital adjustments. The business results were previously reported in our
Grocery & Snacks segment.
In connection with the sale of our DSD snacks business, we recognized an impairment charge of $31.4 million within SG&A
expenses in the first quarter of fiscal 2020.
The assets and liabilities classified as held for sale reflected in our Consolidated Balance Sheets related to the DSD snacks
business were as follows:
Current assets
Noncurrent assets (including goodwill of $34.6 million)
Current liabilities
Lamb Weston Spinoff
$
May 26, 2019
21.4
156.2
4.6
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. Included within discontinued
operations during fiscal 2019 and 2018 was an after-tax loss of $2.8 million and after-tax income of $14.3 million, respectively, due
primarily to income tax adjustments.
We entered into a transition services agreement in connection with the Lamb Weston Spinoff and recognized $2.2 million of
income for the performance of services during fiscal 2018, classified within SG&A expenses.
Private Brands Operations
On February 1, 2016, we completed the disposition of our Private Brands operations to TreeHouse Foods, Inc. ("TreeHouse").
Included within discontinued operations during fiscal 2019 and 2018 was after-tax income of $0.9 million and an after-tax loss of
$0.1 million, respectively, related to the Private Brands operations. We entered into a transition services agreement with TreeHouse
and recognized $2.2 million of income for the performance of services during fiscal 2018, classified within SG&A expenses.
65
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
Other Divestitures
During the third quarter of fiscal 2020, we completed the sale of our peanut butter manufacturing facility in Streator, Illinois.
The sale was part of a broader initiative to optimize the Company's peanut butter business, which also included the decision to exit
the manufacture and sale of private label peanut butter. The business results were previously reported primarily in our Grocery &
Snacks segment, and to a lesser extent within our Foodservice segment. We received net proceeds of $24.8 million, subject to final
working capital adjustments.
In connection with this divestiture, we recognized impairment charges of $23.0 million within SG&A expenses in the first
half of fiscal 2020. These charges have been included in restructuring activities.
The assets held for sale reflected in our Consolidated Balance Sheets related to the exit of our private label peanut butter
business were as follows:
Current assets
Noncurrent assets (including goodwill of $10.3 million at May 26, 2019)
May 26, 2019
$
9.9
35.7
During the fourth quarter of fiscal 2019, we completed the sale of our Italian-based frozen pasta business, Gelit, for proceeds
net of cash divested of $80.1 million, including final working capital adjustments. The business results were previously reported
primarily in our Refrigerated & Frozen segment. We recognized a gain on the sale of $23.1 million included within SG&A expenses.
During the fourth quarter of fiscal 2019, we completed the sale of our Wesson® oil business for net proceeds of $168.3 million,
including final working capital adjustments. The business results were previously reported primarily in our Grocery & Snacks
segment, and to a lesser extent within the Foodservice and International segments. We recognized a gain on the sale of $33.1 million
included within SG&A expenses.
During the first quarter of fiscal 2019, we completed the sale of our Del Monte® processed fruit and vegetable business in
Canada, which was previously reported in our International segment, for combined proceeds of $32.2 million. We recognized a gain
on the sale of $13.2 million, included within SG&A expenses.
Other Assets Held for Sale
From time to time, we actively market certain other assets. Balances totaling $3.1 million and $8.2 million at May 31, 2020
and May 26, 2019, respectively, have been reclassified as noncurrent 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 2020 and 2019 was $798.7 million and $796.3
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 2020, we had purchases from our equity method investees of $32.5 million. Total dividends received from equity
method investments in fiscal 2020 were $51.4 million.
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.
66
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
Summarized combined financial information for our equity method investments on a 100% basis is as follows:
Net Sales:
Ardent Mills
Others
Total net sales
Gross margin:
Ardent Mills
Others
Total gross margin
Earnings after income taxes:
Ardent Mills
Others
Total earnings after income taxes
Ardent Mills:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Others:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Balance as of May 27, 2018
Acquisitions
Purchase accounting adjustments
Currency translation
Balance as of May 26, 2019
Purchase accounting adjustments
Currency translation
Balance as of May 31, 2020
2020
2019
2018
3,393.9 $
225.0
3,618.9 $
3,476.0 $
195.4
3,671.4 $
3,344.1
198.8
3,542.9
313.1 $
49.4
362.5 $
144.5 $
19.3
163.8 $
281.9 $
45.5
327.4 $
151.9 $
18.1
170.0 $
386.5
34.8
421.3
197.0
10.1
207.1
$
$
$
$
$
$
May 31,
2020
May 26,
2019
$
$
1,010.6 $
1,720.2
454.8
503.4
87.1 $
24.5
44.1
8.3
952.6
1,669.8
361.2
496.9
89.2
19.0
43.4
0.7
Total
Grocery &
Snacks
Refrigerated
& Frozen
1.5
—
$ 2,582.5 $ 1,080.6 $
2,157.3 4,561.8
—
—
$ 4,741.3 $ 5,642.4 $
5.9
—
$ 4,744.8 $ 5,648.3 $
International Foodservice
242.9 $
61.3
—
(5.2 )
299.0 $
0.7
(9.2 )
290.5 $
571.1 $ 4,477.1
181.6 6,962.0
1.5
(5.2 )
752.7 $ 11,435.4
10.1
(9.2 )
752.7 $ 11,436.3
3.5
—
—
—
—
—
67
8. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for fiscal 2020 and 2019 was as follows:
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
Other identifiable intangible assets were as follows:
2020
2019
Non-amortizing intangible assets
Amortizing intangible assets
$ 3,396.1 $
1,239.4
$ 4,635.5 $
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
— $ 3,559.6 $
1,239.9
319.8
319.8 $ 4,799.5 $
Accumulated
Amortization
—
260.2
260.2
During the first quarter fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business into our
legacy reporting segments to reflect how the business is now being managed. Accordingly, we reassigned goodwill from the legacy
Pinnacle segment to the applicable reporting units of the legacy Conagra segments, consistent with the Company's new management
structure. The allocation of goodwill to Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice was $2.19 billion,
$4.58 billion, $58.5 million, and $181.6 million, respectively, inclusive of goodwill related to businesses divested in fiscal 2020.
We tested goodwill for impairment both prior to and subsequent to the reallocation of Pinnacle goodwill and there were no
impairments of goodwill. Such impairment tests are performed by estimating the fair value of each reporting unit and comparing
that to the carrying amount of the net assets of the applicable reporting unit. If the estimated fair value of a reporting unit is less
than its carrying value, such deficit is recognized as an impairment of goodwill.
Fair value is typically estimated using a discounted cash flow analysis which requires us to estimate the future cash flows as
well as to select a risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future
cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. We estimate cash
flows for a reporting unit over a discrete period (typically five years) and a terminal period (considering expected long-term growth
rates and trends). With the assistance of a third-party valuation specialist, we used a discount rate for our domestic reporting units
of 7% and rates ranging from 8% to 11% for our International reporting units. We used terminal growth rates between 1% and 2%
for all reporting units (excluding one international reporting unit with a 3% terminal growth rate). Estimating the fair value of
individual reporting units requires us to make assumptions and estimates in such areas as future economic conditions, industry-
specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future
cash flows, discount rates, or terminal growth rates could produce substantially different estimates of the fair value of the reporting
units.
Several of our reporting units have an estimated fair value substantially in excess of the carrying value. Three of our reporting
units with aggregate goodwill of $3.49 billion have an estimated fair value that exceeds the respective carrying value as of our most
recent quantitative testing date in the first quarter of fiscal 2020 as follows:
Carrying Value of
Goodwill
Excess Fair Value as of
Fiscal 2020 Test Date
Sides, Components, Enhancers (part of Refrigerated & Frozen segment)
Foodservice
Canada (part of International segment)
$
2,636.6
752.7
96.2
18.1 %
36.7 %
32.0 %
In the fourth quarter of fiscal 2020, we performed our annual goodwill impairment assessment on all of our reporting units
and found no indicators of impairment. We completed a qualitative assessment which considered, among other things, an increase
in our market capitalization from our previous testing date, the current interest rate environment, and recent events which have had
a positive impact on our financial results for most of our reporting units. While retail sales have increased due to higher than
anticipated consumer demand for our products, our Foodservice segment has experienced a negative impact from shelter in place
mandates limiting access to away-from-home establishments. Due to the temporary nature of the shelter in place orders, we
determined that there was no impairment triggering event as it was not more likely than not that the fair value of this reporting unit
is less than its carrying amount. Given the evolving nature and uncertainty of the COVID-19 pandemic, we will continue to evaluate
the impact on our reporting units as changes to these assumptions could result in future impairments.
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 2020, 2019, and 2018, we recognized amortization expense
68
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
of $59.8 million, $49.1 million, and $34.9 million, respectively. Based on amortizing assets recognized in our Consolidated Balance
Sheet as of May 31, 2020, amortization expense for the next five years is estimated to be as follows:
2021
2022
2023
2024
2025
$
59.7
59.7
57.4
54.1
53.9
For our non-amortizing intangible assets, which are comprised of brands and trademarks, we use a "relief from royalty"
methodology in estimating fair value. During the first quarter of fiscal 2020, we recorded impairment charges totaling $19.3 million
within our Refrigerated & Frozen segment and Grocery & Snacks segment for certain brands for which management changed its
business strategy and that continued to have lower than expected sales and profit margins. This impairment was included within
SG&A expenses.
During fiscal 2020, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment
charges in SG&A expenses of $146.2 million, primarily within our Grocery & Snacks and Refrigerated & Frozen segments, largely
associated with brands that were recorded at fair value in recent acquisitions. The more notable brands with impairments include
Frontera®, Gardein®, Glutino®, Hungry Man®, and Udi’s®. While most of our recently acquired brands continue to remain on track
with previous assumptions, these brands have had lower than expected sales or profit margins which have led to some revisions in
our original assumptions (most notably declines in our assumed royalty rates).
