UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended February 25, 2001
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 Number 1-7275
- -------------------------------------------------------------------------------
CONAGRA FOODS, INC.
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(Exact name of registrant, as specified in charter)
Delaware 47-0248710
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One ConAgra Drive, Omaha, Nebraska 68102-5001
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(Address of Principal Executive Offices) (Zip Code)
(402) 595-4000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report.)
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 [X] No [ ]
Number of shares outstanding of issuer's common stock, as of March 25, 2001 was
537,085,602.
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONAGRA FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions except per share amounts)
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
FEBRUARY 25, FEBRUARY 27, FEBRUARY 25, FEBRUARY 27,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales $ 6,429.2 $ 5,904.9 $ 20,510.7 $ 19,307.8
Costs and expenses
Cost of goods sold 5,405.2 5,023.1 17,324.6 16,559.7
Selling, general and administrative expenses 732.9 542.1 1,976.5 1,754.8
Interest expense 130.9 80.7 323.2 234.3
Restructuring/Impairment charges - 27.7 - 61.4
----------- ----------- ----------- -----------
6,269.0 5,673.6 19,624.3 18,610.2
----------- ----------- ----------- -----------
Income before income taxes 160.2 231.3 886.4 697.6
Income taxes 61.7 87.9 340.1 265.1
----------- ----------- ----------- -----------
Net income $ 98.5 $ 143.4 $ 546.3 $ 432.5
=========== =========== =========== ===========
Income per share - basic $ .19 $ .30 $ 1.08 $ .91
=========== =========== =========== ===========
Income per share - diluted $ .19 $ .30 $ 1.07 $ .90
=========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------
For the thirteen weeks and thirty-nine weeks ended February 27, 2000, other
restructuring-related items included accelerated depreciation of $19.6 million
and $84.4 million, respectively, and inventory markdowns of $7.7 million and
$41.4 million, respectively, included in cost of goods sold; and $18.8 million
and $30.3 million, respectively, of accelerated depreciation and restructuring
plan implementation costs of $10.8 million and $18.6 million, respectively,
included in selling, general and administrative expenses. For the thirteen weeks
and thirty-nine weeks ended February 27, 2000, restructuring and
restructuring-related charges were $84.6 million and $236.1 million,
respectively.
See notes to the condensed consolidated financial statements.
2
CONAGRA FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
FEBRUARY 25, FEBRUARY 27, FEBRUARY 25, FEBRUARY 27,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net income $ 98.5 $ 143.4 $ 546.3 $ 432.5
Other comprehensive income/(loss):
Currency translation adjustment 17.8 (9.2) (6.5) (13.6)
----------- ----------- ----------- -----------
Comprehensive income $ 116.3 $ 134.2 $ 539.8 $ 418.9
=========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------
See notes to the condensed consolidated financial statements.
3
CONAGRA FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions except per share amounts)
(unaudited)
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ASSETS FEBRUARY 25, MAY 28, FEBRUARY 27,
2001 2000 2000
-------------- -------------- -----------
Current assets
Cash and cash equivalents $ 24.4 $ 157.6 $ 17.4
Receivables, less allowance for doubtful accounts
of $132.0, $62.8 and $82.2 2,244.3 1,605.5 1,972.1
Inventories 4,987.3 3,788.4 4,245.4
Prepaid expenses 538.0 404.8 297.7
---------- --------- --------
Total current assets 7,794.0 5,956.3 6,532.6
---------- --------- --------
Property, plant and equipment 7,143.7 6,441.8 6,771.4
Less accumulated depreciation (3,163.7) (2,857.8) (3,018.6)
---------- ------------ ----------
Property, plant and equipment, net 3,980.0 3,584.0 3,752.8
---------- ----------- ----------
Brands, trademarks and goodwill, net 4,770.2 2,366.0 2,404.2
Other assets 657.1 386.7 422.9
---------- ----------- ----------
$ 17,201.3 $ 12,293.0 $ 13,112.5
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 3,176.1 $ 1,255.5 $ 2,406.3
Current installments of long-term debt 79.3 20.6 19.0
Accounts payable 2,136.4 2,040.8 2,125.6
Advances on sales 231.9 888.7 156.2
Other accrued liabilities 1,624.2 1,280.9 1,360.1
---------- ----------- ----------
Total current liabilities 7,247.9 5,486.5 6,067.2
---------- ----------- ----------
Senior long-term debt, excluding current installments 3,411.4 1,816.8 1,871.7
Other noncurrent liabilities 1,179.0 750.7 806.2
Subordinated debt 750.0 750.0 750.0
Preferred securities of subsidiary company 525.0 525.0 525.0
Commitments and contingencies - - -
Common stockholders' equity
Common stock of $5 par value, authorized 1,200,000,000
shares; issued 565,289,796, 524,137,617 and 524,129,789 2,826.4 2,620.7 2,620.6
Additional paid-in capital 678.3 147.5 38.3
Retained earnings 1,635.1 1,420.7 1,537.2
Foreign currency translation adjustment (109.6) (103.1) (79.5)
Less treasury stock, at cost, common
shares 28,421,384, 31,925,505 and 31,883,927 (676.6) (760.3) (759.3)
---------- ----------- ----------
4,353.6 3,325.5 3,357.3
Less unearned restricted stock and value of 13,075,636,
15,246,068 and 15,602,138 common shares held
in Employee Equity Fund (265.6) (361.5) (264.9)
---------- ----------- ----------
Total common stockholders' equity 4,088.0 2,964.0 3,092.4
---------- ----------- ----------
$ 17,201.3 $ 12,293.0 $ 13,112.5
========== =========== ==========
- -------------------------------------------------------------------------------------------------------------------
See notes to the condensed consolidated financial statements.
