CONAGRA FOODS WILL RESTATE FINANCIALS BASED ON
AUDIT COMMITTEE INVESTIGATION OF
ITS UAP SUBSIDIARY
Omaha, Neb. May 23 - ConAgra Foods, Inc. (NYSE:CAG) today announced
that accounting and conduct matters at its United Agri Products Companies (UAP)
subsidiary during fiscal years 1999 and 2000 will result in the restatement of
the Company's financial results for those years. Certain accounting adjustments
will also result in a restatement for fiscal 1998. The restatement will reduce
revenues and earnings in fiscal years 1998, 1999 and 2000, and will increase
revenues and earnings in fiscal 2001. UAP, which distributes seed, fertilizer
and agricultural chemicals to agricultural growers, is one of three businesses
in ConAgra Foods' agricultural products reporting segment and represented
approximately 9% of ConAgra Foods' operating profit for the fiscal years 1998,
1999 and 2000.
The restatement is based upon the preliminary results of an
investigation undertaken by ConAgra Foods and the Audit Committee of its Board
of Directors. That investigation, and an informal inquiry by the staff of the
Securities and Exchange Commission, are continuing.
ConAgra Foods presently estimates the following financial statement
effect of the restatement, excluding restructuring and other non-recurring items
in fiscal 1998, 1999 and 2000:
* for fiscal 1998, revenues will be reduced from $24,271 million to
$24,192 million, profit before tax will be reduced from $1,041
million to $1,014 million and fully-diluted earnings will be
reduced from $1.35 per share to $1.32 per share;
* for fiscal 1999, revenues will be reduced from $25,020 million to
$24,924 million, profit before tax will be reduced from $1,123
million to $1,086 million and fully-diluted earnings will be
reduced from $1.46 per share to $1.41 per share;
* for fiscal 2000, revenues will be reduced from $25,805 million to
$25,631 million, profit before tax will be reduced from $1,288
million to $1,229 million and fully-diluted earnings will be
reduced from $1.67 per share to $1.60 per share; and
* for fiscal 2001, revenues will be increased by $350 million, profit
before tax will be increased by $127 million and fully-diluted
earnings will be increased by $.15 per share .
These are the Company's estimates and final audited numbers will be
available when the Company announces total company results for fiscal year ended
May 27, 2001, expected at the end of June 2001. Following June 2001, revised
financial statements for fiscal 1998, 1999 and 2000 and related auditors reports
will be issued.
Bruce Rohde, ConAgra Foods' Chairman and CEO, stated: "Certain matters
were discovered that warranted an investigation into several accounting
practices at UAP. Our preliminary findings indicate that certain conduct at UAP
circumvented generally accepted accounting practices and violated ConAgra Foods'
corporate policy. Those actions will not be tolerated. I have directed that the
control systems at UAP be strengthened and that we take additional actions, as
appropriate, including personnel changes to deal with circumstances requiring
corrective measures. These actions have the full support of our Board of
Directors."
Background. In November 2000, the Audit Committee of the Board of
Directors of ConAgra Foods commissioned an investigation of accounting matters
at UAP. The Audit Committee engaged an outside law firm, and they in turn
obtained the assistance of forensic accountants, to perform the investigation.
Prior to this, the Company had commenced a review of UAP revenue recognition
practices and subsequent to that, received an informal inquiry from the staff of
the SEC regarding UAP accounting matters.
The investigation has identified improper accounting practices that
have financial statement impact in three areas:
1. Revenue recognition for deferred delivery sales and associated vendor
rebates
2. Recognition of advance rebate income
3. Accruals for bad debt reserves
In addition, an error was identified relating to consolidation of
intercompany sales during fiscal 1998. The investigation is continuing, but the
Company believes that all matters having a material financial statement impact
have been identified.
Item 1. Revenue Recognition for Deferred Delivery Sales. After
reviewing the results of the investigation, the Company has determined that UAP
improperly recorded revenues on deferred delivery sales transactions. The
investigation identified sales contracts for fiscal 1999 and 2000 that were not
considered binding on the customer as well as instances of fictitious sales
contracts at various UAP locations. Further, the investigation identified
noncompliance for fiscal 1998, 1999 and 2000 with certain accounting
requirements for deferred delivery transactions in other sales contracts.
