Notes to Consolidated Financial Statements
Fiscal Years Ended
May 27, 2018
,
May 28, 2017
, and
May 29, 2016
(columnar dollars in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
— The fiscal year of Conagra Brands, Inc. ("Conagra Brands", "Company", "we", "us", or "our") ends the last Sunday in May. The fiscal years for the consolidated financial statements presented consist of
52-week
periods for fiscal years 2018, 2017, and 2016.
Basis of Consolidation
— The consolidated financial statements include the accounts of Conagra Brands, Inc. and all majority-owned subsidiaries. In addition, the accounts of all variable interest entities for which we have been determined to be the primary beneficiary are included in our consolidated financial statements from the date such determination is made. All significant intercompany investments, accounts, and transactions have been eliminated.
On November 9, 2016, we completed the spinoff of Lamb Weston Holdings, Inc. ("Lamb Weston") through a distribution of
100%
of our interest in Lamb Weston to holders of shares of our common stock as of November 1, 2016 (the "Spinoff"). In accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), the results of operations of the Lamb Weston operations are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented (see Note 6 for additional discussion).
Investments in Unconsolidated Affiliates
— The investments in, and the operating results of, 50%-or-less-owned entities not required to be consolidated are included in the consolidated financial statements on the basis of the equity method of accounting or the cost method of accounting, depending on specific facts and circumstances.
We review our investments in unconsolidated affiliates for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investments may not be fully recoverable. Evidence of a loss in value that is other than temporary includes, but is not limited to, the absence of an ability to recover the carrying amount of the investment, the inability of the investee to sustain an earnings capacity which would justify the carrying amount of the investment, or, where applicable, estimated sales proceeds which are insufficient to recover the carrying amount of the investment. Management's assessment as to whether any decline in value is other than temporary is based on our ability and intent to hold the investment and whether evidence indicating the carrying value of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Management generally considers our investments in equity method investees to be strategic long-term investments. Therefore, management completes its assessments with a long-term viewpoint. If the fair value of the investment is determined to be less than the carrying value and the decline in value is considered to be other than temporary, an appropriate write-down is recorded based on the excess of the carrying value over the best estimate of fair value of the investment.
Cash and Cash Equivalents
— Cash and all highly liquid investments with an original maturity of three months or less at the date of acquisition, including short-term time deposits and government agency and corporate obligations, are classified as cash and cash equivalents.
Receivables
— Receivables from customers generally do not bear interest. Terms and collection vary by location and channel. The allowance for doubtful accounts represents our estimate of probable non-payments and credit losses in our existing receivables, as determined based on a review of past due balances and other specific account data. Account balances are written off against the allowance when we deem them uncollectible.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The following table details the balances of our allowance for doubtful accounts and changes therein:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Period
|
|
Additions
Charged
to Costs and
Expenses
|
|
Other
|
|
Deductions
from
Reserves
|
|
Balance at
Close of
Period
|
Year ended May 27, 2018
|
|
$
|
3.1
|
|
|
0.8
|
|
|
—
|
|
|
1.9
|
|
(2)
|
$
|
2.0
|
|
Year ended May 28, 2017
|
|
$
|
3.2
|
|
|
1.0
|
|
|
—
|
|
|
1.1
|
|
(2)
|
$
|
3.1
|
|
Year ended May 29, 2016
|
|
$
|
3.0
|
|
|
1.1
|
|
|
(0.1
|
)
|
(1)
|
0.8
|
|
(2)
|
$
|
3.2
|
|
|
|
(1)
|
Primarily translation incurred during fiscal 2016.
|
|
|
(2)
|
Bad debts charged off and adjustments to previous reserves, less recoveries.
|
Inventories
— We use the lower of cost (determined using the first-in, first-out method) or market for valuing inventories.
Property, Plant and Equipment
— Property, plant and equipment are carried at cost. Depreciation has been calculated using the straight-line method over the estimated useful lives of the respective classes of assets as follows:
|
|
|
|
|
|
|
Land improvements
|
|
1 - 40 years
|
Buildings
|
|
15 - 40 years
|
Machinery and equipment
|
|
3 - 20 years
|
Furniture, fixtures, office equipment and other
|
|
5 - 15 years
|
We review property, plant and equipment for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Recoverability of an asset considered "held-and-used" is determined by comparing the carrying amount of the asset to the undiscounted net cash flows expected to be generated from the use of the asset. If the carrying amount is greater than the undiscounted net cash flows expected to be generated by the asset, the asset's carrying amount is reduced to its estimated fair value. An asset considered "held-for-sale" is reported at the lower of the asset's carrying amount or fair value.
Goodwill and Other Identifiable Intangible Assets
— Goodwill and other identifiable intangible assets with indefinite lives (e.g., brands or trademarks) are not amortized and are tested annually for impairment of value and whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill and other intangible assets.
In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than
50%
) that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.
Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). Furthermore, management considers the results of the most recent quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital between the current and prior years for each reporting unit.
Under the goodwill quantitative impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. We estimate the fair value using level 3 inputs as defined by the fair value hierarchy. Refer to Note 20 for the definition of the levels in the fair value hierarchy. The inputs used to calculate
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
the fair value include a number of subjective factors, such as estimates of future cash flows, estimates of our future cost structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time horizon of cash flow forecasts. Prior to the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeded its fair value, we completed a second step of the test to determine the amount of goodwill impairment loss, if any, to be recognized. In the second step, we estimated an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The impairment loss was equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill. Beginning in the fourth quarter of fiscal 2017, if the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit.
In assessing other intangible assets not subject to amortization for impairment, we have the option to perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of such an intangible asset is less than its carrying amount. If we determine that it is not more likely than not that the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform any additional tests for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment, then we are required to perform a quantitative impairment test that involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
In fiscal 2018, 2017, and 2016 we elected to perform a quantitative impairment test for other intangible assets not subject to amortization. The estimates of fair value of intangible assets not subject to amortization are determined using a "relief from royalty" methodology, which is used in estimating the fair value of our brands/trademarks. Discount rate assumptions are based on an assessment of the risk inherent in the projected future cash flows generated by the respective intangible assets. Also subject to judgment are assumptions about royalty rates.
Identifiable intangible assets with definite lives (e.g., licensing arrangements with contractual lives or customer relationships) are amortized over their estimated useful lives and tested for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. Identifiable intangible assets with definite lives are evaluated for impairment using a process similar to that used in evaluating elements of property, plant and equipment. If impaired, the asset is written down to its fair value.
Refer to Note 9 for discussion of the impairment charges related to goodwill and intangible assets in fiscal 2018, 2017, and 2016.
Fair Values of Financial Instruments
— Unless otherwise specified, we believe the carrying value of financial instruments approximates their fair value.
Environmental Liabilities
— Environmental liabilities are accrued when it is probable that obligations have been incurred and the associated amounts can be reasonably estimated. We use third-party specialists to assist management in appropriately measuring the obligations associated with environmental liabilities. Such liabilities are adjusted as new information develops or circumstances change. We do not discount our environmental liabilities as the timing of the anticipated cash payments is not fixed or readily determinable. Management's estimate of our potential liability is independent of any potential recovery of insurance proceeds or indemnification arrangements. We do not reduce our environmental liabilities for potential insurance recoveries.
Employment-Related Benefits
— Employment-related benefits associated with pensions, postretirement health care benefits, and workers' compensation are expensed as such obligations are incurred. The recognition of expense is impacted by estimates made by management, such as discount rates used to value these liabilities, future health care costs, and employee accidents incurred but not yet reported. We use third-party specialists to assist management in appropriately measuring the obligations associated with employment-related benefits.
We recognize changes in the fair value of pension plan assets and net actuarial gains or losses in excess of 10% of the greater of the market-related value of plan assets or the plan's projected benefit obligation (the "corridor") in current period expense annually as of our measurement date, which is our fiscal year-end, or when measurement is required otherwise under generally accepted accounting principles.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
Revenue Recognition
— Revenue is recognized when title and risk of loss are transferred to customers upon delivery based on terms of sale and collectability is reasonably assured. Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts, trade allowances, and returns of damaged and out-of-date products.
Shipping and Handling
— Amounts billed to customers related to shipping and handling are included in net sales. Shipping and handling costs are included in cost of goods sold.
Marketing Costs
— We promote our products with advertising, consumer incentives, and trade promotions. Such programs include, but are not limited to, discounts, coupons, rebates, and volume-based incentives. Advertising costs are expensed as incurred. Consumer incentives and trade promotion activities are recorded as a reduction of revenue or as a component of cost of goods sold based on amounts estimated as being due to customers and consumers at the end of the period, based principally on historical utilization and redemption rates. Advertising and promotion expenses totaled
$278.6 million
,
$328.3 million
, and
$347.2 million
in fiscal
2018
,
2017
, and
2016
, respectively, and are included in selling, general and administrative ("SG&A") expenses.
Research and Development
— We incurred expenses of
$47.3 million
,
$44.6 million
, and
$59.6 million
for research and development activities in fiscal
2018
,
2017
, and
2016
, respectively.
Comprehensive Income
— Comprehensive income includes net income, currency translation adjustments, certain derivative-related activity, changes in the value of available-for-sale investments, and changes in prior service cost and net actuarial gains (losses) from pension (for amounts not in excess of the 10% "corridor") and postretirement health care plans. On foreign investments we deem to be essentially permanent in nature, we do not provide for taxes on currency translation adjustments arising from converting an investment denominated in a foreign currency to U.S. dollars. When we determine that a foreign investment, as well as undistributed earnings, are no longer permanent in nature, estimated taxes will be provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.
The following table details the accumulated balances for each component of other comprehensive income (loss), net of tax:
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2018
|
|
2017
|
|
2016
|
Currency translation losses, net of reclassification adjustments
|
$
|
(94.7
|
)
|
|
$
|
(98.6
|
)
|
|
$
|
(95.2
|
)
|
Derivative adjustments, net of reclassification adjustments
|
1.0
|
|
|
(1.1
|
)
|
|
(0.4
|
)
|
Unrealized gains (losses) on available-for-sale securities
|
0.6
|
|
|
(0.3
|
)
|
|
(0.6
|
)
|
Pension and post-employment benefit obligations, net of reclassification adjustments
|
(17.4
|
)
|
|
(112.9
|
)
|
|
(248.3
|
)
|
Accumulated other comprehensive loss
1
|
$
|
(110.5
|
)
|
|
$
|
(212.9
|
)
|
|
$
|
(344.5
|
)
|
1
Net of stranded tax effects from change in tax rate as a result of the early adoption of ASU 2018-02 in the amount of
$17.4 million
which has been reclassified to retained earnings.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The following table summarizes the reclassifications from accumulated other comprehensive loss into income (loss):
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|
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Affected Line Item in the Consolidated Statement of Operations
1
|
|
2018
|
|
2017
|
|
2016
|
|
|
Net derivative adjustment, net of tax:
|
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|
|
|
|
|
|
Cash flow hedges
|
$
|
0.1
|
|
|
$
|
(0.2
|
)
|
|
$
|
(2.1
|
)
|
|
Interest expense, net
|
|
0.1
|
|
|
(0.2
|
)
|
|
(2.1
|
)
|
|
Total before tax
|
|
—
|
|
|
0.1
|
|
|
0.8
|
|
|
Income tax expense
|
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
|
$
|
(1.3
|
)
|
|
Net of tax
|
Amortization of pension and postretirement healthcare liabilities:
|
|
|
|
|
|
|
|
Net prior service benefit
|
$
|
(0.4
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
(5.1
|
)
|
|
Selling, general and administrative expenses
|
Divestiture of Private Brands
|
—
|
|
|
—
|
|
|
(4.3
|
)
|
|
Income (loss) from discontinued operations, net of tax
|
Pension settlement of equity method investee
|
—
|
|
|
—
|
|
|
(5.2
|
)
|
|
Equity method investment earnings
|
Pension settlement
|
1.3
|
|
|
13.8
|
|
|
—
|
|
|
Selling, general and administrative expenses
|
Net actuarial loss
|
—
|
|
|
0.5
|
|
|
0.1
|
|
|
Selling, general and administrative expenses
|
|
0.9
|
|
|
10.4
|
|
|
(14.5
|
)
|
|
Total before tax
|
|
(0.2
|
)
|
|
(4.0
|
)
|
|
4.9
|
|
|
Income tax expense
|
|
$
|
0.7
|
|
|
$
|
6.4
|
|
|
$
|
(9.6
|
)
|
|
Net of tax
|
Currency translation losses
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73.4
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
—
|
|
|
—
|
|
|
73.4
|
|
|
Total before tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73.4
|
|
|
Net of tax
|
1
Amounts in parentheses indicate income recognized in the Consolidated Statements of Operations.