4
CONAGRA FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
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THIRTY-NINE WEEKS ENDED
FEBRUARY 25, FEBRUARY 27,
2001 2000
------------ ------------
Cash flows from operating activities:
Net income $ 546.3 $ 432.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and other amortization 377.6 338.9
Goodwill amortization 64.1 47.8
Restructuring/impairment charges and other restructuring-related
charges (includes accelerated depreciation) - 236.1
Other noncash items (includes nonpension postretirement benefits) 78.1 60.6
Change in assets and liabilities before effects
from business acquisitions (2,105.5) (2,050.8)
---------- ---------
Net cash flows from operating activities (1,039.4) (934.9)
---------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (383.6) (333.7)
Payment for business acquisitions (1,107.2) (374.8)
Sale of businesses and property, plant and equipment 72.1 46.0
Notes receivable and other items 7.0 (29.8)
--------- ---------
Net cash flows from investing activities (1,411.7) (692.3)
--------- ---------
Cash flows from financing activities:
Net short-term borrowings 1,920.5 1,550.8
Proceeds from issuance of long-term debt 1,663.7 71.4
Repayment of long-term debt (12.7) (16.8)
Cash dividends paid (335.0) (278.6)
Repayment of acquired company's debt (1,114.3) -
Other items 195.7 255.0
--------- ---------
Net cash flows from financing activities 2,317.9 1,581.8
--------- ---------
Net change in cash and cash equivalents (133.2) (45.4)
Cash and cash equivalents at beginning of period 157.6 62.8
--------- ---------
Cash and cash equivalents at end of period $ 24.4 $ 17.4
========= =========
- -----------------------------------------------------------------------------------------------------------------
See notes to the condensed consolidated financial statements.
5
CONAGRA FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 25, 2001
(COLUMNAR DOLLARS IN MILLIONS)
1. ACCOUNTING POLICIES
The unaudited interim financial information included herein reflects normal
recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the results of operations, financial position,
and cash flows for the periods presented. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the ConAgra Foods, Inc.
(the "Company") fiscal 2000 annual report on Form 10-K.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for other interim periods or the
full year.
Certain prior year amounts have been reclassified in order to conform with
current year classifications.
In December 1999, SEC Staff Accounting Bulletin (SAB) No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS, was issued. In fiscal 2001, Emerging
Issues Task Force (EITF) Issue No. 00-14, ACCOUNTING FOR CERTAIN SALES
INCENTIVES, EITF Issue No. 99-19, REPORTING REVENUE GROSS AS A PRINCIPAL
VERSUS NET AS AN AGENT, and EITF Issue No. 00-10, ACCOUNTING FOR SHIPPING
AND HANDLING FEES AND COSTS, were issued. These pronouncements will become
effective for the Company in the fourth quarter of fiscal 2001. In
conjunction with the adoption of these pronouncements the Company is
assessing accounting policies potentially impacted by the new
pronouncements as well as several other pending EITF issues. The Company
has not quantified the impact, if any, resulting from adoption of these new
pronouncements.
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended, is effective for
the Company in the first quarter of fiscal 2002. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivatives embedded in other contracts, and for hedging
activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. The
standard requires that all derivatives be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded in
earnings or other comprehensive income, depending on whether the derivative
is designated as part of a hedge transaction and, if so designated, the
type of hedge transaction. The Company is currently assessing the impact of
the adoption of the standard on the Company's financial statements. The
adoption impact of the standard will be presented as a cumulative effect of
change in accounting principle. Subsequent to adoption in fiscal 2002, the
impact of the standard on the Company's results will depend on the fair
values of the Company's derivatives and may result in increased volatility
in the Company's reported earnings.