During fiscal 2020, in conjunction with the divestiture of our Direct Store Delivery ("DSD") snacks business, our Lender’s®
bagel business, and the exit of our private label peanut butter business, we reclassified $64.2 million and $122.1 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.
9. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average outstanding shares of common stock. Diluted earnings
per share is computed on the basis of basic weighted average outstanding shares of common stock adjusted for the dilutive effect
of stock options, restricted stock unit awards, and other dilutive securities. During the second quarter of fiscal 2019, we issued 77.5
million shares of our common stock out of treasury to the former shareholders of Pinnacle pursuant to the terms of the Merger
Agreement. In addition, we issued 16.3 million shares of our common stock, par value $5.00 per share, in an underwritten public
offering in connection with the financing of the Pinnacle acquisition, with net proceeds of $555.7 million (see Note 2).
69
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The following table reconciles the income and average share amounts used to compute both basic and diluted earnings per
share:
Net income attributable 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
Weighted average shares outstanding:
2020
2019
2018
$
840.1 $
680.2 $
794.1
—
(1.9 )
14.3
$
840.1 $
678.3 $
808.4
Basic weighted average shares outstanding
Add: Dilutive effect of stock options, restricted stock unit awards, and
other dilutive securities
Diluted weighted average shares outstanding
487.3
444.0
403.9
1.3
488.6
1.6
445.6
3.5
407.4
For fiscal 2020, 2019, and 2018, there were 1.9 million, 2.0 million, and 1.3 million stock options outstanding, respectively,
that were excluded from the computation of diluted weighted average shares because the effect was antidilutive.
10. INVENTORIES
The major classes of inventories were as follows:
Raw materials and packaging
Work in process
Finished goods
Supplies and other
Total
11. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consisted of:
Postretirement health care and pension obligations
Noncurrent income tax liabilities
Noncurrent lease liabilities
Self-insurance liabilities
Environmental liabilities (see Note 16)
Legal settlement costs (see Note 16)
Technology agreement liability
Other
May 31, 2020
May 26, 2019
291.6 $
125.2
887.8
73.3
1,377.9 $
272.9
126.9
1,083.1
66.0
1,548.9
May 31, 2020
May 26, 2019
324.9 $
1,330.1
206.1
37.5
61.5
63.1
14.6
127.3
2,165.1 $
262.5
1,349.0
—
42.9
56.8
74.1
28.7
137.8
1,951.8
$
$
$
$
12. 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
70
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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 31, 2020.
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 2018, our Board approved an increase to our share repurchase authorization
of $1.0 billion. We repurchased 27.4 million shares of our common stock for approximately $967.3 million in fiscal 2018 under this
program.
13. 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.
In addition to the shares under the 2014 Stock Plan, certain shares of Conagra Brands common stock subject to outstanding awards
under predecessor stock plans that expire, lapse, are cancelled, terminated, forfeited, otherwise become unexercisable, or are settled
for cash are available for issuance. At May 31, 2020, approximately 40.6 million shares were reserved for granting new share-based
awards.
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 share unit awards totaled
$24.5 million, $23.9 million, and $21.8 million for fiscal 2020, 2019, and 2018, respectively. The tax benefit related to the stock-
settled share unit award compensation expense for fiscal 2020, 2019, and 2018 was $5.3 million, $6.0 million, and $7.2 million,
respectively. The compensation expense for our cash-settled share unit awards totaled $4.2 million, $17.5 million, and $5.8 million
for fiscal 2020, 2019, and 2018, respectively. The tax benefit related to the cash-settled share unit award compensation expense for
fiscal 2020, 2019, and 2018 was $1.1 million, $4.4 million, and $1.9 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 2020 and 2019 is expense of $1.0 million and $18.9 million, respectively, for accelerated vesting of awards related
to Pinnacle integration restructuring activities, net of the impact of marking-to-market these awards based on a lower market price
of shares of Conagra Brands common stock. Approximately $36.3 million of the fair value of the replacement share unit awards
granted to Pinnacle employees was attributable to pre-combination service and was included in the purchase price and established
as a liability. Included in the fiscal 2020 and 2019 expense for cash-settled share unit awards above is expense of $0.2 million and
income of $6.7 million, respectively, related to the mark-to-market of this liability. As of May 31, 2020, our liability for the
replacement awards was $3.4 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 $0.8 million, based
on the market price of shares of Conagra Brands common stock as of May 31, 2020, is expected to be recognized related to the
replacement awards over the remaining post-combination service period of approximately one year.
71
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The following table summarizes the nonvested share units as of May 31, 2020 and changes during the fiscal year then ended:
Share Units
Nonvested share units at May 26, 2019
Granted
Vested/Issued
Forfeited
Nonvested share units at May 31, 2020
Stock-Settled
Cash-Settled
Share Units
(in Millions)
Weighted
Average
Grant-Date
Fair Value
Share Units
(in Millions)
Weighted
Average
Grant-Date
Fair Value
1.81 $
1.25 $
(0.49 ) $
(0.19 ) $
2.38 $
34.89
28.32
34.43
31.60
31.76
0.97 $
— $
(0.84 ) $
(0.01 ) $
0.12 $
36.20
—
36.17
36.24
36.37
During fiscal 2020, 2019, and 2018, we granted 1.3 million, 0.9 million, and 0.9 million stock-settled share units, respectively,
with a weighted average grant date fair value of $28.32, $35.43, and $34.16 per share unit, respectively. No cash-settled share unit
awards were granted in fiscal 2020 or 2018.
The total intrinsic value of stock-settled share units vested was $14.2 million, $24.6 million, and $18.5 million during fiscal
2020, 2019, and 2018, respectively. The total intrinsic value of cash-settled share units vested was $24.3 million, $50.5 million, and
$14.2 million during fiscal 2020, 2019, and 2018, respectively.
At May 31, 2020, we had $27.9 million and $0.8 million of total unrecognized compensation expense that will be recognized
over a weighted average period of 1.8 years and 0.9 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 goals for
the three-year performance periods ending in fiscal 2020 (the "2020 performance period"), fiscal 2021 ("2021 performance period"),
and fiscal 2022 ("2022 performance period") are based on our diluted earnings per share ("EPS") compound annual growth rate,
subject to certain adjustments, measured over the defined performance periods. 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, 2021 performance period, and 2022 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. Dividend equivalents are paid on the portion of
performance shares actually earned at our regular dividend rate in additional shares of common stock.
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.
72
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
A summary of the activity for performance share awards as of May 31, 2020 and changes during the fiscal year then ended is
presented below:
Performance Shares
Nonvested performance shares at May 26, 2019
Granted
Adjustments for performance results attained and dividend equivalents
Vested/Issued
Forfeited
Nonvested performance shares at May 31, 2020
Share Units
(in Millions)
Weighted
Average
Grant-Date
Fair Value
1.15 $
0.60 $
0.04 $
(0.29 ) $
(0.01 ) $
1.49 $
34.89
28.41
34.94
34.94
32.60
32.27
The compensation expense for our performance share awards totaled $31.8 million, $8.2 million, and $11.8 million for fiscal
2020, 2019, and 2018, respectively. The tax benefit related to the compensation expense for fiscal 2020, 2019, and 2018 was $2.9
million, $2.1 million, and $3.9 million, respectively.
The total intrinsic value of performance shares vested (including shares paid in lieu of dividends) during fiscal 2020, 2019,
and 2018 was $8.4 million, $15.7 million, and $11.2 million, respectively.
Based on estimates at May 31, 2020, we had $17.9 million of total unrecognized compensation expense related to performance
shares that will be recognized over a weighted average period of 1.8 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 performance period versus the median
TSR of the S&P 500 Index ("RTSR"). Each PBRSU award payout can range from 0% to 500% of the initial target grant and will
not exceed 8.6 times the grant value of each grantee's PBRSU award (including earned dividend equivalents).
Compensation expense for the awards is recognized over the PBRSU performance period based upon the grant date fair value.
The grant date fair value was estimated using a Monte-Carlo simulation model with a risk-free rate of 2.35% and an expected
volatility of 24.92%. The model includes no expected dividend yield as the PBRSUs earn dividend equivalents.
We recognize compensation expense using the straight-line method over the requisite service period, accounting for
forfeitures as they occur. The compensation expense for our PBRSU awards totaled $2.7 million and $0.3 million for fiscal 2020
and fiscal 2019, respectively. The tax benefit related to the compensation expense for fiscal 2020 and fiscal 2019 was $0.2 million
and $0.1 million, respectively. Based on estimates at May 31, 2020, we had $4.7 million of total unrecognized compensation expense
related to the PBRSU awards that will be recognized over a period of 2 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 2020, 2019, or 2018.
73
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
A summary of the option activity as of May 31, 2020 and changes during the fiscal year then ended is presented below:
Options
Outstanding at May 26, 2019
Exercised
Expired
Outstanding at May 31, 2020
Exercisable at May 31, 2020
Number
of Options
(in Millions)
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value (in
Millions)
4.4 $
(0.5 ) $
(0.1 ) $
3.8 $
3.8 $
29.00
20.46
34.57
30.07
30.07
$
3.8
4.92 $
4.92 $
19.0
19.0
We recognize compensation expense using the straight-line method over the requisite service period, accounting for
forfeitures as they occur. The total intrinsic value of stock options exercised was $3.8 million, $7.9 million, and $15.8 million for
fiscal 2020, 2019, and 2018, respectively. The closing market price of our common stock on the last trading day of fiscal 2020 was
$34.79 per share.