Foreign Currency Transaction Gains and Losses
— We recognized net foreign currency transaction losses from continuing operations of
$1.4 million
,
$1.5 million
, and
$5.1 million
in fiscal
2018
,
2017
, and
2016
, respectively, in SG&A expenses.
Business Combinations
— We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
Reclassifications and other changes
— Certain prior year amounts have been reclassified to conform with current year presentation.
Use of Estimates
— Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets, liabilities, revenues, and expenses as reflected in the consolidated financial statements. Actual results could differ from these estimates.
Accounting Changes
— In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-11,
Inventory
, which requires an entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this ASU prospectively in fiscal 2018. The adoption of this guidance did not have a material impact to our financial statements.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
In February 2018, the FASB issued ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,
which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from "An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018" (the "Act") that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. This ASU, however, does not change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. We elected to early adopt this ASU for the period ended February 25, 2018. The amount of the reclassification was
$17.4 million
.
Recently Issued Accounting Standards
— In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP. On July 9, 2015, the FASB deferred the effective date of the new revenue recognition standard by one year. The updated standard is effective for fiscal years beginning after December 15, 2017. Based on the FASB's ASU, we will apply the new revenue standard in our fiscal year 2019. Early adoption in our fiscal year 2018 is permitted. Entities will have the option to adopt the ASU using either the full retrospective or modified retrospective transition method. We have concluded our assessment of the new standard and will be adopting the provisions of the ASU utilizing the modified retrospective transition method. The adoption of ASU 2014-09 will not have a material impact on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The effective date for this standard is for fiscal years beginning after December 31, 2017. We do not expect ASU 2016-01 to have a material impact to our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
, Topic 842, which requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that this standard will have on our consolidated financial statements and related disclosures. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The effective date for the standard is for fiscal years beginning after December 15, 2017. We do not expect ASU 2016-15 to have a material impact to our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows: Restricted Cash
, which provides amendments to current guidance to address the classifications and presentation of changes in restricted cash in the statement of cash flows. The effective date for the standard is for fiscal years beginning after December 15, 2017. We do not expect ASU 2016-18 to have a material impact to our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations: Clarifying the Definition of a Business
, which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The effective date for the standard is for fiscal years beginning after December 15, 2017. We do not expect ASU 2017-01 to have a material impact to our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07,
Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
, which requires companies to present the service cost component of net benefit cost in the same line items in which they report compensation cost. Companies will present all other components of net benefit cost outside a subtotal of operating income, if presented, or disclosed separately. Also, only the service cost component may be eligible for capitalization where applicable. The amendments in this ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of service cost components. The effective date for the standard is for fiscal years beginning after December 15, 2017. We will adopt ASU 2017-07 in our fiscal 2019. The estimated impact is a reclassification of a benefit of
$80.4 million
, a benefit of
$55.2 million
, and a charge of
$303.8 million
to non-operating income (expense) for fiscal 2018, 2017, and 2016, respectively.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
In August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities
, which improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP. The amendments in this update better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The effective date for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. We plan to early adopt this ASU at the beginning of our fiscal 2019. We do not expect ASU 2017-12 to have a material impact to our consolidated financial statements.
2. ACQUISITIONS
On June 26, 2018, subsequent to the end of fiscal 2018, we entered into a definitive merger agreement with Pinnacle Foods Inc. ("Pinnacle") under which we will acquire all outstanding shares of Pinnacle common stock in a cash and stock transaction valued at approximately
$10.9 billion
, including Pinnacle's outstanding net debt. Under the terms of the transaction, Pinnacle shareholders will receive
$43.11
per share in cash and
0.6494
shares of our common stock for each share of Pinnacle. The implied price of
$68.00
per Pinnacle share is based on the volume-weighted average price of our stock for the five days ended June 21, 2018. The planned acquisition is expected to close by the end of calendar 2018 and remains subject to the approval of Pinnacle shareholders, the receipt of regulatory approvals, and other customary closing conditions.
In February 2018, we acquired the
Sandwich Bros. of Wisconsin
®
business, maker of frozen breakfast and entree flatbread pocket sandwiches, for a cash purchase price of
$87.3 million
, net of cash acquired, including working capital adjustments. Approximately
$57.8 million
has been classified as goodwill pending determination of the final purchase price allocation, and
$9.7 million
and
$7.1 million
have been classified as non-amortizing and amortizing intangible assets, respectively. The amount allocated to goodwill is deductible for tax purposes. The business is included in the Refrigerated & Frozen segment.
In October 2017, we acquired Angie's Artisan Treats, LLC, maker of
Angie's
®
BOOMCHICKAPOP
®
ready-to-eat popcorn, for a cash purchase price of
$249.8 million
, net of cash acquired, including working capital adjustments. Approximately
$155.2 million
has been classified as goodwill pending determination of the final purchase price allocation, of which
$95.4 million
is deductible for income tax purposes. Approximately
$73.8 million
and
$10.3 million
of the purchase price have been allocated to non-amortizing and amortizing intangible assets, respectively. The business is primarily included in the Grocery & Snacks segment.
In April 2017, we acquired protein-based snacking businesses Thanasi Foods LLC, maker of
Duke’s
®
meat snacks, and BIGS LLC, maker of
BIGS
®
seeds, for
$217.6 million
, net of cash acquired, including working capital adjustments. Approximately
$133.3 million
has been classified as goodwill, of which
$70.5 million
is deductible for income tax purposes. Approximately
$65.1 million
and
$16.1 million
of the purchase price have been allocated to non-amortizing and amortizing intangible assets, respectively. These businesses are primarily included in the Grocery & Snacks segment.
In September 2016, we acquired the operating assets of Frontera Foods, Inc. and Red Fork LLC, including the
Frontera
®
,
Red Fork
®
, and
Salpica
®
brands. These businesses make authentic, gourmet Mexican food products and contemporary American cooking sauces. We acquired the business for
$108.1 million
, net of cash acquired, including working capital adjustments. Approximately
$39.5 million
has been classified as goodwill and
$59.5 million
and
$7.2 million
have been classified as non-amortizing and amortizing intangible assets, respectively. The amount allocated to goodwill is deductible for tax purposes. These businesses are reflected principally within the Grocery & Snacks segment, and to a lesser extent within the Refrigerated & Frozen and International segments.
These acquisitions collectively contributed
$214.3 million
and
$36.5 million
to net sales during fiscal
2018
and
2017
, respectively.
For each of these acquisitions, the amounts allocated to goodwill were primarily attributable to anticipated synergies, product portfolios, and other intangibles that do not qualify for separate recognition.
Under the acquisition method of accounting, the assets acquired and liabilities assumed in these acquisitions were recorded at their respective estimated fair values at the date of acquisition.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
3. RESTRUCTURING ACTIVITIES
Supply Chain and Administrative Efficiency Plan
In May 2013, we announced the Supply Chain and Administrative Efficiency Plan (the "SCAE Plan"), our plan to integrate and restructure the operations of our Private Brands business, improve SG&A effectiveness and efficiencies, and optimize our supply chain network, manufacturing assets, dry distribution centers, and mixing centers. In fiscal 2016, we announced plans to realize efficiency benefits by reducing SG&A expenses and enhancing trade spend processes and tools, which plans were included as part of the SCAE Plan. Although we divested the Private Brands business, we have continued to implement the SCAE Plan, including by working to optimize our supply chain network, pursue cost reductions through our SG&A functions, enhance trade spend processes and tools, and improve productivity.
Although we remain unable to make good faith estimates relating to the entire SCAE Plan, we are reporting on actions initiated through the end of fiscal
2018
, including the estimated amounts or range of amounts for each major type of costs expected to be incurred, and the charges that have resulted or will result in cash outflows. As of
May 27, 2018
, our Board of Directors has approved the incurrence of up to
$900.9 million
of expenses in connection with the SCAE Plan, including expenses allocated for the Private Brands and Lamb Weston operations. We have incurred or expect to incur approximately
$471.6 million
of charges (
$322.1 million
of cash charges and
$149.5 million
of non-cash charges) for actions identified to date under the SCAE Plan related to our continuing operations. We recognized charges of
$38.0 million
,
$63.6 million
, and
$281.8 million
in relation to the SCAE Plan related to our continuing operations in fiscal 2018, 2017, and 2016, respectively. We expect to incur costs related to the SCAE Plan over a multi-year period.