Accordingly, ConAgra Foods will revise its reporting of deferred delivery sales
transactions for fiscal 1998, 1999 and 2000 so that such revenue is reported
upon transfer of title and shipment of the products. As a result of these
circumstances, associated vendor rebate income was also incorrectly accrued.
ConAgra Foods also reviewed the estimating process used by UAP in the
recognition of vendor rebates on a quarterly basis. The review indicated that
UAP used inconsistent estimating processes on a quarterly and annual basis. As
part of the restatement, ConAgra Foods will adopt a consistent quarterly
estimating process for the recognition of UAP vendor rebates. The impact of the
new process will result in a larger portion of vendor rebates being recognized
later in the UAP fiscal year.
These revenue recognition matters are expected to have the following
financial statement impact:
* for fiscal 1998, revenue will be reduced by $79 million and profit
before tax will be reduced by $22 million;
* for fiscal 1999, revenue will be reduced by $84 million and profit
before tax will be reduced by $7 million;
* for fiscal 2000, revenue will be reduced by $162 million and profit
before tax will be reduced by $30 million; and
* for fiscal 2001, revenue will be increased by $326 million, and
profit before tax will be increased by $63 million.
In light of the preliminary results of the investigation, and in order
to avoid future compliance issues with deferred delivery accounting
requirements, ConAgra Foods is adopting a change in its accounting practices.
Effective with fiscal year 2001, UAP will book revenue for all sales
transactions upon transfer of title and shipment of the product.
Item 2. Recognition of Advance Rebate Income. The investigation
identified instances in which UAP prematurely recognized certain rebate payments
as income in the fiscal year in which they were received, rather than the fiscal
year in which they were earned. As a result, the Company is making an adjustment
for recognition of advance rebate income which is expected to have the following
financial statement impact:
* for fiscal 1999, revenue and profit before tax will be reduced by $12
million;
* for fiscal 2000, revenue and profit before tax will be reduced by $12
million; and
* for fiscal 2001, revenue and profit before tax will be increased by
$24 million.
Item 3. Accruals for Bad Debt Reserves. The investigation indicated
that UAP accrued insufficient bad debt reserves in fiscal 1998, 1999 and 2000.
UAP substantially increased the write-off of its accounts receivable and
increased its bad debt reserves during fiscal 2001. The investigation indicated
that certain of the increased write-offs in fiscal 2001 should have been taken
in prior fiscal years and, accordingly, adjustments will be made as part of the
restatement. ConAgra Foods believes the UAP reserves recorded are now adequate.
The Company's preliminary estimate of the financial statement impact of
changes in the bad debt accruals is:
* for fiscal 1998, expenses will be increased and profit before tax
will be reduced by $5 million;
* for fiscal 1999, expenses will be increased and profit before tax
will be reduced by $18 million;
* for fiscal 2000, expenses will be increased and profit before tax
will be reduced by $17 million; and
* for fiscal 2001, expenses will be reduced and profit before tax will
be increased by $40 million.
Mr. Rohde commented: "We have shared the preliminary results of the
Audit Committee's investigation with the SEC staff and we are fully cooperating
with them. We cannot predict how long the SEC inquiry will continue or its
outcome, but appropriate corrective actions are under way and more will be
taken. We have addressed the major financial issues at our UAP subsidiary and
look forward to focusing and improving the fundamentals of this business unit."
The company has posted question and answer information relating to this
release at http://www.conagrafoods.com/investors.
ConAgra Foods is North America's largest foodservice manufacturer and
second largest retail food supplier, with annualized sales of approximately $27
billion.
This news release contains certain "forward-looking" statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements are based on management's current expectations and are subject to
uncertainty and changes in circumstances. Actual results may vary materially
from the expectations contained in the forward-looking statements. The
forward-looking statements in this release include without limitation statements
addressing the following subjects: projected changes in financial results and
results of the investigation by the Audit Committee and the inquiry by the
Securities and Exchange Commission.
Future economic circumstances, industry conditions, company performance
and financial results and/or regulatory factors affecting the Company's
businesses are examples of factors, among others, that could cause actual
results to differ materially from those described in the forward-looking
statements. The statements are based on many assumptions and factors described
in the Company's reports filed with the Securities and Exchange Commission. The
Company is under no obligation to (and expressly disclaims any such obligation
to) update or alter its forward-looking statements whether as a result of new
information, future events or otherwise.