Compensation expense for stock option awards totaled $0.2 million, $2.2 million, and $4.2 million for fiscal 2020, 2019, and
2018, respectively. Included in the compensation expense for stock option awards for fiscal 2019 and 2018 was $0.2 million and
$0.4 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 2020, 2019, and 2018 was $0.1 million, $0.5 million, and $1.4 million,
respectively.
At May 31, 2020, we had no unrecognized compensation expense related to stock options.
Cash received from stock option exercises for fiscal 2020, 2019, and 2018 was $11.0 million, $12.4 million, and $25.1 million,
respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $1.4 million, $2.3 million, and $5.3
million for fiscal 2020, 2019, and 2018, 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 31, 2020, there were no remaining stock appreciation rights.
The compensation income for our cash-settled stock appreciation rights totaled $0.3 million and $13.7 million for fiscal 2020
and fiscal 2019, respectively. Included in this amount for fiscal 2019 is income of $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 2020 and fiscal 2019 was $0.1 million and $3.4 million,
respectively.
74
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
A summary of the stock appreciation rights activity as of May 31, 2020 and changes during the fiscal year then ended is
presented below:
Stock Appreciation Rights
Outstanding at May 26, 2019
Exercised
Expired
Outstanding at May 31, 2020
Number
of Options
(in Millions)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value (in
Millions)
0.4 $
(0.2 ) $
(0.2 ) $
— $
28.13
26.47 $
30.76
— $
0.6
—
14. PRE-TAX INCOME AND INCOME TAXES
Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following:
United States
Foreign
The provision for income taxes included the following:
Current
Federal
State
Foreign
Deferred
Federal
State
Foreign
2020
2019
2018
$
$
978.3 $
64.8
1,043.1 $
826.6 $
72.5
899.1 $
902.5
69.6
972.1
2020
2019
2018
$
$
188.2 $
25.5
9.5
223.2
37.6
(62.3 )
2.8
(21.9 )
201.3 $
125.4 $
22.6
21.6
169.6
40.1
19.0
(9.9 )
49.2
218.8 $
153.1
17.8
32.5
203.4
(43.7 )
17.4
(2.5 )
(28.8 )
174.6
75
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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 Earnings as follows:
Computed U.S. Federal income taxes
State income taxes, net of U.S. Federal tax impact
Remeasurement of deferred taxes due to U.S. tax legislation
Transition tax on foreign earnings
Tax credits and domestic manufacturing deduction
Federal rate differential on legal reserve
Goodwill and intangible impairments
Remeasurement of deferred taxes due to legal entity reorganization
State tax impact of combining Pinnacle business
Change of valuation allowance on capital loss carryforward
Other
2020
2019
2018
$
$
219.0 $
29.6
—
—
(9.7 )
—
11.2
(40.9 )
—
—
(7.9 )
201.3 $
188.8 $
34.1
—
(4.6 )
(5.6 )
—
12.5
16.9
(12.0 )
(32.2 )
20.9
218.8 $
285.3
18.0
(241.6 )
19.8
(20.6 )
12.6
—
—
—
78.6
22.5
174.6
Income taxes paid, net of refunds, were $178.0 million, $133.8 million, and $164.1 million in fiscal 2020, 2019, and 2018,
respectively.
The tax effect of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and
liabilities consisted of the following:
Property, plant and equipment
Inventory
Goodwill, trademarks and other intangible assets
Right-of-use assets
Accrued expenses
Compensation related liabilities
Pension and other postretirement benefits
Investment in unconsolidated subsidiaries
Lease liabilities
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 31, 2020
May 26, 2019
Assets
Liabilities
Assets
Liabilities
$
$
— $
19.5
—
—
13.4
36.3
35.2
—
61.3
88.1
753.4
17.5
52.7
1,077.4
(728.3 )
349.1 $
258.4 $
—
1,108.4
51.0
—
—
—
196.2
—
—
—
—
31.8
1,645.8
—
1,645.8 $
— $
15.2
—
—
11.8
35.9
54.6
—
—
123.5
766.5
18.0
37.6
1,063.1
(738.1 )
325.0 $
240.7
—
1,187.0
—
—
—
—
185.4
—
—
—
—
24.0
1,637.1
—
1,637.1
The liability for gross unrecognized tax benefits at May 31, 2020 was $35.8 million, excluding a related liability of $7.4
million for gross interest and penalties. Included in the balance at May 31, 2020 are $0.7 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 26, 2019, our gross liability for unrecognized tax benefits was $44.1 million, excluding a related
liability of $11.7 million for gross interest and penalties. Interest and penalties recognized in the Consolidated Statements of
Earnings was a benefit of $4.3 million and expense of $1.2 million and $1.6 million in fiscal 2020, 2019, and 2018, respectively.
76
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The net amount of unrecognized tax benefits at May 31, 2020 and May 26, 2019 that, if recognized, would favorably impact
our effective tax rate was $30.3 million and $37.3 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 2018. All resulting significant items for fiscal
2018 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 2003 and subsequent years principally related to net operating losses.
Other major jurisdictions where we conduct business generally have statutes of limitations ranging from three to five years.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $16.0
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 $6.6 million would reverse through results of discontinued operations.
The change in the unrecognized tax benefits for the year ended May 31, 2020 was:
Beginning balance on May 26, 2019
Increases from positions established during prior periods
Decreases from positions established during prior periods
Increases from positions established during the current period
Decreases relating to settlements with taxing authorities
Reductions resulting from lapse of applicable statute of limitation
Other adjustments to liability
Ending balance on May 31, 2020
$
$
44.1
2.7
(0.3 )
3.7
(6.4 )
(7.7 )
(0.3 )
35.8
We have approximately $27.3 million of foreign net operating loss carryforwards ($13.3 million will expire between fiscal
2021 and 2041 and $14.0 million have no expiration dates) and $126.5 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 $42.1 million of tax effected state net operating
loss carryforwards which expire in various years ranging from fiscal 2021 to 2039 and $165.0 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 $9.7 million will expire between fiscal 2025 and 2030. State tax credits of approximately $11.9 million will expire in various
years ranging from fiscal 2021 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 2020 was a decrease of $9.8 million. For fiscal 2019 and 2018, changes in the valuation allowance
were a decrease of $1.5 million and a decrease of $273.8 million, respectively. The current year change principally relates to
decreases in the valuation allowances for state net operating losses, charitable contributions and credits.
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.
15. LEASES
We have operating and finance leases of certain warehouses, plants, land, office space, production and distribution equipment,
automobiles, and office equipment. We determine whether an agreement is or contains a lease at lease inception. ROU assets
represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments
arising from the lease.
77
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
As most of our leases do not provide an implicit interest rate, we calculate the lease liability at lease commencement as the
present value of unpaid lease payments using our estimated incremental borrowing rate. The incremental borrowing rate represents
the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a
similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.
We have elected not to separate lease and non-lease components of an agreement for all underlying asset classes prospectively
from the ASC 842 adoption date.
Any lease arrangements with an initial term of twelve months or less are not recorded on our Consolidated Balance Sheet.
We recognize lease cost for these lease arrangements on a straight-line basis over the lease term.
Our lease terms may include options to extend or terminate the lease. We consider these options in determining the lease term
used to establish our ROU asset and lease liabilities. A limited number of our lease agreements include rental payments adjusted
periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive
covenants.
Leases reported in our Consolidated Balance Sheet as of May 31, 2020 were as follows:
ROU assets, net
Lease liabilities (current)
Lease liabilities (noncurrent)
Other assets
Other accrued liabilities
Other noncurrent liabilities
$
209.3
44.4
206.1
Operating Leases
Balance Sheet Location
May 31, 2020
Balance Sheet Location
May 31, 2020
Finance Leases
ROU assets, at cost
Less accumulated depreciation
ROU assets, net
Lease liabilities (current)
Lease liabilities (noncurrent)
Property, plant and equipment
Less accumulated depreciation
Property, plant and equipment, net
Current installments of long-term debt
Senior long-term debt, excluding current installments
The components of total lease cost for fiscal 2020 were as follows:
Operating lease cost
Finance lease cost
Depreciation of leased assets
Interest on lease liabilities
Short-term lease cost
Total lease cost
$
$
$
220.4
(53.6 )
166.8
22.2
132.9
63.7
15.4
9.1
3.8
92.0
We recognized accelerated operating lease cost of $9.9 million and impairments of ROU assets of $2.9 million within
SG&A expenses in fiscal 2020. These charges are included in the Pinnacle Integration Restructuring Plan.
The weighted-average remaining lease terms and weighted-average discount rate for our leases as of May 31, 2020 were as
follows:
Weighted-average remaining lease term (in years)
Weighted-average discount rate
Operating Leases
Finance Leases
8.5
3.61 %
8.0
5.29 %
Cash flows arising from lease transactions for fiscal 2020 were as follows:
78
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
Operating cash outflows from finance leases
Financing cash outflows from finance leases
ROU assets obtained in exchange for new lease liabilities:
Operating leases
Finance leases
Maturities of lease liabilities by fiscal year as of May 31, 2020 were as follows:
$
2021
2022
2023
2024
2025
Later years
Total lease payments
Less: Imputed interest
Total lease liabilities
Operating Leases
Finance Leases
Total
$
$
53.0 $
42.1
36.5
28.0
19.7
118.6
297.9
(47.4 )
250.5 $
30.3 $
27.7
23.7
19.7
17.8
75.5
194.7
(39.6 )
155.1 $
59.5
9.2
22.5
41.6
12.2
83.3
69.8
60.2
47.7
37.5
194.1
492.6
(87.0 )
405.6
We have entered into lease agreements for certain facilities and equipment with payments totaling $2.0 million that have not
yet commenced as of May 31, 2020.