We anticipate that we will recognize the following pre-tax expenses in association with the SCAE Plan related to our continuing operations (amounts include charges recognized from plan inception to
May 27, 2018
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks
|
|
Refrigerated & Frozen
|
|
International
|
|
Foodservice
|
|
Corporate
|
|
Total
|
Pension costs
|
$
|
33.4
|
|
|
$
|
1.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
34.9
|
|
Accelerated depreciation
|
37.0
|
|
|
18.6
|
|
|
—
|
|
|
—
|
|
|
1.2
|
|
|
56.8
|
|
Other cost of goods sold
|
11.9
|
|
|
2.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14.0
|
|
Total cost of goods sold
|
82.3
|
|
|
22.2
|
|
|
—
|
|
|
—
|
|
|
1.2
|
|
|
105.7
|
|
Severance and related costs, net
|
27.5
|
|
|
10.3
|
|
|
3.7
|
|
|
7.9
|
|
|
102.6
|
|
|
152.0
|
|
Fixed asset impairment (net of gains on disposal)
|
6.1
|
|
|
6.9
|
|
|
—
|
|
|
—
|
|
|
11.2
|
|
|
24.2
|
|
Accelerated depreciation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
4.1
|
|
Contract/lease cancellation expenses
|
1.0
|
|
|
0.6
|
|
|
0.9
|
|
|
—
|
|
|
84.4
|
|
|
86.9
|
|
Consulting/professional fees
|
1.0
|
|
|
0.4
|
|
|
0.1
|
|
|
—
|
|
|
54.0
|
|
|
55.5
|
|
Other selling, general and administrative expenses
|
16.4
|
|
|
3.3
|
|
|
—
|
|
|
—
|
|
|
23.5
|
|
|
43.2
|
|
Total selling, general and administrative expenses
|
52.0
|
|
|
21.5
|
|
|
4.7
|
|
|
7.9
|
|
|
279.8
|
|
|
365.9
|
|
Consolidated total
|
$
|
134.3
|
|
|
$
|
43.7
|
|
|
$
|
4.7
|
|
|
$
|
7.9
|
|
|
$
|
281.0
|
|
|
$
|
471.6
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
During fiscal
2018
, we recognized the following pre-tax expenses for the SCAE Plan related to our continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks
|
|
Refrigerated & Frozen
|
|
International
|
|
Corporate
|
|
Total
|
Pension costs
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
Accelerated depreciation
|
2.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
Other cost of goods sold
|
5.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.3
|
|
Total cost of goods sold
|
7.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.8
|
|
Severance and related costs, net
|
2.6
|
|
|
—
|
|
|
1.2
|
|
|
0.7
|
|
|
4.5
|
|
Fixed asset impairment (net of gains on disposal)
|
(1.2
|
)
|
|
—
|
|
|
—
|
|
|
4.4
|
|
|
3.2
|
|
Accelerated depreciation
|
—
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
|
1.5
|
|
Contract/lease cancellation expenses
|
0.2
|
|
|
—
|
|
|
0.3
|
|
|
13.0
|
|
|
13.5
|
|
Consulting/professional fees
|
0.1
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.1
|
|
Other selling, general and administrative expenses
|
4.6
|
|
|
0.1
|
|
|
—
|
|
|
1.7
|
|
|
6.4
|
|
Total selling, general and administrative expenses
|
6.3
|
|
|
0.1
|
|
|
1.5
|
|
|
22.3
|
|
|
30.2
|
|
Consolidated total
|
$
|
14.1
|
|
|
$
|
0.1
|
|
|
$
|
1.5
|
|
|
$
|
22.3
|
|
|
$
|
38.0
|
|
Included in the above table are
$30.6 million
of charges that have resulted or will result in cash outflows and
$7.4 million
in non-cash charges.
We recognized the following cumulative (plan inception to
May 27, 2018
) pre-tax expenses for the SCAE Plan related to our continuing operations in our Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks
|
|
Refrigerated & Frozen
|
|
International
|
|
Foodservice
|
|
Corporate
|
|
Total
|
Pension costs
|
$
|
33.4
|
|
|
$
|
1.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
34.9
|
|
Accelerated depreciation
|
33.0
|
|
|
18.6
|
|
|
—
|
|
|
—
|
|
|
1.2
|
|
|
52.8
|
|
Other cost of goods sold
|
10.3
|
|
|
2.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12.4
|
|
Total cost of goods sold
|
76.7
|
|
|
22.2
|
|
|
—
|
|
|
—
|
|
|
1.2
|
|
|
100.1
|
|
Severance and related costs, net
|
26.5
|
|
|
10.3
|
|
|
3.7
|
|
|
7.9
|
|
|
102.2
|
|
|
150.6
|
|
Fixed asset impairment (net of gains on disposal)
|
6.1
|
|
|
6.9
|
|
|
—
|
|
|
—
|
|
|
11.2
|
|
|
24.2
|
|
Accelerated depreciation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
4.1
|
|
Contract/lease cancellation expenses
|
1.0
|
|
|
0.6
|
|
|
0.9
|
|
|
—
|
|
|
84.3
|
|
|
86.8
|
|
Consulting/professional fees
|
1.0
|
|
|
0.4
|
|
|
0.1
|
|
|
—
|
|
|
52.2
|
|
|
53.7
|
|
Other selling, general and administrative expenses
|
15.8
|
|
|
3.3
|
|
|
—
|
|
|
—
|
|
|
21.7
|
|
|
40.8
|
|
Total selling, general and administrative expenses
|
50.4
|
|
|
21.5
|
|
|
4.7
|
|
|
7.9
|
|
|
275.7
|
|
|
360.2
|
|
Consolidated total
|
$
|
127.1
|
|
|
$
|
43.7
|
|
|
$
|
4.7
|
|
|
$
|
7.9
|
|
|
$
|
276.9
|
|
|
$
|
460.3
|
|
Included in the above results are
$316.1 million
of charges that have resulted or will result in cash outflows and
$144.2 million
in non-cash charges. Not included in the above table are
$130.2 million
of pre-tax expenses (
$84.5 million
of cash charges and
$45.7 million
of non-cash charges) related to the Private Brands operations which we sold in the third quarter of fiscal 2016 and
$2.1 million
of pre-tax expenses (all resulting in cash charges) related to Lamb Weston.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
Liabilities recorded for the SCAE Plan related to our continuing operations and changes therein for fiscal
2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 28,
2017
|
|
Costs Incurred
and Charged
to Expense
|
|
Costs Paid
or Otherwise Settled
|
|
Changes in
Estimates
|
|
Balance at
May 27,
2018
|
Pension costs
|
$
|
31.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
32.3
|
|
Severance and related costs
|
13.8
|
|
|
5.7
|
|
|
(12.0
|
)
|
|
(1.2
|
)
|
|
6.3
|
|
Consulting/professional fees
|
0.6
|
|
|
1.1
|
|
|
(1.6
|
)
|
|
—
|
|
|
0.1
|
|
Contract/lease cancellation
|
11.6
|
|
|
13.7
|
|
|
(20.2
|
)
|
|
(0.2
|
)
|
|
4.9
|
|
Other costs
|
1.9
|
|
|
11.0
|
|
|
(12.7
|
)
|
|
—
|
|
|
0.2
|
|
Total
|
$
|
59.7
|
|
|
$
|
31.5
|
|
|
$
|
(46.5
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
43.8
|
|
4. LONG-TERM DEBT
|
|
|
|
|
|
|
|
|
|
May 27, 2018
|
|
May 28, 2017
|
4.65% senior debt due January 2043
|
$
|
176.7
|
|
|
$
|
176.7
|
|
6.625% senior debt due August 2039
|
91.4
|
|
|
91.4
|
|
8.25% senior debt due September 2030
|
300.0
|
|
|
300.0
|
|
7.0% senior debt due October 2028
|
382.2
|
|
|
382.2
|
|
6.7% senior debt due August 2027
|
9.2
|
|
|
9.2
|
|
7.125% senior debt due October 2026
|
262.5
|
|
|
262.5
|
|
3.2% senior debt due January 2023
|
837.0
|
|
|
837.0
|
|
3.25% senior debt due September 2022
|
250.0
|
|
|
250.0
|
|
9.75% subordinated debt due March 2021
|
195.9
|
|
|
195.9
|
|
LIBOR plus 0.50% senior debt due October 2020
|
500.0
|
|
|
—
|
|
4.95% senior debt due August 2020
|
126.6
|
|
|
126.6
|
|
LIBOR plus 0.75% term loan due February 2019
|
300.0
|
|
|
—
|
|
2.1% senior debt due March 2018
|
—
|
|
|
70.0
|
|
1.9% senior debt due January 2018
|
—
|
|
|
119.6
|
|
2.00% to 9.59% lease financing obligations due on various dates through 2033
|
94.7
|
|
|
131.2
|
|
Other indebtedness
|
0.2
|
|
|
0.2
|
|
Total face value of debt
|
3,526.4
|
|
|
2,952.5
|
|
Unamortized fair value adjustment
|
27.6
|
|
|
30.8
|
|
Unamortized discounts
|
(5.8
|
)
|
|
(6.4
|
)
|
Unamortized debt issuance costs
|
(11.3
|
)
|
|
(10.9
|
)
|
Adjustment due to hedging activity
|
1.6
|
|
|
2.2
|
|
Less current installments
|
(307.0
|
)
|
|
(199.0
|
)
|
Total long-term debt
|
$
|
3,231.5
|
|
|
$
|
2,769.2
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years following
May 27, 2018
, are as follows:
|
|
|
|
|
2019
|
$
|
307.1
|
|
2020
|
6.7
|
|
2021
|
829.4
|
|
2022
|
6.9
|
|
2023
|
1,093.6
|
|
During the fourth quarter of fiscal 2018, we repaid the remaining principal balance of
$70.0 million
of our
2.1%
senior notes on the maturity date of March 15, 2018.
During the third quarter of fiscal 2018, we entered into a term loan agreement (the "Term Loan Agreement") with a financial institution. The Term Loan Agreement provides for term loans to the Company in an aggregate principal amount not in excess of
$300.0 million
. During the fourth quarter of fiscal 2018, we borrowed the full amount of the
$300.0 million
provided for under the Term Loan Agreement. The Term Loan Agreement matures on February 26, 2019. The term loan bears interest at a rate equal to three-month LIBOR plus
0.75%
per annum and is fully prepayable without penalty.
During the third quarter of fiscal 2018, we repaid the remaining principal balance of
$119.6 million
of our
1.9%
senior notes on the maturity date of January 25, 2018.
During the third quarter of fiscal 2018, we repaid the remaining capital lease liability balance of
$28.5 million
in connection with the early exit of an unfavorable lease contract (see Note 8).
During the second quarter of fiscal 2018, we issued
$500.0 million
aggregate principal amount of floating rate notes due October 9, 2020. The notes bear interest at a rate equal to three-month LIBOR plus
0.50%
per annum.
During the third quarter of fiscal 2017, we repaid the remaining principal balance of
$224.8 million
of our
5.819%
senior notes due 2017 and
$248.2 million
principal amount of our
7.0%
senior notes due 2019, in each case prior to maturity, resulting in a net loss on early retirement of debt of
$32.7 million
.
In connection with the Spinoff of Lamb Weston (see Note 6), Lamb Weston issued to us
$1.54 billion
aggregate principal amount of senior notes (the "Lamb Weston notes"). On November 9, 2016, we exchanged the Lamb Weston notes for
$250.2 million
aggregate principal amount of our
5.819%
senior notes due 2017,
$880.4 million
aggregate principal amount of our
1.9%
senior notes due 2018,
$154.9 million
aggregate principal amount of our
2.1%
senior notes due 2018,
$86.9 million
aggregate principal amount of our
7.0%
senior notes due 2019, and
$71.1 million
aggregate principal amount of our
4.95%
senior notes due 2020 (collectively, the "Conagra notes"), which had been purchased in the open market by certain investment banks prior to the Spinoff. Following the exchange, we cancelled the Conagra notes. These actions resulted in a net loss of
$60.6 million
as a cost of early retirement of debt.
During the first quarter of fiscal 2017, we repaid the entire principal balance of
$550.0 million
of our floating rate notes on the maturity date of July 21, 2016.
During the third quarter of fiscal 2016, we repurchased
$560.3 million
aggregate principal amount of senior notes due 2043,
$341.8 million
aggregate principal amount of senior notes due 2039,
$139.9 million
aggregate principal amount of senior notes due 2019,
$110.0 million
aggregate principal amount of senior notes due 2026,
$85.0 million
aggregate principal amount of senior notes due 2020, and
$163.0 million
of aggregate principal amount of senior notes due 2023, in each case prior to maturity in a tender offer, resulting in a net loss of
$23.9 million
as a cost of early retirement of debt.
