SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
September 29, 1998
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Date of Report (Date of earliest even reported)
CONAGRA, INC.
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(Exact name of registrant, as specified in charter)
A Delaware Corporation 1-17275 47-0248710
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(State of Incorporation) Commission File No. (I.R.S. Employer's
Number)
One ConAgra Drive
Omaha, Nebraska 68102-5001
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (402) 595-4000
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 31, 1998, GoodMark Foods, Inc. (GoodMark) merged with ConAgra through an
exchange of shares. ConAgra issued approximately 7.8 million shares of common
stock for all outstanding shares of GoodMark.
On July 31, 1998, Fernando's Foods Corporation (Fernando's) merged with ConAgra
through an exchange of shares. ConAgra issued approximately 1.3 million shares
of common stock for all outstanding shares of Fernando's.
During fiscal 1998, ConAgra completed mergers with Hester Industries, Inc.
(Hester) and A.M. Gilardi & Sons, Inc. (Gilardi), exchanging 3.7 million and 3.8
million shares of ConAgra stock, for all outstanding shares of Hester and
Gilardi.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Supplemental Consolidated Selected Financial Data, Supplemental
Consolidated Management's Discussion and Analysis of Financial
Condition and Results of Operations, Supplemental Consolidated
Financial Statements and notes thereto and Supplemental Financial
Statement Schedules (restated to give effect to mergers accounted for
as poolings of interest).
Page
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Supplemental Selected Financial Data 3
Supplemental Management's Discussion and Analysis of Financial
Condition and Results of Operations 4
Schedule II - Supplemental Valuation and Qualifying Accounts 12
Supplemental Financial Statements
Independent Auditors' Report 14
Consolidated Balance Sheets - May 31, 1998 and May 25, 1997 15
Consolidated Statements of Earnings - Years ended May 31,1998,
May 25, 1997, and May 26, 1996 16
Consolidated Statements of Common Stockholders' Equity -
Years ended May 31, 1998, May 25, 1997 and May 26, 1996 17
Consolidated Statements of Cash Flows - Years ended
May 31, 1998, May 25, 1997 and May 26, 1996 18
Notes to Consolidated Financial Statements 19
The supplementary data regarding quarterly results of
operations set forth in Note 20 "Quarterly Results (Unaudited)" 39
b) Exhibits
Supplemental Statement regarding computation of income per share 40
Consent of Deloitte & Touche LLP 42
Exhibit 27.1 Restated Financial Data Schedule
Exhibit 27.2 Restated Financial Data Schedule
Exhibit 27.3 Restated Financial Data Schedule
CONAGRA, INC.
September 29, 1998 By:
/s/ James P. O'Donnell
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James P. O'Donnell
Executive Vice President, Chief
Financial Officer and Secretary
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SELECTED FINANCIAL DATA
Dollars in millions except per share amounts
For the Fiscal Years Ended May 1998 1997 1996 1995 1994
FOR THE YEAR (RESTATED)
Net sales $ 24,219.5 $ 24,445.2 $ 24,321.3 $ 23,829.8 $ 23,480.3
After-tax income from continuing
operations and before cumulative
effect of changes in accounting 641.8 637.9 211.8* 512.2 453.3
Net income 627.0 637.9 211.8* 512.2 453.1
Basic earnings per share
Continuing operations and before
cumulative effect of changes
in accounting $ 1.38 $ 1.36 $ .43* $ 1.04 $ .91
Net income $ 1.35 $ 1.36 $ .43* $ 1.04 $ .91
Diluted earnings per share
Continuing operations and before
cumulative effect of changes
in accounting $ 1.35 $ 1.34 $ .43* $ 1.02 $ .90
Net income $ 1.32 $ 1.34 $ .43* $ 1.02 $ .90
Cash dividends declared per
share of common stock $ .6050 $ .5275 $ .4600 $ .4013 $ .3475
AT YEAR END (RESTATED)
Total assets $ 11,808.5 $ 11,451.8 $ 11,364.2 $ 10,969.2 $ 10,855.0
Senior long-term
debt (noncurrent) 1,753.5 1,628.5 1,536.3 1,801.5 1,458.0
Subordinated long-term
debt (noncurrent) 750.0 750.0 750.0 750.0 766.0
Preferred securities of
subsidiary company 525.0 525.0 525.0 525.0 100.0
Redeemable preferred stock -- -- -- 354.9 355.6
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* 1996 amounts include non-recurring charges: before tax, $507.8 million;
after tax, $356.3 million. Excluding the charges, basic income per share
was $1.19 and diluted income per share was $1.17.
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MANAGEMENT'S DISCUSSION & ANALYSIS
INTRODUCTION
Our objective here is to help stockholders understand management's views on
ConAgra's financial condition and results of operations. This discussion should
be read in conjunction with the financial statements and the notes to the
financial statements. Years (1997, 1998, etc.) in this discussion refer to
ConAgra's May-ending fiscal years.
FINANCIAL CONDITION AND CASH FLOW
CAPITAL RESOURCES -- ConAgra's earnings are generated principally from its
capital investment, which consists of working capital (current assets less
current liabilities) plus all noncurrent assets. Capital investment is financed
with stockholders' equity, long-term debt and other noncurrent liabilities.
CAPITAL INVESTMENT
Dollars in millions
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1998 1997 % Change
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Working capital $ 444.0 $239.6 85%
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Property, plant &
equipment, net 3,449.7 3,341.8 3
Intangible assets 2,391.7 2,435.3 (2)
Other noncurrent assets 429.4 398.9 8
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Total noncurrent assets 6,270.8 6,176.0 2
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Capital investment $6,714.8 $6,415.6 5
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During 1998, capital investment increased $299 million, or 5%, mainly
because property, plant and equipment increased $108 million and working capital
increased $204 million to $444 million, more comparable with the working capital
levels in 1994 and 1996. Higher levels of working capital in 1995 were the
result of prefunding of the company's stock repurchase program in connection
with a planned redemption of its Class E preferred stock in 1996.
Intangible assets are mainly goodwill related to acquisitions, principally
goodwill associated with ConAgra's acquisition of Beatrice Company in 1991. This
goodwill represents valuable assets such as respected brands with significant
marketplace acceptance. The non-cash provision for goodwill amortization is a
source of cash, as is the non-cash provision for depreciation of fixed assets.
Goodwill amortization was $68 million in 1998 and $69 million in 1997, while
depreciation expense was $375 million in 1998 and $338 million in 1997.
ConAgra financed its capital investment as shown in the following table:
CAPITALIZATION
Dollars in millions
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1998 1997 % Change
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Senior long-term debt $1,753.5 $1,628.5 8%
Other noncurrent liabilities 847.3 941.1 (10)
Subordinated long-term debt 750.0 750.0 --
Subsidiary's preferred
securities 525.0 525.0 --
Common stockholders' equity 2,839.0 2,571.0 10
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Total capitalization $6,714.8 $6,415.6 5
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In 1998, senior long-term debt, excluding the current portion of long-term
debt, increased $125 million. Short-term borrowings backed by long-term credit
agreements and classified as long-term decreased $123 million, while other
senior debt issues increased $248 million.
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Other noncurrent liabilities consist of estimated postretirement health care
and pension benefits plus reserves for estimated income tax, legal and
environmental liabilities Beatrice Company incurred before its acquisition by
ConAgra. It will require a number of years to resolve remaining issues related
to the Beatrice liabilities. Resolution over time will use cash, but is not
expected to affect earnings adversely because ConAgra believes reserves are
adequate.
ConAgra's long-standing policy is to purchase on the open market shares of
the company's common stock to replace shares issued for conversion of preferred
stock, employee incentive and benefit programs, and smaller acquisitions
accounted for as purchases so that such issuance will not dilute earnings per
share. In 1998, ConAgra purchased on the open market 4.7 million shares of the
company's common stock at a cost of $153 million. The number of shares purchased
before a two-for-one common stock split during 1998 has been adjusted to a
post-split basis. During the six years through 1998, ConAgra invested over $1.6
billion to purchase the company's common stock on the open market.
Common stockholders' equity increased $268 million in 1998 mainly because
net income and the value of shares issued exceeded $274 million in cash
dividends declared and the cost of shares purchased on the open market.
CASH FLOW -- Cash provided by operating activities was $623 million in 1998,
compared to $967 million in 1997. The decrease in 1998 versus 1997 was primarily
the result of higher inventories in Food Inputs & Ingredients and a higher level
of receivables across all businesses. Depreciation and amortization increased in
1998 as compared to 1997.
In 1997, cash provided by operating activities was $967 million compared to
$1,194 million in 1996. The decrease was the result of reduced working capital
needs in 1996, due mainly to the effects of grain markets and closure of a beef
processing facility at the end of 1996. Depreciation and amortization in 1997
increased slightly.
Cash used for investing activities was $395 million in 1998 versus $890
million in 1997. ConAgra invested $584 million in property, plant and equipment
in 1998, and $683 million in 1997. ConAgra's investment in businesses acquired,
net of disposals, was $166 million in 1997. In 1998, proceeds from businesses
sold exceeded cash acquisition expenditures by $192 million as ConAgra issued
common stock for certain acquisitions.
Cash used for investing activities was $890 million in 1997 versus $618
million in 1996. Most of the increase in 1997 was due to a higher net investment
in businesses acquired in that year.
In 1999, ConAgra expects to invest $600 million to $650 million in additions
to property, plant and equipment of present businesses. The capital projects in
1998 and planned for 1999 are broadly based investments in modernization,
efficiency and capacity expansion. Larger projects planned for 1999 include
construction of a new soybean products plant, a new potato products plant, a new
flour plant and a major addition to an existing flour plant. Spending on these
projects is expected to continue into 2000.
