UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 24, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-7275
- --------------------------------------------------------------
CONAGRA, INC.
- --------------------------------------------------------------
(Exact name of registrant, as specified in charter)
Delaware 47-0248710
- ---------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One ConAgra Drive, Omaha, Nebraska 68102-5001
- ---------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(402) 595-4000
- ---------------------------------------------------------------
(Registrant's telephone number, including area code)
NA
- ---------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of issuer's common stock, as of
October 1, 1997, was 471,982,078.
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions except per share amounts)
(unaudited)
THIRTEEN WEEKS ENDED
-------------------------
AUGUST 24, AUGUST 25,
1997 1996
---------- ----------
Net sales $ 6,140.4 $ 6,157.5
Costs and expenses
Cost of goods sold 5,298.4 5,365.6
Selling, administrative and general expenses 586.9 559.0
Interest expense, net 73.1 70.1
---------- ----------
5,958.4 5,994.7
---------- ----------
Income before income taxes 182.0 162.8
Income taxes 71.9 66.7
---------- ----------
NET INCOME $ 110.1 $ 96.1
========== ==========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.24 $ 0.21
========== ==========
Weighted average number of common and common
equivalent shares outstanding 459.1 457.9
========== ==========
Cash dividends declared per common share $ 0.136 $ 0.119
========== ==========
See notes to the condensed consolidated financial statements.
2
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
AUGUST 24, MAY 25, AUGUST 25,
1997 1997 1996
---------- --------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 26.0 $ 105.8 $ 34.5
Receivables, less allowance for
doubtful accounts of $72.8, $67.2
and $61.5 2,377.3 1,367.6 2,376.7
Inventories 3,624.3 3,342.9 3,426.7
Prepaid expenses 416.0 388.7 439.4
--------- --------- ---------
Total current assets 6,443.6 5,205.0 6,277.3
--------- --------- ---------
Property, plant and equipment
Cost 5,272.9 5,274.3 5,022.3
Less
Accumulated depreciation (2,065.3) (2,031.8) (1,948.9)
Valuation reserve related to restructuring - - (176.8)
--------- --------- ---------
Property, plant and equipment, net 3,207.6 3,242.5 2,896.6
Brands, trademarks and goodwill, at cost
less accumulated amortization 2,420.7 2,434.0 2,457.3
Other assets 373.8 395.6 390.4
--------- --------- ---------
Total assets $12,445.7 $11,277.1 $12,021.6
========= ========= =========
See notes to the condensed consolidated financial statements.
3
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions except per share amount)
(unaudited)
AUGUST 24, MAY 25, AUGUST 25,
1997 1997 1996
----------- -------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 3,207.7 $ 529.0 $ 3,521.5
Current installments of long-term debt 366.8 352.9 80.2
Accounts payable 1,063.7 1,894.7 861.5
Advances on sales 163.9 766.5 190.6
Other accrued liabilities 1,484.1 1,446.5 1,408.6
--------- --------- ---------
Total current liabilities 6,286.2 4,989.6 6,062.4
Senior long-term debt, excluding
current installments 1,572.2 1,605.7 1,502.3
Other noncurrent liabilities 918.9 935.1 959.9
Subordinated debt 750.0 750.0 750.0
Preferred securities of subsidiary company 525.0 525.0 525.0
Common stockholders' equity
Common stock of $5 par value,
authorized 1,200,000,000 shares,
issued 506,241,764, 506,161,530
and 506,051,430 2,531.2 1,265.4 1,265.1
Additional paid-in capital 459.7 643.3 434.4
Retained earnings 1,066.9 2,061.2 1,726.1
Foreign currency translation adjustment (43.0) (31.5) (33.3)
Less treasury stock, at cost, common
shares 34,284,418, 30,036,626
and 24,557,136 (798.6) (655.1) (497.4)
--------- --------- ---------
3,216.2 3,283.3 2,894.9
Less unearned restricted stock and value
of 24,950,494, 26,202,608
and 30,542,866 common shares held
in Employee Equity Fund (822.8) (811.6) (672.9)
--------- --------- ---------
Total common stockholders' equity 2,393.4 2,471.7 2,222.0
--------- --------- ---------
$12,445.7 $11,277.1 $12,021.6
========= ========= =========
See notes to the condensed consolidated financial statements.