During the third quarter of fiscal 2016, we repaid the entire principal balance of
$750.0 million
of our
1.30%
senior notes on the maturity date of January 25, 2016. The repayment was primarily funded through the issuance of term loans totaling
$600.0 million
, which were repaid in the third quarter of fiscal 2016 with the proceeds from the divestiture of our Private Brands business.
See Note 6 for repayment of senior notes issued by Ralcorp Holdings, Inc. ("Ralcorp") in an aggregate principal amount of
$33.9 million
in the third quarter of fiscal 2016.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
During the second quarter of fiscal 2016, we repaid the entire principal balance of
$250.0 million
of our
1.35%
senior notes on the maturity date of September 10, 2015.
Our most restrictive debt agreements (the Facility (as defined in Note 5) and the Term Loan Agreement) generally require our ratio of EBITDA (earnings before interest, taxes, depreciation and amortization) to interest expense to be not less than
3.0
to 1.0 and our ratio of funded debt to EBITDA to be not greater than
3.75
to 1.0 (provided that such ratio may be increased at the option of the Company in connection with a material transaction)
,
with
each ratio to be calculated on a rolling four-quarter basis. As of
May 27, 2018
, we were in compliance with all financial covenants.
Net interest expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Long-term debt
|
$
|
161.2
|
|
|
$
|
203.6
|
|
|
$
|
302.9
|
|
Short-term debt
|
4.8
|
|
|
0.6
|
|
|
1.9
|
|
Interest income
|
(3.8
|
)
|
|
(3.7
|
)
|
|
(1.2
|
)
|
Interest capitalized
|
(3.5
|
)
|
|
(5.0
|
)
|
|
(7.8
|
)
|
|
$
|
158.7
|
|
|
$
|
195.5
|
|
|
$
|
295.8
|
|
Interest paid from continuing operations was
$164.5 million
,
$223.7 million
, and
$322.0 million
in fiscal
2018
,
2017
, and
2016
, respectively.
In connection with the planned acquisition of Pinnacle (see Note 2), we have secured
$9.0 billion
in fully committed bridge financing from affiliates of Goldman Sachs Group, Inc. The commitments under the committed bridge financing were subsequently reduced by the amounts of a term loan agreement we entered into on July 11, 2018 with a syndicate of financial institutions providing for term loans to us in an aggregate principal amount of up to
$1.3 billion
. The term loan agreement generally requires our ratio of EBITDA to interest expense to be not less than
3.0
to 1.0 and our ratio of funded debt to EBITDA to not exceed certain specified levels, with each ratio to be calculated on a rolling four-quarter basis. The funding under the term loan agreement is anticipated to occur simultaneously with the closing date of the acquisition. In connection with the acquisition, we expect to incur an aggregate of up to
$8.3 billion
of long-term debt, including for the payment of the cash portion of the merger consideration, the repayment of Pinnacle debt, the refinancing of certain Conagra debt, and the payment of related fees and expenses. The permanent financing is also expected to include approximately
$600 million
of incremental cash proceeds from the issuance of equity and/or divestitures.
5. CREDIT FACILITIES AND BORROWINGS
At
May 27, 2018
, we had a revolving credit facility (the "Facility") with a syndicate of financial institutions that provides for a maximum aggregate principal amount outstanding at any one time of
$1.25 billion
(subject to increase to a maximum aggregate principal amount of
$1.75 billion
with the consent of the lenders). The Facility matures on February 16, 2022. As of May 27, 2018, there were
no
outstanding borrowings under the Facility.
The Facility contains events of default customary for unsecured investment grade credit facilities with corresponding grace periods. The Facility contains customary affirmative and negative covenants for unsecured investment grade credit facilities of this type. It generally requires our ratio of EBITDA to interest expense to be not less than
3.0
to 1.0 and our ratio of funded debt to EBITDA to be not greater than
3.75
to 1.0 (provided that such ratio may be increased at the option of the Company in connection with a material transaction)
,
with
each ratio to be calculated on a rolling four-quarter basis. As of
May 27, 2018
, we were in compliance with the Facility's financial covenants.
On July 11, 2018, subsequent to our fiscal year end, we entered into an amended and restated revolving credit agreement with a syndicate of financial institutions providing for a revolving credit facility in a maximum aggregate principal amount outstanding at any one time of
$1.6 billion
(subject to increase to a maximum aggregate principal amount of
$2.1 billion
). It replaces the existing Facility and generally requires our ratio of EBITDA to interest expense to be not less than
3.0
to 1.0 and our ratio of funded debt to EBITDA to not exceed certain specified levels, with each ratio to be calculated on a rolling four-quarter basis.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
We finance our short-term liquidity needs with bank borrowings, commercial paper borrowings, and bankers' acceptances. As of
May 27, 2018
, we had
$277.0 million
outstanding under our commercial paper program at an average weighted interest rate of
2.08%
. As of
May 28, 2017
, we had
$26.2 million
outstanding under our commercial paper program at an average weighted interest rate of
1.23%
.
6. DISCONTINUED OPERATIONS AND OTHER DIVESTITURES
Lamb Weston Spinoff
On November 9, 2016, we completed the Spinoff of our Lamb Weston business. As of such date, we did not beneficially own any equity interest in Lamb Weston and no longer consolidated Lamb Weston into our financial results. The business results were previously reported in the Commercial segment. We reflected the results of this business as discontinued operations for all periods presented.
The summary comparative financial results of the Lamb Weston business through the date of the Spinoff, included within discontinued operations, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net sales
|
$
|
—
|
|
|
$
|
1,407.9
|
|
|
$
|
2,975.0
|
|
Income (loss) from discontinued operations before income taxes and equity method investment earnings
|
$
|
(0.3
|
)
|
|
$
|
172.3
|
|
|
$
|
474.8
|
|
Income (loss) before income taxes and equity method investment earnings
|
(0.3
|
)
|
|
172.3
|
|
|
474.8
|
|
Income tax expense (benefit)
|
(14.6
|
)
|
|
87.5
|
|
|
178.9
|
|
Equity method investment earnings
|
—
|
|
|
15.9
|
|
|
71.7
|
|
Income from discontinued operations, net of tax
|
14.3
|
|
|
100.7
|
|
|
367.6
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
6.8
|
|
|
9.2
|
|
Net income from discontinued operations attributable to Conagra Brands, Inc.
|
$
|
14.3
|
|
|
$
|
93.9
|
|
|
$
|
358.4
|
|
During fiscal
2017
, we incurred
$74.8 million
of expenses in connection with the Spinoff primarily related to professional fees and contract services associated with preparation of regulatory filings and separation activities. These expenses are reflected in income from discontinued operations. During fiscal 2018, a
$14.5 million
income tax benefit was recorded due to an adjustment of the estimated deductibility of these costs.
In connection with the Spinoff, total assets of
$2.28 billion
and total liabilities of
$2.98 billion
(including debt of
$2.46 billion
) were transferred to Lamb Weston. As part of the consideration for the Spinoff, the Company received a cash payment from Lamb Weston in the amount of
$823.5 million
. See Note 4 for discussion of the debt-for-debt exchange related to the Spinoff.
We entered into a transition services agreement in connection with the Lamb Weston Spinoff and recognized
$2.2 million
and
$4.2 million
of income for the performance of services during fiscal
2018
and
2017
, respectively, classified within SG&A expenses.
Private Brands Operations
On February 1, 2016, pursuant to the Stock Purchase Agreement, dated as of November 1, 2015, we completed the disposition of our Private Brands operations to TreeHouse Foods, Inc. ("Treehouse") for
$2.6 billion
in cash on a debt-free basis.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
As a result of the disposition, we recognized a pre-tax charge of
$1.92 billion
(
$1.44 billion
after-tax) in fiscal 2016 to write-down the goodwill and long-lived assets to the final sales price, less costs to sell, and to recognize the final loss of the Private Brands business. We reflected the results of this business as discontinued operations for all periods presented.
In fiscal 2016, we repaid senior notes issued by Ralcorp in an aggregate principal amount of
$33.9 million
, consisting of
4.95%
senior notes due August 15, 2020 in an aggregate principal amount of
$17.2 million
(with an effective interest rate of
2.83%
) and
6.625%
senior notes due August 15, 2039 in total an aggregate principal amount of
$16.7 million
(with an effective interest rate of
4.82%
), in each case, prior to maturity, resulting in a loss
$5.4 million
as a cost of early retirement of debt, which is reflected in discontinued operations.
The summary comparative financial results of the Private Brands business, included within discontinued operations, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net sales
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,490.6
|
|
Loss on sale of business
|
$
|
—
|
|
|
$
|
(1.6
|
)
|
|
$
|
—
|
|
Long-lived asset impairment charges
|
—
|
|
|
—
|
|
|
(1,923.0
|
)
|
Income from operations of discontinued operations before income taxes
|
0.4
|
|
|
3.9
|
|
|
168.0
|
|
Income (loss) before income taxes and equity method investment earnings
|
0.4
|
|
|
2.3
|
|
|
(1,755.0
|
)
|
Income tax expense (benefit)
|
0.5
|
|
|
(0.3
|
)
|
|
(593.1
|
)
|
Income (loss) from discontinued operations, net of tax
|
$
|
(0.1
|
)
|
|
$
|
2.6
|
|
|
$
|
(1,161.9
|
)
|
We entered into a transition services agreement with TreeHouse and recognized
$2.2 million
,
$16.9 million
, and
$8.3 million
of income for the performance of services during fiscal
2018
,
2017
, and 2016, respectively, classified within SG&A expenses.
ConAgra Mills Operations
On May 29, 2014, the Company, Cargill, Incorporated ("Cargill"), and CHS, Inc. ("CHS") completed the formation of the Ardent Mills joint venture. In connection with the formation, we contributed to Ardent Mills all of the assets of ConAgra Mills, our milling operations. Our equity in the earnings of Ardent Mills is reflected in our continuing operations.
In fiscal 2017, we adjusted a multi-employer pension withdrawal liability related to our former milling operations by
$2.0 million
(
$1.3 million
after-tax). This expense was recognized within discontinued operations.
Other Divestitures
During the third quarter of fiscal 2018, we entered into an agreement to sell our
Del Monte
®
processed fruit and vegetable business in Canada, which is part of our International segment, to Bonduelle Group. The transaction was completed in the first quarter of fiscal 2019 and was valued at approximately
$43.0 million
Canadian dollars, which was approximately
$34.0 million
U.S. dollars at the exchange rate on the date of announcement. The assets of this business have been reclassified as assets held for sale within our Consolidated Balance Sheets for all periods presented.