Cash used in financing activities was $226 million in 1998 versus $84
million in 1997. In 1998, ConAgra repaid $368 million of senior long-term debt
and reduced the amount of short-term borrowings backed by long-term credit
agreements and classified as long-term by $123 million. In 1997, long-term debt
repayments totaled $184 million. In 1998, ConAgra issued $312 million of senior
long-term notes, with $300 million issued at 6.70%. In 1997, ConAgra issued $435
million of senior long-term notes, with $400 million issued at 7.125%, and
increased short-term borrowings backed by long-term credit agreements and
classified as long-term by $51 million. Short-term borrowings, used primarily to
fund working capital needs, increased $318 million in 1998 compared to a $104
million increase in 1997. The cost of stock repurchased by ConAgra was $153
million in 1998 versus $267 million in 1997. Cash dividends paid totaled $263
million, up 14% from the $230 million paid in 1997.
Cash used in financing activities was $84 million in 1997, down from $521
million in 1996. Treasury stock repurchases totaled $267 million in 1997, down
substantially from the $668 million repurchased in 1996. The 1996 repurchases
included shares bought back to effect the conversion of Class E cumulative
convertible preferred stock into common. Repayments of long-term debt totaled
$184 million in 1997, up from $102 million in 1996. Short-term borrowings backed
by long-term credit agreements and classified as long-term increased by $51
million in
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1997 versus a $116 million decrease in 1996. Short-term debt, used
primarily to fund working capital requirements, increased $104 million in 1997
versus a $504 million increase in 1996. Cash dividends paid on common stock
totaled $230 million in 1997, versus $216 million paid on common and preferred
stock in 1996.
FINANCING OBJECTIVES -- ConAgra's primary financing objective is to maintain a
conservative balance sheet. We define this as using appropriate levels of equity
and long-term debt to finance noncurrent assets and permanent working capital
needs. Short-term debt is used to finance liquid and seasonal asset
requirements.
ConAgra's senior long-term debt normally will not exceed 30% of total
long-term debt plus equity. Long-term subordinated debt is treated as equity due
to its preferred stock characteristics.
Most ConAgra businesses normally will eliminate at the end of their natural
fiscal year short-term debt, net of cash, used to finance assets other than
hedged commodity inventories.
ConAgra met its long-term debt objective every year from 1976 through 1998,
except 1991 and 1992 when we temporarily exceeded our self-imposed long-term
debt limitation to acquire Beatrice. ConAgra has met its short-term debt
objective for the past 23 years.
ConAgra has access to a wide variety of financing markets. Public debt
offerings and private debt placements provide long-term financing. At the end of
1998, ConAgra's senior debt ratings were BBB+ (Duff & Phelps), Baa1 (Moody's)
and BBB+ (Standard & Poor's), all investment grade ratings.
Short-term credit is provided by the sale of commercial paper and bank
financing. Commercial paper borrowings are backed by multiyear bank credit
facilities. During 1998, short-term borrowing continued at interest rates
significantly below the prime rate. Short-term debt averaged $2.52 billion in
1998 compared to $2.53 billion in 1997, excluding short-term borrowings
classified as long-term. ConAgra uses cancelable and noncancelable leases in its
financing activities, particularly for transportation equipment. In 1998,
cancelable lease expense was $153 million versus $134 million in 1997, and
noncancelable lease expense was $115 million versus $112 million in 1997.
To maintain a conservative financial position, ConAgra focuses on cash flow
as well as its balance sheet. ConAgra's plans incorporate cash flow sufficient
to meet financing obligations, maintain capital investment and pay stockholder
dividends even if a severe and unexpected decline in earnings occurs. This
measure of cash-flow adequacy provides an effective tool for managing the
company's leverage.
ASSET LIQUIDITY -- Many of ConAgra's businesses are current asset intensive.
Inventory and accounts receivable were 1.5 and 1.4 times property, plant and
equipment at the end of 1998 and 1997, respectively. The seasonal nature and
liquidity of ConAgra's current asset investments explain the company's
significant use of short-term debt and emphasis on repaying short-term debt at
year end.
ConAgra's reported net sales understate the degree to which current assets
turn over during the year. For 1998, total sales invoiced to customers were
approximately $30.2 billion versus $24.2 billion reported net sales. This is
because grain, feed ingredient merchandising and international fertilizer
merchandising transactions include only gross margins in reported sales.
ConAgra's current ratio (current assets divided by current liabilities) was
1.09 to 1 at the end of 1998, and 1.05 to 1 at the end of 1997. ConAgra's
consolidated current ratio is a composite of various current ratios appropriate
for our individual businesses. We focus more on appropriate use of short-term
debt and trade credit financing than on the absolute level of our current ratio.
Some ConAgra businesses are able to generate substantial trade credit that does
not result in financing costs.
MARKET RISK -- The principal market risks affecting ConAgra are exposure to
changes in commodity or energy prices and interest rates on debt. While the
company does have international operations, and operates in international
markets, it considers its market risk in such activities to be immaterial.
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COMMODITIES -- ConAgra operates across the food chain, from basic agricultural
inputs to production and sale of branded consumer products. As a result, ConAgra
uses various raw materials, many of which are commodities. Raw materials are
generally available from several different sources, and ConAgra presently
believes that it can obtain them as needed.
Commodities are subject to price fluctuations that may create price risk.
Generally, it is ConAgra's intent to hedge commodities in order to mitigate this
price risk. While this may tend to limit the company's ability to participate in
gains from commodity price fluctuations, it also tends to reduce the risk of
loss from changes in commodity prices.
ConAgra has established policies that limit the amount of unhedged inventory
positions permissible for ConAgra's independent operating companies. Processing
company limits are expressed in terms of weeks of commodity usage. Trading
businesses are generally limited to a dollar risk exposure stated in relation to
equity capital.
ConAgra typically purchases certain commodities such as wheat, corn, oats,
soybeans, soybean meal, soybean oil, cattle and hogs, for use in its processing
businesses. In addition, ConAgra purchases and sells certain commodities such as
wheat, corn, soybeans, soybean meal, soybean oil and oats in its trading
businesses. The commodity price risk associated with these activities can be
hedged by selling (or buying) the underlying commodity, or by using an
appropriate derivative commodity instrument. The particular hedging instrument
used by ConAgra depends on a number of factors, including availability of
appropriate derivative instruments. ConAgra utilizes exchange-traded futures and
options as well as non-exchange-traded derivatives, in which case the company
monitors the amount of associated credit risk.
The following table presents one measure of market risk exposure using
sensitivity analysis. Market risk exposure is defined as the change in the fair
value of the derivative commodity instruments assuming a hypothetical change of
10% in market prices. Actual changes in market prices may differ from
hypothetical changes. Fair value was determined using quoted market prices and
was based on the company's net derivative position by commodity at each month
end during the fiscal year. The market risk exposure analysis excludes the
underlying commodity positions that are being hedged. The underlying commodities
hedged have a high inverse correlation to price changes of the derivative
commodity instrument.
EFFECT OF 10% CHANGE IN FAIR VALUE
(In millions)
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Processing Businesses
Grains/Food
High $30.0
Low 9.0
Average 23.6
Meats
High 22.5
Low 2.6
Average 11.1
Trading Businesses
Grains
High 16.4
Low 5.8
Average 11.5
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ENERGY -- ConAgra's operating companies incur substantial energy costs in their
manufacturing facilities and incur higher operating expenses as a result of
increases in energy costs. ConAgra has formed an energy subsidiary to hedge the
companies' operations against adverse price movements in energy costs, primarily
natural gas and electricity. In addition, the energy subsidiary trades
derivative commodity and financial instruments as a profit-making activity.
Trading is limited in terms of maximum dollar exposure and monitored to ensure
compliance with these limits. The subsidiary uses both exchange-traded
derivative commodity instruments and
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non-exchange-traded swaps and options. The company monitors the amount of
associated counterparty credit risk for non-exchange-traded transactions.
The following presents one measure of market risk exposure using sensitivity
analysis. Market risk exposure is defined as the change in the fair value of the
derivative commodity and financial instruments assuming a hypothetical change of
10% in market prices. Actual changes in market prices may differ from
hypothetical changes. Fair value was determined using quoted market prices, if
available, and was based on the subsidiary's net derivative position by
commodity at each month end during the fiscal year. The market risk exposure
analysis excludes the anticipated energy requirements or physical delivery
commitments that are being hedged by these instruments.
EFFECT OF 10% CHANGE IN FAIR VALUE
(In millions)
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High $11.5
Low 2.1
Average 5.9
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INTEREST RATES -- ConAgra uses interest rate swaps to hedge adverse interest
rate changes on a portion of its short-term debt. At May 31, 1998, the company
had $600 million notional value of interest rate swaps outstanding. These swaps
effectively change the interest rate on $600 million in short-term debt to a 6%
fixed rate through the period ending December 22, 1998. Assuming year-end fiscal
1998 variable rates and average short-term borrowings for fiscal 1998, a
one-hundred-basis-point change in interest rates would impact net interest
expense by $25.6 million, net of the effect of swaps.
FOREIGN OPERATIONS -- Transactions denominated in a currency other than an
entity's functional currency are generally hedged to reduce this market risk.
The company uses principally non-exchange-traded contracts to effect this
coverage. Market risk on such transactions is not material to the company's
results of operations or financial position.
The company's market risk from translation of foreign-based entities' annual
profit and loss, and from amounts permanently invested in foreign subsidiaries,
is not material.
YEAR 2000 -- The Year 2000 computer software compliance issues affect ConAgra
and many companies in the U.S. Historically, certain computer programs were
written using two digits rather than four to define the applicable years. As a
result, software may recognize a date using the two digits "00" as 1900 rather
than the year 2000. Computer programs that do not recognize the proper date
could generate erroneous data or cause systems to fail.
ConAgra has performed an assessment of its major information technology
systems and expects that all necessary modifications and/or replacements will be
completed in a timely manner to ensure that systems are Year 2000 compliant.
ConAgra continues to evaluate the estimated costs associated with these effects
based on its experience to date. Based on current estimates, the costs to
address these issues over the next two fiscal years are estimated to be
approximately $50 to $60 million.
OPERATING RESULTS
This section addresses ConAgra's consolidated operating results shown in the
Consolidated Statements of Earnings and should be read together with Note 3 to
the financial statements covering non-recurring charges and the business
segments information shown in Note 19 to the financial statements.
1998 COMPARED WITH 1997 -- 1998 had 53 weeks versus 52 weeks in 1997. The
holiday-shortened (Memorial Day) extra week added sales and expenses. The effect
on earnings was not material.