2. ACQUISITIONS
On August 24, 2000, the Company acquired all of the outstanding shares of
common stock and stock options of International Home Foods ("IHF") in a
transaction accounted for as a purchase business combination. As part of
the acquisition, the Company issued approximately 41 million shares of
Company common stock and assumed options to acquire approximately 5 million
post-acquisition shares of Company common stock, having an aggregate fair
value of approximately $850 million. In addition, the Company paid
approximately $875 million in cash to the IHF shareholders and assumed
approximately $1.1 billion of debt.
6
CONAGRA FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 25, 2001
(COLUMNAR DOLLARS IN MILLIONS)
The Company has preliminarily allocated the excess of the purchase price
over the net assets acquired to brands, trademarks and goodwill. The
purchase price allocation will be completed upon finalization of asset and
liability valuations. In connection with this acquisition, the Company
expects to consolidate certain facilities and will include the associated
costs as part of the purchase price allocation. The costs assigned to
intangible assets arising from the transaction are being amortized on a
straight-line basis over a period not exceeding 40 years.
On September 15, 2000, the Company issued $1.65 billion of senior notes,
comprised of $600 million of 7.5% senior notes, due September 15, 2005,
$750 million of 7.875% senior notes, due September 15, 2010 and $300
million of 8.25% senior notes, due September 15, 2030. The net proceeds
were used to reduce outstanding borrowings under short-term credit
facilities accessed to finance a portion of the IHF acquisition. The
short-term credit facilities had maturities with less than six months and
carried interest rates between 6.7% and 6.8% per annum. In addition, as
part of the IHF acquisition the Company assumed $385 million of IHF 10.375%
senior secured notes due in 2006 and redeemed the notes on October 6, 2000.
The Company's unaudited pro forma results of operations for the thirty-nine
weeks ended February 25, 2001 and February 27, 2000, assuming the
acquisition of IHF occurred as of the beginning of the periods presented
are as follows:
THIRTY-NINE WEEKS ENDED
FEBRUARY 25, FEBRUARY 27,
2001 2000
---- ----
Net sales $ 20,948.8 $ 20,677.9
Net income 557.0 485.3
Income per share - diluted 1.06 .93
3. OPERATION OVERDRIVE
During the fourth quarter of fiscal 2000, the Company completed a
restructuring plan in connection with its previously announced initiative,
"Operation Overdrive." The restructuring plan was aimed at eliminating
overcapacity, streamlining operations and improving future profitability
through margin expansion and expense reductions. The pre-tax charge of the
plan approximated $1.1 billion with $621.4 million and $440.8 million
recognized in fiscal 2000 and 1999, respectively.
Included in the Company's results of operations for the thirteen weeks
ended February 27, 2000 are restructuring plan charges of $84.6 million
($52.5 million net of tax) as follows:
7
CONAGRA FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 25, 2001
(COLUMNAR DOLLARS IN MILLIONS)
Packaged Refrigerated Agricultural
Foods Foods Products Total
-------- ------------ ------------ -----
Accelerated depreciation $ 37.1 $ 1.3 $ - $ 38.4
Inventory markdowns .4 3.2 4.1 7.7
Restructuring plan implementation costs 4.0 5.1 1.7 10.8
Restructuring/Impairment charges 10.5 2.1 15.1 27.7
-------- -------- ------- --------
Total $ 52.0 $ 11.7 $ 20.9 $ 84.6
======== ======== ======== ========
Included in the Company's results of operations for the thirty-nine
weeks ended February 27, 2000 are restructuring plan charges of $236.1
million ($146.4 million net of tax) as follows:
Packaged Refrigerated Agricultural
Foods Foods Products Total
-------- ------------ ------------ -----
Accelerated depreciation $ 104.5 $ 10.2 $ - $ 114.7
Inventory markdowns 15.0 3.2 23.2 41.4
Restructuring plan implementation costs 6.7 9.5 2.4 18.6
Restructuring/Impairment charges 23.1 14.8 23.5 61.4
-------- --------- -------- --------
Total $ 149.3 $ 37.7 $ 49.1 $ 236.1
======== ========= ======== ========
Restructuring plan charges reflected in the Company's Consolidated
Statements of Earnings for the thirteen weeks and thirty-nine weeks ended
February 27, 2000 are as follows: accelerated depreciation of $19.6 million
and $84.4 million, respectively, are included in cost of goods sold;
accelerated depreciation of $18.8 million and $30.3 million, respectively,
are included in selling, general and administrative expenses; inventory
markdowns are included in cost of goods sold; plan implementation costs
(primarily third-party consulting costs) are included in selling, general
and administrative expenses; and restructuring/impairment charges are
reflected as such and result from asset impairments, employee related costs
and contractual termination costs. Asset impairment charges were primarily
reflected in the Company's Refrigerated Foods and Agricultural Products
segments.