A summary of non-cancelable operating lease commitments as of May 26, 2019 is as follows:
2020
2021
2022
2023
2024
Later years
$
$
52.1
48.4
38.0
34.1
25.6
114.4
312.6
Rent expense under all operating leases was $83.5 million and $62.5 million fiscal 2019 and 2018, respectively. These
amounts are inclusive of certain charges recognized at the cease-use date for remaining lease payments associated with exited
properties.
Non-cash issuances of capital and financing lease obligations totaling $23.5 million and $1.3 million are excluded from cash
flows from investing and financing activities on the Consolidated Statements of Cash Flows for fiscal 2019 and 2018, respectively.
16. 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 have included suits against a number of lead paint and pigment manufacturers, including ConAgra Grocery Products
Company, LLC, a wholly owned subsidiary of the Company ("ConAgra Grocery Products") as alleged successor to W. P. Fuller &
Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967. These lawsuits
generally seek damages for personal injury, property damage, economic loss, and governmental expenditures allegedly caused by
the use of lead-based paint, and/or injunctive relief for inspection and abatement. When such lawsuits have been brought, ConAgra
Grocery Products has denied liability, both on the merits of the claims and on the basis that we do not believe it to be the successor
79
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
to any liability attributable to W. P. Fuller & Co. Decisions favorable to us were rendered in Rhode Island, New Jersey, Wisconsin,
and Ohio. ConAgra Grocery Products was held liable for the abatement of a public nuisance in California, and the case was
dismissed pursuant to settlement in July 2019 as discussed in the following paragraph. We remain a defendant in one active suit in
Illinois. The Illinois suit seeks class-wide relief for reimbursement of costs associated with the testing of lead levels in blood. We
do not believe it is probable that we have incurred any liability with respect to the Illinois case, nor is it possible to estimate any
potential exposure.
In California, a number of cities and counties joined in a consolidated action seeking abatement of an alleged public nuisance
in the form of lead-based paint potentially present on the interior of residences, regardless of its condition. On September 23, 2013,
a trial of the California case concluded in the Superior Court of California for the County of Santa Clara, and on January 27, 2014,
the court entered a judgment (the "Judgment") against ConAgra Grocery Products and two other defendants ordering the creation
of a California abatement fund in the amount of $1.15 billion. Liability was 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 was approved
by the trial court on July 24, 2019, and the action against ConAgra Grocery Products was 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. As part of the settlement, ConAgra Grocery Products has provided a guarantee of up to $15.0 million in the
event co-defendant, NL Industries, Inc., defaults on its payment obligations.
We have accrued $11.5 million and $63.1 million, within other accrued liabilities and other noncurrent liabilities, respectively,
for this matter as of May 31, 2020. 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 the lead paint and pigment 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 was remanded to the trial court for further
proceedings. On April 4, 2019, the trial court granted preliminary approval of a settlement in this matter. In the second quarter of
fiscal 2020, a single objecting class member appealed the court's decision approving the settlement to the United States Court of
Appeals for the Ninth Circuit. The settlement will not be final until the appeal has been resolved.
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
80
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
cannot predict with certainty the results of these or any other legal proceedings, we do not expect these matters to have a material
adverse effect on our financial condition, results of operations, or business.
The Company, its directors, and several of its executive officers are defendants in several class actions alleging violations of
federal securities laws. The lawsuits assert that the Company's officers made material misstatements and omissions that caused the
market to have an unrealistically positive assessment of the Company's financial prospects in light of the acquisition of Pinnacle,
thus causing the Company's securities to be overvalued prior to the release of the Company's consolidated financial results on
December 20, 2018 for the second quarter of fiscal year 2019. The first of these lawsuits, captioned West Palm Beach Firefighters'
Pension Fund v. Conagra Brands, Inc., et al., with which subsequent lawsuits alleging similar facts have been consolidated, was
filed on February 22, 2019 in the U.S. District Court for the Northern District of Illinois. In addition, on May 9, 2019, a shareholder
filed a derivative action on behalf of the Company against the Company's directors captioned Klein v. Arora, et al. in the U.S.
District Court for the Northern District of Illinois asserting harm to the Company due to alleged breaches of fiduciary duty and
mismanagement in connection with the Pinnacle acquisition. On July 9, 2019, September 20, 2019, and March 10, 2020, the
Company received three separate demands from stockholders under Delaware law to inspect the Company's books and records
related to the Board of Directors' review of the Pinnacle business, acquisition, and the Company's public statements related to them.
On July 22, 2019 and August 6, 2019, respectively, two additional shareholder derivative lawsuits captioned Opperman v. Connolly,
et al. and Dahl v. Connolly, et al. were filed in the U.S. District Court for the Northern District of Illinois asserting similar facts and
claims as the Klein v. Arora, et al. matter. On October 21, 2019, the Company received an additional demand from a stockholder
under Delaware law to appoint a special committee to investigate the conduct of certain officers and directors in connection with
the Pinnacle acquisition and the Company's public statements. We have put the Company's insurance carriers on notice of each of
these securities and shareholder matters. While we cannot predict with certainty the results of these or any other legal proceedings,
we do not expect these matters to have a material adverse effect on our financial condition, results of operations, or business.
Environmental Matters
We are a party to certain environmental proceedings relating to our acquisition of Beatrice in fiscal 1991. Such proceedings
include proceedings related to businesses divested by Beatrice prior to our acquisition of Beatrice. The current environmental
proceedings associated with Beatrice include litigation and administrative proceedings involving Beatrice's possible status as a
potentially responsible party at approximately 40 Superfund, proposed Superfund, or state-equivalent sites (the "Beatrice sites").
These sites involve locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides,
fertilizers, dyes, inks, solvents, polycholorinated biphenyls, acids, lead, sulfur, tannery wastes, and/or other contaminants. Reserves
for these Beatrice environmental proceedings have been established based on our best estimate of the undiscounted remediation
liabilities, which estimates include evaluation of investigatory studies, extent of required clean-up, the known volumetric
contribution of Beatrice and other potentially responsible parties, and its experience in remediating sites. The accrual for Beatrice-
related environmental matters totaled $57.7 million as of May 31, 2020, a majority of which relates to the Superfund and state-
equivalent sites referenced above. During the third quarter of fiscal 2017, a final Remedial Investigation/Feasibility Study was
submitted for the Southwest Properties portion ("Operating Unit 4") of the Wells G&H Superfund site, which is one of the Beatrice
sites. The U.S. Environmental Protection Agency ("EPA") issued a Record of Decision ("ROD") for the Southwest Properties
portion of the site on September 29, 2017 and has entered into negotiations with potentially responsible parties to determine final
responsibility for implementing the ROD. Additionally, in conjunction with the conclusion of the fifth Five-Year Review period for
Operating Unit 1 of the Wells G&H site, which spanned from October 1, 2014 to September 30, 2019, we are negotiating with the
EPA to allow us to begin testing different environmental remediation methods to improve the efficiency and effectiveness of our
current cleanup efforts affecting both Operating Units 1 and 2. As a result, in the second quarter of fiscal 2020, we increased our
environmental reserves by $6.6 million associated with these expected cleanup efforts.
Guarantees and Other Contingencies
We guarantee an obligation of the Lamb Weston business pursuant to a guarantee arrangement that existed prior to the spinoff
of the Lamb Weston business (the "Spinoff"). The guarantee remained in place following completion of the Spinoff and it will
remain in place until such guarantee 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
81
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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.
As of May 31, 2020, there was one remaining leased building subject to a lease put option. The lease is accounted for as an
operating lease and $8.2 million, representing the value for which the put option price exceeded the estimated fair value of the
property, was included in our measurement of the lease liability upon adoption of ASU 2016-02, Leases, Topic 842, in the first
quarter of fiscal 2020.
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 31, 2020, the remaining
terms of these arrangements did not exceed three years and the maximum amount of future payments we have guaranteed was $0.6
million. In addition, we guarantee a lease resulting from an exited facility. As of May 31, 2020, the remaining term of this
arrangement did not exceed seven years and the maximum amount of future payments we have guaranteed was $16.5 million.
General
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution
of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity; however, it
is reasonably possible that a change of the estimates of any of the foregoing matters may occur in the future 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.
17. DERIVATIVE FINANCIAL INSTRUMENTS
Our operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and
energy, foreign currency exchange rates, and interest rates. In the normal course of business, these risks are managed through a
variety of strategies, including the use of derivatives.
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 31, 2020, we had economically
hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with expiration dates
through April 2021.
82
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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 31, 2020, we had economically hedged certain
portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through February
2021.
From time to time, we may use derivative instruments, including interest rate swaps, to reduce risk related to changes in
interest rates. This includes, but is not limited to, hedging against increasing interest rates prior to the issuance of long-term debt
and hedging the fair value of our senior long-term debt.
Derivatives Designated as Cash Flow Hedges
During the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts to hedge
a portion of the interest rate risk related to our issuance of long-term debt to help finance the acquisition of Pinnacle. We settled
these contracts during the second quarter of fiscal 2019 and deferred a $47.5 million gain in accumulated other comprehensive
income. This gain will be amortized as a reduction of net interest expense over the lives of the related debt instruments. The
unamortized amount at May 31, 2020 was $42.0 million.
Economic Hedges of Forecasted Cash Flows
Many of our derivatives do not qualify for, and we do not currently designate certain commodity or foreign currency
derivatives to achieve, hedge accounting treatment. We reflect realized and unrealized gains and losses from derivatives used to
economically hedge anticipated commodity consumption and to mitigate foreign currency cash flow risk in earnings immediately
within general corporate expense (within cost of goods sold). The gains and losses are reclassified to segment operating results in
the period in which the underlying item being economically hedged is recognized in cost of goods sold. In the event that management
determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as
an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing
such gains and losses within segment operating results immediately.