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NET SALES
Dollars in millions
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1998 1997 % Change
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Grocery & Diversified Products $ 5,999.1 $ 5,777.0 3.8%
Refrigerated Foods 12,307.7 12,738.1 -3.4%
Food Inputs & Ingredients 5,912.7 5,930.1 -.3%
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Total $24,219.5 $24,445.2 -.9%
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Seafood, potato products and frozen foods contributed to sales growth in
Grocery & Diversified Products. Shelf-stable foods sales increased slightly. The
main cause of the Refrigerated Foods sales decrease was lower commodity costs
passed through as lower selling prices in fresh beef, pork and poultry. In Food
Inputs & Ingredients, a large sales increase in crop inputs was offset mainly by
the sale of a specialty retailing business in 1998's first quarter and lower
commodity costs passed through as lower selling prices in grain processing. For
ConAgra in total, lower commodity selling prices and business divestitures, net
of sales added by acquisitions, reduced 1998 sales by approximately $725
million, nearly 3 percentage points.
In 1998, gross margin (net sales minus cost of goods sold) increased $106
million, up 2.9%, while gross margin as a percent of sales increased to 15.7% in
1998 from 15.2% in 1997. Gross margin dollar and percent gains in Grocery &
Diversified Products and Food Inputs & Ingredients more than offset declines in
Refrigerated Foods.
Selling, general and administrative (SG&A) expenses increased $88 million,
or 3.7%, in 1998 due to business expansion, increased marketing spending and the
extra week in the year. SG&A expenses as a percent of sales increased to 10.2%
in 1998 versus 9.7% in 1997. SG&A expenses increased in all three business
segments, excluding the specialty retailing divestiture in Food Inputs &
Ingredients. The general corporate expense component of SG&A expenses decreased
$15.2 million, or 8.5%, to $163.4 million in 1998 mainly due to lower incentive
compensation and pension expense.
OPERATING PROFIT
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1998 1997 % Change
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Grocery & Diversified Products $ 934.8 $ 840.2 11.3%
Refrigerated Foods 231.1 385.6 -40.1%
Food Inputs & Ingredients 407.3 345.1 18.0%
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Total $1,573.2 $1,570.9 .1%
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Operating profit represents earnings before interest expense (except
financial businesses), goodwill amortization, general corporate expense and
income taxes.
Most Grocery & Diversified businesses -- frozen foods, potato products,
shelf-stable foods and seafood -- contributed to that segment's gain in
operating income.
In Refrigerated Foods, operating profit growth in branded processed meats
and Australian beef was more than offset by a major decline in U.S. fresh meat
and poultry -- the beef, pork, chicken and turkey products businesses. Excess
supplies of animal protein, lower realizations from byproducts and reduced Asian
export demand combined to depress industry selling prices and margins. As a
result, U.S. fresh meat and poultry was unprofitable in 1998.
Crop inputs, specialty food ingredients, commodity services and grain
processing drove Food Inputs & Ingredients operating profit increases. Decreases
in grain merchandising and offshore operations partially offset these gains.
In 1998, net interest expense increased 7.7% to $300.7 million due to
slightly higher average borrowing balances and interest rates, lower interest
income and the extra week in the year. Income before income taxes and change in
accounting decreased .3% to $1.04 billion in 1998.
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In 1998, ConAgra implemented a new Financial Accounting Standards Board
Emerging Issues Task Force directive requiring expensing rather than
capitalizing certain business systems reengineering costs. This required
accounting change resulted in a cumulative one-time, non-cash provision of $14.8
million after tax, or 3 cents per share.
Before the accounting change, net income increased .6% to $641.8 million in
1998, and diluted earnings per share increased .7% to $1.35 from $1.34 in 1997.
The effective tax rate was 38.3% in 1998 versus 38.9% in 1997. Including the
accounting change, net income decreased 1.7% to $627.0 million, and diluted
earnings per share decreased 1.5% to $1.32.
1997 COMPARED WITH 1996 -- Non-recurring charges (see Note 3 to the financial
statements) in the fourth quarter of 1996 significantly affected ConAgra's
results of operations in 1996. The charges totaled $507.8 million before income
tax and $356.3 million after income tax, or $.74 per diluted share. The
non-recurring charges, on an after-tax basis, were for restructuring, $258.6
million; implementing SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, $79.8 million; and
completion of a program to divest non-core businesses, $17.9 million.
The restructuring plan was designed to streamline the company's production
base, improve efficiency and enhance ConAgra's competitiveness. ConAgra
implemented most of the plan during 1997 and substantially completed remaining
projects in 1998.
NET SALES
Dollars in millions
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1997 1996 % Change
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Grocery & Diversified Products $ 5,777.0 $ 5,369.8 7.6%
Refrigerated Foods 12,738.1 12,984.1 -1.9%
Food Inputs & Ingredients 5,930.1 5,967.4 -.6%
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Total $24,445.2 $24,321.3 .5%
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Frozen foods, potato products and seafood contributed to sales growth in
Grocery & Diversified Products, with the seafood increase largely due to an
acquisition. In Refrigerated Foods, sales gains in branded processed meats and
pork products were more than offset by a restructuring-related sales decrease,
principally in beef products. In Food Inputs & Ingredients, sales growth led by
crop inputs and specialty food ingredients, the latter mainly due to an
acquisition, was offset by a large sales decrease caused by deconsolidating the
malt processing business when 50% of it was sold at the end of 1996. For ConAgra
in total, restructuring initiatives and business dispositions, net of
acquisitions, reduced 1997 sales by $1.05 billion -- over 4 percentage points.
In 1997, gross margin increased $76.4 million, up 2.1%, while gross margin
as a percent of sales increased to 15.2% in 1997 from 14.9% in 1996. Gross
margin dollar and percent gains in Grocery & Diversified Products and Food
Inputs & Ingredients more than offset declines in Refrigerated Foods.
SG&A expenses increased $4.0 million, or .2%, in 1997, while SG&A as a
percent of sales was 9.7% in 1997 and 9.8% in 1996. Increases in Grocery &
Diversified Products, Food Inputs & Ingredients and the general corporate
component were more than offset by a decrease in Refrigerated Foods.
OPERATING PROFIT
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1997 1996 % Change
- --------------------------------------------------------------------------------
Grocery & Diversified Products $ 840.2 $ 669.4 25.5%
Refrigerated Foods 385.6 120.9 218.9%
Food Inputs & Ingredients 345.1 227.1 52.0%
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Total $1,570.9 $1,017.4 54.4%
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Comparisons of 1997 versus 1996 operating profit are affected substantially
by non-recurring charges of $452.8 million before tax in 1996 for restructuring
and SFAS No. 121 implementation. For purposes of segment reporting, these
charges are included in operating profit of the individual segment, while a
before-tax charge of $55 million related to disposal of non-core businesses is
included in general corporate expense (see Note 19).
In 1997, Grocery & Diversified Products operating profit was $840.2 million,
up 25.5% including the charges and 14.6% excluding the charges in 1996. As was
the case in 1998, frozen foods, potato products, shelf-stable foods and seafood
all contributed to the 1997 operating profit gain.
Refrigerated Foods 1997 operating profit was $385.6 million, up 218.9%
including the charges and down .3% excluding the charges the previous year.
Excluding the charges, operating profit increased in branded processed meats,
U.S. beef and Australia beef. This was offset by decreases in the poultry, pork
and cheese businesses. The poultry and pork businesses suffered from high grain
prices in 1997, while depressed raw material prices hurt overall margins in the
cheese business.
Food Inputs & Ingredients 1997 operating profit was $345.1 million, up 52.0%
including the charges and down 1.5% excluding the charges in 1996. Excluding the
charges, operating profit increased in businesses including flour milling,
specialty food ingredients, crop inputs and specialty retailing. This was offset
by operating profit decreases in grain merchandising, specialty grain
processing, commodity services and international fertilizer. Much of this
decrease can be traced to a lower-than-normal U.S. grain supply in the first
half of 1997. Also, 1996 was an exceptional profit year for ConAgra Grain
Companies.
Excluding the charges in 1996, Food Inputs & Ingredients' reported operating
profit was down modestly due to a higher proportion of equity earnings in 1997
(equity earnings are reported on an after-tax basis).
ConAgra's total operating profit was $1.57 billion in 1997, up 54.4%
including the charges and 6.8% excluding the charges in 1996. The 6.8% gain was
also depressed by a greater proportion of equity earnings in 1997.
In 1997, net interest expense decreased 9.2% to $279.2 million mainly due to
lower short-term interest rates and lower short-term borrowings. Income before
income tax in 1997 was $1,044.0 million, up 139.7% including the charges and
10.7% excluding the charges in 1996. The effective tax rate was 38.9% in 1997
versus 39.8% in 1996, excluding the impact of non-recurring charges.
Net income in 1997 was $637.9 million, up 201.2% including the charges and
12.3% excluding the charges in 1996. Net income available for common stock (net
income minus preferred dividends), though also $637.9 million in 1997, increased
more than net income because preferred dividends dropped from $8.6 million in
1996 to zero in 1997 due to the redemption of ConAgra's Class E preferred stock
during 1996. Consequently, net income available for common stock increased
213.9% including the charges and 14.0% excluding the charges in 1996.
Diluted earnings per share in 1997 were $1.34, up 211.6% from $.43 in 1996
including the charges, and up 14.5% from $1.17 in 1996 excluding the charges.
11
Schedule II
CONAGRA, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the Fiscal Years ended May 31, 1998, May 25, 1997 and May 26, 1996
(in millions)
Additions
Balance at ----------------- Deductions Balance at
Beginning Charged from Close of
Description of Period to Income Other Reserves Period
- ----------- ----------- ---------- ------ ----------- ------------
Year ended May 31, 1998:
Allowance for doubtful
receivables $ 67.9 29.1 0.4(2) 29.2(1) $ 68.2
Year ended May 25, 1997:
Allowance for doubtful
receivables $ 52.6 39.4 0.1(2) 24.2(1) $ 67.9
Valuation reserve related
to restructuring $235.8 - - 235.8(3) -
Year ended May 26, 1996:
Allowance for doubtful
receivables $ 64.4 34.7 0.8(2) 47.3(1) $ 52.6
Valuation reserve related
to restructuring - 235.8 - - $235.8
- ----------
(1) Bad debts charged off, less recoveries.
