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EXHIBIT 13
MANAGEMENT'S DISCUSSION & ANALYSIS
The following discussion and analysis is intended to provide a summary of
significant factors relevant to the company's financial performance and
condition. The discussion should be read together with the company's
financial statements and related notes beginning on page 48. Years cited in
this discussion refer to ConAgra Foods' fiscal years.
SEGMENT REVIEW
The company made changes to its reporting segments in 2002 to reflect changes
in how the company currently manages its operations. The company has four
reporting segments: Packaged Foods, Food Ingredients, Meat Processing and
Agricultural Products.
PACKAGED FOODS: This segment includes the company's shelf-stable, frozen and
refrigerated foods, which are processed and packaged for sales to retail and
foodservice customers.
FOOD INGREDIENTS: This segment includes the company's non-grain-based
ingredients, such as processed seasonings, blends and flavorings as well as
grain-based items that are processed for ingredient use. These operations
were previously reported as part of the Agricultural Products segment.
MEAT PROCESSING: This segment includes the fresh beef, pork and poultry
operations. Previously these results were reported as part of the
Refrigerated Foods segment, which is no longer used by the company.
In May 2002, the company announced an agreement to sell a controlling
interest in its fresh beef and pork operations in a transaction with outside
investors. In fiscal 2002, the fresh beef and pork operations accounted for
approximately $7.7 billion, or 77%, of the company's Meat Processing
reporting segment net sales and $192 million, or 71%, of the company's Meat
Processing reporting segment operating profit.
AGRICULTURAL PRODUCTS: This segment includes the company's crop inputs
distribution operations as well as the company's agricultural
products/merchandising operations.
The company considers its Packaged Foods, Food Ingredients and Meat
Processing reporting segments collectively to be its food business. Prior to
the company's change in reporting segments in 2002, the company referred to
its Packaged Foods and Refrigerated Foods reporting segments as its food
business.
2002 vs. 2001
REPORTING SEGMENT HIGHLIGHTS
<Table>
<Caption>
DOLLARS IN MILLIONS
% CHANGE FISCAL 2002 % CHANGE
FISCAL 2002 FROM OPERATING FROM FISCAL
SEGMENT SALES FISCAL 2001 PROFIT 2001
Packaged Foods $12,364 9% $1,610 15%
Food Ingredients 1,669 - 160 (8%)
Meat Processing 10,024 (4%) 269 49%
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TOTAL FOOD BUSINESS 24,057 3% 2,039 17%
Agricultural Products 3,573 (2%) 19 (83%)
------- ------
CONAGRA FOODS TOTAL $27,630 2% $2,058 11%
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</Table>
SALES
Packaged Foods sales grew 9% for the fiscal year to reach $12.4 billion,
reflecting in part improvements in sales and marketing effectiveness
initiatives implemented over the last two fiscal years. These programs
include new product introductions in several branded consumer categories such
as tomato products, frozen dinners, frozen pizza, tablespreads, whipped
toppings, gelatin snacks, popcorn, puddings, and shelf-stable casserole
meals. These programs also include improved product quality, additional
marketing investment and improvements in customer service. Customer service
improvements include dedicating teams toward specific food channels - for
example, a team for the retail channel for food prepared at home, and a team
for the foodservice channel for food prepared outside the home - to serve
trade customers better and to identify new business opportunities within
those channels.
Shelf-stable grocery sales grew in the current year and were positively
impacted by a full year's results for brands acquired at the end of the first
quarter of 2001 as part of the International Home Foods ("IHF") acquisition.
Such brands include Chef Boyardee, Gulden's, Bumble Bee, Libby's, PAM, Louis
Kemp and others. Excluding the impact of the acquired brands, shelf-stable
grocery sales grew 6% in the current year.
Some of the more significant new product successes in the shelf-stable
grocery, snacks and dairy foods operations were products such as Homestyle
Bakes from Banquet, ACT II Kettle Corn, and Chocolate Reddi-wip. Product
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quality improvements were most significant in the frozen foods operations,
including the Healthy Choice brand.
Several large brands, including Butterball, Armour, Banquet, Chef Boyardee,
Bumble Bee, ACT II, Hebrew National, PAM, Peter Pan and Parkay experienced a
double-digit sales growth rate for the year. Other large brands including
Hunt's, Healthy Choice, Cook's, Orville Redenbacher's, Slim Jim, Blue Bonnet,
Egg Beater's and Kid Cuisine experienced a single-digit growth rate for the
year, as did some of the largest foodservice-oriented product lines. Large
consumer brands that experienced a low single-digit sales rate decline in
2002 included Marie Callender's, Swiss Miss and Van Camp's.
Sales growth in Packaged Foods also reflects progress with efficiently
coordinating manufacturing, marketing and sales functions as part of efforts
to improve overall execution, as well as "team" and "menu" selling programs.
In the company's "team" and "menu" selling programs, several of the company's
products are bundled together around specific themes that drive consumer
purchases of branded retail products. Those themes include "Holidays," "Back
to School," "Summer Grilling" and others.
Overall sales for the segment's core foodservice operations, which
manufacture and market french fries, specialty meats, seafood, tortillas
and other items, declined less than 2% for the year, largely reflecting a
soft general economic climate for these products and the negative effect on
consumer dining-out habits after the Sept. 11, 2001, terrorist attacks.
Food Ingredients sales were flat at $1.7 billion. Sales within the segment
are largely determined by input costs, which can fluctuate significantly. The
company therefore considers segment operating profit (discussed below) to be
a more meaningful performance measurement than sales. Sales for the
seasonings, blends and flavorings operations increased 10% over last year,
partially due to a full year's results for the vegetable ingredient
operations acquired last fiscal year. This was offset by an overall sales
decline for the grain processing operations resulting from lower input prices
and the closing of a flour mill early in the fiscal year.
Meat Processing sales declined 4% to $10.0 billion. Sales for the segment are
largely determined by market dynamics, which can fluctuate significantly. The
company therefore considers segment operating profit (discussed below) to be
a more meaningful performance measurement than sales. Pork and poultry each
grew sales 5% for the year, reflecting more favorable market conditions and a
greater concentration of higher-priced product offerings by the company. Beef
sales declined 9% for the year, reflecting lower input prices as well as the
loss of capacity due to a beef plant fire in December 2001.
Agricultural Products sales declined 2% to $3.6 billion for the year. Sales
for the company's merchandising operations drove the segment's sales
decline, which was largely due to comparisons against a year with unusually
favorable market conditions for those operations. Sales for the segment's crop
inputs operations, which distribute crop inputs such as seed, crop protection
chemicals and fertilizer, were essentially flat compared to 2001.
COST OF GOODS SOLD
The company's cost of goods sold was $23.5 billion for 2002, compared to
$23.3 billion in 2001. Overall gross profit (sales less cost of goods sold)
for 2002 was 8% higher than that of 2001. Gross margin (gross profit as a
percent of sales) improved to 15% from 14% in 2001, largely due to the
company's continuing effort to reduce costs by streamlining operations, an
improved mix of higher margin products among the branded consumer operations,
favorable industry margins in the pork and poultry businesses, and relatively
weak overall results in the prior year. Gross margin expansion was slowed by
lower volumes of higher margin products and less favorable market conditions
in the agricultural businesses, and less favorable market dynamics in the
fresh beef operations.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES
SG&A expenses increased 7% to $2.4 billion for 2002, compared to $2.3 billion
in 2001. The increase was primarily due to a full year's results for brands
acquired in 2001, increased marketing investment, and increased expenses
associated with a multi-year plan for infrastructure improvements. Such
improvements include realigning the company's distribution network and
management information systems, with particular focus on the company's
Packaged Foods reporting segment, in order to better serve customers. SG&A
expenses were 9% of sales during 2002, a slight increase over 2001 levels.
OPERATING PROFIT (EARNINGS BEFORE INTEREST, GOODWILL AMORTIZATION, GENERAL
CORPORATE EXPENSE AND INCOME TAXES)
Packaged Foods operating profit grew 15% for the fiscal year to reach $1.6
billion, reflecting the benefit of improvement initiatives implemented over
the last two fiscal years as well as a comparison against a fiscal year that
showed relatively low profitability. The improvement programs include efforts
to profitably grow sales while becoming more efficient in manufacturing,
marketing, and distribution. Profit growth efforts include new product
introductions in several branded consumer categories such as tomato products,
frozen dinners, frozen pizza, tablespreads, whipped toppings, gelatin snacks,
popcorn, puddings, shelf-stable casserole meals and others. These programs
also include focusing on the company's higher-profit items as part of a
deliberate plan to improve product mix. Improved product quality, additional
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marketing investment and improvements in customer service are also part of
ongoing programs that aided operating profit growth in the current year.
The year's operating profit growth also reflects progress with efficiently
coordinating the manufacturing, marketing and sales functions as part of
efforts to improve overall execution, as well as the "team" and "menu" selling
programs described above in the discussion of Packaged Foods sales.
Shelf-stable grocery operating profit grew in the current year and was
positively impacted by efficiency gains resulting from the ongoing
integration of IHF as well as a full year's results for the brands acquired
as part of the IHF transaction, including Chef Boyardee, Gulden's, Bumble
Bee, Libby's, PAM, Louis Kemp and others.
Overall operating profits for the dedicated foodservice-oriented operations,
which manufacture and market french fries, specialty meats, seafood, tortillas
and other items, declined 11% for the year, reflecting a soft general economic
climate for these products and the negative effect on consumer dining-out
habits after the Sept. 11, 2001, terrorist attacks.
Food Ingredients operating profit declined 8% to $160 million. While the
company made improvements to segment product and customer mix during the
year, the profit decline largely reflects lower volumes for some operations.
Fiscal 2002 operating profit for the grain processing operations declined 6%
from the previous year, resulting primarily from the closing of a flour mill
early in the fiscal year. The segment's seasonings, blends and flavorings
operations operating profit grew 5% compared to last year. The seasonings,
blends and flavorings growth was, in large part, attributable to a full
year's results for a vegetable ingredient business acquired in 2001.
Meat Processing operating profit increased 49% to $269 million. Operating and
efficiency improvements favorably impacted segment operating profits. Pork
and poultry operating profits both grew, reflecting more favorable market
conditions and a greater concentration of higher-profit product offerings by
the company. Beef profits declined for the year, reflecting less favorable
market dynamics as well as the loss of capacity due to a beef plant fire in
December 2001.
Agricultural Products operating profit declined 83% to $19 million for the
year. Market conditions for the segment's crop inputs operations were
generally weak. The soft pricing environment for those operations contributed
to the year's operating loss, as did a lower volume of higher-margin products
sold by the company. Difficult customer credit conditions and higher input
costs also drove the segment's profit decline. Several profit improvement
initiatives are underway for the segment's crop inputs operations. Operating
profits for the segment's merchandising operations declined 33%, largely due
to comparisons against a year with unusually favorable market conditions.
INTEREST EXPENSE AND AMORTIZATION
For 2002, interest expense was $402 million, 5% below 2001 amounts, primarily
due to a combination of an intense effort to reduce working capital
throughout the company and more favorable interest rates.
Amortization of goodwill and other intangibles grew to $149 million in 2002
compared to $131 million in 2001, mostly due to a full year's results for
brands acquired in 2001.
INCOME BEFORE INCOME TAXES AND NET INCOME
Income before income taxes and the cumulative effect of changes in
accounting, increased 15% to $1.3 billion. The cumulative effect of changes in
accounting impacted 2002 with a $2 million after-tax charge resulting from
the company's adoption of Statement of Financial Accounting Standards
("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
ACTIVITIES, with an immaterial impact on diluted earnings per share. The
cumulative effect of changes in accounting for 2001 was a $44 million
after-tax charge, or $.09 per diluted share, resulting from the company's
changes in accounting for revenue recognition relating to the shipping terms
for certain of its product sales, recognition of sales incentives granted to
retailers and recognition of consumer sales incentives. The effective tax
rate for 2002 and 2001 was approximately 38%.
Fiscal 2002 net income was $783 million, or $1.47 per diluted share. Fiscal
2002 diluted earnings per share of $1.47 represents 19% growth over 2001
reported results of $1.24. This represents an 11% growth over 2001 diluted
earnings per share of $1.33 before cumulative effect of changes in accounting.
2001 vs. 2000
REPORTING SEGMENT HIGHLIGHTS
<Table>
<Caption>
DOLLARS IN MILLIONS
% CHANGE
FROM FISCAL
2000
EXCLUDING
% CHANGE FISCAL 2001 FISCAL 2000 % CHANGE
FISCAL 2001 FROM OPERATING RESTRUCTURING FROM
SEGMENT SALES FISCAL 2000 PROFIT CHARGES FISCAL 2000
Packaged Foods $11,368 11% $1,396 4% 40%
Food Ingredients 1,665 (2%) 173 16% 93%
Meat Processing 10,432 2% 181 (22%) 76%
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TOTAL FOOD BUSINESS 23,465 6% 1,750 1% 47%
Agricultural Products 3,636 9% 109 (18%) 126%
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CONAGRA FOODS TOTAL $27,101 6% $1,859 - 50%
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</Table>
38 ConAgra Foods Annual Report
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The business environment for the second half of 2001 reflected higher energy
costs and a slowing economy. The company believes that both of these factors
negatively impacted operating results for its reporting segments in 2001.
SALES
Packaged Foods sales grew 11% for the fiscal year to reach $11.4 billion,
largely the result of the acquisition of brands including Chef Boyardee,
Gulden's, Bumble Bee, Libby's, PAM and Louis Kemp from IHF on Aug. 24,
2000. The company invested significantly in numerous new and existing
products in the shelf-stable and frozen foods operations as part of its
strategy to improve future sales growth. Changing inventory levels among its
customer base resulted in slower orders, and therefore lower company sales
than would be expected given improved consumer purchasing trends for some key
items during the year.