4
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)
THIRTEEN WEEKS ENDED
------------------------
AUGUST 24, AUGUST 25,
1997 1996
---------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net income $ 110.1 $ 96.1
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and other amortization 90.2 88.0
Goodwill amortization 17.4 17.2
Other noncash items (includes nonpension
postretirement benefits) 26.2 10.3
Change in assets and liabilities before effects from
business acquisitions (2,852.6) (2,980.1)
-------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES (2,608.7) (2,768.5)
-------- --------
Cash flows from investing activities
Additions to property, plant and equipment (85.8) (124.4)
Payment for business acquisitions - (76.7)
Sale of businesses and property, plant and equipment 136.4 5.9
Notes receivable and other items 9.4 11.2
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES 60.0 (184.0)
-------- --------
Cash flows from financing activities
Net short-term borrowings 2,678.7 3,105.2
Proceeds from issuance of long-term debt 300.0 -
Repayment of long-term debt (320.1) (78.4)
Cash dividends paid (61.3) (53.9)
Treasury stock purchases (140.7) (105.4)
Employee Equity Fund stock transactions 11.9 4.4
Other items 0.4 1.4
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES 2,468.9 2,873.3
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (79.8) (79.2)
Cash and cash equivalents at beginning of period 105.8 113.7
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26.0 $ 34.5
======== ========
See notes to the condensed consolidated financial statements.
5
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED AUGUST 24, 1997 AND AUGUST 25, 1996
(UNAUDITED)
1. ACCOUNTING POLICIES
The unaudited interim financial information included herein reflects the
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the results
of operations, financial position, and cash flows for the periods presented.
Such interim information should be read in conjunction with the financial
statements and notes thereto included in the Company's 1997 annual report to
stockholders, which are incorporated by reference into the Company's annual
report on Form 10-K for the fiscal year ended May 25, 1997.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for other interim periods or the
full year.
DERIVATIVE INSTRUMENTS - The SEC is requiring expanded disclosure for
derivative instruments which is fully effective for the Company's annual
financial statements for the fiscal year ended May 31, 1998. As required for
this interim report, specific information on the Company's accounting
policies for derivatives is provided below.
The Company uses derivatives for the purpose of hedging commodity price and
interest rate exposures which exist as a part of its ongoing business
operations.
In general, derivatives used as hedges must be effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge
at the inception of the contract. Accordingly, changes in market values of
derivative instruments must be highly correlated with changes in market
values of underlying hedged items both at inception of the hedge and over the
life of the hedge contract. Deferred gains or losses related to any
instrument 1) designated but ineffective as a hedge of existing assets,
liabilities, or firm commitments, or 2) designated as a hedge of an
anticipated transaction which is no longer likely to occur, are recognized
immediately in the statement of earnings.
INTEREST RATE SWAP AGREEMENTS - The Company utilizes interest rate swap
agreements to alter the impact of changes of interest rates. Interest
differentials to be paid or received on the swap are recognized in income as
incurred, as a component of interest expense.
COMMODITY CONTRACTS - Commodities are subject to price fluctuations which
create price risk. Generally, the Company intends to hedge commodities to
mitigate this price risk. The Company uses commodity futures, options,
forwards and swaps to manage price fluctuations of the underlying commodity.
While this may tend to limit the Company's ability to participate in
6
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED AUGUST 24, 1997 AND AUGUST 25, 1996
(UNAUDITED)
gains from commodity price fluctuations, it also tends to reduce the risk of
loss from changes in commodity prices.
Commodity price risk can be hedged by selling (or buying) the underlying
commodity, or by using an appropriate derivative instrument. The particular
hedging methods employed by the Company depend on a number of factors,
including availability of appropriate derivative contracts. The Company may,
at times, utilize non-exchange traded derivatives, in which case the Company
monitors the amount of associated credit risk.