(2) Primarily reserve accounts of acquired businesses less reserve accounts of
divested businesses and foreign currency translation adjustments.
(3) Assets written-off to valuation reserve.
12
CONAGRA, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For the Three Years Ended May 31, 1998
and Independent Auditors' Report
13
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
ConAgra, Inc.
We have audited the accompanying consolidated balance sheets of ConAgra, Inc.
and subsidiaries as of May 31, 1998 and May 25, 1997, and the related
consolidated statements of earnings, common stockholders' equity and cash flows
for each of the three years in the period ended May 31, 1998. Our audits also
included the consolidated financial statement schedule. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, Inc. and subsidiaries as
of May 31, 1998 and May 25, 1997, and the results of their operations and their
cash flows for each of the three years in the period ended May 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
July 10, 1998 (September 24, 1998 as to Note 2)
Omaha, Nebraska
14
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1998 AND MAY 25, 1997
DOLLARS IN MILLIONS EXCEPT SHARE AMOUNTS
1998 1997
---------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 108.4 $ 106.9
Receivables, less allowance for doubtful accounts
of $68.2 and $67.9 (Note 5) 1,546.9 1,391.6
Inventories (Note 6) 3,540.8 3,379.5
Prepaid expenses 341.6 397.8
---------- ---------
Total current assets 5,537.7 5,275.8
---------- ---------
Property, plant and equipment
Land 155.1 164.1
Buildings, machinery and equipment 4,827.0 4,540.8
Other fixed assets 379.8 293.9
Construction in progress 399.2 441.7
---------- ---------
5,761.1 5,440.5
Less accumulated depreciation (2,311.4) (2,098.7)
---------- ---------
Property, plant and equipment, net 3,449.7 3,341.8
---------- ---------
Brands, trademarks and goodwill, at cost
less accumulated amortization of $641.9 and $568.3 2,391.7 2,435.3
Other assets 429.4 398.9
---------- ---------
$11,808.5 $11,451.8
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 858.1 $ 540.4
Current installments of long-term debt 52.7 354.2
Accounts payable 1,971.0 1,911.4
Advances on sales 829.7 766.5
Accrued payroll 293.6 283.6
Other accrued liabilities 1,088.6 1,180.1
---------- ---------
Total current liabilities 5,093.7 5,036.2
---------- ---------
Senior long-term debt, excluding current installments (Note 8) 1,753.5 1,628.5
Other noncurrent liabilities (Note 9) 847.3 941.1
Subordinated debt (Note 8) 750.0 750.0
Preferred securities of subsidiary company (Note 10) 525.0 525.0
Common stockholders' equity (Notes 11, 12 and 13)
Common stock of $5 par value, authorized 1,200,000,000 shares;
issued 519,424,034 and 522,719,194 2,597.1 1,306.8
Additional paid-in capital 320.0 636.9
Retained earnings 1,337.7 2,125.7
Foreign currency translation adjustment (67.6) (31.7)
Less treasury stock, at cost,
common shares 30,011,958 and 30,036,626 (705.2) (655.1)
---------- ---------
3,482.0 3,382.6
Less unearned restricted stock and value of 21,376,632 and
26,202,608 common shares held in Employee Equity Fund (Note 12) (643.0) (811.6)
---------- ---------
Total common stockholders' equity 2,839.0 2,571.0
---------- ---------
$11,808.5 $ 11,451.8
---------- ---------
---------- ---------
The accompanying notes are an integral part of the consolidated financial
statements.
15
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED MAY
IN MILLIONS EXCEPT PER SHARE AMOUNTS
1998 1997 1996
----------- ----------- ------------
Net sales $ 24,219.5 $ 24,445.2 $ 24,321.3
Costs and expenses
Cost of goods sold 20,409.0 20,741.0 20,693.5
Selling, administrative and general expenses 2,468.8 2,381.0 2,377.0
Interest expense (Note 8) 300.7 279.2 307.5
Non-recurring charges (Note 3) - - 507.8
----------- ----------- ------------
23,178.5 23,401.2 23,885.8
----------- ----------- ------------
Income before income taxes and cumulative effect of change in
accounting 1,041.0 1,044.0 435.5
Income taxes (Note 14) 399.2 406.1 223.7
----------- ----------- ------------
Income before cumulative effect of change in accounting 641.8 637.9 211.8
Cumulative effect of change in accounting for
systems reengineering costs (14.8) - -
----------- ----------- ------------
Net income 627.0 637.9 211.8
Less preferred dividends - - 8.6
----------- ----------- ------------
Net income available for common stock $ 627.0 $ 637.9 $ 203.2
----------- ----------- ------------
----------- ----------- ------------
Income per share - basic (Note 4)
Income before cumulative effect of change in accounting $ 1.38 $ 1.36 $ .43
Cumulative effect of change in accounting (.03) - -
----------- ----------- ------------
Net income $ 1.35 $ 1.36 $ .43
----------- ----------- ------------
----------- ----------- ------------
Income per share - diluted (Note 4)
Income before cumulative effect of change in accounting $ 1.35 $ 1.34 $ .43
Cumulative effect of change in accounting (.03) - -
----------- ----------- ------------
Net income $ 1.32 $ 1.34 $ .43
----------- ----------- ------------
----------- ----------- ------------
The accompanying notes are an integral part of the consolidated financial
statements.
16
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR FISCAL YEARS ENDED MAY
COLUMNAR AMOUNTS IN MILLIONS
FOREIGN EEF*
ADDITIONAL CURRENCY STOCK
COMMON COMMON PAID-IN RETAINED TRANSLATION TREASURY AND
SHARES STOCK CAPITAL EARNINGS ADJUSTMENT STOCK OTHER TOTAL
------ ----- ------- -------- ---------- ----- ----- -----
BALANCE AT MAY 29, 1995 522.8 $ 1,307.1 $ 401.9 $ 1,762.1 $ (45.1) $ (206.9) $ (639.5) $ 2,579.6
Shares issued
Stock option and incentive plans .4 .7 2.7 3.4
EEF*: stock option, incentive and
other employee benefit plans (.9) 95.9 95.0
Fair market valuation of
EEF shares 145.4 (145.4) --
Acquisitions .1 .9 2.3 3.3
Shares acquired
Incentive plans (9.7) 2.1 (7.6)
Treasury shares purchased (668.0) (668.0)
Shares retired (.3) (.7) (3.3) 4.0 --
Conversion of preferred stock into
common .1 (134.0) 488.3 354.4
Foreign currency translation
adjustment 5.8 5.8
Dividends declared
Preferred stock (8.6) (8.6)
Common stock, $.460 per share (209.3) (209.3)
Pooled companies (6.1) (6.1)
Net income 211.8 211.8
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 26, 1996 522.9 1,307.3 416.0 1,746.6 (39.3) (390.0) (686.9) 2,353.7
Shares issued
Stock option and incentive plans .3 .6 2.0 .4 3.0
EEF*: stock option, incentive and
other employee benefit plans 13.0 78.8 91.8
Fair market valuation of
EEF shares 204.8 (204.8) --
Acquisitions .1 1.1 4.3 5.5
Shares acquired
Incentive plans (10.1) 1.3 (8.8)
Treasury shares purchased (266.5) (266.5)
Shares retired (.5) (1.2) (5.6) 6.8 --
Foreign currency translation
adjustment 7.6 7.6
Dividends declared
Common stock, $.528 per share (237.3) (237.3)
Pooled companies (15.9) (15.9)
Net income 637.9 637.9
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 25, 1997 522.7 1,306.8 636.9 2,125.7 (31.7) (655.1) (811.6) 2,571.0
Shares issued
Stock option and incentive plans .6 2.8 4.0 .5 7.3
EEF*: stock option, incentive and
other employee benefit plans 34.7 70.5 105.2
Fair market valuation of
EEF shares (97.1) 97.1 --
Acquisitions 1.3 6.7 .4 3.3 2.2 12.6
Shares acquired
Incentive plans (19.4) 1.0 (18.4)
Treasury shares purchased (153.3) (153.3)
Shares retired (5.2) (26.2) (93.7) 119.9 --
Two-for-one stock split 1,307.0 (258.9) (1,048.1) --
Foreign currency translation
adjustment (35.9) (35.9)
Dividends declared
Common stock, $.605 per share (273.6) (273.6)
Pooled companies (2.9) (2.9)
Net income 627.0 627.0
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1998 519.4 $ 2,597.1 $ 320.0 $ 1,337.7 $ (67.6) $ (705.2) $ (643.0) $ 2,839.0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
*Employee Equity Fund (Note 12)
17
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MAY
DOLLARS IN MILLIONS
1998 1997 1996
-------- -------- --------
Cash flows from operating activities
Net income $ 627.0 $ 637.9 $ 211.8
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and other amortization 389.0 357.2 350.3
Goodwill amortization 67.8 69.0 69.9
Cumulative effect of change in accounting and non-recurring charges 24.0 -- 507.8
Other noncash items (includes nonpension postretirement benefits) 86.5 92.7 125.4
Change in assets and liabilities before effects from business acquisitions
Receivables (191.4) 104.7 (123.8)
Inventories and prepaid expenses (270.5) 321.3 (537.4)
Accounts payable and accrued liabilities (109.2) (615.4) 589.7
-------- -------- --------
Net cash flows from operating activities 623.2 967.4 1,193.7
-------- -------- --------
Cash flows from investing activities
Additions to property, plant and equipment (583.7) (682.7) (681.9)
Payment for business acquisitions (33.7) (197.8) (467.1)
Sale of businesses and property, plant and equipment 225.9 31.4 388.9
Notes receivable and other items (3.9) (40.5) 142.3
-------- -------- --------
Net cash flows from investing activities (395.4) (889.6) (617.8)
-------- -------- --------
Cash flows from financing activities
Net short-term borrowings 317.7 104.2 504.3
Proceeds from issuance of long-term debt 311.8 483.2 44.1
Repayment of long-term debt (490.8) (184.4) (217.6)
Cash dividends paid (263.2) (229.9) (215.5)
Cash distributions of pooled companies (3.8) (16.7) (5.1)
Treasury stock purchases (153.3) (266.5) (668.0)
Employee Equity Fund stock transactions 43.6 17.3 21.8
Other items 11.7 8.6 15.0
-------- -------- --------
Net cash flows from financing activities (226.3) (84.2) (521.0)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1.5 (6.4) 54.9
Cash and cash equivalents at beginning of year 106.9 113.3 58.4
-------- -------- --------
Cash and cash equivalents at end of year $ 108.4 $ 106.9 $ 113.3
-------- -------- --------
-------- -------- --------
Noncash financing activities
Treasury stock issued for conversion of Class E cumulative convertible preferred
stock into common stock (Note 11) $ -- $ -- $ 482.2
-------- -------- --------
-------- -------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1998, MAY 25, 1997 AND MAY 26, 1996
Columnar amounts in millions except per share amounts
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR - The fiscal year of ConAgra ("ConAgra" or the "Company")
ends the last Sunday in May. The fiscal years for the consolidated
financial statements presented consist of 53-week periods (fiscal 1998)
or 52-week periods (fiscal 1997 and 1996).