The assets classified as held for sale reflected in our Consolidated Balance Sheets related to the
Del Monte
®
processed fruit and vegetable business in Canada were as follows:
|
|
|
|
|
|
|
|
|
|
May 27, 2018
|
|
May 28, 2017
|
Current assets
|
$
|
6.1
|
|
|
$
|
6.3
|
|
Noncurrent assets (including goodwill of $5.8 million)
|
11.5
|
|
|
11.4
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
During the fourth quarter of fiscal 2017, we signed an agreement to sell our
Wesson
®
oil business, which is part of our Grocery & Snacks segment, to The J.M. Smucker Company ("Smucker"). During the fourth quarter of fiscal 2018, Conagra Brands and Smucker terminated the agreement. This outcome followed the decision of the Federal Trade Commission, announced on March 5, 2018, to challenge the pending sale. The Company is still actively marketing the
Wesson
®
oil business and expects to sell it within the next twelve months. The assets of this business have been reclassified as assets held for sale within our Consolidated Balance Sheets for all periods presented.
In connection with the initial pending sale of the
Wesson
®
oil business, we recognized an impairment charge of
$27.6 million
within SG&A expenses in fiscal 2017, as a production facility was not initially included in the assets to be sold, and we did not expect to recover the carrying value of this facility through future associated cash flows. Subsequent to the terminated agreement with Smucker, this production facility has been included in noncurrent assets held for sale.
The assets classified as held for sale reflected in our Consolidated Balance Sheets related to the
Wesson
®
oil business were as follows:
|
|
|
|
|
|
|
|
|
|
May 27, 2018
|
|
May 28, 2017
|
Current assets
|
$
|
37.7
|
|
|
$
|
35.5
|
|
Noncurrent assets (including goodwill of $74.5 million)
|
101.0
|
|
|
102.8
|
|
During the first quarter of fiscal 2017, we completed the sales of our Spicetec Flavors & Seasonings business ("Spicetec") and our JM Swank business, each of which was part of our Commercial segment, for
$329.7 million
and
$159.3 million
, respectively, in cash, net of cash included in the dispositions. We recognized pre-tax gains from the sales of
$144.8 million
and
$52.6 million
, respectively. We entered into transition services agreements in connection with the sales of these businesses and recognized
$0.2 million
and
$1.9 million
of income during fiscal
2018
and fiscal
2017
, respectively, classified within SG&A expenses.
In addition, we are actively marketing certain other assets. These assets have been reclassified as assets held for sale within our Consolidated Balance Sheets for all periods presented. The balance of these assets classified as held for sale was
$10.4 million
and
$14.9 million
in our Corporate and Grocery & Snacks segments, respectively, at
May 27, 2018
and
$11.6 million
and
$14.6 million
in our Corporate and Grocery & Snacks segments, respectively, at
May 28, 2017
.
7. INVESTMENTS IN JOINT VENTURES
The total carrying value of our equity method investments at the end of fiscal
2018
and
2017
was
$776.2 million
and
$741.3 million
, respectively. These amounts are included in other assets and reflect our
44%
ownership interest in Ardent Mills and
50%
ownership interests in other joint ventures. Due to differences in fiscal reporting periods, we recognized the equity method investment earnings on a lag of approximately one month.
In fiscal
2018
, we had purchases from our equity method invest
ees of
$34.9 million
. Total dividends received from equity method investments in fiscal
2018
were
$62.5 million
.
In fiscal
2017
, we had purchases from our equity method investees
of
$41.8 million
. Total dividends received from equity method investments in fiscal
2017
were $
68.2 million
.
In fiscal
2016
, we had sales to and purchases from our equity method investees of
$1.6 million
and
$61.2 million
, respectively. Total dividends received from equity method investments in fiscal
2016
were
$40.4 million
.
We entered into transition services agreements in connection with the Ardent Mills formation and recognized
$0.1 million
and
$9.7 million
of income for the performance of transition services during fiscal
2017
and
2016
, respectively, classified within SG&A expenses.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
Summarized combined financial information for our equity method investments on a 100% basis is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net Sales:
|
|
|
|
|
|
Ardent Mills
|
$
|
3,344.1
|
|
|
$
|
3,180.0
|
|
|
$
|
3,395.3
|
|
Others
|
198.8
|
|
|
177.7
|
|
|
167.2
|
|
Total net sales
|
$
|
3,542.9
|
|
|
$
|
3,357.7
|
|
|
$
|
3,562.5
|
|
Gross margin:
|
|
|
|
|
|
|
Ardent Mills
|
$
|
386.5
|
|
|
$
|
340.3
|
|
|
$
|
339.2
|
|
Others
|
34.8
|
|
|
34.6
|
|
|
32.8
|
|
Total gross margin
|
$
|
421.3
|
|
|
$
|
374.9
|
|
|
$
|
372.0
|
|
Earnings after income taxes:
|
|
|
|
|
|
|
Ardent Mills
|
$
|
197.0
|
|
|
$
|
152.0
|
|
|
$
|
142.9
|
|
Others
|
10.1
|
|
|
10.1
|
|
|
6.4
|
|
Total earnings after income taxes
|
$
|
207.1
|
|
|
$
|
162.1
|
|
|
$
|
149.3
|
|
|
|
|
|
|
|
|
|
|
|
May 27, 2018
|
|
May 28, 2017
|
Ardent Mills:
|
|
|
|
Current assets
|
$
|
974.6
|
|
|
$
|
937.2
|
|
Noncurrent assets
|
1,675.7
|
|
|
1,694.2
|
|
Current liabilities
|
355.6
|
|
|
388.9
|
|
Noncurrent liabilities
|
510.9
|
|
|
518.0
|
|
Others:
|
|
|
|
Current assets
|
$
|
76.4
|
|
|
$
|
75.5
|
|
Noncurrent assets
|
15.5
|
|
|
12.2
|
|
Current liabilities
|
37.5
|
|
|
44.5
|
|
Noncurrent liabilities
|
0.1
|
|
|
—
|
|
8. VARIABLE INTEREST ENTITIES
Variable Interest Entities Not Consolidated
We lease or leased certain office buildings from entities that we have determined to be variable interest entities. The lease agreements with these entities include fixed-price purchase options for the assets being leased. The lease agreements also contain contingent put options (the "lease put options") that allow or allowed the lessors to require us to purchase the buildings at the greater of original construction cost, or fair market value, without a lease agreement in place (the "put price") in certain limited circumstances. As a result of substantial impairment charges related to our divested Private Brands operations, these lease put options became exercisable. During fiscal 2016, we entered into a series of related transactions in which we exchanged a warehouse we owned in Indiana for
two
buildings and parcels of land that we leased as part of our Omaha corporate offices. Concurrent with the asset exchange, the leases on the
two
Omaha corporate buildings, which were subject to contingent put options, were canceled. We recognized aggregate charges of
$55.6 million
for the early termination of these leases. We also entered into a lease for the warehouse in Indiana and we recorded a financing lease obligation of
$74.2 million
. During fiscal 2017,
one
of these lease agreements expired. As a result of this expiration, we reversed the applicable accrual and recognized a benefit of $
6.7 million
in SG&A expenses. During the third quarter of fiscal 2018, we purchased
two
buildings that were subject to lease put options and recognized net losses totaling
$48.2 million
for the early exit of unfavorable lease contracts.
As of
May 27, 2018
, there was
one
remaining leased building subject to a lease put option for which the put option price exceeded the estimated fair value of the property by
$8.2 million
, of which we had accrued
$1.2 million
. We are amortizing the difference between the put price and the estimated fair value (without a lease agreement in place) of the property over the remaining lease term within SG&A expenses. This lease is accounted for as an operating lease, and accordingly, there are no material assets and liabilities, other than the accrued portion of the put price, associated with this entity included in the
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
Consolidated Balance Sheets. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of this entity. In making this determination, we have considered, among other items, the terms of the lease agreement, the expected remaining useful life of the asset leased, and the capital structure of the lessor entity.
9. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for fiscal
2018
and
2017
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks
|
|
Refrigerated & Frozen
|
|
International
|
|
Foodservice
|
|
Total
|
Balance as of May 29, 2016
|
$
|
2,273.1
|
|
|
$
|
1,028.9
|
|
|
$
|
442.8
|
|
|
$
|
571.1
|
|
|
$
|
4,315.9
|
|
Impairment
|
—
|
|
|
—
|
|
|
(198.9
|
)
|
|
—
|
|
|
(198.9
|
)
|
Acquisitions
|
166.0
|
|
|
8.3
|
|
|
—
|
|
|
—
|
|
|
174.3
|
|
Currency translation
|
—
|
|
|
0.1
|
|
|
3.9
|
|
|
—
|
|
|
4.0
|
|
Balance as of May 28, 2017
|
$
|
2,439.1
|
|
|
$
|
1,037.3
|
|
|
$
|
247.8
|
|
|
$
|
571.1
|
|
|
$
|
4,295.3
|
|
Acquisitions
|
155.2
|
|
|
57.8
|
|
|
—
|
|
|
—
|
|
|
213.0
|
|
Purchase accounting adjustments
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
Currency translation
|
—
|
|
|
0.6
|
|
|
(4.9
|
)
|
|
—
|
|
|
(4.3
|
)
|
Balance as of May 27, 2018
|
$
|
2,592.8
|
|
|
$
|
1,095.7
|
|
|
$
|
242.9
|
|
|
$
|
571.1
|
|
|
$
|
4,502.5
|
|
Other identifiable intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Non-amortizing intangible assets
|
$
|
918.3
|
|
|
$
|
—
|
|
|
$
|
829.7
|
|
|
$
|
—
|
|
Amortizing intangible assets
|
579.4
|
|
|
213.2
|
|
|
573.5
|
|
|
179.5
|
|
|
$
|
1,497.7
|
|
|
$
|
213.2
|
|
|
$
|
1,403.2
|
|
|
$
|
179.5
|
|
During fiscal 2018, we reclassified
$3.0 million
and
$9.2 million
of goodwill and other identifiable intangible assets, respectively, to noncurrent assets held for sale for all periods presented in conjunction with the then pending divestitures of the
Del Monte
®
processed fruit and vegetable business in Canada and our
Wesson
®
oil business.
During fiscal 2018, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment charges of
$4.0 million
for our
HK Anderson
®
,
Red Fork
®
, and
Salpica
®
brands in our Grocery & Snacks segment. We also recognized an impairment charge of
$0.8 million
for our
Aylmer
®
brand in our International segment.
In the first quarter of fiscal 2017, in anticipation of the Spinoff, we changed our reporting segments. In accordance with applicable accounting guidance, we were required to determine new reporting units at a lower level (at the operating segment or one level lower, as applicable). When such a determination was made, we were required to perform a goodwill impairment analysis for each of the new reporting units.
We performed an assessment of impairment of goodwill for the new Canadian reporting unit within the new International reporting segment. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans and future industry and economic conditions. We estimated the future cash flows of the Canadian reporting unit and calculated the net present value of those estimated cash flows using a risk adjusted discount rate, in order to estimate the fair value of each reporting unit from the perspective of a market participant. We used discount rates and terminal growth rates of
7.5%
and
2%
, respectively, to calculate the present value of estimated future cash flows. We then compared the estimated fair value of the reporting unit to the historical carrying value (including allocated assets and liabilities of certain shared and Corporate functions), and determined that the fair value of the reporting unit was less than the carrying
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
value in the first quarter of fiscal 2017. With the assistance of a third-party valuation specialist, we estimated the fair value of the assets and liabilities of this reporting unit in order to determine the implied fair value of goodwill. We recognized an impairment charge for the difference between the implied fair value of goodwill and the carrying value of goodwill. Accordingly, during the first quarter of fiscal 2017, we recorded charges totaling
$139.2 million
for the impairment of goodwill.