Economic Hedges of Fair Values — Foreign Currency Exchange Rate Risk
We may use options and cross currency swaps to economically hedge the fair value of certain monetary assets and liabilities
(including intercompany balances) denominated in a currency other than the functional currency. These derivatives are marked-to-
market with gains and losses immediately recognized in SG&A expenses. These substantially offset the foreign currency transaction
gains or losses recognized as values of the monetary assets or liabilities being economically hedged change.
All derivative instruments are recognized on the Consolidated Balance Sheets at fair value (refer to Note 19 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 31,
2020 and May 26, 2019, $1.1 million, representing a right to reclaim cash collateral, and $0.1 million, representing an obligation to
return cash collateral, 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
May 31, 2020
May 26, 2019
$
8.0 $
0.4
5.9
1.4
83
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The following table presents our derivative assets and liabilities at May 31, 2020, on a gross basis, prior to the setoff of $0.4
million to total derivative assets and $1.5 million to total derivative liabilities where legal right of setoff existed:
Commodity contracts
Foreign exchange contracts
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
Fair Value
Balance Sheet Location
Fair Value
$
Other accrued
liabilities
Other accrued
liabilities
3.3
5.1
$
8.4
$
$
1.9
0.0
1.9
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
$
$
Other accrued
liabilities
Other accrued
liabilities
Other accrued
liabilities
4.9
1.4
0.1
6.4
$
$
0.9
0.9
—
1.8
The location and amount of gains (losses) from derivatives not designated as hedging instruments in our Consolidated
Statements of Earnings were as follows:
For the Fiscal Year Ended May 31, 2020
Derivatives Not Designated as Hedging Instruments
Commodity contracts
Foreign exchange contracts
Total losses from derivative instruments not
designated as hedging instruments
Location in Consolidated
Statement of Earnings of Gains (Losses)
Recognized on Derivatives
Cost of goods sold
Cost of goods sold
Amount of Gains
(Losses)
Recognized on
Derivatives
in Consolidated
Statement
of Earnings
$
$
(18.4 )
5.5
(12.9 )
For the Fiscal Year Ended May 26, 2019
Derivatives Not Designated as Hedging Instruments
Commodity contracts
Foreign exchange contracts
Total losses from derivative instruments not
designated as hedging instruments
Location in Consolidated
Statement of Earnings of Gains (Losses)
Recognized on Derivatives
Cost of goods sold
Cost of goods sold
84
Amount of Gains
(Losses)
Recognized on
Derivatives
in Consolidated
Statement
of Earnings
$
$
(5.3 )
1.7
(3.6 )
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
For the Fiscal Year Ended May 27, 2018
Derivatives Not Designated as Hedging Instruments
Commodity contracts
Foreign exchange contracts
Foreign exchange contracts
Total losses from derivative instruments not
designated as hedging instruments
Location in Consolidated
Statement of Earnings of Gains (Losses)
Recognized on Derivatives
Cost of goods sold
Cost of goods sold
Selling, general and administrative expense
Amount of Gains
(Losses) Recognized
on Derivatives
in Consolidated
Statement
of Earnings
$
$
3.0
(3.9 )
0.3
(0.6 )
As of May 31, 2020, our open commodity contracts had a notional value (defined as notional quantity times market value per
notional quantity unit) of $102.0 million and $3.4 million for purchase and sales contracts, respectively. As of May 26, 2019, our
open commodity contracts had a notional value of $140.1 million and $18.5 million for purchase and sales contracts, respectively.
The notional amount of our foreign currency forward and cross currency swap contracts as of May 31, 2020 and May 26, 2019 was
$107.6 million and $88.2 million, respectively.
We enter into certain commodity, interest rate, and foreign exchange derivatives with a diversified group of counterparties.
We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit exposure
to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these counterparties.
We have not incurred a material loss due to nonperformance in any period presented and do not expect to incur any such material
loss. We also enter into futures and options transactions through various regulated exchanges.
At May 31, 2020, 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 $5.2 million.
18. 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 third quarter of fiscal 2020, we amended a certain hourly pension plan that will freeze future compensation and
service periods. As a result, we remeasured the Company’s hourly pension plan liability as of January 31, 2020 and recorded a
pension curtailment loss of $0.2 million previously within other comprehensive income (loss). In connection with the
remeasurement, we updated the effective discount rate assumption for the impacted pension plan from 3.86% to 2.96%. The
remeasurement increased the underfunded status of the pension plan by $4.3 million with a corresponding loss within other
comprehensive income (loss).
During the second quarter of fiscal 2020, the Company provided a voluntary lump-sum settlement offer to certain terminated
vested participants in the salaried pension plan in order to reduce a portion of the pension obligation. During the third quarter of
fiscal 2020, lump-sum settlement payments totaling $154.6 million were distributed from pension plan assets to such participants.
As a result of the settlement, we were required to remeasure our pension plan liability. In connection with the remeasurement, we
updated the effective discount rate assumption for the impacted pension plan obligation from 3.89% to 3.37%, as of December 31,
2019. The settlement and related remeasurement resulted in the recognition of a settlement gain of $2.1 million, reflected in pension
85
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
and postretirement non-service income, as well as a benefit to other comprehensive income (loss) totaling $79.8 million in the third
quarter of fiscal 2020.
As a result of the anticipated exit of certain facilities, during the first quarter of fiscal 2020, we remeasured the Company's
hourly pension plan as of August 25, 2019 and recorded a pension curtailment loss of $0.6 million previously within other
comprehensive income (loss). In connection with the remeasurement, we updated the effective discount rate assumption for the
impacted pension plan obligation from 3.90% to 3.13%. The curtailment loss and related remeasurement increased the underfunded
status of the pension plan by $12.3 million with a corresponding loss within other comprehensive income (loss).
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 this 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 income (loss), the net of tax results of the actuarial gains or losses
within the corridor and prior service costs or credits that arise during the period but are not recognized in net periodic benefit cost.
For our other benefits, 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.
86
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The changes in benefit obligations and plan assets at May 31, 2020 and May 26, 2019 are presented in the following table.
Pension Benefits
Other Benefits
2020
2019
2020
2019
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Amendments
Actuarial loss (gain)
Plan settlements
Curtailments
Benefits paid
Currency
Business acquisitions and divestitures
Benefit obligation at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants' contributions
Plan settlements
Benefits paid
Currency
Business acquisitions and divestitures
Fair value of plan assets at end of year
$
$
$
$
3,733.2 $
11.5
118.4
—
—
411.6
(201.7 )
(0.8 )
(199.3 )
(0.4 )
—
3,872.5 $
3,601.5 $
557.5
17.5
—
(156.3 )
(199.3 )
(0.5 )
—
3,820.4 $
3,423.6 $
10.9
132.6
—
1.4
150.1
—
—
(191.2 )
(0.6 )
206.4
3,733.2 $
3,355.1 $
252.2
14.7
—
—
(191.2 )
(0.6 )
171.3
3,601.5 $
$
91.2
0.1
2.6
—
—
3.0
(0.1 )
—
(6.9 )
(0.1 )
—
89.8
$
$
3.4
0.1
6.9
—
(0.1 )
(6.9 )
—
—
$
3.4
119.3
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 )
—
—
3.4
The funded status and amounts recognized in our Consolidated Balance Sheets at May 31, 2020 and May 26, 2019 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 31, 2020 and May 26, 2019
Discount rate
Long-term rate of compensation increase
Pension Benefits
Other Benefits
2020
2019
2020
2019
(52.1 ) $
(131.7 ) $
(86.4 ) $
(87.8 )
202.4 $
(8.9 )
(245.6 )
(52.1 ) $
61.2 $
(10.2 )
(182.7 )
(131.7 ) $
2.9 $
(10.0 )
(79.3 )
(86.4 ) $
51.2 $
8.6
59.8 $
115.8 $
12.1
127.9 $
(15.0 ) $
(40.1 )
(55.1 ) $
2.8
(10.8 )
(79.8 )
(87.8 )
(47.8 )
(17.1 )
(64.9 )
2.98 %
N/A
3.88 %
N/A
2.39 %
N/A
3.48 %
N/A
87
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The accumulated benefit obligation for all defined benefit pension plans was $3.87 billion and $3.73 billion at May 31, 2020
and May 26, 2019, 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 31, 2020 and May 26, 2019 were:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
2020
1,062.8 $
1,062.8
808.2
2019
964.3
963.7
771.4
Components of pension benefit and other postretirement benefit costs included:
$
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (benefit)
Recognized net actuarial loss (gain)
Settlement loss (gain)
Curtailment loss (gain)
Benefit cost — Company plans
Pension benefit cost — multi-employer plans
Total benefit (income) cost
$
2020
Pension Benefits
2019
2018
2020
Other Benefits
2019
2018
11.5 $
118.4
(170.2 )
2.7
44.8
(2.1 )
0.8
5.9
6.5
12.4 $
10.9 $
132.6
(174.4 )
3.1
5.1
—
—
(22.7 )
6.3
(16.4 ) $
42.8 $
111.1
(218.3 )
2.9
3.4
1.3
0.7
(56.1 )
7.1
(49.0 ) $
0.1 $
2.6
—
(2.1 )
(4.6 )
(0.2 )
—
(4.2 )
—
(4.2 ) $
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
In fiscal 2020, 2019, and 2018, the Company recorded charges of $44.8 million, $5.1 million, and $3.4 million, respectively,
reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability. In fiscal 2020, the higher actuarial
losses outside of the 10% corridor is principally related to a reduction in the discount rate used to recognize at present value our
pension obligations and a decline in market value of certain plan assets associated with our non-qualified and hourly plans.