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, Inc. and all majority-owned subsidiaries,
except certain foreign companies that are not material to the Company.
The investments in and the operating results of these foreign companies
and 50%-or-less-owned entities 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.
In the first half of fiscal 1996, ConAgra acquired the outstanding
common stock of Canada Malting Co., Limited ("CMC"), a producer of
malted barley, for approximately U.S. $300 million in a transaction
accounted for as a purchase. The entity was consolidated at that date.
During the fourth quarter of fiscal 1996, the Company sold a 50-percent
interest in CMC to an unrelated party and accordingly accounts for the
remaining interest on the equity method of accounting. The Company did
not realize a gain or loss on the sale.
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.
INVENTORIES - Grain, flour and major feed ingredient inventories are
hedged to the extent practicable and are generally 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 sales in order to properly reflect
gross margins on hedged transactions. Inventories not hedged are priced
at the lower of average cost or market.
PROPERTY AND DEPRECIATION - 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:
Buildings 15 - 40 years
Machinery and equipment 5 - 20 years
Other fixed assets 5 - 15 years
19
BRANDS, TRADEMARKS, GOODWILL AND LONG-LIVED ASSETS - Brands and
goodwill arising from the excess of cost of investment over fair value
of net assets at date of acquisition and trademarks are amortized using
the straight-line method, principally over a period of 40 years. As
required by SFAS No. 121, an impairment is recognized when future
undiscounted cash flows of assets are estimated to be insufficient to
recover their related carrying value. The Company considers continued
operating losses, or significant and long-term changes in industry
conditions, to be its primary indicators of potential impairment.
Recoverability of goodwill not identified with impaired assets under
SFAS No. 121 is evaluated on the basis of management's estimates of
future undiscounted operating income associated with the acquired
business.
DERIVATIVE INSTRUMENTS - The Company uses derivatives for the purpose
of hedging commodity price and, to a lesser extent, interest rate
exposure, that exist as a part of its ongoing business operations.
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 such swaps are recognized in
income as incurred, as a component of interest expense.
COMMODITY CONTRACTS -The Company uses commodity futures and option
contracts, swaps and forward contracts to manage price fluctuations in
various commodities traded or used in its businesses. In the trading
businesses, commodity contracts are marked-to-market with net amounts
due to or from counterparties recorded in accounts receivable or
payable and the related gains or losses recorded in the statement of
earnings. The Company's processing businesses reflect commodity
contract gains and losses as adjustments to the basis of underlying
hedged commodities purchased; gains or losses are recognized in the
statement of earnings as a component of cost of goods sold upon sale of
the hedged commodity.
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. 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.
Cash flows related to derivative financial instruments are classified
in the statements of cash flows in a manner consistent with those of
transactions being hedged.
NET SALES - Gross margins earned from grain, international fertilizer
and feed ingredients merchandised, which are included in net sales,
total $214.3 million, $176.8 million and $179.8 million for fiscal
1998, 1997 and 1996, respectively.
Sales and cost of sales, if reported on a gross basis for these
activities, would be increased by $6.0 billion, $6.0 billion and $6.5
billion for fiscal 1998, 1997 and 1996, respectively.
20
FAIR VALUES OF FINANCIAL INSTRUMENTS - Unless otherwise specified, the
Company believes the book value of financial instruments approximates
their fair value.
ACCOUNTING CHANGES - In fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), EARNINGS PER
SHARE. See Note 4.
In the third quarter of fiscal 1998, the Company recorded a one-time,
after-tax, non-cash charge of $14.8 million to comply with a recently
issued ruling by the Financial Accounting Standards Board's Emerging
Issues Task Force: (EITF) No. 97-13. This EITF requires business
process reengineering costs associated with computer systems
development to be expensed as incurred. Previously, the Company had
capitalized such costs as development costs.
In fiscal 1997, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
ACCOUNTING FOR STOCK-BASED COMPENSATION. As permitted under SFAS No.
123, the Company continues to account for employee stock option plans
using the intrinsic value method of accounting. See Note 13.
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, ("SFAS No. 121"), ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. See
Note 3.
In fiscal 1998, Statement of Financial Accounting Standards No. 130,
REPORTING COMPREHENSIVE INCOME, Statement of Financial Accounting
Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION and Statement of Financial Accounting Standards No.
132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT
BENEFITS were issued. These standards, which will become effective in
fiscal 1999, expand or modify disclosures and will have no effect on
the Company's consolidated financial position, results of operations or
cash flows.
In June 1998, Statement of Financial Accounting Standards No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, was
issued. This standard will become effective in fiscal 2001. The Company
has not quantified the impact, if any, resulting from adoption of this
standard.
RECLASSIFICATION - Certain amounts in the fiscal 1997 Notes to
Consolidated Financial Statements have been reclassified to conform to
fiscal 1998 presentation.
2. BUSINESS COMBINATIONS
On July 31, 1998, GoodMark Foods, Inc. (GoodMark) merged with ConAgra
through an exchange of shares. ConAgra issued approximately 7.8 million
shares of common stock for all outstanding shares of GoodMark. On July
31, 1998, Fernando's Foods Corporation (Fernando's) merged with ConAgra
through an exchange of shares. ConAgra issued approximately 1.3 million
shares of common stock for all outstanding shares of Fernando's.
During fiscal 1998, ConAgra completed mergers with Hester Industries,
Inc. (Hester) and A.M. Gilardi & Sons, Inc. (Gilardi), exchanging 3.7
million and 3.8 million shares of ConAgra stock, for all outstanding
shares of Hester and Gilardi.
21
The above business combinations have been accounted for as poolings of
interest. These historical financial statements of the Company have
been restated to give effect to the all of the above acquisitions as
though the companies had operated together from the beginning of the
earliest period presented.
Results of operations of the acquired businesses for periods prior to
acquisition date were as follows:
1998 1997 1996
---- ---- ----
Net sales $ 379.0 $ 443.1 $ 422.0
Net income $ 13.8 $ 22.9 $ 22.9
3. NON-RECURRING CHARGES
In the fourth quarter of fiscal 1996 the Company recorded non-recurring
charges for a restructuring plan, early adoption of SFAS No. 121 and
completion of a previously announced disposition program. These charges
were as follows:
BEFORE AFTER
INCOME TAX INCOME TAX
---------- ----------
Restructuring plan $353.0 $258.6
Adoption of SFAS No. 121 99.8 79.8
Disposition program 55.0 17.9
---------- ----------
Total charges $507.8 $356.3
---------- ----------
---------- ----------
The effect of these charges in fiscal 1996 was $.76 for basic income
per share and $.74 for diluted income per share.
The fiscal 1996 restructuring plan was designed to streamline the
Company's production base, improve efficiency and enhance its
competitiveness. The restructuring plan included closing or
reconfiguring a number of production facilities and businesses and
reducing the workforce by approximately 6,000 employees.
Restructuring reserves were established in fiscal 1996 totaling $353.0
million. Of this amount, $278.4 million was reserved for asset
impairment, $41.0 million for employee-related cash outlays and $33.6
million for other charges relating to the restructuring initiative, the
majority of which required cash outlays. Substantially all assets have
been written off or cash payments made as of fiscal year end 1998. None
of the above reserves were released to profit and loss in fiscal 1998
or fiscal 1997.
In fiscal 1996, the Company also early adopted SFAS No. 121. The
noncash charge from the adoption of this standard resulted from changes
in industry conditions, continued operating losses and from the
Company's grouping assets at a lower level than under its previous
method of accounting. Under the Company's previous policy for
evaluating impairment, assets were generally grouped at major operating
entity levels, and at those levels of grouping, no impairment charge
was required.
22
Also in fiscal 1996, the Company recognized a charge relating to
previously announced plans to dispose of certain non-core businesses.
4. INCOME PER SHARE
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), EARNINGS PER SHARE, which requires
presentation of basic and diluted income per share on the face of the
Consolidated Statements of Earnings. Basic income per share is
calculated on the basis of weighted average outstanding common shares,
after giving effect to preferred stock dividends. Diluted income 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. All
income per share disclosures have been restated in accordance with SFAS
No. 128.