Certain assets to be disposed of that were not immediately removed from
operations were depreciated on an accelerated basis over their remaining
useful lives. Inventory markdowns represented losses to write down the
carrying value of non-strategic inventory resulting from the closure of
facilities and discontinuation of certain products.
Approximately 8,450 employees received notification of their termination as
a result of the restructuring plan, primarily in manufacturing and
operating facilities. In addition, other exit costs (consisting of lease
termination and other contractual termination costs) occurred as a result
of the restructuring plan. Such activity is as follows:
8
CONAGRA FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 25, 2001
(COLUMNAR DOLLARS IN MILLIONS)
SEVERANCE OTHER EXIT
AMOUNT HEADCOUNT COSTS
------ --------- -----
Fiscal 1999 activity:
Charges to income $ 45.1 3,160 $ 7.3
Utilized (6.1) (260) -
-------- ----- -------
Balance, May 30, 1999 39.0 2,900 7.3
Fiscal 2000 activity:
Charges to income 57.8 5,290 50.9
Utilized (44.3) (4,990) (21.5)
-------- ------ -------
Balance, May 28, 2000 52.5 3,200 36.7
Fiscal 2001 activity:
Utilized (29.4) (2,770) (24.9)
--------- ------ --------
Balance, February 25, 2001 $ 23.1 430 $ 11.8
======== ====== ========
Included in the February 25, 2001 severance reserve balance are amounts
owed to individuals who have been severed but are receiving their severance
payments over a period of time rather than in the form of a lump-sum.
4. INCOME PER SHARE
The following table reconciles the income and average share amounts used to
compute both basic and diluted income per share:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------------- -------------------------
FEB. 25, FEB. 27, FEB. 25, FEB. 27,
2001 2000 2001 2000
------------ ----------- ------------ -----------
NET INCOME $ 98.5 $ 143.4 $ 546.3 $ 432.5
=========== =========== =========== ===========
INCOME PER SHARE - BASIC
Weighted average shares outstanding - basic 523.3 476.5 507.5 475.3
=========== =========== =========== ===========
INCOME PER SHARE - DILUTED
Weighted average shares outstanding - basic 523.3 476.5 507.5 475.3
Add shares contingently issuable upon
exercise of stock options 4.0 2.3 3.1 3.4
----------- ----------- ----------- -----------
Weighted average shares outstanding - diluted 527.3 478.8 510.6 478.7
=========== =========== =========== ===========
The sum of the income per share reported for fiscal 2001 quarters does not
equal the income per share reported for the thirty-nine weeks ended of
fiscal 2001 due to rounding.
9
CONAGRA FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 25, 2001
(COLUMNAR DOLLARS IN MILLIONS)
5. INVENTORIES
The major classes of inventories are as follows:
FEB. 25, MAY 28, FEB. 27,
2001 2000 2000
--------------- ----------- --------
Hedged commodities $ 1,535.0 $ 1,301.6 $ 1,292.1
Food products and livestock 1,752.7 1,393.6 1,434.3
Agricultural chemicals, fertilizer and feed 968.2 671.1 812.8
Other, principally ingredients and supplies 731.4 422.1 706.2
------------ ------------ ------------
$ 4,987.3 $ 3,788.4 $ 4,245.4
============ ============ ============
6. CONTINGENCIES
In fiscal 1991, the Company acquired Beatrice Company ("Beatrice"). As a
result of the acquisition and the significant pre-acquisition contingencies
of the Beatrice businesses and its former subsidiaries, the consolidated
post-acquisition financial statements of the Company reflect significant
liabilities associated with the estimated resolution of these
contingencies. These include various litigation and environmental
proceedings related to businesses divested by Beatrice prior to its
acquisition by the Company. The environmental proceedings include
litigation and administrative proceedings involving Beatrice's status as a
potentially responsible party at 42 Superfund, proposed Superfund or
state-equivalent sites. Beatrice has paid or is in the process of paying
its liability share at 33 of these sites. Substantial reserves for these
matters have been established based on the Company's best estimate of its
undiscounted remediation liabilities, which estimates include evaluation of
investigatory studies, extent of required cleanup, the known volumetric
contribution of Beatrice and other potentially responsible parties and its
experience in remediating sites.