Packaged Foods sales were also impacted by growth for several key brands and
product lines, most notably the company's foodservice-focused operations
which offer french fries, specialty meats, seafood and tortillas to this
customer channel. The snacks operations were among the strongest performing
segment operations, posting significant sales gains. The company's frozen
foods operations posted an overall sales decline for the year, largely due to
lower volumes of higher-priced products in the mix of products sold. Although
numerous new frozen products were introduced in 2001, many of them had not
reached a sufficient level of distribution early enough in the fiscal year to
substantially benefit 2001 sales performance. The company's dairy foods
operations, which include aerosol whipped topping, cheese, egg alternatives
and tablespreads, posted a decline in sales reflecting the discontinuation of
certain commodity cheese operations late in 2000, as well as a poor
performance from its tablespreads operations. The poor performance of the
tablespreads operations resulted from a highly competitive environment as
well as unfavorable pricing of products in relation to butter for a large
portion of the fiscal year. Sales for the segment's branded processed meats
operations grew partly in response to recently introduced new products
and increased marketing support for new and existing products.
Excluding brands acquired in the IHF acquisition, the major Packaged Foods
retail brands that posted sales gains in the fiscal year were ACT II, Slim
Jim, Swiss Miss, Reddi-wip, Egg Beaters, Butterball, Armour, Eckrich, Cook's,
Swift and Hebrew National. Hunt's, Banquet, Marie Callender's, Healthy
Choice, Wesson, Peter Pan, Blue Bonnet and Parkay posted sales declines.
Food Ingredients sales declined 2% to $1.7 billion, largely reflecting the
sale of some operations. Sales for the seasonings, blends and flavorings
business grew, largely due to an acquisition completed in the fiscal year.
Meat Processing sales grew 2% for the year to reach $10.4 billion, reflecting
gains for fresh pork and fresh poultry operations. Fresh beef sales declined
modestly compared to 2000, partly due to a loss of capacity from a fire that
destroyed the Garden City, Kansas, processing facility in December 2001.
Agricultural Products sales increased 9% to $3.6 billion for the year,
reflecting improved sales for both the segment's crop inputs operations and
merchandising operations. Sales for the crop inputs operations were higher in
2001, despite an increasingly competitive environment. Sales for the
segment's merchandising operations largely reflect increased activity and
volatility in some key trading sectors.
COST OF GOODS SOLD
The company's cost of goods sold was $23.3 billion for the fiscal year,
compared to $22.2 billion in 2000. Costs of goods sold for 2000 includes $223
million of restructuring-related charges. Gross profit (sales less cost of
goods sold) for 2001 was 15% higher than that of 2000, and 8% higher
excluding restructuring-related charges in 2000. Gross margin (gross profit
as a percent of sales) improved to 14% primarily due to an improved mix of
higher-margin products as a result of the acquisition of IHF, compared with
13% in 2000, and 14% in 2000 excluding restructuring charges. Higher energy
and other input costs impeded gross margin growth, as did lower volumes of
higher-margin products in the mix of products sold at the company's crop
inputs and frozen foods operations.
SG&A
SG&A expenses increased 10% to $2.3 billion for 2001, compared to $2.1
billion in 2000. Excluding restructuring-related charges in 2000 of $76
million, SG&A expenses for 2001 increased 14% primarily as a result of the
acquisition of IHF and substantially increased marketing investment.
Advertising and promotion expense increased at a double-digit rate,
reflecting the company's commitment to building for the future. SG&A expenses
were 8% of sales during 2001, essentially unchanged compared to 2000.
OPERATING PROFIT
Packaged Foods operating profit increased from $998 million in 2000 to $1.4
billion in 2001, due primarily to restructuring and restructuring-related
charges ("restructuring charges") recognized in 2000 that did not recur in
2001. Excluding restructuring charges of $347 million in 2000, operating
profit grew 4%, largely the result of the acquisition of brands including
Chef Boyardee, Gulden's, Bumble Bee, Libby's, PAM, Louis Kemp and others
early in the fiscal year. The company's introduction of and investment in
many new products in the shelf-stable and frozen foods operations slowed the
growth of the
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Packaged Foods operating profit for the year. Changing inventory levels among
the company's customer base, which resulted in slower orders, also resulted
in lower profits than would be expected given improved consumer purchasing
trends for some key items during the year.
Packaged Foods operating profit results were also impacted by growth for
several key brands and product lines, as described above in the discussion of
Packaged Foods sales. The company's frozen foods operations and the company's
dairy operations posted overall profit declines for the year, for the reasons
provided above in the discussion of Packaged Foods sales.
Food Ingredient operating profit increased from $90 million in 2000 to $173
million in 2001 due primarily to restructuring charges recognized in 2000
that did not recur in 2001. Excluding restructuring charges of $59 million
in 2000, operating profit increased 16%. While market conditions for the
grain processing operations were difficult, overall segment profits increased
due in part to an acquisition of a vegetable ingredient business, as well as
the favorable disposition of some smaller assets.
Meat Processing operating profit increased from $103 million in 2000 to $181
million in 2001 due to restructuring charges recognized in 2000 that did not
recur in 2001. Excluding restructuring charges of $131 million in 2000,
operating profit decreased 22%, resulting in part from higher input costs for
the company's fresh beef and pork operations. Difficult industry
conditions for the fresh poultry operations also contributed to the segment's
operating profit decrease. Fiscal 2000 showed unusually strong profits for
the company's fresh beef and pork operations during that year, making
difficult comparisons in those business units for most of 2001.
Agricultural Products operating profit increased from $48 million in 2000 to
$109 million in 2001 due to restructuring charges of $85 million recognized
in 2000 that did not recur in 2001. Excluding these restructuring charges in
2000, operating profit declined 18%. Overall segment profitability declined
due to lower profits for the segment's crop inputs operations, which were
negatively impacted by lower volumes of higher-margin customer orders and
expansion-related overhead.
The company's total operating profit for 2001 was $1.9 billion as compared to
$1.2 billion in 2000. Excluding restructuring charges of $621 million in
2000, operating profit in 2001 was essentially flat compared to 2000.
During 2001, the company achieved $180 million of pre-tax cost savings as a
result of the restructuring plan undertaken in 1999 and 2000. These cost
savings positively impacting the company's cost of goods sold and selling,
general and administrative expenses, were more than offset by increased
marketing expense, increased energy costs and weakness in operating results
for some of the company's businesses.
INTEREST EXPENSE AND AMORTIZATION
For 2001, interest expense was $423 million, an increase of 39% over fiscal
2000 amounts, primarily due to financing required for the acquisition of
IHF, as well as greater working capital requirements. Also, as a result of the
acquisition of IHF, amortization of intangibles grew to $131 million in 2001,
compared to $83 million in 2000.
INCOME BEFORE INCOME TAXES AND NET INCOME
Income before income taxes and the cumulative effect of changes in accounting
was $1.1 billion in 2001 as compared to $618 million in 2000. Excluding 2000
restructuring charges of $621 million, income before income taxes and
the cumulative effect of changes in accounting declined 11%. The cumulative
effect of changes in accounting for 2001 was a $44 million after-tax charge,
or $.09 per diluted share, resulting from the company's changes in accounting
for revenue recognition relating to the shipping terms for certain of its
product sales, recognition of sales incentives granted to retailers and
recognition of consumer sales incentives. The effective tax rate for 2001 and
2000 was approximately 38%.
Fiscal 2001 income before the cumulative effect of changes in accounting was
$683 million, or $1.33 per diluted share, compared to 2000 diluted earnings
per share of $.80 ($1.60 per diluted share excluding restructuring charges).
Fiscal 2001 net income was $639 million, or $1.24 per diluted share, compared
with diluted earnings per share of $.80 in 2000, and diluted earnings per
share of $1.60 excluding restructuring charges.
OTHER
On June 22, 2001, the company filed an amended annual report on Form 10-K for
the fiscal year ended May 28, 2000. The filing includes restated financial
information for fiscal years 1997, 1998, 1999 and 2000. The restatement, due
to accounting and conduct matters at the company's United Agri Products
subsidiary, was based upon an investigation undertaken by the company and the
Audit Committee of its Board of Directors. The restatement was principally
related to revenue recognition for deferred delivery sales and vendor
rebates, advance vendor rebates and bad debt reserves. The Securities and
Exchange Commission ("SEC") issued a formal order of nonpublic investigation
dated Sept. 28, 2001. The company is cooperating with the SEC investigation.
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LIQUIDITY AND CAPITAL RESOURCES
In January 2002, the SEC issued Financial Reporting Release ("FRR") No. 61
which provides registrants with interpretive guidance regarding additional
disclosures in the areas of obligations and commitments, off-balance sheet
financings, trading activities and related party transactions. The company
has included applicable information within its Management's Discussion &
Analysis with respect to the topics addressed in FRR No. 61.
SOURCES OF LIQUIDITY AND CAPITAL
The company's primary financing objective is to maintain a conservative
balance sheet that provides the flexibility to pursue its growth objectives.
The company primarily uses short-term debt to finance its working capital
needs and a combination of equity and long-term debt to finance noncurrent
assets.
To finance its working capital, the company utilizes cash flows generated
from operations and also borrows short-term (usually less than 30 days
maturity) commercial paper. Commercial paper is reflected in the company's
consolidated balance sheet within notes payable. The company maintains
back-up bank lines of credit at least equal to outstanding commercial paper
borrowings. The company has never needed to use these back-up lines of
credit. The company is in compliance with the credit agreements' financial
covenants. Management believes the company will maintain its current debt
credit rating for the foreseeable future, thus allowing the company's
continued issuance of commercial paper. If the company were unable to access
the short-term commercial paper market, the company would use its bank
revolving credit facilities to provide liquidity. The company has in place a
short-term revolving credit facility of $1.05 billion (expiring in May 2003)
and a longer-term $1.05 billion revolving credit facility (expiring in May
2007) with major domestic and international banks. The interest rates for the
revolving credit facilities are generally .30 to .35 percentage points higher
than the interest rates for commercial paper.
As of the end of 2002, the company had short-term notes payable of $31
million as compared to $2.7 billion at the end of 2001. Short-term notes
payable decreased due to the company's current year refinancing activities,
and the payment of short-term borrowings with cash generated from operating
activities.
The company also funds its short-term financing needs through agreements to
sell interests in pools of trade accounts receivable. As of the end of 2002,
the existing program funded up to $875 million of receivables at any one
time. On June 6, 2002, the company terminated one accounts receivable
securitization program with an availability of $325 million. The accounts
receivable are sold without recourse at a discount, and this cost is included
in selling, general and administrative expenses. Because these accounts
receivable are sold without recourse to unrelated third parties, accounts
receivable balances sold are excluded from the companies consolidated
financial statements. As of the end of 2002, accounts receivable sold totaled
$684 million as compared to $737 million as of the end of 2001. The ability to
sell accounts receivable is, in part, dependent upon the credit quality of the
underlying accounts receivable. Although not anticipated by the company's
management, deterioration of the credit quality of accounts receivable could
impact the company's ability to sell receivables under this program. If the
company were unable to obtain funds through its receivables program, the
company would source its liquidity needs through additional borrowings under
its commercial paper program. The interest rates for commercial paper are
generally less than .10 percentage points higher than the implicit rate for
the accounts receivable sales program.
Debt reduction has been a primary focus of the company during 2002. The
company's overall level of interest-bearing debt totaled $6.0 billion at the
end of 2002, compared to $6.9 billion as of the end of 2001. This 13%
reduction was primarily a result of utilizing cash generated from operating
activities to pay down debt.
During 2002, the company issued $500 million of floating rate senior notes
due September 2003, $500 million of 6% senior notes due September 2006, and
$1 billion of 6.75% senior notes due September 2011. The interest rate
associated with the floating rate senior notes is equal to three-month LIBOR
plus 70 basis points, or approximately 2.6% as of the end of 2002. The net
proceeds were used to reduce outstanding commercial paper borrowings carrying
an average interest rate of 3.8%. The company replaced short-term debt with
long-term debt to protect against potential unfavorable developments in the
short-term credit market, and to take advantage of attractive long-term
interest rates. As of the end of both 2002 and 2001, the company's senior
debt ratings were BBB+ (Fitch), Baa1 (Moody's), and BBB+ (Standard & Poor's),
all investment grade ratings.
During 2002, the company's finance subsidiary, ConAgra Capital, L.C.,
redeemed all 4,000,000 shares of its 9% Series A Cumulative Preferred
Securities and all 10,000,000 shares of its 9.35% Series C Cumulative
Preferred Securities for $350 million, using lower-rate short-term debt to
fund the redemption. The rates associated with the short-term debt used to
fund the redemption are approximately 6 percentage points lower than the
interest rates associated with the redeemed securities. The redemption
resulted in an earnings per share charge of approximately $.01 in 2002. The
cost of the redemption was offset by reduced financing costs in 2002. The
$175 million of Series B
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Adjustable Rate Cumulative Preferred Securities were not redeemed by the
company and remain outstanding as of the end of 2002.
As of the end of 2002, the company had interest rate swaps outstanding,
effectively converting $2 billion of its fixed rate debt into floating rate
debt. The company entered into such interest rate swaps to take advantage of
historically low short-term rates, while continuing to maintain long-term
financing.
CASH FLOWS
In fiscal 2002, the company used $40 million of cash, which is the net impact
of $2.4 billion generated from operations, $586 million used in investing
activities and $1.8 billion used in financing activities.
Cash generated from operating activities totaled $2.4 billion for 2002 as
compared to $125 million generated for 2001. The increased cash flow was
primarily due to an effort to reduce trade working capital (accounts
receivable plus inventory less accounts payable, accrued expenses and
advances on sales) and increased net income. Cash flow from operating
activities is one of the company's primary sources of liquidity.
Cash used in investing activities totaled $586 million for 2002, down from
$1.6 billion used in 2001. Investing activities consist primarily of
additions to property, plant and equipment under the company's normal capital
expenditure plan and payments for business acquisitions. Payments for
business acquisitions in the current year of $110 million were significantly
lower than last year due primarily to the acquisition of IHF in 2001 which
resulted in a cash payment of $875 million for that year.
Cash used in financing activities totaled $1.8 billion for 2002, versus cash
generated of $1.5 billion for 2001. During 2002, the company reduced
short-term borrowings by $2.6 billion through a combination of cash generated
from operations and the issuance of approximately $2 billion in long-term
debt. Additionally, the company redeemed $350 million of preferred securities
of a subsidiary with fixed dividend rates ranging from 9% to 9.35%. The
dividend payments associated with the company's preferred securities of a
subsidiary are classified within SG&A. The company issued short-term
borrowings to fund the redemption of these subsidiary preferred securities.
In 2001, cash generated from financing activities related primarily to the
issuance of debt for the acquisition of IHF. Dividends paid during 2002
totaled $483 million as compared to $429 million for 2001.