The Company recorded an expense of $0.3 million and $0.6 million (primarily within restructuring activities) during fiscal
2019 and 2018, 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:
Net actuarial gain (loss)
Amendments
Amortization of prior service cost (benefit)
Settlement and curtailment gain
Recognized net actuarial loss (gain)
Net amount recognized
Pension Benefits
Other Benefits
2020
2019
2020
2019
$
$
21.9 $
—
2.7
(1.3 )
44.8
68.1 $
(72.1 ) $
(1.4 )
3.1
—
5.1
(65.3 ) $
(2.9 ) $
—
(2.1 )
(0.2 )
(4.6 )
(9.8 ) $
25.1
0.8
(2.2 )
(1.6 )
(1.4 )
20.7
Weighted-Average Actuarial Assumptions Used to Determine Net Expense
Discount rate
Long-term rate of return on plan assets
Long-term rate of compensation increase
2020
Pension Benefits
2019
2018
2020
Other Benefits
2019
2018
3.88 %
4.77 %
N/A
4.15 %
5.17 %
3.63 %
3.90 %
7.50 %
3.63 %
3.48 %
N/A
N/A
3.81 %
N/A
N/A
3.33 %
N/A
N/A
88
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The Company uses a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans. The spot-rate
approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost.
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.
Plan Assets
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 19, as of May 31, 2020,
was as follows:
Cash and cash equivalents
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
Level 1
Level 2
Level 3
Total
$
10.1 $
71.9 $
— $
82.0
63.9
92.4
—
—
—
—
30.2
82.2
0.7
743.9
2,461.7
22.4
—
—
—
—
—
—
—
—
—
$
196.6 $
3,382.8 $
— $
$
146.1
93.1
743.9
2,461.7
22.4
—
30.2
3,579.4
241.0
3,820.4
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 19, as of May 26, 2019,
was as follows:
Cash and cash equivalents
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
Level 1
Level 2
Level 3
Total
$
0.7 $
77.7 $
— $
78.4
56.3
87.8
91.8
0.4
—
—
—
0.4
5.6
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
$
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.
89
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
Level 2 assets are valued based on other significant observable inputs including quoted prices for similar securities, yield
curves, indices, etc. Level 2 assets consist primarily of individual fixed income securities where values are based on quoted prices
of similar securities and observable market data.
Level 3 assets consist of investments where active market pricing is not readily available and, as such, fair value is estimated
using significant unobservable inputs.
Certain assets that are measured at fair value using the NAV (net asset value) per share (or its equivalent) practical expedient
have not been classified in the fair value hierarchy. Such investments are generally considered long-term in nature with varying
redemption availability. For certain of these investments, with a fair value of approximately $52.4 million as of May 31, 2020, 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 31, 2020, funds with a fair value of $0.1 million have imposed such gates.
As of May 31, 2020, we have unfunded commitments for additional investments of $36.8 million in private equity funds and
$13.5 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
Private equity
Other
Total
May 31, 2020
May 26, 2019
6 %
85 %
1 %
3 %
5 %
100 %
7 %
85 %
1 %
3 %
4 %
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.
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 31, 2020
May 26, 2019
6.22 %
4.4 %
2024
7.20 %
4.5 %
2024
We currently anticipate making contributions of approximately $32.2 million to our pension plans in fiscal 2021. We anticipate
making contributions of $10.0 million to our other postretirement plans in fiscal 2021. 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 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The following table presents estimated future gross benefit payments for our plans:
2021
2022
2023
2024
2025
Succeeding 5 years
Multiemployer Pension Plans
Pension
Benefits
Health Care
and Life
Insurance
Benefits
$
199.4 $
202.7
204.7
206.2
207.6
1,038.0
10.1
9.3
8.5
7.8
7.1
27.3
The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements that
cover certain units of its union-represented employees. The risks of participating in such plans are different from the risks of single-
employer plans, in the following respects:
a.
b.
c.
Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers.
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 31, 2020 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 2019 and 2018 is for plan years that ended in calendar
years 2019 and 2018, 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 2019.
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 31, 2020 included an amount in addition to the contribution rate specified in the applicable collective bargaining
agreement, as imposed by a plan in "critical status", in accordance with the requirements of the Code.
The last column lists the expiration dates of the collective bargaining agreements pursuant to which the Company
contributes to the plans.
91
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
For plans that are not individually significant to Conagra Brands the total amount of contributions is presented in the
aggregate.
Pension Fund
EIN / PN
2019
2018
Pension Protection
Act Zone Status
FIP /
RP Status
Pending /
Contributions by the
Company (millions)
Implemented FY20
FY19
FY18
Surcharge
Imposed
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
52-6118572
/ 001
Red,
Critical and
Declining
Red,
Critical and
Declining
RP
Implemented $ 0.0 $ 0.1 $ 1.5 No
36-6044243
/ 001
91-6145047
/ 001
Red,
Critical and
Declining
Red,
Critical and
Declining
RP
Implemented
2.0
1.8
1.8 No
5/31/2021
Green
Green
N/A
3.2
1.3
2.8 No
0.4
$ 6.5 $ 6.0 $ 6.5
3.2
0.9
6/30/2021
Expiration
Dates of
Collective
Bargaining
Agreements
N/A
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 2019.
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 and $0.6 million
in fiscal 2019 and 2018, 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 $49.9 million,
$39.9 million, and $24.5 million in fiscal 2020, 2019, and 2018, respectively.
19. FAIR VALUE MEASUREMENTS
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or
liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities,
Level 2 — Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in
active markets or quoted prices for identical assets or liabilities in inactive markets, and
Level 3 — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would
use in pricing the asset or liability.
The fair values of our Level 2 derivative instruments were determined using valuation models that use market observable
inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and
liabilities included in Level 2 primarily represent commodity and foreign currency option and forward contracts and cross-currency
swaps.
92
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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 31, 2020:
Assets:
Derivative assets
Marketable securities
Deferred compensation assets
Total assets
Liabilities:
Derivative liabilities
Deferred compensation liabilities
Total liabilities
Level 1
Level 2
Level 3
Total
$
$
$
$
2.8 $
8.1
8.6
19.5 $
— $
68.0
68.0 $
5.2 $
—
—
5.2 $
0.4 $
—
0.4 $
— $
—
—
— $
— $
—
— $
8.0
8.1
8.6
24.7
0.4
68.0
68.4
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:
Assets:
Derivative assets
Marketable securities
Deferred compensation assets
Total assets
Liabilities:
Derivative liabilities
Deferred compensation liabilities
Total liabilities
Level 1
Level 2
Level 3
Total
$
$
$
$
3.0 $
15.7
10.7
29.4 $
— $
70.4
70.4 $
2.9 $
—
—
2.9 $
1.4 $
—
1.4 $
— $
—
—
— $
— $
—
— $
5.9
15.7
10.7
32.3
1.4
70.4
71.8
Certain assets and liabilities, including long-lived assets, goodwill, asset retirement obligations, 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 8). Impairments in our Grocery & Snacks segment totaled $46.4 million, $76.5
million, and $4.0 million for fiscal 2020, 2019, and 2018, respectively. Impairments in our Refrigerated & Frozen segment totaled
$110.8 million for fiscal 2020. Impairments in our International segment totaled $8.3 million, $13.1 million, and $0.8 million for
fiscal 2020, 2019, and 2018, respectively.
During fiscal 2020, we recognized impairment charges totaling $54.4 million in the Grocery & Snacks segment and $27.6
million in the Refrigerated & Frozen segment. The impairments were measured based upon the estimated sales price of the disposal
group (See Note 6).
We recognized charges totaling $3.8 million in the Refrigerated & Frozen segment in fiscal 2020, and charges totaling $2.7
million and $4.7 million within general corporate expenses in fiscal 2019 and 2018, respectively, for the impairment of certain long-
lived assets. The impairments were measured based upon the estimated sales price of the assets.
During fiscal 2020, we recognized charges of $2.9 million in general corporate expenses related to the impairments of ROU
assets. The impairments were measured based upon a discounted cash flow approach.
The carrying amount of long-term debt (including current installments) was $9.75 billion as of May 31, 2020 and $10.68
billion as of May 26, 2019. Based on current market rates, the fair value of this debt (level 2 liabilities) at May 31, 2020 and May
26, 2019 was estimated at $11.35 billion and $11.24 billion, respectively.
93
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
20. BUSINESS SEGMENTS AND RELATED INFORMATION
In the fiscal 2020, we reorganized our reporting segments to incorporate the Pinnacle business into our legacy reporting
segments in order to better reflect how the business is now being managed. We now reflect our results of operations in four reporting
segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice.
The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail
channels in the United States.
The Refrigerated & Frozen reporting segment includes branded, temperature-controlled food products sold in various retail
channels in the United States.
The International reporting segment principally includes branded food products, in various temperature states, sold in various
retail and foodservice channels outside of the United States.
The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and a
variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments primarily
in the United States.
We do not aggregate operating segments when determining our reporting segments.
Operating profit for each of the segments is based on net sales less all identifiable operating expenses. General corporate
expense, net interest expense, and income taxes have been excluded from segment operations.
Net sales
Grocery & Snacks
Refrigerated & Frozen
International
Foodservice
Total net sales
Operating profit
Grocery & Snacks
Refrigerated & Frozen
International
Foodservice
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.
2020
2019
2018
$
$
$
$
$
$
4,617.1 $
4,559.6
925.3
952.4
11,054.4 $
915.2 $
702.2
100.6
97.6
1,815.6 $
73.2
368.5
9.9
487.1
201.3
841.8 $
3,923.6 $
3,735.4
864.4
1,015.0
9,538.4 $
762.6 $
645.1
99.8
134.3
1,641.8 $
75.8
462.2
35.1
391.4
218.8
680.3 $
1.7
840.1 $
0.1
680.2 $
3,281.0
2,753.0
843.5
1,060.8
7,938.3
722.5
479.4
86.5
124.1
1,412.5
97.3
459.4
80.4
158.7
174.6
797.5
3.4
794.1
94
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
The following table presents further disaggregation of our net sales:
Snacks
Other shelf-stable
Frozen
Refrigerated
International
Foodservice
Total net sales
2020
2019
2018
$
$
1,714.3 $
2,902.8
3,674.1
885.5
925.3
952.4
11,054.4 $
1,496.9 $
2,426.7
2,945.4
790.0
864.4
1,015.0
9,538.4 $
1,197.7
2,083.3
2,014.8
738.2
843.5
1,060.8
7,938.3
Presentation of Derivative Gains (Losses) from Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment.