As part of the assessment of the fair value of each asset and liability within the Canadian reporting unit, with the assistance of the third-party valuation specialist, we estimated the fair value of our Canadian
Del Monte
®
brand to be less than its carrying value. In accordance with applicable accounting guidance, we also recognized an impairment charge during the first quarter of fiscal 2017 of
$24.4 million
to write-down the intangible asset to its estimated fair value.
We also performed an assessment of impairment of goodwill for the new Mexican reporting unit within the International reporting segment using similar methods to those described above. We used discount rates and terminal growth rates of
8.5%
and
3%
, respectively, to calculate the present value of estimated future cash flows. We determined that the estimated fair value of this reporting unit exceeded the carrying value of its net assets by approximately
5%
. Accordingly, we did not recognize an impairment of the goodwill in the Mexican reporting unit.
During the second quarter of fiscal 2017, as a result of further deterioration in forecasted sales and profits primarily due to foreign exchange rates, we performed an additional assessment of impairment of goodwill for the new Mexican reporting unit. We used discount rates and terminal growth rates of
8.5%
and
3%
, respectively, to calculate the present value of estimated future cash flows. We then compared the estimated fair value of the reporting unit to the historical carrying value (including allocated assets and liabilities of certain shared and Corporate functions), and determined that the fair value of the reporting unit was less than the carrying value in the second quarter of fiscal 2017. With the assistance of a third-party valuation specialist, we estimated the fair value of the assets and liabilities of this reporting unit in order to determine the implied fair value of goodwill. We recognized an impairment charge for the difference between the implied fair value of goodwill and the carrying value of goodwill. Accordingly, during the second quarter of fiscal 2017, we recorded charges totaling
$43.9 million
for the impairment of goodwill.
During the fourth quarter of fiscal 2017, in conjunction with our annual impairment testing, we adopted ASU 2017-04,
Simplifying the Test for Goodwill Impairment.
As a result of further deterioration in forecasted sales and profits, we performed an additional assessment of impairment of goodwill for the new Mexican reporting unit. We used discount rates and terminal growth rates of
9.0%
and
3%
, respectively, to calculate the present value of estimated future cash flows. We then compared the estimated fair value of the reporting unit to the historical carrying value (including allocated assets and liabilities of certain shared and Corporate functions), and determined that the fair value of the reporting unit was less than the carrying value in the fourth quarter of fiscal 2017. With the assistance of a third-party valuation specialist, we estimated the fair value of the reporting unit. We recognized an impairment charge of
$15.8 million
, equal to the difference between the carrying value and estimated fair value of the reporting unit.
In fiscal 2017, due to declining sales of certain brands, we elected to perform a quantitative impairment test for indefinite lived intangibles of those brands. During fiscal 2017, we recognized impairment charges of
$7.1 million
for our
Del Monte
®
brand and
$5.5 million
for our
Aylmer
®
brand in our International segment. We also recognized impairment charges of
$67.1 million
for our
Chef Boyardee
®
brand and
$1.1 million
for our
Fiddle Faddle
®
brand in our Grocery & Snacks segment.
During fiscal 2016, we also elected to perform a quantitative impairment test for indefinite lived intangibles and recognized an impairment charge of
$50.1 million
in our Grocery & Snacks segment for our
Chef Boyardee
®
brand.
See Note 6 for a discussion of impairments related to discontinued operations.
Non-amortizing intangible assets are comprised of brands and trademarks.
Amortizing intangible assets, carrying a remaining weighted average life of approximately
14 years
, are principally composed of customer relationships, licensing arrangements, and acquired intellectual property. For fiscal
2018
,
2017
, and
2016
, we recognized amortization expense of
$34.9 million
,
$33.6 million
, and
$34.6 million
, respectively. Based on amortizing assets recognized in our Consolidated Balance Sheet as of
May 27, 2018
, amortization expense is estimated to average
$32.8 million
for each of the next five years, with a high expense of
$33.3 million
in fiscal year 2019 and decreasing to a low expense of
$30.9 million
in fiscal year 2023.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
In the first quarter of fiscal 2016, we entered into an agreement for the use of certain intellectual property and recorded an amortizing intangible asset of
$92.8 million
, for which cash payments of
$14.4 million
,
$14.9 million
, and
$10.4 million
were made in the first quarter of fiscal 2018, 2017, and 2016, respectively. Remaining payments will be made over a
four
-year period.
10. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is calculated on the basis of weighted average outstanding shares of common stock. Diluted earnings (loss) per share is computed on the basis of basic weighted average outstanding shares of common stock adjusted for the dilutive effect of stock options, restricted stock unit awards, and other dilutive securities.
The following table reconciles the income and average share amounts used to compute both basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net income (loss) available to Conagra Brands, Inc. common stockholders:
|
|
|
|
|
|
Income from continuing operations attributable to Conagra Brands, Inc. common stockholders
|
$
|
794.1
|
|
|
$
|
544.1
|
|
|
$
|
126.6
|
|
Income (loss) from discontinued operations, net of tax, attributable to Conagra Brands, Inc. common stockholders
|
14.3
|
|
|
95.2
|
|
|
(803.6
|
)
|
Net income (loss) attributable to Conagra Brands, Inc. common stockholders
|
$
|
808.4
|
|
|
$
|
639.3
|
|
|
$
|
(677.0
|
)
|
Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated
|
—
|
|
|
0.8
|
|
|
4.8
|
|
Net income (loss) available to Conagra Brands, Inc. common stockholders
|
$
|
808.4
|
|
|
$
|
638.5
|
|
|
$
|
(681.8
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
Basic weighted average shares outstanding
|
403.9
|
|
|
431.9
|
|
|
434.4
|
|
Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities
|
3.5
|
|
|
4.1
|
|
|
4.1
|
|
Diluted weighted average shares outstanding
|
407.4
|
|
|
436.0
|
|
|
438.5
|
|
For fiscal 2018, 2017, and 2016, there were
1.3 million
,
0.8 million
, and
0.4 million
stock options outstanding, respectively, that were excluded from the computation of diluted weighted average shares because the effect was antidilutive.
11. INVENTORIES
The major classes of inventories were as follows:
|
|
|
|
|
|
|
|
|
|
May 27, 2018
|
|
May 28, 2017
|
Raw materials and packaging
|
$
|
206.2
|
|
|
$
|
182.1
|
|
Work in process
|
92.4
|
|
|
91.9
|
|
Finished goods
|
651.1
|
|
|
606.6
|
|
Supplies and other
|
47.4
|
|
|
47.3
|
|
Total
|
$
|
997.1
|
|
|
$
|
927.9
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
12. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consisted of:
|
|
|
|
|
|
|
|
|
|
May 27, 2018
|
|
May 28, 2017
|
Postretirement health care and pension obligations
|
$
|
261.7
|
|
|
$
|
709.8
|
|
Noncurrent income tax liabilities
|
490.4
|
|
|
466.5
|
|
Self-insurance liabilities
|
27.1
|
|
|
29.0
|
|
Environmental liabilities (see Note 17)
|
56.0
|
|
|
54.7
|
|
Technology agreement liability (see Note 9)
|
42.7
|
|
|
56.4
|
|
Other
|
187.3
|
|
|
212.4
|
|
|
$
|
1,065.2
|
|
|
$
|
1,528.8
|
|
13. CAPITAL STOCK
The total number of shares we are authorized to issue is
1,218,050,000
shares, which shares may be issued as follows:
1,200,000,000
shares of common stock, par value
$5.00
per share;
150,000
shares of Class B Preferred Stock, par value
$50.00
per share;
250,000
shares of Class C Preferred Stock, par value
$100.00
per share;
1,100,000
shares of Class D Preferred Stock, no par value per share; and
16,550,000
shares of Class E Preferred Stock, no par value per share. There were
no
preferred shares issued or outstanding as of
May 27, 2018
.
We have repurchased our shares of common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board of Directors. In October 2016, our Board of Directors approved a
$1.25 billion
increase to our share repurchase authorization. The Board of Directors approved further increases to the share repurchase program of
$1.0 billion
each in May 2017 and May 2018. We repurchased
27.4 million
shares of our common stock for approximately
$967.3 million
and
25.1 million
shares of our common stock for approximately
$1.0 billion
in fiscal
2018
and
2017
, respectively, under this program.
14. SHARE-BASED PAYMENTS
In accordance with stockholder-approved plans, we issue share-based payments under various stock-based compensation arrangements, including stock options, restricted stock units, cash-settled restricted stock units, performance shares, and other share-based awards. The shares to be delivered under the plan may consist, in whole or part, of treasury stock or authorized but unissued stock, not reserved for any other purpose.
On September 19, 2014, the stockholders approved the Conagra Brands 2014 Stock Plan (the "Plan"), which was amended on December 11, 2017. As amended, the Plan authorized the issuance of up to
40.3 million
shares of Conagra Brands common stock as well as certain shares of stock subject to outstanding awards under predecessor stock plans that expire, lapse, are cancelled, terminated, forfeited, or otherwise become unexercisable. At
May 27, 2018
, approximately
42.5 million
shares were reserved for granting additional options, restricted stock units, cash-settled restricted stock units, performance shares, or other share-based awards.
All amounts below are of continuing and discontinued operations.
Share Unit Plans
In accordance with stockholder-approved plans, we issue stock under various stock-based compensation arrangements, including restricted stock units, cash-settled restricted stock units, and other share-based awards ("share units"). These awards generally have requisite service periods of
three years
. Under each arrangement, stock is issued without direct cost to the employee. We estimate the fair value of the share units based upon the market price of our stock at the date of grant. Certain share unit grants do not provide for the payment of dividend equivalents to the participant during the requisite service period (vesting period). For those grants, the value of the grants is reduced by the net present value of the foregone dividend equivalent payments. We recognize compensation expense for share unit awards on a straight-line basis over the requisite service period, accounting for forfeitures as they occur. All cash-settled restricted stock units are marked-to-market and presented within
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
other current and noncurrent liabilities in our Consolidated Balance Sheets. The compensation expense for our stock-settled share unit awards totaled
$21.8 million
,
$18.2 million
, and
$25.1 million
for fiscal
2018
,
2017
, and
2016
, respectively, including discontinued operations of
$1.4 million
and
$3.9 million
for fiscal 2017 and 2016, respectively. The tax benefit related to the stock-settled share unit award compensation expense for fiscal
2018
,
2017
, and
2016
was
$7.2 million
,
$7.0 million
, and
$9.6 million
, respectively.
The compensation expense for our cash-settled share unit awards totaled
$5.8 million
,
$20.9 million
, and
$33.9 million
for fiscal
2018
,
2017
, and
2016
, respectively, including discontinued operations of
$2.6 million
and
$7.4 million
for fiscal 2017 and 2016, respectively. The tax benefit related to the cash-settled share unit award compensation expense for fiscal
2018
,
2017
, and
2016
was
$1.9 million
,
$8.0 million
, and
$13.0 million
, respectively.
No
cash-settled share unit awards were granted in fiscal 2018.