The Company is a party to a number of other lawsuits and claims arising out
of the operation of its businesses. After taking into account liabilities
recorded for all of the foregoing matters, management believes the ultimate
resolution of such matters should not have a material adverse effect on the
Company's financial condition, results of operations or liquidity.
7. BUSINESS SEGMENTS
The Company's business segments are aggregated into three reportable
segments based upon similar economic characteristics, nature of products
and services offered, nature of production processes, the type or class of
customer and distribution methods. Packaged Foods includes companies that
produce shelf-stable and frozen foods. Refrigerated Foods includes
companies that produce and market branded processed meats, beef, pork,
chicken and turkey. Both the Packaged Foods and Refrigerated Foods segments
market food products in retail and foodservice channels. Agricultural
Products includes companies involved in distribution of agricultural inputs
and procurement, processing, trading and distribution of commodity food
ingredients and agricultural commodities.
Intersegment sales have been recorded at amounts approximating market.
Operating profit for each segment is based on net sales less all
identifiable operating expenses and includes the related equity in earnings
of companies included on the basis of the equity method of accounting.
10
CONAGRA FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 25, 2001
(COLUMNAR DOLLARS IN MILLIONS)
General corporate expense, goodwill amortization, interest expense and
income taxes have been excluded from segment operations.
THIRTEEN WEEKS ENDED
FEBRUARY 25, FEBRUARY 27,
2001 2000
-------------- ------------
Sales to unaffiliated customers
Packaged Foods $ 2,343.4 $ 1,916.6
Refrigerated Foods 3,166.8 3,141.3
Agricultural Products 919.0 847.0
------------ ------------
Total $ 6,429.2 $ 5,904.9
============ ============
Intersegment sales
Packaged Foods $ 12.1 $ 9.8
Refrigerated Foods 105.0 96.0
Agricultural Products 53.0 43.5
------------ ------------
170.1 149.3
Intersegment elimination (170.1) (149.3)
------------ ------------
Total $ - $ -
============ ============
Net sales
Packaged Foods $ 2,355.5 $ 1,926.4
Refrigerated Foods 3,271.8 3,237.3
Agricultural Products 972.0 890.5
Intersegment elimination (170.1) (149.3)
------------ ------------
Total $ 6,429.2 $ 5,904.9
============ ============
Operating profit (loss)
Packaged Foods $ 268.7 $ 235.6
Refrigerated Foods 76.5 98.7
Agricultural Products (17.6) 48.7
------------- ------------
Total operating profit 327.6 383.0
Interest expense 130.9 80.7
General corporate expenses 19.0 55.1
Goodwill amortization 17.5 15.9
------------ ------------
Income before tax $ 160.2 $ 231.3
============ ============
Included in the thirteen weeks ended February 27, 2000 are before-tax
restructuring/impairment charges and other restructuring-related charges of
$84.6 million. The charges are included in operating profit as follows:
$52.0 million in Packaged Foods; $11.7 million in Refrigerated Foods; and
$20.9 million in Agricultural Products.
11
CONAGRA FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 25, 2001
(COLUMNAR DOLLARS IN MILLIONS)
THIRTY-NINE WEEKS ENDED
FEBRUARY 25, FEBRUARY 27,
2001 2000
-------------- -------------
Sales to unaffiliated customers
Packaged Foods $ 6,467.2 $ 5,730.0
Refrigerated Foods 9,966.3 9,560.2
Agricultural Products 4,077.2 4,017.6
------------ ------------
Total $ 20,510.7 $ 19,307.8
============ ============
Intersegment sales
Packaged Foods $ 36.5 $ 34.3
Refrigerated Foods 273.1 203.7
Agricultural Products 247.9 208.8
------------ ------------
557.5 446.8
Intersegment elimination (557.5) (446.8)
------------ ------------
Total $ - $ -
=========== ===========
Net sales
Packaged Foods $ 6,503.7 $ 5,764.3
Refrigerated Foods 10,239.4 9,763.9
Agricultural Products 4,325.1 4,226.4
Intersegment elimination (557.5) (446.8)
------------ ------------
Total $ 20,510.7 $ 19,307.8
============ ============
Operating profit
Packaged Foods $ 871.4 $ 645.0
Refrigerated Foods 344.1 332.1
Agricultural Products 219.3 195.4
------------ ------------
Total operating profit 1,434.8 1,172.5
Interest expense 323.2 234.3
General corporate expenses 161.1 192.8
Goodwill amortization 64.1 47.8
------------ ------------
Income before tax $ 886.4 $ 697.6
============ ============
Included in the thirty-nine weeks ended February 27, 2000 are before-tax
restructuring/impairment charges and other restructuring-related charges of
$236.1 million. The charges are included in operating profit as follows:
$149.3 million in Packaged Foods; $37.7 million in Refrigerated Foods; and
$49.1 million in Agricultural Products.