The following table reconciles the income and average share amounts
used to compute both basic and diluted income per share:
1998 1997 1996
-------- --------- ---------
INCOME PER SHARE - BASIC
Income before cumulative effect of
change in accounting $ 641.8 $ 637.9 $ 211.8
Less preferred dividends - - 8.6
-------- --------- ---------
Income available for common stock before
cumulative effect of change in accounting 641.8 637.9 203.2
Cumulative effect of change in accounting (14.8) - -
-------- --------- ---------
Net income available for common stock $ 627.0 $ 637.9 $ 203.2
-------- --------- ---------
-------- --------- ---------
Weighted average shares outstanding - basic 465.5 468.1 468.5
-------- --------- ---------
-------- --------- ---------
INCOME PER SHARE - DILUTED
Income available for common stock before
cumulative effect of change in accounting $ 641.8 $ 637.9 $ 203.2
Cumulative effect of change in accounting (14.8) - -
-------- --------- ---------
Net income available for common stock $ 627.0 $ 637.9 $ 203.2
-------- --------- ---------
-------- --------- ---------
Weighted average shares outstanding - basic 465.5 468.1 468.5
Add shares contingently issuable upon
exercise of stock options 9.8 8.1 7.9
-------- --------- ---------
Weighted average shares outstanding - diluted 475.3 476.2 476.4
-------- --------- ---------
-------- --------- ---------
23
5. RECEIVABLES
The Company has an agreement to sell interests in pools of receivables,
in an amount not to exceed $550 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, administrative and
general expenses in the Consolidated Statements of Earnings. Gross
proceeds from the sales were $524 and $534 million at fiscal year-end
1998 and 1997, respectively.
6. INVENTORIES
The major classes of inventories are as follows:
1998 1997
----------- -----------
Hedged commodities $ 1,199.3 $ 1,169.8
Food products and livestock 1,263.3 1,221.6
Agricultural chemicals, fertilizer and feed 581.4 381.4
Retail merchandise 13.6 127.5
Other, principally ingredients and supplies 483.2 479.2
----------- -----------
$ 3,540.8 $ 3,379.5
----------- -----------
----------- -----------
7. SHORT-TERM CREDIT FACILITIES AND BORROWINGS
At May 31, 1998, the Company has credit lines from banks which total
approximately $5.3 billion, including: $1.75 billion of long-term
revolving credit facilities maturing in September 2002; $1.75 billion
short-term revolving credit facilities maturing in September 1998; and
uncompensated bankers' acceptance and money market loan facilities
approximating $1.8 billion. 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
for the 1998 fiscal year were $2,515.1 million. This excludes an
average of $646.8 million of short-term borrowings that were classified
as long-term throughout the fiscal year (see Note 8). The highest
period-end short-term indebtedness during fiscal 1998 was $3,551.1
million. Short-term borrowings were at rates below prime. The weighted
average interest rate was 5.78% and 5.63%, respectively, for fiscal
1998 and 1997.
24
In fiscal 1998 and 1997, the Company entered into interest rate swap
agreements to eliminate the impact of changes in short-term borrowing
rates. At May 31, 1998, the Company had outstanding interest rate swap
agreements effectively changing the interest rate exposure on $600
million of short-term borrowings from variable to a 6% fixed rate. The
swaps will mature on December 22, 1998. At May 25, 1997, the Company
had outstanding interest rate swap agreements effectively changing the
interest rate exposure on $1,400 million of short-term borrowings from
variable to fixed rates (ranging from 5.8% to 6.4%). The swap
agreements matured in fiscal 1998. The net cost in fiscal 1998 and
fiscal 1997, and the estimated fair value of these agreements as of May
31, 1998 and May 25, 1997 were not material.
8. SENIOR LONG-TERM DEBT, SUBORDINATED DEBT AND LOAN AGREEMENTS
1998 1997
--------- ---------
Senior Debt
Commercial paper backed by long-term revolving
credit agreements $ 685.6 $ 808.9
9.875% senior debt due in 2006 100.0 100.0
7.125% senior debt due in 2026 (redeemable at option of
holders in 2006) 397.6 397.6
6.70% senior debt due in 2027 (redeemable at option of
holders in 2009) 300.0 -
6.34% to 9.77% publicly issued unsecured medium-term
notes due in various amounts through 2004 119.5 154.5
9.87% to 9.95% unsecured senior notes due in various
amounts through 2009 66.5 78.1
Industrial Development Revenue Bonds (collateralized by
plant and equipment) due on various dates through 2017 at
an average rate of 6.73% and 6.91% 31.3 29.7
Miscellaneous unsecured 53.0 59.7
--------- ---------
Total senior debt 1,753.5 1,628.5
--------- ---------
Subordinated Debt
9.75% subordinated debt due in 2021 400.0 400.0
7.375% to 7.4% subordinated debt due through 2005 350.0 350.0
--------- ---------
Total subordinated debt 750.0 750.0
--------- ---------
Total long-term debt, excluding current installments $ 2,503.5 $ 2,378.5
--------- ---------
--------- ---------
The aggregate minimum principal maturities of the long-term debt for
each of the five fiscal years following May 31, 1998 are as follows:
1999 $ 52.7
2000 19.7
2001 34.0
2002 122.2
2003 692.5
25
Under the long-term credit facility referenced in Note 7, the Company
has agreements that allow it to borrow up to $1.75 billion through
September 2002.
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 60% 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.
Net interest expense consists of:
1998 1997 1996
--------- --------- --------
Long-term debt $ 206.9 $ 204.7 $ 214.7
Short-term debt 143.2 129.2 140.3
Interest income (38.0) (43.5) (41.7)
Interest capitalized (11.4) (11.2) (5.8)
--------- --------- --------
$ 300.7 $ 279.2 $ 307.5
--------- --------- --------
--------- --------- --------
Net interest paid was $300.6 million, $276.6 million and $311.8 million
in fiscal 1998, 1997 and 1996, respectively.
Short-term debt interest expense of $19.1 million, $21.8 million and
$27.5 million in fiscal 1998, 1997 and 1996, 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 $2,556.2 million and $2,732.7 million as of May 31, 1998 and May
25, 1997, respectively. Based on current market rates primarily
provided by outside investment bankers, the fair value of this debt at
May 31, 1998 and May 25, 1997 was estimated at $2,792.9 million and
$2,845.8 million, respectively. The Company's long-term debt is
generally not callable until maturity.
9. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of estimated liabilities of
Beatrice Company (acquired in fiscal 1991) and estimated postretirement
health care and pension benefits as follows:
1998 1997
--------- ---------
Income tax, legal and environmental liabilities primarily
associated with the Company's acquisition of
Beatrice Company $ 378.3 $ 466.2
Estimated postretirement health care and pensions 552.2 551.9
--------- ---------
930.5 1,018.1
Less estimated current portion 83.2 77.0
--------- ---------
$ 847.3 $ 941.1
--------- ---------
--------- ---------
26
10. PREFERRED SECURITIES OF SUBSIDIARY COMPANY
ConAgra Capital, L.C., an indirectly controlled subsidiary of the
Company, has the following Preferred Securities outstanding:
4 MILLION SHARES OF 9% SERIES A CUMULATIVE PREFERRED ("SERIES A
SECURITIES")
Distributions are payable monthly.
7 MILLION SHARES OF SERIES B ADJUSTABLE RATE CUMULATIVE PREFERRED
("SERIES B SECURITIES")
Distributions 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 1998 ranged from 5.6%
to 6.6%.
10 MILLION SHARES OF 9.35% SERIES C CUMULATIVE PREFERRED ("SERIES C
SECURITIES")
Distributions are payable monthly.
For financial statement purposes, distributions on these Securities are
included in selling, administrative and general expenses in the
Consolidated Statements of Earnings as such amounts represent minority
interests.
The above Securities were issued at a price of $25 per share. All such
Securities are non-voting (except in certain limited circumstances),
and are guaranteed on a limited basis by ConAgra and, in certain
limited circumstances, are exchangeable for debt securities of ConAgra.
The Securities are redeemable at the option of ConAgra Capital, L.C.
(with ConAgra's consent) in whole or in part, on or after May 31, 1999
with respect to Series A Securities, June 30, 1999 with respect to
Series B Securities, and February 29, 2000 with respect to Series C
Securities, at $25 per security plus accumulated and unpaid
distributions to the date fixed for redemption.
In connection with the issuance of the Series B Securities, the Company
entered into a swap with a money center bank that effectively changed
the distribution rate to a function of the three-month LIBOR on $175.0
million until May 31, 1998. The net cost of this swap in fiscal 1998,
1997 and 1996 was insignificant. The estimated fair value of this swap
agreement was an obligation of $1.5 million as of May 25, 1997.
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 are no preferred shares issued or outstanding as of May 31, 1998.
27
In fiscal 1996 the Company redeemed its Class D cumulative convertible
preferred stock at a redemption price of $25 per share plus accrued and
unpaid dividends thereon to the redemption date. Approximately 25,000
shares of Class D preferred stock were converted into shares of common
stock. The remaining shares of Class D preferred stock (approximately
2,000) were redeemed for cash.
The Company also redeemed its Class E cumulative convertible preferred
stock during fiscal 1996. Approximately 14.2 million shares were
converted into common stock and approximately 18,000 shares were
redeemed for cash. The Company used common shares acquired in open
market purchases at an aggregate cost of $482.2 million for purposes of
effecting the preferred stock conversion.
In connection with a two-for-one split of the Company's common stock,
effective October 1, 1997, the Company issued 261.4 million shares
(including 17.1 million shares and 12.2 million shares added to
treasury stock and the Employee Equity Fund, respectively) in the form
of a stock dividend. All references in the financial statements with
regard to number of shares of common stock, related dividends and per
share amounts have been restated to reflect this stock split.
12. EMPLOYEE EQUITY FUND
In fiscal 1993, the Company established a $700 million Employee Equity
Fund ("EEF"), a newly formed 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 common stock and does not change those plans or the
amounts of stock expected to be issued for those plans.
For financial reporting purposes the EEF is consolidated with ConAgra.