The following table summarizes the nonvested share units as of
May 27, 2018
and changes during the fiscal year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-settled
|
|
Cash-settled
|
Share Units
|
Share Units
(in Millions)
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Share Units
(in Millions)
|
|
Weighted
Average
Grant-Date
Fair Value
|
Nonvested share units at May 28, 2017
|
1.56
|
|
|
$
|
31.59
|
|
|
1.21
|
|
|
$
|
30.52
|
|
Granted
|
0.87
|
|
|
$
|
34.16
|
|
|
—
|
|
|
$
|
—
|
|
Vested/Issued
|
(0.53
|
)
|
|
$
|
26.58
|
|
|
(0.42
|
)
|
|
$
|
22.86
|
|
Forfeited
|
(0.12
|
)
|
|
$
|
33.77
|
|
|
(0.08
|
)
|
|
$
|
34.60
|
|
Nonvested share units at May 27, 2018
|
1.78
|
|
|
$
|
34.20
|
|
|
0.71
|
|
|
$
|
34.58
|
|
During fiscal
2018
,
2017
, and
2016
, we granted
0.9 million
,
0.6 million
, and
1.0 million
stock-settled share units, respectively, with a weighted average grant date value of
$34.16
,
$46.79
, and
$43.64
, respectively. During fiscal
2017
and
2016
, we granted
0.4 million
and
0.8 million
cash-settled share units, respectively, with a weighted average grant date value of
$48.07
and
$44.48
, respectively.
The total intrinsic value of stock-settled share units vested was
$18.5 million
,
$27.0 million
, and
$48.8 million
during fiscal
2018
,
2017
, and
2016
, respectively. The total intrinsic value of cash-settled share units vested was
$14.2 million
,
$24.0 million
, and
$44.9 million
during fiscal
2018
,
2017
, and
2016
, respectively.
At
May 27, 2018
, we had
$22.8 million
and
$5.2 million
of total unrecognized compensation expense that will be recognized over a weighted average period of
1.8 years
and
1.0 year
, related to stock-settled share unit awards and cash-settled share unit awards, respectively.
Performance-Based Share Plan
Performance shares are granted to selected executives and other key employees with vesting contingent upon meeting various Company-wide performance goals. The performance goal for
one-third
of the target number of performance shares for the
three
-year performance period ending in fiscal 2018 (the "2018 performance period") is based on our fiscal 2016 EBITDA return on capital, subject to certain adjustments. Another
one-third
of the target number of performance shares granted for the 2018 performance period is based on our fiscal 2017 EBITDA return on capital, subject to certain adjustments. The fiscal 2017 EBITDA return on capital target, when set, excluded the results of Lamb Weston. The performance goal for the last
one-third
of the target number of performance shares granted for the 2018 performance period is based on our fiscal 2018 diluted earnings per share ("EPS") compound annual growth rate ("CAGR"), subject to certain adjustments. In addition, for certain participants, all performance shares for the 2018 performance period are subject to an overarching EPS goal that must be met in each fiscal year of the 2018 performance period before any pay out can be made to such participants on the performance shares.
The performance goal for
one-third
of the target number of performance shares for the
three
-year performance period ending in fiscal 2019 (the "2019 performance period") is based on our fiscal 2017 EBITDA return on capital, subject to certain adjustments. The fiscal 2017 EBITDA return on capital target, when set, excluded the results of Lamb Weston. The performance goal for the final
two-thirds
of the target number of performance shares granted for the 2019 performance period is based on our diluted EPS CAGR, subject to certain adjustments, measured over the
two
-year period ending in fiscal 2019. In addition,
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
for certain participants, all performance shares for the 2019 performance period are subject to an overarching EPS goal that must be met in each fiscal year of the 2019 performance period before any pay out can be made to such participants on the performance shares.
The performance goal for the
three
-year performance period ending in fiscal 2020 is based on our diluted EPS CAGR, subject to certain adjustments, measured over the defined performance period. In addition, for certain participants, all performance shares for the 2020 performance period are subject to an overarching EPS goal that must be met in each fiscal year of the 2020 performance period before any pay out can be made to such participants on the performance shares.
Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in the performance share plan, any shares earned will be distributed after the end of the performance period, and only if the participant continues to be employed with the Company through the date of distribution. For awards where performance against the performance target has not been certified, the value of the performance shares is adjusted based upon the market price of our common stock and current forecasted performance against the performance targets at the end of each reporting period and amortized as compensation expense over the vesting period. Forfeitures are accounted for as they occur.
A summary of the activity for performance share awards as of
May 27, 2018
and changes during the fiscal year then ended is presented below:
|
|
|
|
|
|
|
|
Performance Shares
|
Share Units
(in Millions)
|
|
Weighted
Average
Grant-Date
Fair Value
|
Nonvested performance shares at May 28, 2017
|
0.86
|
|
|
$
|
29.23
|
|
Granted
|
0.48
|
|
|
$
|
33.82
|
|
Adjustments for performance results attained and dividend equivalents
|
0.01
|
|
|
$
|
22.98
|
|
Vested/Issued
|
(0.33
|
)
|
|
$
|
24.08
|
|
Forfeited
|
(0.02
|
)
|
|
$
|
33.69
|
|
Nonvested performance shares at May 27, 2018
|
1.00
|
|
|
$
|
33.40
|
|
The compensation expense for our performance share awards totaled
$11.8 million
,
$13.3 million
, and
$14.2 million
for fiscal
2018
,
2017
, and
2016
, respectively. The tax benefit related to the compensation expense for fiscal
2018
,
2017
, and
2016
was
$3.9 million
,
$5.1 million
, and
$5.4 million
, respectively.
The total intrinsic value of share units vested (including shares paid in lieu of dividends) during fiscal
2018
,
2017
, and
2016
was
$11.2 million
,
$2.8 million
, and
$12.7 million
, respectively.
Based on estimates at
May 27, 2018
, the Company had
$15.6 million
of total unrecognized compensation expense related to performance shares that will be recognized over a weighted average period of
1.8 years
.
Stock Option Plan
We have stockholder-approved stock option plans that provide for granting of options to employees for the purchase of common stock at prices equal to the fair value at the date of grant. Options become exercisable under various vesting schedules (typically
three years
) and generally expire
seven
to
ten years
after the date of grant.
No
options were granted in fiscal 2018.
The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions for stock options granted:
|
|
|
|
|
|
2017
|
|
2016
|
Expected volatility (%)
|
19.15
|
|
17.88
|
Dividend yield (%)
|
2.33
|
|
2.74
|
Risk-free interest rates (%)
|
1.03
|
|
1.60
|
Expected life of stock option (years)
|
4.94
|
|
4.96
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The expected volatility is based on the historical market volatility of our stock over the expected life of the stock options granted. The expected life represents the period of time that the awards are expected to be outstanding and is based on the contractual term of each instrument, taking into account employees' historical exercise and termination behavior.
A summary of the option activity as of
May 27, 2018
and changes during the fiscal year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
Number
of Options
(in Millions)
|
|
Weighted
Average
Exercise
Price
|
|
Average
Remaining
Contractual
Term
(Years)
|
|
Aggregate
Intrinsic
Value (in
Millions)
|
Outstanding at May 28, 2017
|
6.3
|
|
|
$
|
27.12
|
|
|
|
|
|
Exercised
|
(1.1
|
)
|
|
$
|
22.28
|
|
|
|
|
$
|
15.8
|
|
Forfeited
|
(0.1
|
)
|
|
$
|
34.78
|
|
|
|
|
|
Outstanding at May 27, 2018
|
5.1
|
|
|
$
|
28.11
|
|
|
5.76
|
|
$
|
47.6
|
|
Exercisable at May 27, 2018
|
4.0
|
|
|
$
|
26.34
|
|
|
5.14
|
|
$
|
44.4
|
|
We recognize compensation expense using the straight-line method over the requisite service period, accounting for forfeitures as they occur. During fiscal
2017
and
2016
, the Company granted
1.1 million
options and
1.6 million
options, respectively, with a weighted average grant date value of
$6.12
and
$5.08
, respectively. The total intrinsic value of options exercised was
$15.8 million
,
$29.8 million
, and
$165.6 million
for fiscal
2018
,
2017
, and
2016
, respectively. The closing market price of our common stock on the last trading day of fiscal
2018
was
$37.41
per share.
Compensation expense for stock option awards totaled
$4.2 million
,
$6.2 million
, and
$9.4 million
for fiscal
2018
,
2017
, and
2016
, respectively, including discontinued operations of
$0.2 million
and
$0.8 million
for fiscal 2017 and 2016, respectively. Included in the compensation expense for stock option awards for fiscal
2018
,
2017
, and
2016
was
$0.4 million
,
$0.9 million
, and
$1.0 million
, respectively, related to stock options granted by a subsidiary in the subsidiary's shares to the subsidiary's employees. The tax benefit related to the stock option expense for fiscal
2018
,
2017
, and
2016
was
$1.4 million
,
$2.4 million
, and
$3.6 million
, respectively.
At
May 27, 2018
, we had
$2.3 million
of total unrecognized compensation expense related to stock options that will be recognized over a weighted average period of
0.9 years
.
Cash received from option exercises for the fiscal years ended
May 27, 2018
,
May 28, 2017
, and
May 29, 2016
was
$25.1 million
,
$84.4 million
, and
$228.7 million
, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled
$5.3 million
,
$19.5 million
, and
$57.3 million
for fiscal
2018
,
2017
, and
2016
, respectively.
15. PRE-TAX INCOME AND INCOME TAXES
The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was enacted into law on December 22, 2017. The changes to U.S. tax law include, but are not limited to, (1) reducing the federal statutory income tax rate from 35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) repealing the exception for deductibility of performance-based compensation to covered employees, along with expanding the number of covered employees; and (4) allowing immediate expensing of machinery and equipment contracted for purchase after September 27, 2017.
The Tax Act also establishes new tax provisions that will affect our fiscal year 2019, including, but not limited to, (1) eliminating the deduction for domestic manufacturing activities; (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (3) establishing a new minimum tax on Global Intangible Low-Taxed Income ("GILTI"), a new Base Erosion Anti-Abuse Tax, and a new U.S. corporate deduction for Foreign-Derived Intangible Income.
On December 22, 2017, the U.S. Securities and Exchange Commission released Staff Accounting Bulletin ("SAB") 118, which allows for a measurement period up to one year after the enactment date of the Tax Act to finalize related income tax impacts. Although our accounting for the impact of the Tax Act is incomplete, we have made reasonable estimates and recorded provisional amounts for items impacted including, among others, the following:
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
•
We remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse and recorded a provisional net benefit of
$241.6 million
. In addition, as a result of the Tax Act we recorded a provisional benefit of
$3.2 million
related to the release of valuation allowance against certain deferred tax assets that are more likely than not to be realized. The release of valuation allowance was refined by a
$0.5 million
increase as of May 27, 2018 from our initial estimate made in our third quarter of fiscal 2018 in accordance with SAB 118.
•
We computed a provisional tax of approximately
$19.8 million
related to the application of the one-time transition tax on the net accumulated post-1986 earnings and profits of foreign subsidiaries. The transition tax was refined by a
$4.6 million
increase as of May 27, 2018 from our initial estimate made in our third quarter of fiscal 2018 in accordance with SAB 118.