We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives are recognized
at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses
are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction
being economically hedged is included in earnings. In the event that management determines a particular derivative entered into as
an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further
gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating
results, immediately.
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption
and the foreign currency risk of certain forecasted transactions, under this methodology:
2020
2019
2018
Net derivative losses incurred
Less: Net derivative losses allocated to reporting segments
$
Net derivative gains (losses) recognized in general corporate expenses $
$
Net derivative gains (losses) allocated to Grocery & Snacks
Net derivative losses allocated to Refrigerated & Frozen
Net derivative gains (losses) allocated to International
Net derivative losses allocated to Foodservice
Net derivative losses included in segment operating profit
$
(12.9 ) $
(7.4 )
(5.5 ) $
(4.7 ) $
(2.5 )
0.1
(0.3 )
(7.4 ) $
(3.6 ) $
(1.8 )
(1.8 ) $
(2.5 ) $
(1.5 )
2.8
(0.6 )
(1.8 ) $
(0.9 )
(7.1 )
6.2
0.2
(0.3 )
(6.9 )
(0.1 )
(7.1 )
As of May 31, 2020, the cumulative amount of net derivative losses from economic hedges that had been recognized in
general corporate expenses and not yet allocated to reporting segments was $4.1 million. This amount reflected net losses of $4.5
million incurred during the fiscal year ended May 31, 2020, as well as net gains of $0.4 million incurred prior to fiscal 2020. Based
on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results
net losses of $2.1 million in fiscal 2021 and $2.0 million in fiscal 2022 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 2020, 2019, and 2018 was $329.1 million, $283.9 million, and $222.1 million, respectively.
95
Notes to Consolidated Financial Statements – (Continued)
Fiscal Years Ended May 31, 2020, May 26, 2019, and May 27, 2018
(columnar dollars in millions except per share amounts)
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 2020, 2019, and 2018. Foreign net
sales, including sales by domestic segments to customers located outside of the United States, were approximately $946.8 million,
$919.5 million, and $918.4 million in fiscal 2020, 2019, and 2018, respectively. Our long-lived assets located outside of the United
States are not significant.
Our largest customer, Walmart, Inc. and its affiliates, accounted for approximately 26% of consolidated net sales for fiscal
2020 and 24% of consolidated net sales for each of fiscal 2019 and 2018, significantly impacting the Grocery & Snacks and
Refrigerated & Frozen segments.
Walmart, Inc. and its affiliates accounted for approximately 30% of consolidated net receivables as of each of May 31, 2020
and May 26, 2019. At May 31, 2020, The Kroger Co. and its affiliates accounted for approximately 10% of consolidated net
receivables.
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. Of our total accounts payable, $258.7 million and $189.3 million were payable to suppliers who
utilize this third-party service as of May 31, 2020 and May 26, 2019, respectively.
21. QUARTERLY FINANCIAL DATA (Unaudited)
2020
2019
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
$
2,390.7 $
664.5
2,820.8 $
797.9
2,555.0 $
684.4
3,287.9 $
922.8
1,834.4 $
515.5
2,383.7 $
677.2
2,707.1 $
752.3
Fourth
Quarter
2,613.2
708.0
Net sales
Gross profit
Income from continuing operations,
net of tax
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
174.3
261.5
204.7
201.3
178.2
134.3
242.6
125.2
—
—
—
—
—
(1.9 )
—
—
173.8
260.5
204.4
201.4
178.2
131.6
242.0
126.5
$
0.36 $
0.53 $
0.42 $
0.41 $
0.45 $
0.31 $
0.50 $
0.26
$
0.36 $
0.53 $
0.42 $
0.41 $
0.45 $
0.31 $
0.50 $
0.26
$
0.2125 $
0.2125 $
0.2125 $
0.2125 $
0.2125 $
0.2125 $
0.2125 $
0.2125
(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.
96
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 31, 2020 and May 26, 2019, the related consolidated statements of earnings, comprehensive income, common stockholders’
equity, and cash flows for each of the fiscal years in the three-year period ended May 31, 2020, and the related notes (collectively,
the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of May
31, 2020, 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 31, 2020 and May 26, 2019, and the results of its operations and its cash flows for each of the fiscal
years in the three-year period ended May 31, 2020, 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 31, 2020
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
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.
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.
97
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the recoverability of the carrying value of goodwill
As described in Notes 1 and 8 to the consolidated financial statements, the Company’s goodwill was $11.44 billion as of
May 31, 2020. Annually, or whenever events or changes in circumstances indicate potential asset impairment has
occurred, the Company evaluates the recoverability of the carrying value of goodwill. The Company performed a
quantitative impairment test of goodwill during its first fiscal quarter in connection with a reorganization of its segments.
In the fourth fiscal quarter, the Company performed a qualitative assessment for its required annual goodwill impairment
evaluation. The results of the quantitative impairment test indicated that all but three reporting units had an estimated fair
value substantially in excess of the carrying value. The aggregate goodwill in the three reporting units where the fair
value was not substantially in excess of the carrying value was $3.49 billion. For the qualitative assessment in the fourth
fiscal quarter, the Company determined for all the reporting units, that it was not more likely than not that the estimated
fair value was less than the carrying values.
We identified the evaluation of the recoverability of the carrying value of goodwill as a critical audit matter. Subjective
and challenging auditor judgment was required to evaluate certain assumptions and information used in the Company’s
first fiscal quarter quantitative impairment test and its fourth fiscal quarter qualitative impairment assessment for the
three reporting units where the fair value was not substantially in excess of the carrying value. Specifically, for the
quantitative impairment test, these assumptions included forecasted revenue growth rates including the terminal growth
rates, and margin growth rates used in determining the forecasted cash flows and the selection of discount rates. For the
qualitative impairment assessment for the three reporting units, the information included evaluating the industry,
macroeconomic and market considerations, overall financial performance, and other relevant entity-specific events
affecting the reporting units.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company’s evaluation of the assumptions used to determine the fair value of the reporting
units, as well as the controls over the Company’s annual qualitative impairment assessment. We evaluated the
Company’s ability to forecast cash flows by comparing historical forecasts to actual results and forecasted cash flows
with the Company’s most recent plans. We also considered current industry, macroeconomic and market conditions, the
Company’s historical results and the results of other guideline companies within the same industry in evaluating the
assumptions described above. We evaluated the Company’s qualitative impairment assessment by considering any
event specific changes to the reporting units, analyst industry reports, and the Company’s latest available forecasted
financial information. We involved our valuation professionals with specialized skills and knowledge who assisted in:
evaluating the discount rates used by the Company by comparing the Company’s inputs to the discount rates to
publicly available data for comparable entities and assessing the resulting discount rate;
evaluating the terminal growth rates by comparing them with publicly available market data; and
testing the estimate of the fair value of the reporting units using the Company’s cash flow assumptions and
discount rates and comparing the results to the Company’s fair value estimate.
Evaluation of the recoverability of the carrying value of certain indefinite-lived intangible assets
As described in Notes 1 and 8 to the consolidated financial statements, the Company’s indefinite-lived intangible assets
(consisting primarily of brand names and trademarks) were $3.40 billion as of May 31, 2020. For the year ended May
31, 2020, the Company recorded impairment charges totaling $165.5 million on indefinite-lived intangible assets. In
assessing indefinite-lived intangible assets for impairment, the Company performs either a qualitative or quantitative
98
assessment at least annually or whenever circumstances indicate a potential impairment exists. When a quantitative
assessment is performed, the Company estimates the fair value of the intangibles by utilizing a discounted cash flow
model that incorporates an estimated royalty rate that would be charged to a third party for the use of the brand.
Impairment charges are recorded for any intangibles with carrying values in excess of the estimated fair values.
We identified the evaluation of the recoverability of the carrying value of certain indefinite-lived intangible assets for
which a quantitative impairment assessment is performed as a critical audit matter. Subjective and challenging auditor
judgment was required to evaluate certain assumptions used in determining the fair value of these assets. Specifically,
there was a high degree of judgment required in evaluating assumptions related to the forecasted revenue growth rates
including the terminal growth rates and forecasted margins, royalty rates and discount rates.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the quantitative impairment assessments, including controls over the development of the
assumptions described above. To assess the Company’s ability to forecast, we compared historical forecasts to actual
results. We evaluated the forecasted revenue growth rates including terminal growth rates and forecasted margins used to
support the royalty rates by considering current and past performance of the brand names, as well as external market and
industry outlook data. We also involved valuation professionals with specialized skills and knowledge, who assisted for
certain brand names intangibles in:
evaluating the discount rates used by the Company by comparing the Company’s inputs to the discount rates to
publicly available data for comparable entities and assessing the resulting discount rate;
evaluating the terminal growth rates by comparing them with publicly available market data;
evaluating the royalty rates by determining that the selected royalty rates are supported by the associated brand
name’s margin; and
testing the estimated brand names fair values using the Company’s assumptions and comparing the results to the
Company’s fair value estimate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2005.
Omaha, Nebraska
July 24, 2020
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 31, 2020. 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.
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 2020 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 31, 2020. 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 31,
2020, its internal control over financial reporting was effective.