12
CONAGRA FOODS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following is management's discussion and analysis of certain significant factors
which affected the Company's financial condition and operating results for the
periods included in the accompanying condensed consolidated financial
statements. Results for the thirteen weeks and thirty-nine weeks ended February
25, 2001 are not necessarily indicative of results that may be attained in the
future.
This report contains forward-looking statements. The statements reflect
management's current views and estimates of future economic circumstances,
industry conditions, company performance and financial results. The statements
are based on many assumptions and factors described in the Company's reports
filed with the Securities and Exchange Commission including availability and
prices of raw materials, product pricing, competitive environment and related
market conditions, operating efficiencies, access to capital and actions of
governments. Any changes in such assumptions or factors could produce
significantly different results.
FINANCIAL CONDITION
ConAgra Foods' earnings are generated principally from its capital investment,
which consists of working capital (current assets less current liabilities) plus
all noncurrent assets. Capital investment is financed with stockholders' equity,
long-term debt and other noncurrent liabilities.
On August 24, 2000, the Company acquired all of the outstanding International
Home Foods ("IHF") common stock and assumed options exercisable post-acquisition
for shares of Company common stock for total consideration of approximately $1.7
billion plus the assumption of approximately $1.1 billion in debt. Primarily as
a result of this acquisition, capital investment increased approximately $3.1
billion as compared to May 28, 2000, consisting of a $76.3 million working
capital increase and a $3,070.6 million increase in noncurrent assets. In
addition, senior long-term debt increased approximately $1.6 billion as compared
to May 28, 2000, primarily as a result of the IHF acquisition.
During the second quarter of fiscal 2001, the Company issued $1.65 billion of
senior notes, comprised of $600 million of 7.5% senior notes, due September 15,
2005, $750 million of 7.875% senior notes, due September 15, 2010 and $300
million of 8.25% senior notes, due September 15, 2030. The net proceeds were
used to reduce outstanding borrowings under short-term credit facilities
accessed to finance a portion of the IHF acquisition. The short-term credit
facilities had maturities with less than six months and carried interest rates
between 6.7% and 6.8% per annum. In addition, as part of the IHF acquisition the
Company assumed $385 million of IHF 10.375% senior secured notes due in 2006 and
redeemed the notes on October 6, 2000.
The Company's long-term debt objective is that senior long-term debt will not
normally exceed 30% of total long-term debt plus equity. Long-term subordinated
debt is treated as equity due to its preferred stock characteristics. The
Company's policy has been that it would exceed this self-imposed limit for a
major strategic acquisition that is intended to create value for shareholders
over the long term. In management's view, the fiscal 2001 acquisition of IHF
represented such an opportunity.
13
CONAGRA FOODS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
A summary of the period to period increases (decreases) in the principal
components of operations, both before and after restructuring and other
restructuring-related charges ("restructuring charges") recognized in fiscal
2000, is shown below (dollars in millions, except per share amounts).
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
FEB. 25, 2001 AND FEB. 27, 2000 FEB. 25, 2001 AND FEB. 27, 2000
------------------------------- -------------------------------
EXCLUDING EXCLUDING
AS RESTRUCTURING AS RESTRUCTURING
REPORTED CHARGES REPORTED CHARGES
-------- ------------- -------- -------------
Net sales $ 524.3 $ 524.3 $ 1,202.9 $ 1,202.9
Costs and expenses
Cost of goods sold 382.1 409.4 764.9 890.7
Selling, general and administrative expenses 190.8 220.3 221.7 270.5
Interest expense 50.2 50.2 88.9 88.9
Restructuring/Impairment charges (27.7) - (61.4) -
------------ ----------- ----------- -----------
595.4 679.9 1,014.1 1,250.1
----------- ----------- ----------- -----------
Income before income taxes (71.1) (155.6) 188.8 (47.2)
Income taxes (26.2) (58.3) 75.0 (14.7)
------------ ------------ ----------- ------------
Net income $ (44.9) $ (97.3) $ 113.8 $ (32.5)
============ ============ ========== ============
Income per share - basic $ (.11) $ (.22) $ .17 $ (.14)
============ ============ =========== ============
Income per share - diluted $ (.11) $ (.22) $ .17 $ (.14)
============ ============ =========== ============
In comparison to fiscal 2000 third quarter, the Company's fiscal 2001 third
quarter diluted income per share was $.19, a decrease of $.11, or 36.7 percent;
operating profit was $327.6 million, a decrease of $55.4 million, or 14.5
percent; and net income was $98.5 million, a decrease of $44.9 million, or 31.3
percent. Excluding restructuring charges recognized in the third quarter of
fiscal 2000, the Company's fiscal 2001 third quarter diluted income per share
decreased $.22, or 53.5 percent; operating profit decreased $140.0 million, or
29.9 percent; and net income decreased $97.3 million, or 49.7 percent.