ConAgra's board of directors has established policies which limit the amount
of unhedged inventory positions permissible for ConAgra's independent
operating companies. Trading businesses are generally limited to dollar risk
exposure stated in relation to equity capital. Processing company limits are
expressed in terms of weeks of commodity usage.
In the trading businesses, commodity contracts are marked-to-market with net
amounts due to or from brokers recorded in accounts receivable or payable and
the related gains or losses recorded in the statement of earnings. In the
processing companies, commodity contract gains and losses are deferred and
recognized as an adjustment to the basis of the underlying hedged commodity
purchased; gains or losses are recognized in the statement of earnings as a
component of cost of goods sold.
The cash flows related to derivative financial instruments are classified in
the statement of cash flows in a manner consistent with those of the
transactions being hedged.
EARNINGS PER SHARE - Statement of Financial Accounting Standards No. 128
(SFAS No. 128), EARNINGS PER SHARE, requires presentation of basic and
diluted earnings per share, replacing prior presentation of primary and fully
diluted earnings per share. Basic earnings per share is calculated on the
basis of weighted average outstanding common shares, after giving effect to
preferred stock dividends. Diluted earnings per share is computed on the
basis of weighted average outstanding common shares, outstanding options that
are dilutive, and equivalent shares assuming conversion of outstanding
convertible securities. Primary earnings per share and
7
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED AUGUST 24, 1997 AND AUGUST 25, 1996
(UNAUDITED)
pro forma earnings per share (the latter computed in accordance with SFAS No.
128) for the periods ended August 24, 1997 and August 25, 1996 are as follows:
AUGUST 24, AUGUST 25,
1997 1996
---------- ----------
Primary earnings per share -
as reported $ 0.24 $ 0.21
Pro forma diluted earnings per share 0.24 0.21
Pro forma basic earnings per share 0.25 0.21
2. CAPITAL STOCK
On July 11, 1997, the Company's Board of Directors declared a two-for-one
split of the Company's common stock in the form of a stock dividend, payable
October 1, 1997, to shareholders of record as of September 5, 1997. All
share and per share data have been restated to reflect the stock split for
all periods presented.
3. INVENTORIES
The composition of inventories is as follows (in millions):
AUGUST 24, MAY 25, AUGUST 25,
1997 1997 1996
------------ ---------- ----------
Hedged commodities $ 1,100.9 $ 1,169.8 $ 904.8
Food products and livestock 1,401.2 1,191.0 1,257.5
Agricultural chemicals,
fertilizer and feed 662.1 381.4 654.9
Retail merchandise 12.9 127.5 120.0
Other, principally
ingredients and supplies 447.2 473.2 489.5
------------ ---------- ----------
$ 3,624.3 $ 3,342.9 $ 3,426.7
========== ========== ==========
8
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED AUGUST 24, 1997 AND AUGUST 25, 1996
(UNAUDITED)
4. CONTINGENCIES
In fiscal 1991, ConAgra acquired Beatrice Company ("Beatrice"). As a result
of the acquisition and the significant pre-acquisition tax and other
contingencies of the Beatrice businesses and its former subsidiaries, the
consolidated post-acquisition financial statements of ConAgra reflected
significant liabilities and valuation allowances associated with the
estimated resolution of these contingencies. The material pre-acquisition
tax contingencies were resolved in fiscal 1995.
Beatrice is also engaged in various litigation and environmental proceedings
related to businesses divested by Beatrice prior to its acquisition by
ConAgra. The environmental proceedings include litigation and administrative
proceedings involving Beatrice's status as a potentially responsible party at
42 Superfund, proposed Superfund or state-equivalent sites. Beatrice has
paid or is in the process of paying its liability share at 38 of these sites.
Substantial reserves for these matters have been established based on the
Company's best estimate of its undiscounted remediation liabilities, which
estimates include evaluation of investigatory studies, extent of required
cleanup, the known volumetric contribution of Beatrice and other potentially
responsible parties and its experience in remediating sites.