CERTAIN LEASING ARRANGEMENTS
The company has entered into operating lease arrangements in which the
lessors are characterized as "special purpose entities" ("SPEs"). The SPEs
are used to facilitate financing for leased assets. Accordingly, the assets
held by the SPEs are the assets leased by the company, and the liabilities of
the SPEs are the debt used to finance the leased assets (with the assets
serving as collateral for the debt). These SPEs are not consolidated by the
company as their equity is provided by parties independent of the company in
amounts that are sufficient under applicable accounting principles (i.e.,
equity of at least 3% of total capital) to establish the SPEs as having
independent economic substance apart from the company. In these leasing
arrangements, the funding obligations of the company are limited solely to
the actual lease payments and in some circumstances a guarantee of a portion
of the original value of the leased asset. The company is not obligated in
such agreements to guarantee the continued viability or profitability of the
SPEs. All obligations are included in the "Contractual Obligations" table
below.
The Financial Accounting Standards Board ("FASB") is currently considering
modifying the authoritative accounting literature with respect to SPE leasing
arrangements. Depending on the outcome of the FASB's deliberations in this
area, the company may be required in the future to include the leased assets
and related debt financing in its financial statements for "non-substantive"
SPEs. The company has not completed its assessment of the potential adoption
impact of such literature as the FASB has yet to complete its deliberations
process. However, based on the company's understanding of the FASB's
preliminary views, the company does not believe the impact of the new
literature will be material to the company.
A number of facilities are currently being constructed for use within the
company's Packaged Foods distribution network. The company provided
financing for up to 89% of the cost of construction of these facilities in
fiscal 2002. Upon completion of each facility, the company intends to
lease these facilities from SPEs that are anticipated to have substantive
equity. The SPEs obtained permanent financing and repaid the construction
financing with interest. As of May 26, 2002, the company had advanced
approximately $41 million for construction of these facilities, which is
included in the 2002 financial statements. All such advances were repaid to
the company by Aug. 14, 2002.
OBLIGATIONS AND COMMITMENTS
As part of its ongoing operations, the company enters into arrangements that
obligate the company to make future payments under contracts such as lease
agreements, debt agreements and unconditional purchase obligations (i.e.,
42 ConAgra Foods Annual Report
76
<Page>
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). These arrangements are entered into by the company in its normal
course of business in order to ensure adequate levels of sourced product are
available to the company. Of these items, capital lease and debt obligations,
which total $6.0 billion, are currently recognized as liabilities in the
company's consolidated balance sheet. Operating lease obligations and
unconditional purchase obligations, which total $1.1 billion, are not
recognized as liabilities in the company's consolidated balance sheet in
accordance with generally accepted accounting principles.
A summary of the company's contractual obligations at the end of 2002, is as
follows:
<Table>
<Caption>
DOLLARS IN MILLIONS PAYMENTS DUE BY PERIOD
CONTRACTUAL LESS THAN 1 AFTER 5
OBLIGATIONS TOTAL YEAR 2-3 YEARS 4-5 YEARS YEARS
Long-Term Debt $6,005.5 $209.0 $ 883.4 $1,218.7 $3,694.4
Lease Obligations 741.2 121.6 176.8 136.4 306.4
Unconditional
Purchase
Obligations 402.3 73.3 158.4 72.9 97.7
-------- ------ -------- -------- --------
Total Cash
Obligations $7,149.0 $403.9 $1,218.6 $1,428.0 $4,098.5
- ----------------------------------------------------------------------------------
</Table>
In addition to the above contractual obligations, as part of its ongoing
operations, the company enters into certain arrangements that obligate the
company to make future payment only upon the occurrence of a future event
that will result in the company making a cash payment (e.g., guarantee debt
or lease payments of a third party should the third party be unable to
perform). The following commercial commitments are not recognized as
liabilities in the company's consolidated balance sheet in accordance with
generally accepted accounting principles. A summary of the company's other
commercial commitments, including commitments associated with equity method
investments at the end of 2002, is as follows:
<Table>
<Caption>
DOLLARS IN MILLIONS AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
OTHER COMMERCIAL LESS THAN 1 AFTER 5
COMMITMENTS TOTAL YEAR 2-3 YEARS 4-5 YEARS YEARS
Guarantees $ 18.0 $ 4.5 $ 2.3 $ 11.2 $ -
Other
Commitments 83.3 16.8 19.9 12.4 34.2
------- ------ ------ ------ -------
Total
Commitments $ 101.3 $ 21.3 $ 22.2 $ 23.6 $ 34.2
- ----------------------------------------------------------------------------------
</Table>
TRADING ACTIVITIES
The company accounts for certain contracts (e.g., "physical" commodity
purchase / sale contracts and derivative contracts) at fair value. The
company considers a portion of these contracts to be its "trading"
activities; specifically, those contracts that do not qualify for hedge
accounting under SFAS No. 133. The table below summarizes the changes in
trading assets and liabilities for 2002:
<Table>
<Caption>
DOLLARS IN MILLIONS
Net asset (liability) outstanding as of May 27, 2001, at fair value $36.2
Contracts settled during the period (1) (25.7)
Changes in fair value of contracts outstanding as of May 26, 2002 (2) 22.0
Changes attributable to changes in valuation techniques
and assumptions -
-----
Net asset (liability) outstanding as of May 26, 2002, at fair value $32.5
- -------------------------------------------------------------------------------------
</Table>
(1) Includes contracts outstanding at May 27, 2001, and contracts entered
into and settled during the period.
(2) Includes option premiums paid and received.
The following table represents the fair value and scheduled maturity dates of
such contracts outstanding as of May 26, 2002:
<Table>
<Caption>
FAIR VALUE OF CONTRACTS AS OF
MAY 26, 2002
DOLLARS IN MILLIONS NET ASSET / (LIABILITY)
MATURITY LESS MATURITY TOTAL FAIR
SOURCE OF FAIR VALUE THAN 1 YEAR 1-3 YEARS VALUE
Prices actively quoted
(i.e., exchange-traded contracts) $ 11.8 $ .2 $12.0
Prices provided by other external
sources (i.e., non-exchange-
traded contracts) 17.6 2.9 20.5
Prices based on models and other
valuation models (i.e., non-exchange-
traded contracts) - - -
------- ----- -----
Total fair value $ 29.4 $ 3.1 $32.5
- -----------------------------------------------------------------------------------
</Table>
In order to minimize the risk of loss associated with non-exchange-traded
transactions with counterparties, the company utilizes established credit
limits and performs ongoing counterparty credit evaluations.
The above tables exclude commodity-based contracts entered into in the normal
course of business, including "physical" contracts to buy or sell commodities
at agreed-upon fixed prices, as well as derivative contracts (e.g., futures
and options) used primarily to hedge an existing asset or liability (e.g.,
inventory) or an anticipated transaction (e.g., purchase of inventory). The
use of such contracts is not considered by the company to be "trading"
activities as these contracts are considered either normal purchase and sale
contracts or hedging contracts.
43 ConAgra Foods Annual Report
77
<Page>
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC issued FRR No. 60, concerning "critical" accounting
policies. FRR No. 60 defines a critical accounting policy as a policy that is
both important to the portrayal of a company's financial condition and
results and requires significant or complex judgments on the part of
management. The company has included the following information with respect
to the topics addressed in FRR No. 60.
The process of preparing financial statements requires the use of estimates
on the part of management. The estimates used by management are based on the
company's historical experiences combined with management's understanding of
current facts and circumstances. Certain of the company's accounting policies
are considered critical as they are both important to the portrayal of the
company's financial condition and results and require significant or complex
judgment on the part of management. The following is a summary of certain
accounting policies considered critical by management of the company.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The company's allowance for doubtful
accounts reflects reserves for customer receivables to reduce receivables to
amounts expected to be collected. Management uses significant judgment in
estimating uncollectible amounts. In estimating uncollectible amounts,
management considers factors such as current overall economic conditions,
industry-specific economic conditions, historical customer performance and
anticipated customer performance. While management believes the company's
processes effectively address its exposure for doubtful accounts, changes in
the economy, industry or specific customer conditions may require adjustment
to the allowance for doubtful accounts recorded by the company.
MARKETING COSTS - The company incurs certain costs to promote its products
through marketing programs that include advertising, retailer incentives and
consumer incentives. The company expenses each of these types of marketing
costs in accordance with applicable authoritative accounting literature. The
judgment required in determining when marketing costs are incurred can be
significant. For volume-based incentives provided to retailers, management
must continually assess the likelihood of the retailer achieving the
specified targets. Similarly, for consumer coupons, management must estimate
the level at which coupons will be redeemed by consumers in the future.
Estimates made by management in accounting for marketing costs are based
primarily on the company's historical experience with marketing programs, with
consideration given to current circumstances and industry trends. As these
factors change, management's estimates could change and the company could
recognize different amounts of marketing costs over different periods of time.
INVENTORY VALUATION - Management reviews its inventory balances to determine
if inventories can be sold at amounts equal to or greater than their carrying
amounts. The review includes identification of slow-moving inventories,
obsolete inventories and discontinued products or lines of products. The
identification process includes historical performance of the inventory,
current operational plans for the inventory, as well as industry and customer-
specific trends. If the company's actual results differ from management
expectations with respect to the selling of its inventories at amounts equal
to or greater than their carrying amounts, the company would be required to
adjust its inventory balances accordingly.
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 the company's environmental
liabilities. Management estimates the company's environmental liabilities
based on evaluation of investigatory studies, extent of required cleanup, the
known volumetric contribution of the company and other potentially
responsible parties, and its 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 cleanup. Management's estimate as to its 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. The company does not discount its 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.
EMPLOYMENT-RELATED BENEFITS - The company incurs certain employment-related
expenses associated with pensions, postretirement health care benefits and
workers' compensation. In order to measure the expense associated with these
employment-related benefits, management must make a variety of estimates
including discount rates used to value certain liabilities, assumed rates of
return on assets set aside to fund these expenses, compensation increases,
employee turnover rates, anticipated mortality rates, anticipated healthcare
costs and employee accidents incurred but not yet reported to the company.
The estimates used by management are based on the company's historical
experience as well as current facts and circumstances. The company uses
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 the company recognizing
different amounts of expense over different periods of time.
44 ConAgra Foods Annual Report
78
<Page>
Due to the long-term nature of pension plans, several assumptions must be
made to appropriately account for those plans. One important assumption is the
expected rate of return on plan assets. High returns on plan assets result in
lower pension expense, and thus higher company profits. Low returns on plan
assets result in higher pension expense, and thus lower company profits.
On a trailing 5-year and a trailing 10-year basis, the company's actual
returns on plan assets have slightly exceeded the fiscal 2002 estimated
long-term rate of return of 9.25%. The company believes the expected return
rate to be reported in the fiscal 2003 financial results will be lower
than 9.25% due to the recent weak performance of equities and bonds, and the
expectation that more modest returns will be obtained in the near future. The
accounting requirements for pensions call for amortization of gains and
losses over several years, so there is a lag time between the market's
performance and its impact on plan results. For every 1% reduction in the
expected rate of return on plan assets, annual pension expense increases by
approximately $15 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS, and SFAS
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, which establish accounting and
reporting requirements for business combinations. SFAS No. 141 requires all
business combinations entered into subsequent to June 30, 2001, to be
accounted for using the purchase method of accounting. SFAS No. 142 provides
that goodwill and other intangible assets with indefinite lives will not be
amortized, but will be tested for impairment of value on an annual basis.
SFAS No. 142 is effective for fiscal years beginning after Dec. 15, 2001. The
company will adopt SFAS No. 142 at the beginning of its fiscal 2003. The
company believes the adoption of SFAS No. 142 will result in a diluted
earnings per share increase of approximately $.15 for fiscal 2003 as a result
of the company discontinuing the amortization of goodwill and other
intangible assets with indefinite lives. As part of the adoption of SFAS No.
142, the company is required to test goodwill and other intangible assets for
impairment at the beginning of fiscal 2003. The company has not yet completed
its assessment of the adoption impact, if any, of the initial impairment test.
In August 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. This statement requires the company to recognize the fair value
of a liability associated with the cost the company would be obligated to
incur in order to retire an asset at some point in the future. The liability
would be recognized in the period in which it is incurred and can be
reasonably estimated. The standard is effective for fiscal years beginning
after June 15, 2002. The company expects to adopt this standard at the
beginning of its fiscal 2004. The company has not yet completed its
assessment of the anticipated adoption impact, if any, of SFAS No.143.
Additionally, in October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR
THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 develops an
accounting model, based upon the framework established in SFAS No. 121, for
long-lived assets to be disposed of by sales. The accounting model applies to
all long-lived assets, including discontinued operations, and it replaces the
provisions of Accounting Principles Board ("APB") Opinion No. 30, REPORTING
RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A
BUSINESS AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND
TRANSACTIONS, for disposal of segments of a business. SFAS No. 144 requires
long-lived assets to be measured at the lower of carrying amount or fair
value less costs to sell, whether reported in continuing operations or in
discontinued operations. The statement is effective for fiscal years
beginning after Dec. 15, 2001. The company intends to adopt this standard
at the beginning of its fiscal 2003. The company believes the anticipated
adoption impact of SFAS No. 144 will not be material.
RELATED PARTY TRANSACTIONS
ConAgra Foods enters into many lease agreements for land, buildings and
equipment at competitive market rates, and some of the lease arrangements are
with Opus Corporation or its affiliates ("Opus"). Mark Rauenhorst, a director
of ConAgra Foods, is a beneficial owner and director of Opus. The agreements
with Opus relate to the leasing of land and buildings for ConAgra Foods.
ConAgra Foods occupies the buildings pursuant to long-term leases with Opus,
some of which contain various termination rights and purchase options. Leases
effective in fiscal 2002 require annual lease payments by ConAgra Foods of
approximately $19 million. Opus had revenues of approximately $1.3 billion in
2001. ConAgra Foods has leased or expects to lease additional facilities,
which are under construction or recently completed, in fiscal 2003 from Opus
with annual lease payments of approximately $2.4 million. The lease payments
will include the lessor's borrowing costs for construction funds. In fiscal
2002, at ConAgra Foods' request, the company provided construction financing
at its short-term borrowing rates, which were lower rates than the lessor
would obtain from other lending sources. The construction financing for each
facility is provided for a period of less than a year, secured by a mortgage
on the facility, and repaid in full to the company following the commencement
of the lease. During fiscal 2002, the construction financing provided by the
company to Opus totaled approximately $41 million; all such amounts were
repaid by Aug. 14, 2002.