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 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:
1998 1997
-------- ---------
Shares held (in millions) 21.4 26.2
Cost - per share $14.552 $14.552
Cost - total 311.1 381.3
Fair market value - per share $ 29.25 $ 30.25
Fair market value - total 625.3 792.6
28
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
restricted or bonus stock without direct cost to the employee. During
fiscal 1998, 1997 and 1996, 274,926 shares, 565,722 shares and 493,036
shares of restricted stock (including stock issued under incentive
plans) were issued. The value of the restricted stock, equal to fair
market value at the time of grant, is being amortized as compensation
expense. This compensation expense was not significant for fiscal 1998,
1997 and 1996. Generally, options granted become exercisable over a
four-year period and expire ten years after the date of grant. For
participants under the long-term senior management incentive plan,
options are exercisable under various vesting schedules. 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 31, 1998 are summarized below:
1998 1997 1996
--------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
Beginning of year 23.1 $ 17.01 23.3 $ 14.66 27.1 $ 12.86
Granted 5.2 33.57 5.7 24.03 5.5 19.99
Exercised (3.4) 13.80 (4.3) 13.72 (4.9) 12.11
Canceled (1.3) 20.52 (1.6) 16.43 (4.4) 13.10
End of year 23.6 $ 20.91 23.1 $ 17.01 23.3 $ 14.66
Exercisable
at end of year 13.8 $ 16.99 13.0 $ 14.40 13.4 $ 12.97
The following summarizes information about stock options outstanding as of May
31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICE SHARES LIFE PRICE SHARES PRICE
- ----------------------- ------ ---- ----- ------ -----
$ 4.97 - $ 8.44 .8 1.3 $ 7.11 .8 $ 7.11
8.56 - 12.69 3.3 3.8 11.43 3.3 11.43
13.13 - 19.50 5.9 5.1 15.48 5.0 15.41
19.94 - 29.50 8.7 7.9 22.35 3.7 21.96
31.88 - 36.81 4.9 9.3 33.81 1.0 33.81
4.97 - 36.81 23.6 6.7 20.91 13.8 16.99
29
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 because 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 income per share is
required by SFAS No. 123, 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 1998, 1997 and 1996, respectively: risk-free interest rate of
6.03%, 6.40% and 5.25%; a dividend yield of 2.1%, 2.2% and 2.2%;
expected volatility of 19.1%, 20.9% and 22.4%; and an expected option
life of six years. The weighted average fair value of options granted
in fiscal 1998, 1997 and 1996 was $8.53, $6.54 and $5.14, respectively.
Pro forma net income and income per share, after cumulative effect of
change in accounting, are as follows (because SFAS No. 123 is
applicable only to options granted subsequent to fiscal 1995, its pro
forma effect will not be fully reflected until fiscal 2000):
1998 1997 1996
-------- -------- --------
Pro forma net income available for common stock $ 615.9 $ 631.2 $ 200.2
Pro forma basic income per share 1.32 1.35 .43
Basic income per share - as reported 1.35 1.36 .43
Pro forma diluted income per share 1.30 1.33 .42
Diluted income per share - as reported 1.32 1.34 .43
At May 31, 1998, approximately 13.6 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 ten 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 31, 1998, the Company has reserved one million
Class E preferred shares for exercise of the Rights.
30
14. PRETAX INCOME AND INCOME TAXES
Income before taxes and cumulative effect of change in accounting
consisted of the following:
1998 1997 1996
---------- ---------- ---------
United States $ 968.9 $ 997.4 $ 413.2
Foreign 72.1 46.6 22.3
---------- ---------- ---------
$ 1,041.0 $ 1,044.0 $ 435.5
---------- ---------- ---------
---------- ---------- ---------
The provision for income taxes includes the following:
1998 1997 1996
--------- --------- ---------
Current
Federal $ 287.0 $ 271.8 $ 189.3
State 56.6 59.0 35.0
Foreign 12.3 8.0 37.1
--------- --------- ---------
355.9 338.8 261.4
--------- --------- ---------
Deferred
Federal 38.8 60.6 (25.1)
State 4.5 6.7 (2.9)
Foreign -- -- (9.7)
--------- --------- ---------
43.3 67.3 (37.7)
--------- --------- ---------
$ 399.2 $ 406.1 $ 223.7
--------- --------- ---------
--------- --------- ---------
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:
1998 1997 1996
--------- --------- ---------
Computed U.S. federal income taxes $ 364.3 $ 365.4 $ 152.4
State income taxes, net of U.S. federal tax benefit 39.7 42.9 20.9
Nondeductible amortization of goodwill and other
intangibles 20.1 21.7 21.8
Export and jobs tax credits (7.5) (6.3) (9.4)
Permanent differences due to
non-recurring charges -- -- 45.8
Other (17.4) (17.6) (7.8)
--------- --------- ---------
$ 399.2 $ 406.1 $ 223.7
--------- --------- ---------
--------- --------- ---------
Income taxes paid were $282.3 million, $318.3 million and $238.9
million in fiscal 1998, 1997 and 1996, respectively. The Internal
Revenue Service has examined the Company's tax returns through fiscal
1992. The IRS has proposed certain adjustments, some of which are being
contested by the Company. The Company believes that it has made
adequate provisions for income taxes payable.
31
The tax effect of temporary differences and carryforwards that give
rise to significant portions of deferred tax assets and liabilities
consist of the following:
1998 1997
--------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- ------- -----------
Depreciation and amortization $ -- $ 342.8 $ -- $ 344.6
Nonpension postretirement benefits 170.2 -- 171.5 --
Other noncurrent liabilities which will
give rise to future tax deductions 216.0 -- 250.3 --
Accrued expenses 74.5 -- 48.0 --
Other 82.4 108.7 78.9 109.5
Non-recurring charges 59.5 -- 85.5 --
-------- -------- -------- --------
$ 602.6 $ 451.5 $ 634.2 $ 454.1
-------- -------- -------- --------
-------- -------- -------- --------
15. COMMITMENTS
The Company leases certain facilities and transportation equipment
under agreements that expire at various dates. Management expects that
in the normal course of business, leases that expire will be renewed or
replaced by other leases. Substantially all leases require payment of
property taxes, insurance and maintenance costs in addition to rental
payments.
A summary of rent expense charged to operations follows:
1998 1997 1996
--------- --------- ---------
Cancelable $ 153.2 $ 134.4 $ 121.1
Noncancelable 115.1 112.4 121.2
--------- --------- ---------
$ 268.3 $ 246.8 $ 242.3
--------- --------- ---------
--------- --------- ---------
A summary of noncancelable operating lease commitments for fiscal years
following May 31, 1998 is as follows:
TYPE OF PROPERTY
---------------------------------
REAL AND OTHER TRANSPORTATION
PROPERTY EQUIPMENT
-------------- --------------
1999 $ 77.3 $ 33.6
2000 69.7 28.7
2001 59.7 20.0
2002 51.4 9.4
2003 40.6 4.4
Later years 76.5 6.8
-------- --------
$ 375.2 $ 102.9
-------- --------
-------- --------
The Company had letters of credit, performance bonds and other
commitments and guarantees outstanding at May 31, 1998 aggregating
approximately $234.4 million.
32
16. 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 47 Superfund, proposed Superfund or state-equivalent
sites. Beatrice has paid or is in the process of paying its liability share
at 43 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 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.
17. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate swaps to manage its interest rate risk, as
outlined in Note 7. In addition, the Company uses derivative financial
instruments such as swaps, forwards and options in its hedging and trading
activities in energy markets. At May 31, 1998, the Company had long natural
gas and electricity positions in derivative financial instruments with a
notional value of $256 million and associated short positions with a
notional value of $258 million. At May 25, 1997, such amounts were not
material. All contracts are marked to the market, with gains and losses
recorded in the income statement, consistent with all trading business
activity within the Company. The market risk on the net position in
derivative financial instruments in the energy complex was not material.
The Company performs credit assessments on all counterparties and obtains
additional guarantees of financial performance, if deemed necessary. The
predominance of these trades are swaps, where the Company pays or receives
only the difference between the contract value and the market value. The
amount at risk is therefore limited to the gain on the swap. The Company
does not anticipate any material loss because of nonperformance by a
counterparty.
Certain of the Company's operations use foreign exchange forwards to hedge
fixed purchase and sales commitments denominated in a foreign currency. The
fair value of these foreign exchange positions was not material as of May
31, 1998 and May 25, 1997.
33
18. 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.
Consolidated pension costs consist of the following:
1998 1997 1996
-----------------------------------------------------------------------------------------------------
PLAN ACCUMULATED PLAN ACCUMULATED PLAN ACCUMULATED
ASSETS BENEFITS ASSETS BENEFITS ASSETS BENEFITS
EXCEED EXCEED EXCEED EXCEED EXCEED EXCEED
ACCUMULATED PLAN ACCUMULATED PLAN ACCUMULATED PLAN
BENEFITS ASSETS BENEFITS ASSETS BENEFITS ASSETS
-----------------------------------------------------------------------------------------------------
Service cost $ 39.8 $ 4.6 $ 39.4 $ 6.5 $ 24.8 $ 8.0
Interest cost 79.3 13.2 73.7 13.3 62.5 19.7
Actual return on
plan assets (266.8) (19.2) (142.1) (8.2) (185.8) (40.4)
Net amortization and
deferral 182.5 15.0 72.7 4.7 122.5 29.5
-------- -------- -------- -------- -------- --------
Net pension costs $ 34.8 $ 13.6 $ 43.7 $ 16.3 $ 24.0 $ 16.8
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Pension costs were determined using a 7.5% discount rate (7.0% in fiscal
1997 and 8.5% in fiscal 1996), a long-term rate of return of 9.25% and a
long-term rate of compensation increases of 5.5% for all years presented.
The funded status of the plans at February 28, 1998 and February 28, 1997
(dates of the most recent actuarial reports) was as follows:
34
1998 1997
-------------------------------------------------------------------------
PLAN ACCUMULATED PLAN ACCUMULATED
ASSETS BENEFITS ASSETS BENEFITS
EXCEED EXCEED EXCEED EXCEED
ACCUMULATED PLAN ACCUMULATED PLAN
BENEFITS ASSETS BENEFITS ASSETS
-------------------------------------------------------------------------
Plan assets at fair value $ 1,373.6 $ 131.0 $ 1,124.1 $ 130.6
---------- ---------- ---------- ----------
Projected benefit obligation:
Actuarial present value of
vested benefits 951.9 164.9 865.1 171.8
Actuarial present value of
nonvested benefits 70.2 9.6 53.2 7.6
---------- ---------- ---------- -----------
Accumulated benefits 1,022.1 174.5 918.3 179.4
Additional obligation of projected
compensation increases 163.9 15.8 147.6 15.9
---------- ---------- ---------- ----------
1,186.0 190.3 1,065.9 195.3
---------- ---------- ---------- ----------
Plan assets greater (less) than
projected benefit obligations $ 187.6 $ (59.3) $ 58.2 $ (64.7)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Consisting of:
Unrecognized transition asset $ 10.7 $ 0.9 $ 13.2 $ 1.1
Unrecognized prior service cost (9.2) (17.7) (8.7) (16.7)
Unrecognized net gain (loss) 265.7 (13.2) 129.6 (24.4)
Adjustment to recognize
minimum liability -- 15.1 -- 24.3
Accrued pension cost on
consolidated balance sheets (79.6) (44.4) (75.9) (49.0)
---------- ---------- ---------- ----------
$ 187.6 $ (59.3) $ 58.2 $ (64.7)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Plan assets are primarily invested in equity securities, corporate and
government debt securities and common trust funds. Included in plan assets
are 5,080,342 shares of the Company's common stock at a fair market value
of $152.4 million at February 28, 1998.