ConAgra 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 ConAgra's financial condition, results
of operations or liquidity.
5. SENIOR LONG-TERM DEBT
On August 1, 1997, the Company issued $300 million of senior notes with an
interest rate of 6.70% due August 1, 2027 and redeemable at the option of the
holders on August 1, 2009. The notes were priced at par.
9
CONAGRA, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and operating
results for the periods included in the accompanying consolidated condensed
financial statements. Results for the fiscal 1998 first quarter are not
necessarily indicative of results which may be attained in the future.
This report contains forward-looking statements. The statements reflect
management's current views and estimates of future economic circumstances,
industry conditions, company performance and financial results. The
statements are based on many assumptions and factors including availability
and prices of raw materials, product pricing, competitive environment and
related market conditions, operating efficiencies, access to capital and
actions of governments. Any changes in such assumptions or factors could
produce significantly different results.
FINANCIAL CONDITION
The Company's capital investment (working capital plus noncurrent assets)
decreased $128 million compared to May 25, 1997. Working capital decreased
$58 million and noncurrent assets decreased $70 million. The decreases were
primarily caused by the sale of businesses. There was an increase in short
term debt primarily related to financing normal seasonal increases in
accounts receivable and inventory and treasury stock repurchases.
The Company's objective is that senior long-term debt normally will not
exceed 30 percent of total long-term debt plus equity. This objective was
met for all periods presented.
10
CONAGRA, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
A summary of the period to period increases (decreases) in the principal
components of operations is shown below (dollars in millions, except per
share amounts).
COMPARISON OF THE THIRTEEN
WEEKS ENDED
AUGUST 24, 1997 TO AUGUST 25, 1996
----------------------------------
DOLLAR PERCENT
CHANGE CHANGE
--------- --------
Net sales $ (17.1) (0.3)
Costs and expenses
Cost of goods sold (67.2) (1.3)
Selling, administrative and general expenses 27.9 5.0
Interest expense, net 3.0 4.3
Income before income taxes 19.2 11.8
Income taxes 5.2 7.8
Net income 14.0 14.6
Net income per common and common
equivalent share 0.03 14.3
ConAgra's total sales in the first quarter were about even with the same
period last year, while costs and expenses were down versus the first quarter
of fiscal 1997. Sales and cost of goods sold increased in the Food Inputs &
Ingredients segment primarily due to ConAgra's major crop inputs business,
United Agri Products. Sales increased in the Grocery & Diversified Products
segment while cost of goods sold decreased. Refrigerated Foods segment sales
and related cost of goods sold declined in the first quarter. Selling,
administrative and general expenses increased in the Food Inputs &
Ingredients and Grocery & Diversified Products segments and decreased in the
Refrigerated Foods segment compared to the same period in fiscal 1997.
In ConAgra's Food Inputs & Ingredients industry segment, operating profit
increased 38 percent
11
CONAGRA, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and sales increased 3 percent in fiscal 1998's first quarter versus fiscal
1997's first quarter.
United Agri Products had increased sales and a significant operating profit
gain. Flour milling and specialty food ingredients both achieved strong
earnings growth. Earnings declined in the trading businesses but are
generally expected to improve post-harvest. Segment sales growth was
constrained by a business divestiture in fiscal 1998's first quarter and
lower wheat prices passed through as lower flour selling prices.
In ConAgra's Grocery & Diversified Products industry segment, operating
profit increased 2 percent and sales increased 3 percent in fiscal 1998's
first quarter versus fiscal 1997's first quarter.
ConAgra Frozen Foods sales and operating profit increased. The Lamb-Weston
potato products business and the Golden Valley microwave foods business
increased earnings significantly. Hunt-Wesson's earnings dropped, as
planned, due to heavy spending to introduce several lines of new products.
In ConAgra's Refrigerated Foods industry segment, operating profit decreased
7 percent and sales decreased 3 percent in fiscal 1998's first quarter versus
fiscal 1997's first quarter.