For the first nine months of fiscal 2001, diluted income per share was $1.07, an
increase of $.17, or 18.9 percent; operating profit was $1,434.8 million, an
increase of $262.3 million, or 22.4 percent; and net income was $546.3 million,
an increase of $113.8 million, or 26.3 percent. The sum of the income per share
for fiscal 2001 first, second and third quarters does not equal the income per
share reported for the first nine months of fiscal 2001 due to rounding.
Excluding restructuring charges recognized in the first nine months of fiscal
2000, the Company's fiscal 2001 first nine months diluted income per share
decreased $.14, or 11.6 percent; operating profit increased $26.2 million, or
1.9 percent; and net income decreased $32.5 million, or 5.6 percent.
In the Company's Packaged Foods segment, third quarter sales increased $426.8
million, or 22.3 percent, over the same period in the prior year, while sales
for the first nine months of fiscal 2001 increased $737.2 million, or 12.9
percent, over the same period in the prior year. The segment's third quarter and
first nine months' increase in sales resulted primarily from the broader
portfolio of shelf stable products associated with the IHF acquisition (which
occurred at the end of the Company's fiscal 2001 first quarter)
14
CONAGRA FOODS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
as well as growth in the segment's foodservice-oriented business unit which
includes french fry, specialty meat, seafood and tortilla operations. Continued
adjustment in inventory levels by major trade customers slowed overall segment
sales and profit growth, despite improved consumer purchases and market
positions for several key products. Operating profit for the third quarter
increased $33.1 million, or 14.0 percent, as compared to the same period in
fiscal 2000, while operating profit for the first nine months increased $226.4
million, or 35.1 percent, as compared to the first nine months of fiscal 2000.
These operating profit increases were favorably impacted by the sales growth
cited above, and were offset, in part, by weaker results in the segment's frozen
foods business unit, higher marketing investment within the segment's shelf
stable and frozen foods business units, and higher energy-related costs across
the entire segment. Fiscal 2001 third quarter and first nine months' increases
in operating profit were also favorably impacted by restructuring plan charges
recognized in fiscal 2000. Excluding restructuring plan charges recognized in
fiscal 2000, third quarter operating profit decreased $18.9 million, or 6.6
percent, over the third quarter of fiscal 2000, while operating profit for the
first nine months of fiscal 2001 increased $77.1 million, or 9.7 percent, as
compared to the same period in fiscal 2000.
In the Company's Refrigerated Foods segment, third quarter sales increased $25.5
million, or .8 percent, as compared to third quarter fiscal 2000. Operating
profit for the third quarter decreased $22.2 million, or 22.5 percent, as
compared to the same period in fiscal 2000. Increased profitability for the
segment's branded prepared meat business was more than offset by increased
product input costs in the segment's fresh protein operations. For the first
nine months of fiscal 2001, sales increased $406.1 million, or 4.2 percent,
while operating profit increased $12.0 million, or 3.6 percent as compared to
the first nine months of fiscal 2000. Fiscal 2001 third quarter and first nine
months' changes in operating profit were negatively impacted by higher
energy-related costs and were favorably impacted by restructuring plan charges
recognized in fiscal 2000. Excluding restructuring plan charges recognized in
fiscal 2000, third quarter operating profit decreased $33.9 million, or 30.7
percent, over the third quarter of fiscal 2000, while operating profit for the
first nine months of fiscal 2001 decreased $25.7 million, or 7.0 percent, as
compared to the comparable period in fiscal 2000.
In the Company's Agricultural Products segment, third quarter sales increased
$72.0 million, or 8.5 percent, as compared to third quarter fiscal 2000. For the
first nine months of fiscal 2001, sales increased $59.6 million, or 1.5 percent.