The actuarial projected benefit obligation was determined using an assumed
discount rate of 7.25% and 7.5% as of February 28, 1998 and February 28,
1997, respectively, and long-term rate of compensation increases of 5.5%
for all years presented.
The Company funds these plans in accordance with the minimum and maximum
limits established by law.
The Company and its subsidiaries are also participants in multi-employer
pension plans covering certain hourly employees. Costs associated with
these plans for fiscal 1998, 1997 and 1996 were $9.5 million, $8.8 million
and $8.3 million, respectively.
Certain employees of the Company are covered under defined contribution
plans. The expense related to these plans was $29.0 million, $28.6 million
and $25.1 million in fiscal 1998, 1997 and 1996, respectively.
35
POSTRETIREMENT BENEFITS
The Company's postretirement plans provide certain medical and dental
benefits to qualifying U.S. employees.
Net postretirement benefit cost includes the following components:
1998 1997 1996
---- ---- ----
Service cost $ 2.7 $ 3.9 $ 3.3
Interest cost on accumulated postretirement
benefit obligation 25.1 29.1 34.3
Other (4.3) (1.7) (0.9)
------- ------- -------
$ 23.5 $ 31.3 $ 36.7
------- ------- -------
------- ------- -------
Benefit costs were generally estimated assuming retiree health care costs
would initially increase at a 7.0% annual rate for all participants. The
rates are assumed to decrease each year to a 5.5% annual growth rate in
fiscal 2000 and remain at a 5.5% annual growth rate thereafter. A 1%
increase in these annual trend rates would have increased the accumulated
postretirement benefit obligation at February 28, 1998 by $39.2 million
with a corresponding effect on fiscal 1998 postretirement benefit expense
of $2.8 million. The discount rate used to estimate the accumulated
postretirement benefit obligation was 7.25% and 7.5% in fiscal 1998 and
1997, respectively. Plan assets consist of guaranteed investment contracts
earning a 13.7% annual rate of return. The Company generally intends to
fund claims as reported.
The status of the Company's plans at February 28, 1998 and 1997 was as
follows:
1998 1997
-------- --------
Accumulated postretirement benefit obligations
Retirees and dependents $ 293.7 $ 289.2
Fully eligible active plan participants 24.5 29.8
Other active plan participants 33.3 31.4
-------- --------
Total accumulated postretirement benefit obligation 351.5 350.4
Plan assets at fair value (5.5) (5.7)
Unrecognized prior service cost 0.7 0.7
Unrecognized net actuarial gain 90.8 89.3
-------- --------
Accrued postretirement benefit obligation
at fiscal year-end $ 437.5 $ 434.7
-------- --------
-------- --------
36
19. BUSINESS SEGMENTS
The Company is a diversified food company that operates across the food
chain, from basic agricultural inputs to production and sale of branded
consumer products. The Company has three business segments. Grocery &
Diversified Products includes companies that produce shelf-stable and
frozen foods. This segment markets food products in retail and foodservice
channels. Refrigerated Foods includes companies that produce and market
branded processed meats, beef, pork, chicken, turkey and cheese products to
retail and foodservice markets. Food Inputs & Ingredients includes
companies involved in distribution of agricultural inputs -- crop
protection chemicals, fertilizers and seeds -- and procurement, processing,
trading and distribution of commodity food ingredients.
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 (except
financial businesses) and income taxes have been excluded from segment
operations. All assets other than cash and those assets related to the
corporate office have been identified with the segments to which they
relate. The Company operates principally in the United States.
1998 1997 1996
----------- ------------ ------------
Sales to unaffiliated customers
Grocery & Diversified Products $ 5,999.1 $ 5,777.0 $ 5,369.8
Refrigerated Foods 12,307.7 12,738.1 12,984.1
Food Inputs & Ingredients 5,912.7 5,930.1 5,967.4
------------ ------------ ------------
Total $ 24,219.5 $ 24,445.2 $ 24,321.3
------------ ------------ ------------
------------ ------------ ------------
Intersegment sales
Grocery & Diversified Products $ 12.5 $ 10.3 $ 3.4
Refrigerated Foods 199.1 121.7 55.0
Food Inputs & Ingredients 220.7 255.7 256.0
------------ ------------ ------------
432.3 387.7 314.4
Intersegment elimination (432.3) (387.7) (314.4)
------------ ------------ ------------
Total $ - $ - $ -
------------ ------------ ------------
------------ ------------ ------------
Net sales
Grocery & Diversified Products $ 6,011.6 $ 5,787.3 $ 5,373.2
Refrigerated Foods 12,506.8 12,859.8 13,039.1
Food Inputs & Ingredients 6,133.4 6,185.8 6,223.4
Intersegment elimination (432.3) (387.7) (314.4)
------------ ------------ ------------
Total $ 24,219.5 $ 24,445.2 $ 24,321.3
------------ ------------ ------------
------------ ------------ ------------
Operating profit (Note a)
Grocery & Diversified Products $ 934.8 $ 840.2 $ 669.4
Refrigerated Foods 231.1 385.6 120.9
Food Inputs & Ingredients 407.3 345.1 227.1
------------ ------------ ------------
Total operating profit 1,573.2 1,570.9 1,017.4
Interest expense excluding financial businesses 301.0 279.3 293.0
General corporate expenses (Note b) 163.4 178.6 219.0
Goodwill amortization 67.8 69.0 69.9
------------ ------------ ------------
Total $ 1,041.0 $ 1,044.0 $ 435.5
------------ ------------ ------------
------------ ------------ ------------
37
1998 1997 1996
------------ ------------ ------------
Identifiable assets
Grocery & Diversified Products $ 3,945.3 $ 3,914.6 $ 3,825.2
Refrigerated Foods 4,072.0 3,902.5 3,641.8
Food Inputs & Ingredients 3,389.6 3,184.5 3,358.5
Corporate 401.6 450.2 538.7
------------ ------------ ------------
Total $ 11,808.5 $ 11,451.8 $ 11,364.2
------------ ------------ ------------
------------ ------------ ------------
Additions to property, plant and
equipment - including businesses acquired
Grocery & Diversified Products $ 229.2 $ 243.1 $ 260.3
Refrigerated Foods 223.2 311.7 351.4
Food Inputs & Ingredients 141.4 181.7 410.4
Corporate 9.0 5.6 7.4
------------ ------------ ------------
Total $ 602.8 $ 742.1 $ 1,029.5
------------ ------------ ------------
------------ ------------ ------------
Depreciation and amortization
Grocery & Diversified Products $ 204.9 $ 193.3 $ 182.4
Refrigerated Foods 185.6 164.5 159.6
Food Inputs & Ingredients 63.8 62.8 72.8
Corporate 2.5 5.6 5.4
------------ ------------ ------------
Total $ 456.8 $ 426.2 $ 420.2
------------ ------------ ------------
------------ ------------ ------------
Note a: Fiscal 1996 includes before-tax non-recurring charges of $452.8
million (Note 3). The charges were included in operating profit as follows:
$63.6 million in Grocery & Diversified Products; $265.8 million in
Refrigerated Foods; and $123.4 million in Food Inputs & Ingredients.
Note b: Fiscal 1996 includes a before-tax charge of $55.0 million relating
to the disposal of certain non-core businesses (Note 3).
38
20. QUARTERLY RESULTS (UNAUDITED)
INCOME PER SHARE STOCK MARKET PRICE DIVIDENDS
NET GROSS NET ------------------------- ------------------------ DECLARED
SALES PROFIT INCOME BASIC DILUTED HIGH LOW PER SHARE
----------- ---------- --------- ----------- ----------- ----------- ----------- ---------
1998
First $ 6,262.8 $ 883.4 $ 118.3 $ .25 $ .25 $ 35.81 $ 29.63 $ .13625
Second 6,548.1 1,037.2 217.2 .47 .46 37.25 28.69 .15625
Third 5,468.0 875.5 133.7* .29* .28* 38.75 27.00 .15625
Fourth 5,940.6 1,014.4 172.6 .37 .36 32.94 27.88 .15625
----------- ---------- --------- ----------- ----------- ---------
Year $ 24,219.5 $ 3,810.5 $ 641.8* $ 1.38* $ 1.35* $ 38.75 $ 27.00 $ .60500
----------- ---------- --------- ----------- ----------- ---------
----------- ---------- --------- ----------- ----------- ---------
1997
First $ 6,274.5 $ 829.7 $ 103.8 $ .22 $ .22 $ 23.69 $ 20.69 $ .11875
Second 6,704.8 995.9 195.2 .42 .41 26.50 20.75 .13625
Third 5,561.0 908.9 146.9 .31 .31 27.63 24.19 .13625
Fourth 5,904.9 969.7 192.0 .41 .40 30.75 25.75 .13625
----------- ---------- --------- ----------- ----------- ---------
Year $ 24,445.2 $ 3,704.2 $ 637.9 $ 1.36 $ 1.34 $ 30.75 $ 20.69 $ .52750
----------- ---------- --------- ----------- ----------- ---------
----------- ---------- --------- ----------- ----------- ---------
* Amounts presented exclude one-time cumulative effect of change in
accounting for business process reengineering costs associated
with computer systems development of $14.8 million after-tax or
$.03 per share for both basic and diluted income per share.
39