45 ConAgra Foods Annual Report
79
<Page>
MARKET RISK
The principal market risks affecting the company are exposures to price
fluctuations of commodity and energy inputs, interest rates and foreign
currencies.
COMMODITIES - The company purchases commodity inputs such as wheat, corn,
oats, soybean meal, soybean oil, cattle, hogs, energy and packaging materials
to be used in its operations. These commodities are subject to price
fluctuations which may create price risk. The company enters into commodity
hedges to manage this price risk using physical forward contracts or
derivative instruments. ConAgra Foods has policies governing the hedging
instrument its businesses may use. These policies include limiting the dollar
risk exposure for each of its businesses. The company also monitors the
amount of associated counter-party credit risk for all non-exchange-traded
transactions. In addition, the company purchases and sells certain
commodities such as wheat, corn, soybeans, soybean meal, soybean oil, oats
and energy in its trading operations. The company's trading activities are
limited in terms of maximum dollar exposure and monitored to ensure
compliance.
The following table presents one measure of market risk exposure using
sensitivity analysis. Sensitivity analysis is the measurement of potential
loss of fair value resulting from a hypothetical change of 10% in market
prices. Actual changes in market prices may differ from hypothetical changes.
In reality, as markets move, the company actively manages its risk and adjusts
hedging strategies as appropriate. Fair value was determined using quoted
market prices and was based on the company's net derivative position by
commodity at each quarter end during the fiscal year. The market risk
exposure analysis excludes the underlying commodity positions that are being
hedged. The commodities hedged have a high inverse correlation to price
changes of the derivative commodity instrument.
Effect of 10% Change in Market Prices
<Table>
<Caption>
DOLLARS IN MILLIONS 2002 2001
PROCESSING ACTIVITIES
Grains/Food
High $44.4 $43.3
Low 25.0 25.5
Average 33.8 33.0
Meats
High 21.2 56.4
Low 7.7 3.4
Average 12.7 23.4
Energy
High 12.3 16.9
Low 8.8 8.4
Average 10.4 12.2
TRADING ACTIVITIES
Grains
High 14.1 19.0
Low 1.2 9.8
Average 6.3 12.2
Meats
High 7.6 2.7
Low 1.0 .4
Average 3.8 1.4
Energy
High 7.7 5.1
Low .5 4.0
Average 3.1 4.7
- ---------------------------------------------------------------------------------
</Table>
INTEREST RATES - The company uses interest rate swaps to manage the effect of
interest rate changes on a portion of its debt. During 2002, the company
entered into interest rate swap agreements, effectively changing the interest
rate on $2.0 billion of its debt from a fixed rate to a floating rate. As of
the end of 2002, the fair value of the interest rate swap agreements
recognized in prepaid expenses and other current assets was $29.4 million.
During 2001, the company did not enter into any interest rate swap
agreements. A one percentage point increase/decrease in interest rates would
have decreased/increased the fair value of the interest rate swap agreements
by approximately $89 million as of the end of 2002.
46 ConAgra Foods Annual Report
80
<Page>
As of the end of 2002, the fair value of the company's fixed rate debt was
estimated at $5.86 billion, based on current market rates primarily provided
by outside investment advisors. As of the end of 2002, a one percentage point
increase in interest rates would decrease the fair value of the company's
fixed rate debt by approximately $383 million, while a one percentage point
decrease in interest rates would increase the fair value of the company's
fixed rate debt by approximately $437 million. With respect to the company's
floating rate debt, a one percentage point change in interest rates would
have impacted net interest expense by approximately $14 million for 2002.
FOREIGN OPERATIONS - In order to reduce exposures related to changes in
foreign currency exchange rates, the company may enter into forward exchange
or option contracts for transactions denominated in a currency other than the
functional currency for certain of its processing and trading operations.
This activity primarily relates to hedging against foreign currency risk in
purchasing inventory, capital equipment, sales of finished goods and future
settlement of foreign denominated assets and liabilities.
The following table presents one measure of market risk exposure using
sensitivity analysis for the company's processing operations. Sensitivity
analysis is the measurement of potential loss of fair value resulting from a
hypothetical change of 10% in exchange rates. Actual changes in exchange
rates may differ from hypothetical changes. Fair value was determined using
quoted exchange rates and was based on the company's net foreign currency
position at each quarter end during the fiscal year. The market risk exposure
analysis excludes the underlying foreign denominated transactions that are
being hedged. The currencies hedged have a high inverse correlation to
exchange rate changes of the foreign currency derivative instrument.
Effect of 10% Change in Exchange Rates
<Table>
<Caption>
DOLLARS IN MILLIONS 2002 2001
PROCESSING BUSINESSES
High $17.1 $13.3
Low 8.6 2.3
Average 13.7 9.6
- --------------------------------------------------------------------------------
</Table>
The market risk exposure related to the company's trading operations is not
material to the company's results of operations or financial position.
FORWARD-LOOKING STATEMENTS
Management's Discussion & Analysis contains 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. Future economic
circumstances, industry conditions, company performance and financial
results, availability and prices of raw materials, product pricing,
competitive environment and related market conditions, operating
efficiencies, access to capital, actions of governments and regulatory
factors affecting the company's businesses are examples of factors, among
others, that could cause results to differ materially from those described in
the forward-looking statements.
47 ConAgra Foods Annual Report
81
<Page>
CONSOLIDATED STATEMENTS OF EARNINGS
ConAgra Foods, Inc. and Subsidiaries
<Table>
<Caption>
For the fiscal years ended May
DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS 2002 2001 2000
Net sales $27,629.6 $27,100.5 $25,484.5
Costs and expenses
Cost of goods sold 23,536.5 23,311.7 22,182.9
Selling, general and administrative expenses 2,423.4 2,261.4 2,058.0
Interest expense 401.5 423.3 303.8
Restructuring/Impairment charges - - 322.2
--------- --------- ---------
26,361.4 25,996.4 24,866.9
--------- --------- ---------
Income before income taxes and cumulative effect of changes in accounting 1,268.2 1,104.1 617.6
Income taxes 483.2 421.6 235.3
--------- --------- ---------
Income before cumulative effect of changes in accounting 785.0 682.5 382.3
Cumulative effect of changes in accounting (2.0) (43.9) -
--------- --------- ---------
NET INCOME $ 783.0 $ 638.6 $ 382.3
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - BASIC
Income before cumulative effect of changes in accounting $ 1.48 $ 1.33 $ .80
Cumulative effect of changes in accounting - (.09) -
--------- --------- ---------
NET INCOME $ 1.48 $ 1.24 $ .80
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - DILUTED
Income before cumulative effect of changes in accounting $ 1.47 $ 1.33 $ .80
Cumulative effect of changes in accounting - (.09) -
--------- --------- ---------
NET INCOME $ 1.47 $ 1.24 $ .80
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
ConAgra Foods, Inc. and Subsidiaries
<Table>
<Caption>
For the fiscal years ended May
DOLLARS IN MILLIONS 2002 2001 2000
NET INCOME $ 783.0 $ 638.6 $ 382.3
Other comprehensive income (loss)
Cumulative effect of change in accounting (24.6) - -
Derivative adjustment, net 5.1 - -
Currency translation adjustment 3.0 (17.6) (37.2)
Minimum pension liability (15.3) - -
--------- --------- ----------
COMPREHENSIVE INCOME $ 751.2 $ 621.0 $ 345.1
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
48 ConAgra Foods Annual Report
82
<Page>
CONSOLIDATED BALANCE SHEETS
ConAgra Foods, Inc. and Subsidiaries
<Table>
<Caption>
MAY 26 May 27
DOLLARS IN MILLIONS 2002 2001
ASSETS
Current assets
Cash and cash equivalents $ 157.9 $ 198.1
Receivables, less allowance for doubtful accounts of $104.4 and $100.5 1,393.6 1,605.4
Inventories 4,304.7 5,071.4
Prepaid expenses and other current assets 577.7 487.7
--------- ---------
Total current assets 6,433.9 7,362.6
--------- ---------
Property, plant and equipment
Land and land improvements 308.6 286.3
Buildings, machinery and equipment 5,889.1 5,616.0
Furniture, fixtures, office equipment and other 671.4 640.3
Construction in progress 306.9 308.5
--------- ---------
7,176.0 6,851.1
Less accumulated depreciation (3,282.1) (2,966.4)
--------- ---------
Property, plant and equipment, net 3,893.9 3,884.7
--------- ---------
Brands, trademarks and goodwill, at cost less accumulated amortization of $1,027.5 and $878.7 4,747.6 4,840.2
Other assets 420.8 393.3
--------- ---------
$15,496.2 $16,480.8
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 30.9 $ 2,677.1
Current installments of long-term debt 209.0 123.1
Accounts payable 2,165.3 2,289.8
Advances on sales 374.8 349.0
Accrued payroll 316.4 249.7
Other accrued liabilities 1,217.0 1,246.9
--------- ---------
Total current liabilities 4,313.4 6,935.6
--------- ---------
Senior long-term debt, excluding current installments 4,991.6 3,359.5
Other noncurrent liabilities 955.9 927.5
Subordinated debt 752.1 750.0
Preferred securities of subsidiary company 175.0 525.0
Commitments and contingencies
Common stockholders' equity
Common stock of $5 par value, authorized 1,200,000,000 shares;
issued 565,509,607 and 565,337,949 2,827.5 2,826.7
Additional paid-in capital 737.2 682.5
Retained earnings 1,821.9 1,534.8
Accumulated other comprehensive income (loss) (152.5) (120.7)
Less treasury stock, at cost, common shares of 28,469,119 and 28,270,610 (676.8) (672.9)
--------- ---------
4,557.3 4,250.4
Less unearned restricted stock and value of 9,903,931 and 12,787,862
common shares held in Employee Equity Fund (249.1) (267.2)
--------- ---------
Total common stockholders' equity 4,308.2 3,983.2
--------- ---------
$15,496.2 $16,480.8
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
49 ConAgra Foods Annual Report
83
<Page>
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
ConAgra Foods, Inc. and Subsidiaries
<Table>
<Caption>
For the fiscal years ended May
Accumulated EEF*
Additional Other Stock
Common Common Paid-in Retained Comprehensive Treasury and
COLUMNAR AMOUNTS IN MILLIONS Shares Stock Capital Earnings Income/(loss) Stock Other Total
BALANCE AT MAY 30, 1999 519.6 $2,598.2 $ 219.4 $1,325.1 $ (65.9) $ (749.9) $ (462.8) $2,864.1
Stock option and incentive plans .5 2.4 11.8 (10.3) 31.3 35.2
Fair market valuation of EEF shares (70.0) 70.0 -
Shares issued for acquisitions 4.0 20.1 (13.7) 13.4 19.8
Currency translation adjustment (37.2) (37.2)
Dividends declared on
common stock, $.789 per share (375.5) (375.5)
Net income 382.3 382.3
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 28, 2000 524.1 2,620.7 147.5 1,345.3 (103.1) (760.2) (361.5) 2,888.7
Stock option and incentive plans .2 .9 (53.5) .1 87.3 39.6 74.4
Fair market valuation of EEF shares (54.7) 54.7 -
Shares issued for acquisitions 41.0 205.1 643.2 848.3
Currency translation adjustment (17.6) (17.6)
Dividends declared on
common stock, $.879 per share (449.2) (449.2)
Net income 638.6 638.6
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 27, 2001 565.3 2,826.7 682.5 1,534.8 (120.7) (672.9) (267.2) 3,983.2
Stock option and incentive plans .2 .8 26.7 .3 (3.9) 46.1 70.0
Fair market valuation of EEF shares 28.0 (28.0) -
Currency translation adjustment 3.0 3.0
Cumulative effect of change in
accounting (24.6) (24.6)
Derivative adjustment, net 5.1 5.1
Minimum pension liability (15.3) (15.3)
Retirement of subsidiary preferred
securities (6.7) (6.7)
Dividends declared on
common stock, $.930 per share (489.5) (489.5)
Net income 783.0 783.0
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 26, 2002 565.5 $2,827.5 $ 737.2 $1,821.9 $ (152.5) $ (676.8) $ (249.1) $4,308.2
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
* Employee Equity Fund (Note 12)
50 ConAgra Foods Annual Report
84
<Page>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ConAgra Foods, Inc. and Subsidiaries
<Table>
<Caption>
For the fiscal years ended May
DOLLARS IN MILLIONS 2002 2001 2000
Cash flows from operating activities
Net income $ 783.0 $ 638.6 $ 382.3
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 474.4 462.4 453.8
Goodwill and other amortization 148.8 130.5 82.7
Restructuring and other restructuring-related charges (including
accelerated depreciation) - - 621.4
Cumulative effect of changes in accounting 2.0 43.9 -
Other noncash items (includes nonpension postretirement benefits) 131.2 175.5 49.9
Change in assets and liabilities before effects from business
combinations
Receivables 169.5 (410.8) 69.9
Inventories and prepaid expenses 658.4 (597.3) (325.3)
Accounts payable and accrued liabilities (17.8) (318.2) (643.7)
-------- -------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES 2,349.5 124.6 691.0
-------- -------- --------
Cash flows from investing activities
Additions to property, plant and equipment (530.6) (559.7) (539.3)
Payment for business acquisitions (110.0) (1,107.2) (390.1)
Sale of businesses and property, plant and equipment 22.4 125.3 154.6
Notes receivable and other items 32.4 (26.5) (36.6)
-------- -------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES (585.8) (1,568.1) (811.4)
-------- -------- --------
Cash flows from financing activities
Net short-term borrowings (repayments) (2,646.2) 1,421.5 402.7
Proceeds from issuance of long-term debt 1,997.5 1,663.7 33.1
Repayment of long-term debt (300.4) (21.7) (32.6)
Changes in amounts sold under the accounts receivable securitization, net (53.1) (77.0) 165.0
Redemption of preferred securities of subsidiary (350.0) - -
Cash dividends paid (482.9) (429.2) (375.0)
Repayment of acquired company's debt - (1,114.3) -
Other items 31.2 41.0 22.0
-------- -------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES (1,803.9) 1,484.0 215.2
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40.2) 40.5 94.8
Cash and cash equivalents at beginning of year 198.1 157.6 62.8
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 157.9 $ 198.1 $ 157.6
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of the consolidated financial
statements.