The branded processed meats business improved margins and increased earnings
significantly. Earnings rose in the Australia beef business and declined in
the U.S. beef business. The pork products business was profitable, but
earnings were down due to the industry's high cost of raw materials. Chicken
products results improved, while earnings were down in turkey products.
Cheese business earnings were down modestly.
Operating profit 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,
interest expense (except financial businesses), income taxes and goodwill
amortization are excluded from segment operating profit. For financial
businesses, operating profit includes the effect of interest, which is a
large element of their operating costs.
For ConAgra in total, sales decreased slightly to $6.14 billion in fiscal
1998's first quarter from $6.16 billion in fiscal 1997's first quarter.
ConAgra's fiscal 1998 first quarter effective tax rate was 39.5 percent
compared to 41.0 percent in fiscal 1997's first quarter and 39.6 percent for
all of fiscal 1997. Fiscal 1998 first quarter earnings per share rose 14.3
percent to 24 cents from 21 cents in last year's first quarter. Net income
increased 14.6 percent to $110.1 million from $96.1 million a year ago.
12
CONAGRA, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ConAgra's annual meeting of stockholders was held on September 25, 1997.
The stockholders elected five directors to serve three-year terms, ratified
the appointment of Deloitte & Touche to examine ConAgra's financial
statements for fiscal year 1998, and did not approve a stockholder proposal.
Voting on these items was as follows:
1. ELECTION OF DIRECTORS
FOR WITHHELD
Philip B. Fletcher 195,650,149 2,537,038
Robert A. Krane 195,777,376 2,409,811
Gerald Rauenhorst 195,640,443 2,546,744
Bruce C. Rohde 197,185,243 1,001,944
Walter Scott, Jr. 197,237,915 949,272
2. RATIFICATION OF ACCOUNTANTS
FOR: 196,470,953
AGAINST: 864,638
ABSTAIN: 860,389
BROKER/NON-VOTES: 3
3. STOCKHOLDER PROPOSAL ON POLITICAL SOFT DOLLAR CONTRIBUTIONS
FOR: 17,579,853
AGAINST: 150,915,772
ABSTAIN: 8,133,328
BROKER/NON-VOTES: 21,567,030
ITEM 5. OTHER INFORMATION
As previously announced on July 11, 1997, Bruce Rohde was elected Chief
Executive Officer of ConAgra on September 25, 1997. Mr. Rohde continues to
serve as Vice Chairman of the Board and President of ConAgra.
On September 25, 1997, ConAgra's Board of Directors approved a 14.7%
increase in ConAgra's common stock dividend. ConAgra had previously
announced a two-for-one common stock split effective October 1, 1997 for
stockholders of record on September 5, 1997. On September 25, 1997,
ConAgra's Board of Directors declared a quarterly common stock cash dividend
of 15.625 cents per share payable December 1, 1997 to stockholders of record
as of
13
November 7, 1997. The quarterly dividend previously was 13.625 cents per
share. The new indicated annual dividend rate is 62.5 cents per share, up
from the previous 54.5 cents per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1 - Bylaws of ConAgra as amended through September 25,
1997.
4.1 - Certificate of Adjustment dated October 1, 1997 to
Rights Agreement dated as of July 12, 1996.
12 - Statement regarding computation of ratio of
earnings to fixed charges.
(B) REPORTS ON FORM 8-K
ConAgra filed a report on Form 8-K dated July 11, 1997
reporting (i) the election of Bruce Rohde as Chief Executive
Officer effective September 25, 1997, and (ii) the two-for-one
stock split effective October 1, 1997.
CONAGRA, INC.
By: /s/ James P. O'Donnell
______________________________
James P. O'Donnell
Executive Vice President,
Chief Financial Officer
Corporate Secretary
By: /s/ Kenneth W. DiFonzo
______________________________
Kenneth W. DiFonzo
Senior Vice President and
Controller
Dated this 7th day of October, 1997.
14
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
3.1 Bylaws of ConAgra as amended through
September 25, 1997
4.1 Certificate of Adjustment dated October 1,
1997 to Rights Agreement dated as of
July 12, 1996
12 Statement regarding computation of ratio
of earnings to fixed charges
15