The effectiveness of Conagra Brands' internal control over financial reporting as of May 31, 2020 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 24, 2020
/s/ DAVID S. MARBERGER
David S. Marberger
Executive Vice President and Chief Financial Officer
July 24, 2020
100
ITEM 9B. OTHER INFORMATION
None.
101
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to our directors will be set forth in the 2020 Proxy Statement under the heading "Voting Item #1:
Election of Directors," and the information is incorporated herein by reference. There were no material changes to the procedures
by which security holders may recommend nominees to our Board during fiscal 2020.
Information regarding our executive officers is included in Part I of this Form 10-K under the heading "Information About
Our Executive Officers," 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 2020 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 2020 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 2020 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.
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
2020 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 31, 2020.
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)
8,165,639 $
30.07
40,612,401
—
8,165,639 $
—
30.07
—
40,612,401
(1) Column (a) includes 1,485,214 shares that could be issued under performance shares outstanding at May 31, 2020. The
performance shares are earned and common stock issued if pre-set financial objectives are met. Actual shares issued may be
102
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) 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 31, 2020. 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 2,382,435 restricted stock units and 331,899 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
2020 Proxy Statement under the headings "Voting Item #1: Election of Directors—How We are Selected, Evaluated and
Organized—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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to the principal accountant will be set forth in the 2020 Proxy Statement under the heading "Voting
Item #2: Ratification of the Appointment of Our Independent Auditor for Fiscal 2021," and the information is incorporated herein
by reference.
103
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a)
1.
List of documents filed as part of this report:
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.
104
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
*2.3
*2.4
3.1
3.2
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
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 Bylaws of Conagra Brands, Inc., incorporated herein by reference to Exhibit 3.2 of Conagra
Brands’ Current Report on Form 8-K filed with the SEC on December 13, 2019
105
4.1
4.2
4.2.1
4.2.2
4.3
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
Description of Securities, incorporated herein by reference to Exhibit 4.3 to Conagra Brands’ Annual Report on Form
10-K for the fiscal year ended May 26, 2019
**10.1
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
**10.1.1
**10.1.2
**10.1.3
**10.1.4
**10.2
**10.3
**10.3.1
**10.3.2
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
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
106
**10.3.3
Third Amendment, dated as of May 14, 2020, to the Conagra Brands, Inc. Voluntary Deferred Compensation Plan
(January 1, 2017 Restatement), incorporated herein by reference to Exhibit 10.2 to Conagra Brands’ Current Report
on Form 8-K filed with the SEC on May 19, 2020
**10.4
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
**10.4.1
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
**10.4.2
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
**10.4.3
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
**10.5
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
**10.5.1
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
**10.5.2
**10.5.3
**10.5.4
**10.5.5
**10.5.6
**10.5.7
**10.5.8
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
**10.5.9
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
107
**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
**10.5.11
Form of CEO Restricted Stock Unit Agreement, incorporated herein by reference to Exhibit 10.5.11 to Conagra
Brands’ Annual Report on Form 10-K for the fiscal year ended May 26, 2019
**10.6
**10.7
**10.8
Form of Director Indemnification Agreement, incorporated herein by reference to Exhibit 10.1 of Conagra Brands’
Current Report on Form 8-K filed with the SEC on May 19, 2020
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
**10.8.1
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
**10.9
**10.10
**10.11
**10.12
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
**10.12.1
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
**10.12.2
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
**10.13
Form of Executive Time Sharing Agreement, as adopted on February 18, 2015, incorporated herein by reference to
Exhibit 10.17 of Conagra Brands’ Annual Report on Form 10-K for the fiscal year ended May 31, 2015
**10.14
**10.15
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
108
10.16
10.17
10.18
10.19
Term Loan Agreement, dated May 21, 2020, by and among Conagra Brands, Inc. and Farm Credit Services of
America, PCA, as administrative 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 May 21,
2020
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
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
10.19.1
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
21
23
24
31.1
31.2
32
101
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 31, 2020,
formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings,
(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.
104
Cover Page Interactive Data File (formatted as Inline XBRL document and contained in Exhibit 101)
* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Conagra Brands agrees to furnish
supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request.
** Management contract or compensatory plan.
Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with respect to Conagra Brands' long-term debt
are not filed with this Form 10-K. Conagra Brands will furnish a copy of any such long-term debt agreement to the
Securities and Exchange Commission upon request.
ITEM 16. FORM 10-K SUMMARY
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:
By:
By:
/s/ SEAN M. CONNOLLY
Sean M. Connolly
President and Chief Executive Officer
July 24, 2020
/s/ DAVID S. MARBERGER
David S. Marberger
Executive Vice President and Chief Financial Officer
July 24, 2020
/s/ ROBERT G. WISE
Robert G. Wise
Senior Vice President and Corporate Controller
July 24, 2020
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 24th day of July, 2020.
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 2020,
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.
FIVE-YEAR COMPARISON
$175
$150
$125
$100
$75
2015
2016
2017
2018
2019
2020
Conagra Brands
S&P 500
S&P 500 Pkgd Foods Index
TEN-YEAR COMPARISON
$375
$350
$325
$300
$275
$250
$225
$200
$175
$150
$125
$100
$75
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Conagra Brands
S&P 500
S&P 500 Pkgd Foods Index
111
Reconciliation of Non-GAAP Financial Measures to Reported Financial Measures
(in millions)
Organic Net Sales
FY20
Net Sales
Impact of foreign exchange
Impact of 53rd week 2
Net sales from acquired businesses
Net sales from divested businesses 1
Organic Net Sales
Year-over-year change - Net Sales
Impact of foreign exchange (pp)
Impact of 53rd week (pp)
Net sales from acquired businesses (pp) 3
Net sales from divested businesses (pp)
Net sales from sold Trenton plant (pp)
Organic Net Sales
Volume (Organic)
Price/Mix
FY19
Net Sales
Net sales from divested businesses 1
Net sales from sold Trenton plant
Organic Net Sales
$
$
11,054.4
18.2
(211.8 )
(1,077.6 )
(103.6 )
9,679.6
15.9 %
0.2
(2.2 )
(11.1 )
2.8
—
5.6 %
5.2 %
0.4 %
$
$
9,538.4
(366.1 )
(2.0 )
9,170.3
1 A portion of our Net Sales from divested businesses relates to our private label peanut butter business, which we exited in Q3 FY20. This exit occurred in waves,
and therefore produced net sales through the end of fiscal 2020.
2 Organic net sales growth excludes the impact of fiscal 2020’s 53rd week, which was calculated as one-sixth of our last month’s net sales (which included a total
of six weeks).
3 Percentage points may include rounding to bridge the change in reported net sales to the change in organic net sales.
112
Adjusted Diluted EPS from Continuing Operations
FY20
Reported
Restructuring plans
Acquisitions and divestitures
Corporate hedging derivative losses (gains)
Pension settlement and valuation adjustment
Gain on Ardent JV asset sale
Impairment of businesses held for sale
Contract settlement gain
Intangible impairment charges
Legal matters
Environmental matters
Unusual tax items
Rounding
Adjusted
Year-over-year change - reported
Year-over-year change - adjusted
FY19
Reported
Restructuring plans
Acquisitions and divestitures
Integration costs
Legal matters
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
Gain on divestiture of businesses
Intangible impairment charges
Pension valuation adjustment
Gain on Ardent JV asset sale
Capital loss valuation allowance adjustment
Unusual tax items
Rounding
Adjusted
Free Cash Flow
$
Diluted EPS from
income attributable
to Conagra Brands, Inc
common stockholders
1.72
0.22
0.01
0.01
0.07
(0.01 )
0.11
(0.02 )
0.26
0.01
0.01
(0.10 )
(0.01 )
2.28
$
12.4 %
13.4 %
$
Diluted EPS from
income from continuing
operations attributable
to Conagra Brands, Inc
common stockholders
1.53
0.31
0.21
0.01
(0.07 )
0.09
(0.06 )
(0.03 )
(0.08 )
0.15
0.01
(0.03 )
(0.07 )
0.02
0.02
2.01
$
May 26, 2019
Net cash flows from operating activities - continuing operations
Additions to property, plant and equipment
Free cash flow
113
May 31, 2020
$
$
1,842.6 $
(369.5 )
1,473.1 $
1,114.3
(353.1 )
761.2
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
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
shareholders of record. Street-name holders
who would like to receive these reports
directly from us may call Investor Relations
at (312) 549-5002 to request a copy.
COMMON STOCK DIVIDENDS
We paid a quarterly dividend of $0.2125 per
share for each of the quarters of fiscal 2020.
Investors can access information on
Conagra Brands’ performance, corporate
responsibility initiatives and other
information at www.conagrabrands.com.
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, September 23, 2020
11:00 a.m. CDT
The Annual Meeting will be held
virtually via live webcast at
www.virtualshareholdermeeting.com/CAG2020
SHAREHOLDER SERVICES
Shareholders 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.
CONAGRA BRANDS COMMON STOCK
Exchange: New York Stock Exchange
Ticker symbol: CAG
Through Shareholder Services,
shareholders of record may make
arrangements to:
On May 31, 2020, approximately 487
million shares of common stock were
outstanding. As of May 31, 2020, there
were approximately 15,565 shareholders of
record. During fiscal 2020, approximately
1,205 million or 1.2 billion shares were
traded with a daily average volume of
approximately 4.7 million shares.
• 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 62% of Conagra Brands
shareholders of record participate
in the dividend reinvestment plan);
ANNUAL REPORT ON FORM 10-K
The company’s Annual Report on Form
10-K for the fiscal year ended May 31, 2020,
which has been filed with the Securities and
Exchange Commission, is included as part
of this Annual Report.
• purchase additional shares of
Conagra Brands common stock through
voluntary cash investments; and
• have bank accounts automatically
debited to purchase additional
Conagra Brands shares.