51 ConAgra Foods Annual Report
85
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ConAgra Foods, Inc. and Subsidiaries
Years ended May 26, 2002, May 27, 2001, and May 28, 2000
COLUMNAR AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR - The fiscal year of ConAgra Foods, Inc. ("ConAgra Foods" or the
"company") ends the last Sunday in May. The fiscal years for the consolidated
financial statements presented consist of 52-week periods for fiscal years
2002, 2001 and 2000.
The accounts of two wholly-owned subsidiaries, ConAgra Fertilizer Company and
United Agri Products, Inc., have been consolidated on the basis of a year
ending in February. Such fiscal period corresponds with those companies'
natural business year.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of ConAgra Foods, Inc. and all majority-owned subsidiaries. The
investments in and the operating results of 50%-or-less-owned entities not
required to be consolidated are included in the financial statements on the
basis of the equity method of accounting. All significant intercompany
investments, accounts and transactions have been eliminated.
INVENTORIES - The company principally uses the lower of cost, determined
using the first-in, first-out method, or market for valuing inventories not
hedged. Grain, flour and major feed ingredient inventories are hedged to the
extent practicable and are principally stated at market, including adjustment
to market of open contracts for purchases and sales. Short-term interest
expense incurred to finance hedged inventories is included in cost of goods
sold in order to properly reflect gross profits on hedged transactions.
LONG-LIVED ASSETS AND INTANGIBLE ASSETS - Property, plant and equipment are
carried at cost. Depreciation has been calculated using primarily the
straight-line method over the estimated useful lives of the respective
classes of assets as follows:
<Table>
Land Improvements 1 - 40 years
Buildings 15 - 40 years
Machinery and equipment 5 - 20 years
Furniture, fixtures, office equipment and other 5 - 15 years
</Table>
Goodwill, brands and trademarks are amortized using the straight-line method,
principally over a period of 40 years.
The company assesses the recoverability of long-lived assets and associated
goodwill, as well as certain identifiable intangibles, whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. The company considers continued operating losses, or significant
and long-term changes in business conditions, to be its primary indicators of
potential impairment. When future undiscounted cash flows of assets are
estimated to be insufficient to recover their related carrying value, an
impairment loss is recognized based on the difference between the fair value
and carrying value of the assets.
Recoverability of goodwill not associated with long-lived assets is evaluated
based on management's estimates of future undiscounted operating profit
associated with the acquired business.
DERIVATIVE INSTRUMENTS - The company uses derivatives (e.g., futures and
options) for the purpose of hedging exposure to changes in commodity prices,
interest rates and foreign currency exchange rates. The fair value of each
derivative is recognized in the balance sheet within current assets or
current liabilities. Changes in the fair value of derivatives are recognized
immediately in the income statement for derivatives that do not qualify for
hedge accounting. For derivatives designated as a hedge and used to hedge an
existing asset or liability (e.g., inventory), both the derivative and hedged
item are recognized at fair value within the balance sheet with the changes
in both of these fair values being recognized immediately in the income
statement. For derivatives designated as a hedge and used to hedge an
anticipated transaction (e.g., future purchase of inventory), changes in the
fair value of the derivatives are deferred in the balance sheet within
accumulated other comprehensive income to the extent the hedge is effective
in mitigating the exposure to the related anticipated transaction. Any
ineffectiveness associated with the hedge is recognized immediately in the
income statement. Amounts deferred within accumulated other comprehensive
income are recognized in the income statement upon the completion of the
related hedged transaction.
FAIR VALUES OF FINANCIAL INSTRUMENTS - Unless otherwise specified, the
company believes 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. Such liabilities are adjusted as new information
52 ConAgra Foods Annual Report
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<Page>
develops or circumstances change. The company does not discount its
environmental liabilities as the timing of the anticipated cash payments is
not fixed or readily determinable.
EMPLOYMENT-RELATED BENEFITS - Employment-related benefits associated with
pensions, postretirement health care benefits and workers' compensation are
expensed as such benefits are earned by applicable employees. The recognition
of expense is significantly impacted by estimates made by management such as
discount rates used to value certain liabilities, future health costs
and employee accidents incurred but not yet reported. The company uses
third-party specialists to assist management in appropriately measuring the
expense associated with employment-related benefits.
REVENUE RECOGNITION - Revenue is recognized when title and risk of loss are
transferred to customers upon delivery based on terms of sale. Revenue is
recognized as the net amount to be received after deducting estimated amounts
for discounts, trade allowances and product returns.
NET SALES - Gross profits earned from commodity trading activities, which are
included in net sales, total $161.4 million, $278.6 million and $148.0 million
for fiscal 2002, 2001 and 2000, respectively.
Sales and cost of goods sold, if reported on a gross basis for these
activities, would be increased by $10.5 billion, $12.0 billion and $7.7
billion for fiscal 2002, 2001 and 2000, respectively.
MARKETING COSTS - The company incurs various types of marketing costs in
order to promote its products, including retailer incentives and consumer
incentives. The company expenses each of these types of marketing costs as
incurred. In addition, the company incurs advertising costs which are expensed
in the year incurred.
COMPREHENSIVE INCOME - Comprehensive income includes net income, currency
translation adjustments, certain derivative-related activity and changes in
the minimum pension liability. ConAgra Foods deems its foreign investments to
be permanent in nature and does not provide for taxes on currency translation
adjustments arising from converting the investment in a foreign currency to
U.S. dollars. There are no reclassification adjustments to be reported in
periods presented, with respect to foreign investments.
ACCOUNTING CHANGES - As of the beginning of the current fiscal year, the
company adopted Statement of Financial Accounting Standards ("SFAS") No. 133,
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES, and
its related amendment, SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES ("SFAS No. 133"). The adoption of
SFAS No. 133 resulted in a cumulative effect of an accounting change that
reduced net income by $2.0 million, and decreased accumulated other
comprehensive income by $24.6 million, net of tax.
Also in the first quarter of fiscal 2002, the company adopted Emerging Issues
Task Force ("EITF") Issue No. 00-25, VENDOR INCOME STATEMENT CHARACTERIZATION
OF CONSIDERATION PAID TO A RESELLER OF THE VENDOR'S PRODUCTS. As a result,
the company now classifies the costs associated with sales incentives
provided to retailers as a reduction in net sales; these costs were
previously included in selling, general and administrative expenses. All
periods presented reflect this reclassification. This reclassification had an
immaterial impact on net sales and no impact on income before income taxes
and cumulative effect of changes in accounting, net income or earnings per
share amounts.
In fiscal 2001, the company changed its methods of accounting for revenue
recognition relating to the shipping terms for certain of its product sales,
recognition of sales incentives granted to retailers and recognition of
consumer sales incentives, which resulted in a reduction of fiscal 2001 net
income of $43.9 million.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In July 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 141, BUSINESS
COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, which
establish accounting and reporting requirements for business combinations.
SFAS No. 141 requires all business combinations entered into subsequent to
June 30, 2001 to be accounted for using the purchase method of accounting.
SFAS No. 142 provides that goodwill and other intangible assets with
indefinite lives will not be amortized, but will be tested for impairment of
value on an annual basis. SFAS No. 142 is effective for fiscal years
beginning after Dec. 15, 2001. The company will adopt SFAS No. 142 at the
beginning of its fiscal 2003. The company believes the adoption of SFAS No. 142
will result in a diluted earnings per share increase of approximately $.15 for
fiscal 2003 as a result of the company discontinuing the amortization of
goodwill and other intangible assets with indefinite lives. As part of the
adoption of SFAS No. 142, the company is required to test goodwill and other
intangible assets for impairment at the beginning of fiscal 2003. The company
has not yet completed its assessment of the adoption impact, if any, of the
initial impairment test.
In August 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. This statement requires the company to recognize the
53 ConAgra Foods Annual Report
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<Page>
fair value of a liability associated with the cost the company would be
obligated to incur in order to retire an asset at some point in the future.
The liability would be recognized in the period in which it is incurred and
can be reasonably estimated. The standard is effective for fiscal years
beginning after June 15, 2002. The company expects to adopt this standard at
the beginning of its fiscal 2004. The company has not yet completed its
assessment of the anticipated adoption impact, if any, of SFAS No. 143.
Additionally, in October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR
THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 develops an
accounting model, based upon the framework established in SFAS No. 121, for
long-lived assets to be disposed of by sales. The accounting model applies to
all long-lived assets, including discontinued operations, and it replaces the
provisions of Accounting Principles Board ("APB") Opinion No. 30, REPORTING
RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A
BUSINESS AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND
TRANSACTIONS, for disposal of segments of a business. SFAS No. 144 requires
long-lived assets to be measured at the lower of carrying amount or fair
value less costs to sell, whether reported in continuing operations or in
discontinued operations. The statement is effective for fiscal years
beginning after Dec. 15, 2001. The company intends to adopt this standard
at the beginning of its fiscal 2003. The company believes the anticipated
adoption impact of SFAS No. 144 will not be material.
USE OF ESTIMATES - Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions. These estimates or assumptions affect reported
amounts of assets, liabilities, revenue and expenses as reflected in the
financial statements. Actual results could differ from estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to prior year
amounts to conform to current year classifications.
2. ACQUISITIONS AND DIVESTITURES
During the fourth quarter of fiscal 2002, the company announced that a
controlling interest in its fresh beef and pork business would be sold to a
joint venture with outside investors. Subsequent to the close of the
transaction, it is expected the company will retain a 46% interest in the
joint venture. In fiscal 2002, the fresh beef and pork business accounted for
approximately $7.7 billion, or 77%, of the company's Meat Processing reporting
segment net sales and $192 million, or 71%, of the company's Meat Processing
reporting segment operating profit.
On Aug. 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. The company
allocated the excess of the purchase price over the net assets acquired to
brands, trademarks and goodwill. Costs assigned to intangible assets arising
from the transaction are amortized on a straight-line basis over a period not
exceeding 40 years.
The following table summarizes the final fair value of the assets acquired
and liabilities assumed in connection with the company's acquisition of IHF:
<Table>
Current assets $ 627.4
Non-current assets (primarily brands and goodwill) 2,605.0
---------
TOTAL ASSETS ACQUIRED $ 3,232.4
---------
Current liabilities 368.0
Long-term debt 1,104.4
Other noncurrent liabilities 36.8
---------
TOTAL LIABILITIES ASSUMED $ 1,509.2
---------
Cash paid $ 875.0
Equity issued 848.2
---------
TOTAL NET ASSETS ACQUIRED $ 1,723.2
- -----------------------------------------------------------------------------
</Table>
The cash portion of the consideration paid was funded through borrowings
under the company's short-term credit facilities.
The company's unaudited pro forma results of operations for the fiscal years
end May 27, 2001, and May 28, 2000, assuming the acquisition of IHF occurred
as of the beginning of fiscal 2000 are as follows:
<Table>
<Caption>
2001 2000
Net sales $27,538.6 $27,318.6
Income before cumulative effect of
changes in accounting 690.3 397.8
Net income 646.4 397.8
Income before cumulative effect of
changes in accounting per share - diluted $ 1.31 $ .76
Net income per share - diluted $ 1.23 $ .76
- -----------------------------------------------------------------------------
</Table>
The pro forma results above are not necessarily indicative of the operating
results that would have actually occurred if the acquisition had been in
effect on the dates indicated, nor is it necessarily indicative of future
operating results of the combined companies.
In the third quarter of fiscal 2000, ConAgra Foods acquired the assets of
Seaboard Farms, the poultry division of Seaboard Corporation, for
approximately $360 million. Seaboard Farms produces and markets
54 ConAgra Foods Annual Report
88
<Page>
value-added poultry products primarily to foodservice customers and has
annual sales of approximately $480 million. The acquisition was accounted for
as a purchase, with the business acquired being included in the financial
statements subsequent to the date of acquisition.
3. CHANGES IN ACCOUNTING POLICY
As of the beginning of the current fiscal year, the company adopted SFAS No.
133, ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES,
and its related amendment, SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES ("SFAS No. 133").The adoption of
SFAS No. 133 resulted in a cumulative effect of change in accounting that
reduced net income by $2.0 million, and decreased accumulated other
comprehensive income by $24.6 million, net of tax. Other than such cumulative
effect,the effect of the change on income before cumulative effect of changes
in accounting for fiscal 2002 was not material. The pro forma effect of
retroactive application of SFAS No. 133 had this new standard been in effect
for the prior fiscal years presented was not material.
In the fourth quarter of fiscal 2001, the company changed its methods of
accounting for revenue recognition relating to the shipping terms for certain
of its product sales, recognition of sales incentives granted to retailers
and recognition of consumer sales incentives effective the beginning of
fiscal 2001.
The individual components of the cumulative effect of changes in accounting,
net of tax, as of the beginning of fiscal 2001 are as follows:
<Table>
Revenue recognition - shipping terms $15.6
Retailer sales incentives 17.5
Consumer sales incentives 10.8
-----
$43.9
- ----------------------------------------------------------------------------
</Table>
The $43.9 million cumulative effect of the changes in accounting for prior
years (after reduction for income taxes of $26.9 million) is included as a
reduction in income for fiscal 2001. Other than such cumulative effect, the
effect of the changes on fiscal 2001 was not material.
The following pro forma amounts reflect the effect of retroactive application
of the changes in methods of accounting had the new methods been in effect
for the fiscal years presented, including the related income tax impact:
<Table>
<Caption>
2001 2000
Net income $ 638.6 $ 376.2
Income per share - diluted $ 1.24 $ .79
- --------------------------------------------------------------------------
</Table>
4. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average
outstanding common shares. Diluted earnings per share is computed on the basis
of weighted average outstanding common shares plus equivalent shares assuming
exercise of stock options and conversion of outstanding convertible
securities, where dilutive.