Operating profit for the third quarter decreased $66.3 million, or 136.1
percent, resulting in an operating loss of $17.6 million. The operating loss was
attributable to the segment's agricultural inputs distribution business. The
lower profitability at the segment's agricultural inputs distribution business
was due, in part, to issues affecting the agricultural economy, including
concerns among growers over biotechnology, changes in farm policy, and the
impact of high natural gas prices on fertilizer cost and availability. Also
contributing to the third quarter operating loss was significantly higher bad
debt expense. The Company anticipates the current agricultural economy will
continue to have a negative effect on the segment's fourth quarter operating
results. Operating profit increased $23.9 million, or 12.2 percent as compared
to the first nine months of fiscal 2000. The third quarter and first nine
months' changes in operating profit were also impacted by restructuring plan
charges included in fiscal 2000's operating results. Excluding restructuring
plan charges recognized in fiscal 2000, third quarter operating profit decreased
$87.2 million, or 125.3 percent, over the third quarter of fiscal 2000, while
operating profit for the first nine months of fiscal 2001 decreased $25.2
million, or 10.3 percent, as compared to the comparable period in fiscal 2000.
General corporate expense for the third quarter and first nine months of fiscal
2001 decreased $36.1 million, or 65.5%, and $31.7 million, or 16.4%,
respectively. Both the third quarter and first nine months of fiscal 2001 were
positively impacted by the Company's reduction of certain reserves by a total of
$35 million as a result of the resolution of certain litigation and reevaluation
of reserves for other corporate matters.
15
CONAGRA FOODS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On December 25, 2000, one of the Company's beef processing facilities located in
Garden City, Kansas, suffered damage due to a fire. As a result, the facility
will be shut down for an indeterminate period of time. The Company does not
believe the shut down of the facility will have a material impact on its results
of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, SEC Staff Accounting Bulletin (SAB) No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS, was issued. In fiscal 2001, Emerging Issues
Task Force (EITF) Issue No. 00-14, ACCOUNTING FOR CERTAIN SALES INCENTIVES, EITF
Issue No. 99-19, REPORTING REVENUE GROSS AS A PRINCIPAL VERSUS NET AS AN AGENT,
and EITF Issue No. 00-10, ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS,
were issued. These pronouncements will become effective for the Company in the
fourth quarter of fiscal 2001. In conjunction with the adoption of these
pronouncements the Company is assessing accounting policies potentially impacted
by the new pronouncements as well as several other pending EITF issues. The
Company has not quantified the impact, if any, resulting from adoption of these
new pronouncements.
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended, is effective for the
Company in the first quarter of fiscal 2002. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivatives embedded in other contracts, and for hedging activities. The Company
is currently assessing the impact of the adoption of the standard on the
Company's financial statements. Subsequent to adoption in fiscal 2002, the
impact of the standard on the Company's results will depend on the fair values
of the Company's derivatives and may result in increased volatility in the
Company's reported earnings.
16
CONAGRA FOODS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
thirty-nine weeks ended February 25, 2001. For additional information, refer to
pages 38 and 39 of the Company's 2000 Annual Report to Stockholders,
incorporated by reference into the Company's annual report on Form 10-K for the
fiscal year ended May 28, 2000.
17
CONAGRA FOODS, INC. AND SUBSIDIARIES
PART II - FINANCIAL INFORMATION
ITEM 5. OTHER INFORMATION
The unaudited pro forma combined condensed financial statements, which give
effect to the acquisition of International Home Foods by the Company under the
purchase method of accounting for the thirty-nine weeks ended February 25, 2001
and the fiscal year ended May 28, 2000, are attached hereto as Exhibit 99.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
12 - Statement regarding computation of ratio of earnings to fixed
charges
99.1 - The unaudited pro forma combined condensed financial
statements, which give effect to the acquisition of Inter-
national Home Foods by ConAgra Foods under the purchase method
of accounting.
(B) Reports on Form 8-K
The Company filed a report on Form 8-K dated February 13, 2001 relating
to its earnings outlook for the fiscal year ending May 27, 2001.
CONAGRA FOODS, INC.
By:
/s/ James P. O'Donnell
--------------------------
James P. O'Donnell
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
By:
/s/ Jay D. Bolding
--------------------------
Jay D. Bolding
Senior Vice President, Controller
Dated this 11th day of April, 2001.
18
CONAGRA FOODS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
12 Statement regarding computation of ratio of 20
earnings to fixed charges
99.1 The unaudited pro forma combined condensed 21
financial statements, which give effect to the
acquisition of International Home Foods by ConAgra
Foods under the purchase method of accounting.
19