The following table reconciles the income and average share amounts used to
compute both basic and diluted earnings per share:
<Table>
<Caption>
2002 2001 2000
NET INCOME
Income before cumulative effect
of changes in accounting $785.0 $682.5 $382.3
Cumulative effect of changes in
accounting (2.0) (43.9) -
------ ------ ------
Net income $783.0 $638.6 $382.3
Redemption of subsidiary
preferred securities, net of tax (6.7) - -
------ ------ ------
Income available to
common shareholders $776.3 $638.6 $382.3
- ----------------------------------------------------------------------------
EARNINGS PER SHARE - BASIC
Weighted average shares
outstanding 525.8 511.6 475.7
- ----------------------------------------------------------------------------
EARNINGS PER SHARE - DILUTED
Weighted average shares
outstanding - basic 525.8 511.6 475.7
Add shares contingently issuable
upon exercise of stock options 2.2 2.7 2.9
------ ------ ------
Weighted average shares
outstanding 528.0 514.3 478.6
- ----------------------------------------------------------------------------
</Table>
At the end of fiscal years 2002, 2001 and 2000, there were 7.4 million, 16.7
million and 16.2 million options outstanding, respectively, with exercise
prices exceeding the market value of common stock that were therefore
excluded from the computation of shares contingently issuable upon exercise
of the options.
5. RECEIVABLES
At May 26, 2002, the company had agreements to sell interests in pools of
receivables, in an amount not to exceed $875 million at any one time.
Participation interests in new receivables may be sold, as collections reduce
previously sold participation interests. The participation interests are sold
at a discount that is included in selling, general and administrative
expenses in the consolidated statements of earnings. During fiscal 2002, the
company sold interests in net new receivables approximating $166 million and
used $219 million of net
55 ConAgra Foods Annual Report
89
<Page>
additional collections to reduce the facilities from $737 million at fiscal
year end 2001 to $684 million at fiscal year end 2002.
On June 6, 2002, the company terminated an accounts receivable securitization
program with an availability of $325 million.
6. INVENTORIES
The major classes of inventories are as follows:
<Table>
<Caption>
2002 2001
Raw materials $1,280.2 $1,499.0
Food products and livestock 1,567.6 1,919.5
Agricultural chemicals, fertilizer, and feed 889.5 1,108.8
Other, principally ingredients and
packaging materials 567.4 544.1
-------- --------
$4,304.7 $5,071.4
- ----------------------------------------------------------------------------
</Table>
7. CREDIT FACILITIES AND BORROWINGS
At May 26, 2002, the company had credit lines from banks that totalled
approximately $2,757 million, including: $1,050 million of long-term
revolving credit facilities maturing in May 2007; $1,050 million of
short-term revolving credit facilities maturing in May 2003; and
uncompensated bankers' acceptance and money market loan facilities
approximating $657 million. Borrowings under the revolver agreements are at
or below prime rate and may be prepaid without penalty. The company pays fees
for its revolving credit facilities.
The company finances its short-term needs with bank borrowings, commercial
paper borrowings and bankers' acceptances. The average consolidated
short-term borrowings outstanding under these facilities were $2,005.7
million and $3,363.4 million for fiscal year 2002 and 2001, respectively.
This excludes an average of $27.0 million and $173.7 million of short-term
borrowings that were classified as long-term for fiscal 2002 and 2001,
respectively (see Note 8). The highest period-end, short-term indebtedness
during fiscal 2002 was $3,714.6 million and $4,585.7 million in fiscal 2001.
Short-term borrowings were at rates below prime. The weighted average
interest rate was 3.26% and 6.02%, respectively, for fiscal 2002 and 2001.
8. SENIOR LONG-TERM DEBT, SUBORDINATED DEBT AND LOAN AGREEMENTS
<Table>
<Caption>
2002 2001
Senior Debt
Commercial paper backed by long-term
revolving credit agreement $ - $ 175.3
8.25% senior debt due September 2030 297.7 297.6
7.00% senior debt due October 2028 396.8 396.7
6.70% senior debt due August 2027
(redeemable at option of holders in 2009) 300.0 300.0
7.125% senior debt due October 2026
(redeemable at option of holders in 2006) 398.0 397.9
7.875% senior debt due September 2010 747.8 747.5
9.875% senior debt due November 2005 102.2 100.0
7.5% senior debt due September 2005 607.3 598.9
5.50% senior debt due October 2002 199.9 199.6
9.87% to 9.95% unsecured senior notes
due in various amounts through 2009 30.5 39.4
8.1% to 9.0% publicly issued unsecured
medium-term notes due in various
amounts through 2004 12.0 117.0
Floating rate senior debt September 2003 500.0 -
6.0% senior debt due September 2006 504.5 -
6.75% senior debt due September 2011 1,000.1 -
1.65% to 9.28% Industrial Development
Revenue Bonds (collateralized by plant
and equipment) due on various dates
through 2019 37.6 45.3
Miscellaneous unsecured 66.2 67.4
--------- ---------
Total senior debt $ 5,200.6 $ 3,482.6
--------- ---------
Subordinated Debt
9.75% subordinated debt due March 2021 400.0 400.0
7.375% to 7.4% subordinated debt due
through 2005 352.1 350.0
--------- ---------
Total subordinated debt $ 752.1 $ 750.0
--------- ---------
Total debt $ 5,952.7 $ 4,232.6
Less current portion $ 209.0 $ 123.1
--------- ---------
Total long-term debt $ 5,743.7 $ 4,109.5
- -------------------------------------------------------------------------------
</Table>
The aggregate minimum principal maturities of the long-term debt for each of
the five fiscal years following May 26, 2002, are as follows:
<Table>
2003 $ 209.0
2004 509.1
2005 374.3
2006 709.1
2007 509.6
- --------------------------------------------
</Table>
Under the long-term credit facility referenced in Note 7, the company has
agreements that allow it to borrow up to $1,050 million through May 2007.
56 ConAgra Foods Annual Report
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<Page>
The most restrictive note agreements (the revolving credit facilities and
certain privately placed long-term debt) require the company to repay the
debt if consolidated funded debt exceeds 65% of consolidated capital base or
if fixed charges coverage is less than 1.75 to 1.0 as such terms are defined
in applicable agreements. As of the end of fiscal 2002, the company's
consolidated funded debt was approximately 56% of its consolidated capital
base and the fixed charges ratio was approximately 3.5 to 1.0.
Net interest expense consists of:
<Table>
<Caption>
2002 2001 2000
Long-term debt $364.3 $284.8 $198.4
Short-term debt 66.7 182.1 139.5
Interest income (23.5) (38.5) (28.6)
Interest capitalized (6.0) (5.1) (5.5)
------ ------ ------
$401.5 $423.3 $303.8
- -------------------------------------------------------------------------
</Table>
Net interest paid was $387.0 million, $392.7 million and $299.9 million in
fiscal 2002, 2001 and 2000, respectively.
Short-term debt interest expense of $20.8 million, $35.0 million and $31.4
million in fiscal 2002, 2001 and 2000, respectively, incurred to finance
hedged inventories has been charged to cost of goods sold.
The carrying amount of long-term debt (including current installments) was
$5,952.7 million and $4,232.6 million as of May 26, 2002 and May 27, 2001,
respectively. Based on current market rates primarily provided by outside
investment bankers, the fair value of this debt at May 26, 2002 and May 27,
2001 was estimated at $6,400.2 million and $4,324.7 million, respectively.
The company's long-term debt is generally not callable until maturity.
9. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of:
<Table>
<Caption>
2002 2001
Legal and environmental liabilities primarily
associated with the company's acquisition
of Beatrice Company (see note 17) $ 136.9 $140.1
Postretirement health care and pensions 668.4 631.6
Deferred taxes 154.4 150.2
Other 64.8 71.5
-------- ------
1,024.5 993.4
Less current portion 68.6 65.9
-------- ------
$ 955.9 $927.5
- -----------------------------------------------------------------------------
</Table>
10. PREFERRED SECURITIES OF SUBSIDIARY COMPANY
ConAgra Capital, L.C., an indirectly controlled subsidiary of the company
(ConAgra Foods indirectly owns 100% of the voting securities), has 7 million
shares of Series B Adjustable Rate Cumulative Preferred ("Series B
Securities") outstanding. Distributions on these Series B Securities are
payable monthly at a rate per annum, which is adjusted quarterly to 95% of
the highest of three U.S. Treasury security indices, subject to a floor of
5.0% and a ceiling of 10.5% per annum. The distribution rate in fiscal 2002
ranged from 5.0% to 5.5%.
For financial statement purposes, distributions on the Series B Securities
are included in selling, general and administrative expenses in the company's
consolidated statements of earnings as such amounts represent minority
interests.
The Series B Securities were issued at a price of $25 per share. Series B
Securities are non-voting (except in certain limited circumstances), and are
fully and unconditionally guaranteed (as provided in the guarantee documents)
by ConAgra Foods and, in certain limited circumstances, are exchangeable for
debt securities of ConAgra Foods. The Series B Securities are redeemable at
the option of ConAgra Capital, L.C. (with ConAgra Foods consent) in whole or in
part, at $25 per security plus accumulated and unpaid distributions to the
date fixed for redemption.
During fiscal 2002, the company's finance subsidiary, ConAgra Capital, L.C.,
redeemed all 4,000,000 shares of its 9% Series A Cumulative Preferred
Securities and all 10,000,000 shares of its 9.35% Series C Cumulative
Preferred Securities. The company used approximately $350 million of
short-term debt to fund the redemption of the preferred securities. The
redemption resulted in an earnings per share charge of approximately $.01 in
fiscal 2002.
11. CAPITAL STOCK
The company has authorized shares of preferred stock as follows:
Class B - $50 par value; 150,000 shares
Class C - $100 par value; 250,000 shares
Class D - without par value; 1,100,000 shares
Class E - without par value; 16,550,000 shares
There were no preferred shares issued or outstanding as of May 26, 2002.
57 ConAgra Foods Annual Report
91
<Page>
12. EMPLOYEE EQUITY FUND
In fiscal 1993, the company established a $700 million Employee Equity Fund
("EEF"), a grantor trust, to pre-fund future stock-related obligations of the
company's compensation and benefit plans. The EEF supports existing,
previously approved employee plans that use ConAgra Foods common stock.
For financial reporting purposes the EEF is consolidated with ConAgra Foods.
The fair market value of the shares held by the EEF is shown as a reduction
to common stockholders' equity in the company's consolidated balance sheets.
All dividends and interest transactions between the EEF and ConAgra Foods are
eliminated. Differences between cost and fair value of shares held and/or
released are included in consolidated additional paid-in capital.
Following is a summary of shares held by the EEF:
<Table>
<Caption>
2002 2001
Shares held (in millions) 9.9 12.6
Cost - per share $ 14.552 $ 14.552
Cost - total 144.3 183.9
Fair market value - per share $ 24.76 $ 20.27
Fair market value - total 245.5 256.1
- -----------------------------------------------------------------------------
</Table>
13. STOCK OPTIONS AND RIGHTS
Stock option plans approved by the stockholders provide for granting of
options to employees for purchase of common stock generally at prices equal
to fair market value at the time of grant, and for issuance of stock under
various stock-based compensation arrangements including restricted stock,
phantom stock and stock issued in lieu of cash bonuses. Under each
arrangement, stock is issued without direct cost to the employee. During
fiscal 2002, 2001 and 2000, respectively, the company issued shares and share
equivalents totaling 1.0 million, 1.2 million and .8 million under these
arrangements. Stock issued in lieu of cash bonus is recognized as
compensation expense as earned. The value of the restricted and phantom
stock, equal to fair market value at the time of grant, is being amortized as
compensation expense over the vesting period. This compensation expense
totaled $8.5 million, $7.3 million and $5.4 million for fiscal 2002, 2001 and
2000, respectively. At May 26, 2002, the amount of deferred stock-based
compensation granted but to be recognized over future periods totaled $18.3
million.
Options become exercisable under various vesting schedules and generally
expire ten years after the date of grant. Option shares and prices are
adjusted for common stock splits and changes in capitalization.
The changes in the outstanding stock options during the three years ended May
26, 2002, are summarized below:
<Table>
<Caption>
2002 2001 2000
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
OPTIONS PRICE Options Price Options Price
Beginning of year 28.8 $22.80 25.6 $23.30 23.5 $22.86
Granted 7.3 22.04 11.6 15.76 6.0 23.35
Exercised (2.3) 16.23 (6.1) 10.89 (1.8) 13.41
Canceled (1.9) 24.63 (2.3) 24.27 (2.1) 27.20
End of year 31.9 $22.97 28.8 $22.80 25.6 $23.30
Exercisable
at end of year 20.3 $23.49 18.7 $22.63 16.2 $21.56
- -----------------------------------------------------------------------------------
</Table>
Options granted for fiscal 2001 include approximately 5 million options at an
average exercise price of $10.00 issued in conjunction with the acquisition
of IHF.
The following summarizes information about stock options outstanding as of
May 26, 2002:
<Table>
<caption>
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Exercise Price Options Life Price Options Price
$ 4.87 - $12.69 .9 1.8 $11.80 .9 $11.80
13.00 - 20.00 7.7 5.5 18.59 5.6 18.13
20.06 - 23.50 13.7 8.4 22.13 5.4 22.31
24.19 - 29.00 6.5 5.8 26.38 5.4 26.25
29.50 - 36.81 3.1 5.4 33.69 3.0 33.70
$ 4.87 - $36.81 31.9 6.7 $22.97 20.3 $23.49
- --------------------------------------------------------------------------------
</Table>
The company has elected to account for its employee stock option plans using
the intrinsic value method of accounting. Accordingly, no compensation expense
is recognized for stock options as the exercise price of the stock options
equals the market price of the underlying stock on the date of the grant.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, assuming the
company accounted for its employee stock options using the fair value method.
The fair value of options was estimated at the date of the grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 2002, 2001 and 2000, respectively: risk-free interest rate of
4.52%, 5.17% and 6.33%; a dividend yield of 3.9%, 2.4% and 2.2%; expected
volatility of 29.0%, 29.0% and 20.6%; and an expected option life of six
years. The weighted average fair value of options granted in fiscal 2002,
2001 and
58 ConAgra Foods Annual Report
92
<Page>
2000 was $5.08, $5.75 and $6.21, respectively. Pro forma net income and
earnings per share are as follows:
<Table>
<Caption>
2002 2001 2000
Pro forma net income $765.4 $621.1 $362.7
Pro forma basic earnings per share 1.44 1.21 .76
Basic earnings per share - as reported 1.48 1.24 .80
Pro forma diluted earnings per share 1.44 1.21 .76
Diluted earnings per share - as reported 1.47 1.24 .80
- --------------------------------------------------------------------------
</Table>
At May 26, 2002, approximately 22.7 million shares were reserved for granting
additional options and restricted or bonus stock awards.
Each share of common stock carries with it one-half preferred stock purchase
right ("Right"). The Rights become exercisable 10 days after a person (an
"Acquiring Person") acquires or commences a tender offer for 15% or more of
the company's common stock. Each Right entitles the holder to purchase one
one-thousandth of a share of a new series of Class E Preferred Stock at an
exercise price of $200, subject to adjustment. The Rights expire on July 12,
2006, and may be redeemed at the option of the company at $.01 per Right,
subject to adjustment. Under certain circumstances, if (i) any person becomes
an Acquiring Person or (ii) the company is acquired in a merger or other
business combination after a person becomes an Acquiring Person, each holder
of a Right (other than the Acquiring Person) will have the right to receive,
upon exercise of the Right, shares of common stock (of the Company under (i)
and of the acquiring company under (ii)) having a value of twice the exercise
price of the Right. The Rights were issued pursuant to a dividend declared by
the company's Board of Directors on July 12, 1996, payable to stockholders of
record on July 24, 1996. The one Right for each outstanding share was
adjusted to one-half Right for each share effective October 1, 1997 as a
result of the two-for-one stock split. At May 26, 2002, the company has
reserved one million Class E preferred shares for exercise of the Rights.
14. 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 improvement and expense reductions. As part of this
restructuring plan, the company reduced the estimated useful lives of certain
assets, resulting in $139.1 million ($86.0 million net of tax) of accelerated
depreciation in fiscal 2000. The impact of such accelerated depreciation on
both basic and diluted earnings per share was $.18 for fiscal 2000.
Fiscal 2000 charges are as follows:
<Table>
<Caption>
Packaged Food Meat Agricultural
Foods Ingredients Processing Products Total
Accelerated depreciation $ 137.9 $ - $ 1.2 $ - $ 139.1
Inventory markdowns 56.8 27.5 .6 29.6 114.5
Restructuring plan
implementation costs 30.8 1.9 9.0 3.9 45.6
Restructuring/Impairment
charges 121.3 29.5 119.9 51.5 322.2
------- ------ ------- ------ -------
Total $ 346.8 $ 58.9 $ 130.7 $ 85.0 $ 621.4
- --------------------------------------------------------------------------------------
</Table>
The fiscal 2000 charges are reflected in the company's consolidated
statements of earnings as follows: accelerated depreciation of $108.3 million
and $30.8 million is included in cost of goods sold and selling, general and
administrative expenses, respectively; inventory markdowns are included in
cost of goods sold; plan implementation costs (primarily third-party
consulting costs) are also included in selling, general and administrative
expenses. For fiscal 2000, restructuring/impairment charges are reflected as
such and result from asset impairments, employee related costs and
contractual termination costs.
Included in fiscal 2000 consolidated statements of earnings are asset
impairment charges of approximately $213.5 million. Fiscal 2000 asset
impairment charges include $171.4 million in write-downs of property, plant
and equipment and $42.1 million in reductions of intangible and other assets.
Accelerated depreciation is a result of not immediately removing from
operations certain assets to be disposed of and depreciating these assets
over their revised remaining estimated useful lives. Inventory markdowns
represent losses on the carrying value of non-strategic inventory resulting
from the closure of facilities and discontinuation of certain products.
In association with the restructuring plan, the company closed a total of 31
production facilities, 106 non-production locations (e.g., storage,
distribution, administrative, etc.) and sold 18 non-core businesses. The
historical operating results and gains/losses associated with sold businesses
or facilities were not material.
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:
59 ConAgra Foods Annual Report
93
<Page>
<Table>
<Caption>
Severance Other Exit
IN MILLIONS, EXCEPT HEADCOUNT Amount Headcount Costs
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 (31.0) (2,800) (28.1)
------ ------ -------
Balance, May 27, 2001 $ 21.5 400 $8.6
Fiscal 2002 activity:
Utilized (11.1) (300) (3.8)
------ ------ -------
Balance, May 26, 2002 $ 10.4 100 $ 4.8
- --------------------------------------------------------------------------------
</Table>
Included in the May 26, 2002 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.
15. PRE-TAX INCOME AND INCOME TAXES
Income before income taxes and cumulative effect of changes in accounting
consisted of the following:
<Table>
<Caption>
2002 2001 2000
United States $1,189.2 $1,010.6 $ 541.5
Foreign 79.0 93.5 76.1
$1,268.2 $1,104.1 $ 617.6
- ------------------------------------------------------------------------
</Table>
The provision for income taxes includes the following:
<Table>
<Caption>
2002 2001 2000
Current
Federal $ 276.8 $ 299.3 $ 255.6
State 29.3 30.9 22.5
Foreign 32.1 40.4 33.3
------- ------- -------
$ 338.2 $ 370.6 $ 311.4
------- ------- -------
Deferred
Federal 131.9 46.4 (70.1)
State 13.1 4.6 (6.0)
------- ------- -------
145.0 51.0 (76.1)
------- ------- -------
$ 483.2 $ 421.6 $ 235.3
- -----------------------------------------------------------------------
</Table>
Income taxes computed by applying statutory rates to income before income
taxes are reconciled to the provision for income taxes set forth in the
consolidated statements of earnings as follows:
<Table>
<Caption>
2002 2001 2000
Computed U.S. federal
income taxes $443.9 $386.4 $216.2
State income taxes, net of
U.S. federal tax benefit 27.6 23.1 11.0
Nondeductible amortization of
goodwill and other intangibles 27.8 24.7 18.1
Export and jobs tax credits (16.0) (20.4) (19.2)
Other (.1) 7.8 9.2
------ ------ ------
$483.2 $421.6 $235.3
- --------------------------------------------------------------------------
</Table>
Income taxes paid were $310.4 million, $268.4 million, $441.5 million in
fiscal 2002, 2001 and 2000, respectively. The Internal Revenue Service has
closed examinations of the company's tax returns through fiscal 1995. Certain
tax authorities have proposed adjustments for later years, some of which are
being contested by the company. The company believes that it has made adequate
provisions for income taxes payable.
The tax effect of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
<Table>
<Caption>
2002 2001
ASSETS LIABILITIES Assets Liabilities
Depreciation and
amortization $ - $489.0 $ - $532.7
Pension and other
postretirement benefits 211.8 - 208.1 -
Other noncurrent liabilities
which will give rise to
future tax deductions 173.8 - 148.4 -
Accrued expenses 69.4 - 58.5 -
Restructuring/Impairment
and restructuring-related
charges 203.6 - 262.4 -
Other 98.9 67.0 76.0 28.8
------- ------ ------- ------
$ 757.5 $556.0 $ 753.4 $561.5
- -----------------------------------------------------------------------------
</Table>
16. COMMITMENTS
The company leases certain facilities and transportation equipment under
agreements that expire at various dates. Rent expense under all operating
leases was $307.3 million, $286.9 million and $286.9 million in fiscal 2002,
2001 and 2000, respectively.
A summary of noncancelable operating lease commitments for fiscal years
following May 26, 2002, is as follows:
60 ConAgra Foods Annual Report
94
<Page>
<Table>
2003 $121.1
2004 98.3
2005 77.5
2006 58.0
2007 78.3
Later years 306.5
------
$739.7
- -----------------------------------------
</Table>
The company had letters of credit, performance bonds and other commitments and
guarantees outstanding at May 26, 2002, aggregating to $101.3 million.
ConAgra Foods enters into many lease agreements for land, buildings, and
equipment at competitive market rates, and some of the lease arrangements are
with Opus Corporation or its affiliates ("Opus"). A member of the company's
board of directors is a beneficial owner and director of Opus. The agreements
with Opus relate to the leasing of land and buildings for ConAgra Foods.
ConAgra Foods occupies the buildings pursuant to long-term leases with Opus,
some of which contain various termination rights and purchase options. Leases
effective in fiscal 2002 require annual lease payments by ConAgra Foods of
approximately $19 million.
ConAgra Foods has leased or expects to lease additional facilities, which are
under construction or recently completed, in fiscal 2003 from Opus with annual
lease payments of approximately $2.4 million. The lease payments will include
the lessor's borrowing costs for construction funds. In fiscal 2002, ConAgra
Foods provided construction financing at the company's short term borrowing
rates which were lower rates than the lessor would obtain from other lending
sources. The construction financing for each facility is provided for a period
of less than a year, secured by a mortgage on the facility, and repaid in full
to the company following the commencement of the lease. During fiscal 2002,
the construction financing provided by the company to Opus totaled
approximately $41 million.
17. 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 32
Superfund, proposed Superfund or state-equivalent sites; these sites involve
locations previously owned or operated by predecessors of Beatrice that used
or produced petroleum, pesticides, fertilizers, dyes, inks, solvents, PCBs,
acids, lead, sulfur, tannery wastes, and/or other contaminants. Beatrice has
paid or is in the process of paying its liability share at 31 of these sites.
Adequate 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 reserves for
Beatrice environmental matters totaled $119.3 million as of May 26, 2002, and
$123.0 million as of May 27, 2001, a majority of which relates to the
Superfund and state equivalent sites referenced above. Expenditures for these
matters are expected to occur over a period of 5 to 20 years.
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.
18. DERIVATIVE FINANCIAL INSTRUMENTS
The company is exposed to market risk, such as changes in commodity prices,
foreign currency exchange rates and interest rates. To manage volatility
associated with these exposures, the company may enter into various derivative
transactions pursuant to established company policies.
COMMODITY PRICE MANAGEMENT - The company is subject to raw material price
fluctuations caused by supply conditions, weather, economic conditions and
other factors. Generally, the company utilizes commodity futures and options
contracts to reduce the volatility of commodity input prices on items such as
grains, vegetable oils, livestock and energy.
Futures and options contracts qualifying for hedge accounting and used to
hedge anticipated transactions are designated as cash flow hedges with gains
and losses deferred in accumulated other comprehensive income, to the extent
the hedge is effective. These amounts are recognized within cost of goods sold
in the period during which the hedged transaction affects earnings. Any hedge
gain or loss deemed ineffective, as well as gains or losses on contracts for
which the company does not qualify, or elects not to qualify, for hedge
accounting, are immediately recognized within sales or cost of goods sold.
FOREIGN CURRENCY MANAGEMENT - In order to reduce exposures related to changes
in foreign currency exchange rates, the company may enter into forward
exchange or option contracts for transactions denominated in a currency other
61 ConAgra Foods Annual Report
95
<Page>
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.
Hedges of anticipated foreign-denominated transactions are designated as cash
flow hedges. The gains and losses associated with these hedges are deferred in
accumulated other comprehensive income until the forecasted transaction
impacts earnings. Forward exchange and option contracts are also used to hedge
firm commitment transactions denominated in a currency other than the
applicable functional currency. The firm commitments and foreign currency
hedges are both recognized at fair value within prepaid expenses and other
current assets. Gains and losses associated with firm commitment and foreign
currency hedges are recognized within net sales. Foreign currency derivatives
for which the company has elected not to account for under hedge accounting
are recorded immediately in earnings within sales, cost of goods sold or
selling, general and administrative expenses, depending on the nature of the
transaction.
INTEREST RATE MANAGEMENT - In order to reduce exposures related to changes in
interest rates, the company may use derivative instruments, including interest
rate swaps. As of May 26, 2002, the company had interest rate swap agreements
outstanding, effectively converting $2 billion of the company's fixed rate
debt into floating rate debt. The interest rate swaps are accounted for as
fair value hedges and result in no ineffectiveness being recognized in the
income statement as the interest rate swaps' provisions match the applicable
provisions of the hedged debt.
ADDITIONAL DERIVATIVE INFORMATION - 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. As of May 26, 2002, the fair value of derivatives recognized
within prepaid expenses and other current assets was $108.7 million and the
amount recognized within other accrued liabilities was $35.4 million.
For fiscal 2002, the ineffectiveness associated with derivatives designated
as both cash flow and fair value hedges was a loss of $5.9 million. Hedge
ineffectiveness is recognized within net sales or cost of goods
sold, depending on the nature of the hedge. The company does not exclude any
components of the hedging instrument's gain or loss when assessing
effectiveness.
Generally, the company hedges a portion of its anticipated consumption of
commodity inputs for periods up to 12 months. The company may enter into
longer-term hedges on particular commodities if deemed appropriate. As of May
26, 2002, the company had hedged certain portions of its anticipated
consumption of commodity inputs through March 2005.
As of May 26, 2002, the net deferred loss recognized in accumulated other
comprehensive income was $19.5 million, net of tax, which includes the impact
of the cumulative effect of change in accounting principle. Of this amount,
$10.5 million, net of tax, will be recognized within earnings over the next
12 months. For fiscal 2002, a net of tax $19.5 million loss was recognized
from accumulated other comprehensive income into earnings. No cash flow
hedges or firm commitments were discontinued during fiscal 2002.
19. PENSION AND POSTRETIREMENT BENEFITS
Due to the long-term nature of pension and postretirement benefit
obligations, applicable accounting literature requires the use of many
assumptions in measuring the related expenses and obligations. Assumptions
such as discount rates used to value liabilities, estimated returns
on plan assets, future salary increases and future health costs are all
inherent in measuring the liabilities and expenses associated with the
company's pension and postretirement benefit plans. The company works with
third-party specialists to assist management in determining reasonable
assumptions in order to appropriately measure the expense and liabilities
associated with pension and postretirement benefits.
RETIREMENT PENSION PLANS
The company and its subsidiaries have defined benefit retirement plans
("Plan") 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. The company funds these plans in accordance with the minimum
and maximum limits established by law.
Components of pension benefit costs and weighted average actuarial
assumptions are:
62 ConAgra Foods Annual Report
96
<Page>
<Table>
<Caption>
2002 2001 2000
PENSION BENEFIT COST
Service cost $ 59.6 $ 52.3 $ 55.7
Interest cost 115.1 109.7 103.2
Expected return on plan assets (136.0) (126.3) (114.6)
Amortization of prior
service costs 4.3 4.3 4.3
Amortization of transition
obligation (asset) (2.8) (2.7) (2.7)
Recognized net actuarial (gain) loss (3.9) (0.1) 3.4
Curtailment (gain) loss and
special benefits 0.2 0.3 3.3
------- ------- -------
Pension benefit cost -
company plans 36.5 37.5 52.6
Pension benefit cost -
multi-employer plans 7.3 8.9 9.4
------- ------- -------
Total pension benefit cost $ 43.8 $ 46.4 $ 62.0
------- ------- -------
ACTUARIAL ASSUMPTIONS
Discount rate 7.50% 7.50% 6.75%
Long-term rate of return on
plan assets 9.25% 9.25% 9.25%
Long-term rate of compensation
increase 5.50% 5.50% 5.50%
- -----------------------------------------------------------------------------
</Table>
The change in projected benefit obligation,change in plan assets and funded
status of the plans at Feb. 28, 2002 and 2001:
<Table>
<Caption>
2002 2001
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at
beginning of year $1,575.8 $1,489.2
Service cost 59.6 52.3
Interest cost 115.1 109.7
Plan participants' contributions 0.1 0.1
Amendments 3.9 3.1
Actuarial (gain) loss 45.0 (11.0)
Curtailment/Settlement (gain) loss (0.6) 0.3
Acquisitions - 19.3
Other 0.6 -
Benefits paid (90.4) (87.2)
-------- --------
Projected benefit obligation at
end of year $1,709.1 $1,575.8
</Table>
<Table>
<Caption>
2002 2001
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year $1,643.7 $1,652.1
Actual return on plan assets (18.6) 49.7
Employer contributions 14.1 20.9
Plan participants' contributions 0.1 0.1
Investment and administrative expenses (13.8) (10.3)
Acquisitions - 18.5
Other (0.2) (0.1)
Benefits paid (90.4) (87.2)
-------- --------
Fair value of plan assets at end of year 1,534.9 1,643.7
- ----------------------------------------------------------------------------
FUNDED STATUS (174.2) 67.9
Unrecognized actuarial gain (66.7) (279.5)
Unrecognized prior service cost 25.7 21.6
Unrecognized transition amount (1.0) (3.8)
-------- --------
Accrued benefit cost $ (216.2) $ (193.8)
- ----------------------------------------------------------------------------
AMOUNTS RECOGNIZED IN
CONSOLIDATED BALANCE SHEETS
Prepaid benefit cost $ 6.7 $ -
Accrued benefit cost (257.9) (193.8)
Intangible asset 10.4 -
Accumulated other comprehensive (income) loss 24.6 -
-------- --------
NET AMOUNT RECOGNIZED $ (216.2) $ (193.8)
- ----------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
Discount rate 7.25% 7.50%
Long-term rate of compensation increase 5.50% 5.50%
- -------------------------------------------------------------------------------
</Table>
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 Feb. 28, 2002 and Feb. 28, 2001 were:
<Table>
<Caption>
2002 2001
Projected benefit obligation $343.4 $142.2
Accumulated benefit obligation 309.1 131.5
Fair value of plan assets 231.2 65.0
- ----------------------------------------------------------------------------
</Table>
Plan assets are primarily invested in equity securities, corporate and
government debt securities and common trust funds. Included in plan assets
are 5.1 million shares of the company's common stock at a fair market value
of $118.9 million and $100.0 million at Feb. 28, 2002 and Feb. 28,
2001, respectively.
Certain employees of the company are covered under defined contribution
plans. The expense related to these plans was $33.2 million, $30.2 million
and $31.1 million in fiscal 2002, 2001 and 2000, respectively.
POSTRETIREMENT BENEFITS
The company's postretirement plans provide certain medical and dental
benefits to qualifying U.S. employees.
63 ConAgra Foods Annual Report
97
<Page>
Components of postretirement benefit costs and weighted average actuarial
assumptions are:
<Table>
<Caption>
2002 2001 2000
POSTRETIREMENT BENEFIT COST
Service cost $ 3.0 $ 2.8 $ 2.8
Interest cost 25.2 24.1 22.1
Expected return on plan assets (0.6) (0.6) (0.5)
Amortization of prior service cost - (1.7) (2.1)
Amortization of transition obligation - 0.1 0.1
Recognized net actuarial (gain) loss (4.0) (5.5) (3.8)
Curtailment (gain) loss 0.3 - (9.3)
------- ------- -------
$ 23.9 $ 19.2 $ 9.3
- ----------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
Discount rate 7.50% 7.50% 6.75%
Long-term rate of return on
plan assets 13.70% 13.70% 13.70%
</Table>
Included in the company's postretirement plan assets are guaranteed
investment contracts ("GICs") entered into in 1981 which provide guaranteed
double-digit returns.
The change in accumulated benefit obligation, change in plan assets and
funded status of the plans at Feb. 28, 2002 and Feb. 28, 2001 were:
<Table>
<Caption>
2002 2001
CHANGE IN ACCUMULATED BENEFIT OBLIGATION
Accumulated benefit obligation at
beginning of year $ 351.7 $ 315.3
Service cost 3.0 2.8
Interest cost 25.2 24.1
Plan participants' contributions 2.8 2.4
Actuarial (gain) loss 46.7 19.8
Acquisition - 26.1
Benefits paid (42.2) (37.5)
Plan amendments (5.3) (1.3)
-------- --------
Accumulated benefit obligation at end
of year $ 381.9 $ 351.7
-------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 5.1 $ 5.1
Actual return on plan assets 0.6 0.6
Employer contributions 38.4 34.5
Plan participants' contributions 2.8 2.4
Benefits paid (42.2) (37.5)
-------- --------
Fair value of plan assets at end of year 4.7 5.1
-------- --------
FUNDED STATUS (377.2) (346.6)
Unrecognized net gain (27.5) (78.9)
Unrecognized transition amount - -
Unrecognized prior service cost (5.8) (0.2)
-------- --------
Accrued benefit cost $ (410.5) $ (425.7)
- --------------------------------------------------------------------------
ACTUARIAL ASSUMPTIONS
Discount rate 7.25% 7.50%
</Table>
Benefit costs were generally estimated assuming retiree health care costs
would increase 7.5%, 6.5% and 5.5% in fiscal 2003, 2004 and thereafter,
respectively.
A one percentage point change in assumed health care cost rates would have
the following effect:
<Table>
<Caption>
One Percent One Percent
Increase Decrease
Total service and interest cost components $ 2.9 $ (2.6)
Postretirement benefit obligation 31.5 (27.8)
- --------------------------------------------------------------------------
</Table>
The company generally intends to fund claims as reported.
20. BUSINESS SEGMENTS AND RELATED INFORMATION
The company has changed its reporting segments to reflect how the company now
manages its operations. Previously, the company's reporting segments were
Packaged Foods, Refrigerated Foods and Agricultural Products. The new reporting
segments are Packaged Foods, Food Ingredients, Meat Processing and Agricultural
Products. As a result, (1) the company's branded processed meats operations,
previously included in Refrigerated Foods, are now included in Packaged
Foods; (2) the remaining operations within the Refrigerated Foods segment now
make up the Meat Processing reporting segment; and (3) the company's food
ingredients operations, previously included in Agricultural Products, are
reported separately. The company has reclassified the segment information for
fiscal 2001 and 2000 to conform to the current fiscal year presentation.
The company's operations are aggregated into four 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 the company's shelf-stable,
frozen and refrigerated foods which are processed and packaged. Meat
Processing includes operations that process beef, pork and poultry. Both the
Packaged Foods and Meat Processing reporting segments market food products in
retail and foodservice channels. Food Ingredients includes the company's
non-grain-based ingredients, such as processed seasonings, blends and
flavorings as well as grain-based items which are processed for ingredient
use. Agricultural Products includes operations involved in the distribution
of agricultural crop inputs as well as the company's agricultural
products/merchandising operations.
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. General corporate
expense, goodwill amortization, interest expense and income taxes have been
excluded from segment operations.
64 ConAgra Foods Annual Report
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<Page>
<Table>
<Caption>
2002 2001 2000
Sales to unaffiliated customers
Packaged Foods $ 12,363.8 $ 11,367.8 $ 10,209.7
Food Ingredients 1,669.0 1,664.7 1,707.3
Meat Processing 10,023.5 10,432.2 10,233.0
Agricultural Products 3,573.3 3,635.8 3,334.5
---------- ---------- ----------
Total $ 27,629.6 $ 27,100.5 $ 25,484.5
- -----------------------------------------------------------------------------------------------------------------------
Intersegment sales
Packaged Foods $ 32.8 $ 40.4 $ 38.6
Food Ingredients 234.5 260.0 242.8
Meat Processing 781.3 645.0 647.8
Agricultural Products 37.6 46.2 211.2
---------- ---------- ----------
1,086.2 991.6 1,140.4
Intersegment elimination (1,086.2) (991.6) (1,140.4)
---------- ---------- ----------
Total $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
Net sales
Packaged Foods $ 12,396.6 $ 11,408.2 $ 10,248.3
Food Ingredients 1,903.5 1,924.7 1,950.1
Meat Processing 10,804.8 11,077.2 10,880.8
Agricultural Products 3,610.9 3,682.0 3,545.7
Intersegment elimination (1,086.2) (991.6) (1,140.4)
---------- ---------- ----------
Total $ 27,629.6 $ 27,100.5 $ 25,484.5
- -----------------------------------------------------------------------------------------------------------------------
Operating profit (Note a)
Packaged Foods $ 1,610.4 $ 1,395.8 $ 998.4
Food Ingredients 160.1 173.3 90.0
Meat Processing 269.3 180.8 102.5
Agricultural Products 18.6 108.6 48.1
---------- ---------- ----------
Total operating profit 2,058.4 1,858.5 1,239.0
Interest expense 401.5 423.3 303.8
General corporate expenses 279.8 236.9 254.2
Goodwill amortization 108.9 94.2 63.4
---------- ---------- ----------
Income before income taxes and cumulative effect of changes in accounting $ 1,268.2 $ 1,104.1 $ 617.6
- -----------------------------------------------------------------------------------------------------------------------
Identifiable assets
Packaged Foods $ 9,082.6 $ 9,258.3 $ 5,940.2
Food Ingredients 941.7 1,020.5 949.2
Meat Processing 2,256.4 2,380.3 2,263.0
Agricultural Products 2,283.4 2,709.3 2,239.8
Corporate 932.1 1,112.4 804.4
---------- ---------- ----------
Total $ 15,496.2 $ 16,480.8 $ 12,196.6
- -----------------------------------------------------------------------------------------------------------------------
Additions to property, plant and equipment, net - including
businesses acquired/divested
Packaged Foods $ 359.2 $ 581.2 $ 291.2
Food Ingredients 3.8 77.2 46.6
Meat Processing 111.3 126.6 395.6
Agricultural Products 17.3 39.9 35.2
Corporate 27.5 65.1 59.9
---------- ---------- ----------
Total $ 519.1 $ 890.0 $ 828.5
- -----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization
Packaged Foods $ 387.3 $ 377.5 $ 331.2
Food Ingredients 41.9 44.4 42.7
Meat Processing 127.5 122.0 116.4
Agricultural Products 35.3 30.8 30.7
Corporate 31.2 18.2 15.5
---------- ---------- ----------
Total $ 623.2 $ 592.9 $ 536.5
- -----------------------------------------------------------------------------------------------------------------------
</Table>
Note a: Fiscal 2000 includes before-tax restructuring and
restructuring-related charges of $621.4 million (Note 14). These charges were
included in operating profit as follows: $346.7 million in Packaged Foods,
$59.0 million in Food Ingredients, $130.7 million in Meat Processing, and
$85.0 million in Agricultural Products.
65 ConAgra Foods Annual Report
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<Page>
The operations of the company are principally in the United States.
Operations outside the United States are worldwide with no single foreign
country or geographic region being significant to the consolidated
operations. Foreign net sales were $4.3 billion, $4.0 billion and $3.6
billion in fiscal year 2002, 2001 and 2000, respectively. Net sales are
attributed to countries based on location of customer. The Company's
long-lived assets located outside of the United States are not significant.
21. QUARTERLY RESULTS (UNAUDITED)
<Table>
<Caption>
Income Dividends
Net Gross Net Per Share Stock Market Price Declared
Sales Profit Income Basic Diluted High Low Per Share
2002
First $ 7,607.8 $ 1,054.0 $ 188.4 $ .36 $ .36 $ 22.63 $ 19.02 $ .22500
Second 7,363.6 1,099.2 231.6 .44 .44 24.70 21.72 .23500
Third 6,244.7 952.6 170.8 .31 .31 25.08 22.70 .23500
Fourth 6,413.5 987.3 192.2 .37 .36 25.64 22.60 .23500
---------- --------- ------- ------- ------- --------
YEAR $ 27,629.6 $ 4,093.1 $ 783.0 $ 1.48 $ 1.47 $ 25.64 $ 19.02 $ .93000
- -----------------------------------------------------------------------------------------------------------------------
2001
First $ 7,061.6 $ 863.6 $ 120.2 $ .25 $ .25 $ 23.69 $ 18.25 $ .20350
Second 7,232.0 1,104.0 281.2 .54 .54 26.19 18.06 .22500
Third 6,379.1 922.1 115.8 .22 .22 26.19 18.75 .22500
Fourth 6,427.8 899.1 121.4 .23 .23 21.69 17.50 .22500
---------- --------- ------- ------- ------- --------
YEAR $ 27,100.5 $ 3,788.8 $ 638.6 $ 1.24 $ 1.24 $ 26.19 $ 17.50 $ .87850
- -----------------------------------------------------------------------------------------------------------------------
</Table>
66 ConAgra Foods Annual Report
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<Page>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
ConAgra Foods, Inc.
We have audited the accompanying consolidated balance sheets of ConAgra
Foods, Inc. and subsidiaries (the "company") as of May 26, 2002 and May 27,
2001, and the related consolidated statements of earnings, comprehensive
income, common stockholders' equity and cash flows for each of the three
years in the period ended May 26, 2002. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of ConAgra Foods, Inc. and
subsidiaries as of May 26, 2002 and May 27, 2001, and the results of their
operations and their cash flows for each of the three years in the period
ended May 26, 2002 in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 1 to the financial statements, in 2002 the company
changed its method of accounting for derivative instruments and other hedging
activities and in 2001 the company changed its methods of accounting for
revenue recognition relating to the shipping terms for certain of its product
sales, retailer sales incentives and consumer sales incentives.
/s/ Deloitte & Touche LLP
- ----------------------------
Deloitte & Touche LLP
July 11, 2002
Omaha, Nebraska
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