We have not yet completed our analysis of the GILTI tax rules and are still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on certain foreign differences between the financial statement and tax basis of foreign assets and liabilities. At May 27, 2018, we did not record a deferred tax liability for these differences. We will continue to analyze the impact of GILTI as more guidance is issued and a decision will be made during fiscal year 2019 on whether to treat the GILTI as a period cost or a deferred tax item.
As a result of our fiscal year end, the lower U.S. statutory federal income tax rate resulted in a blended U.S. federal statutory rate of
29.3%
for our fiscal year ending May 27, 2018. It is expected to be
21%
for fiscal years beginning after May 27, 2018.
Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
United States
|
$
|
902.5
|
|
|
$
|
883.5
|
|
|
$
|
136.9
|
|
Foreign
|
69.6
|
|
|
(82.8
|
)
|
|
38.0
|
|
|
$
|
972.1
|
|
|
$
|
800.7
|
|
|
$
|
174.9
|
|
The provision for income taxes included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Current
|
|
|
|
|
|
Federal
|
$
|
153.1
|
|
|
$
|
201.5
|
|
|
$
|
206.5
|
|
State
|
17.8
|
|
|
6.7
|
|
|
31.0
|
|
Foreign
|
32.5
|
|
|
6.5
|
|
|
8.6
|
|
|
203.4
|
|
|
214.7
|
|
|
246.1
|
|
Deferred
|
|
|
|
|
|
Federal
|
(43.7
|
)
|
|
62.1
|
|
|
(161.5
|
)
|
State
|
17.4
|
|
|
(5.3
|
)
|
|
(38.9
|
)
|
Foreign
|
(2.5
|
)
|
|
(16.8
|
)
|
|
0.7
|
|
|
(28.8
|
)
|
|
40.0
|
|
|
(199.7
|
)
|
|
$
|
174.6
|
|
|
$
|
254.7
|
|
|
$
|
46.4
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
Income taxes computed by applying the U.S. Federal statutory rates to income from continuing operations before income taxes are reconciled to the provision for income taxes set forth in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Computed U.S. Federal income taxes
|
$
|
285.3
|
|
|
$
|
280.2
|
|
|
$
|
61.2
|
|
State income taxes, net of U.S. Federal tax impact
|
18.0
|
|
|
22.4
|
|
|
(6.4
|
)
|
Remeasurement of U.S. deferred taxes
|
(241.6
|
)
|
|
—
|
|
|
—
|
|
Transition tax on foreign earnings
|
19.8
|
|
|
—
|
|
|
—
|
|
Tax credits and domestic manufacturing deduction
|
(20.6
|
)
|
|
(19.8
|
)
|
|
(16.5
|
)
|
Federal rate differential on legal reserve
|
12.6
|
|
|
—
|
|
|
—
|
|
Goodwill and intangible impairments
|
—
|
|
|
104.7
|
|
|
—
|
|
Stock compensation
|
(5.7
|
)
|
|
(18.8
|
)
|
|
—
|
|
Change of valuation allowance on capital loss carryforward
|
78.6
|
|
|
(84.1
|
)
|
|
—
|
|
Change in estimate related to tax methods used for certain international sales, federal credits, and state credits
|
—
|
|
|
(8.0
|
)
|
|
6.0
|
|
Other
|
28.2
|
|
|
(21.9
|
)
|
|
2.1
|
|
|
$
|
174.6
|
|
|
$
|
254.7
|
|
|
$
|
46.4
|
|
Income taxes paid, net of refunds, were
$164.1 million
,
$213.0 million
, and
$291.3 million
in fiscal
2018
,
2017
, and
2016
, respectively.
The tax effect of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 27, 2018
|
|
May 28, 2017
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Property, plant and equipment
|
$
|
—
|
|
|
$
|
141.0
|
|
|
$
|
—
|
|
|
$
|
216.6
|
|
Goodwill, trademarks and other intangible assets
|
—
|
|
|
406.2
|
|
|
—
|
|
|
623.4
|
|
Accrued expenses
|
15.5
|
|
|
—
|
|
|
20.2
|
|
|
—
|
|
Compensation related liabilities
|
34.1
|
|
|
—
|
|
|
63.9
|
|
|
—
|
|
Pension and other postretirement benefits
|
45.8
|
|
|
—
|
|
|
275.2
|
|
|
—
|
|
Investment in unconsolidated subsidiaries
|
—
|
|
|
165.8
|
|
|
—
|
|
|
237.8
|
|
Other liabilities that will give rise to future tax deductions
|
109.7
|
|
|
—
|
|
|
117.9
|
|
|
—
|
|
Net capital and operating loss carryforwards
|
762.5
|
|
|
—
|
|
|
1,112.5
|
|
|
—
|
|
Other
|
26.3
|
|
|
6.1
|
|
|
60.0
|
|
|
6.3
|
|
|
993.9
|
|
|
719.1
|
|
|
1,649.7
|
|
|
1,084.1
|
|
Less: Valuation allowance
|
(739.6
|
)
|
|
—
|
|
|
(1,013.4
|
)
|
|
—
|
|
Net deferred taxes
|
$
|
254.3
|
|
|
$
|
719.1
|
|
|
$
|
636.3
|
|
|
$
|
1,084.1
|
|
The liability for gross unrecognized tax benefits at May 27, 2018 was
$32.5 million
, excluding a related liability of
$7.7
million for gross interest and penalties. Any associated interest and penalties imposed would affect the tax rate. As of May 28, 2017, our gross liability for unrecognized tax benefits was
$39.3 million
, excluding a related liability of
$6.0 million
for gross interest and penalties. Interest and penalties recognized in the Consolidated Statements of Operations was an expense of
$1.6 million
in fiscal 2018, a benefit of
$0.3 million
in fiscal 2017, and a benefit of
$0.2 million
in fiscal 2016.
The net amount of unrecognized tax benefits at
May 27, 2018
and
May 28, 2017
that, if recognized, would favorably impact our effective tax rate was
$27.8 million
and
$31.6 million
, respectively.
We accrue interest and penalties associated with uncertain tax positions as part of income tax expense.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
We conduct business and file tax returns in numerous countries, states, and local jurisdictions. The U.S. Internal Revenue Service ("IRS") has completed its audit for tax years through fiscal 2015 and all resulting significant items for fiscal 2015 and prior years have been settled with the IRS. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from
three
to
five
years.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to
$15.3 million
over the next twelve months due to various Federal, state, and foreign audit settlements and the expiration of statutes of limitations. Of this amount, approximately
$6.7 million
would reverse through results of discontinued operations.
The change in the unrecognized tax benefits for the year ended
May 27, 2018
was:
|
|
|
|
|
Beginning balance on May 28, 2017
|
$
|
39.3
|
|
Increases from positions established during prior periods
|
14.5
|
|
Decreases from positions established during prior periods
|
(11.5
|
)
|
Increases from positions established during the current period
|
3.5
|
|
Decreases relating to settlements with taxing authorities
|
(10.3
|
)
|
Reductions resulting from lapse of applicable statute of limitation
|
(2.9
|
)
|
Other adjustments to liability
|
(0.1
|
)
|
Ending balance on May 27, 2018
|
$
|
32.5
|
|
We have approximately
$27.5 million
of foreign net operating loss carryforwards (
$10.7 million
will expire between fiscal
2019
and 2039 and
$16.8 million
have no expiration dates) and
$19.4 million
of Federal net operating loss carryforwards which expire in fiscal 2037. Federal capital loss carryforwards related to the Private Brands divestiture of approximately
$2.8 billion
will expire in fiscal 2021. Included in net deferred tax liabilities are
$35.7 million
of tax effected state net operating loss carryforwards which expire in various years ranging from fiscal 2019 to 2028 and
$173.7 million
of tax effected state capital loss carryforwards related to the divestiture of Private Brands, the vast majority of which expire in fiscal 2021. Foreign tax credits of
$1.0 million
will expire between fiscal 2025 and fiscal 2028. State tax credits of approximately
$10.1 million
will expire in various years ranging from fiscal
2019
to 2028.
We have recognized a valuation allowance for the portion of the net operating loss carryforwards, capital loss carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized. The net change in the valuation allowance for fiscal 2018 was a decrease of
$273.8 million
. For fiscal
2017
and
2016
, changes in the valuation allowance were a decrease of
$420.1 million
and an increase of
$1.4 billion
, respectively. The current year change principally relates to remeasurement of deferred tax assets and corresponding valuation allowances due to tax reform and an adjustment to the valuation allowance on capital loss due to the termination of the sales agreement for the
Wesson
®
oil business.
Historically, we have not provided U.S. deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries. During fiscal 2018, we determined that previously undistributed earnings of certain foreign subsidiaries no longer meet the requirements for indefinite reinvestment under applicable accounting guidance and, therefore, recognized
$5.9 million
of income tax expense in fiscal 2018. We continue to believe the remaining undistributed earnings of our foreign subsidiaries are indefinitely reinvested and therefore have not provided any additional U.S. deferred taxes. It is not practicable to estimate the amount of U.S. income taxes that would be incurred in the event that we were to repatriate all the cumulative earnings of non-U.S. affiliates and associated companies. Accordingly, deferred taxes will be provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested.
16. LEASES
We lease certain facilities, land, and transportation equipment under agreements that expire at various dates. Rent expense under all operating leases from continuing operations was
$62.5 million
,
$71.2 million
, and
$77.4 million
in fiscal
2018
,
2017
, and
2016
, respectively. These amounts are inclusive of certain charges recognized at the cease-use date for remaining lease payments associated with exited properties.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
A summary of non-cancellable operating lease commitments for fiscal years following
May 27, 2018
, was as follows:
|
|
|
|
|
2019
|
$
|
35.6
|
|
2020
|
25.2
|
|
2021
|
22.3
|
|
2022
|
17.9
|
|
2023
|
15.8
|
|
Later years
|
82.3
|
|
|
$
|
199.1
|
|
At
May 27, 2018
and May 28, 2017, assets under capital and financing leases totaling
$82.9 million
, net of accumulated depreciation of
$32.1 million
, and
$119.5 million
, net of
$47.7 million
of accumulated depreciation, respectively, were included in Property, plant and equipment. Charges resulting from the depreciation of assets held under capital and financing leases are recognized within depreciation expense in the Consolidated Statements of Operations.
Non-cash issuances of capital and financing lease obligations totaling
$1.3 million
,
$0.5 million
, and
$103.3 million
, are excluded from cash flows from investing and financing activities on the Consolidated Statements of Cash Flows for fiscal 2018, 2017, and 2016, respectively.
17. CONTINGENCIES
Litigation Matters
We are a party to certain litigation matters relating to our acquisition of Beatrice Company ("Beatrice") in fiscal 1991, including litigation proceedings related to businesses divested by Beatrice prior to our acquisition of the company. These proceedings include suits against a number of lead paint and pigment manufacturers, including ConAgra Grocery Products Company, LLC, a wholly owned subsidiary of the Company ("ConAgra Grocery Products") as alleged successor to W. P. Fuller & Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967. These lawsuits generally seek damages for personal injury, property damage, economic loss, and governmental expenditures allegedly caused by the use of lead-based paint, and/or injunctive relief for inspection and abatement. Although decisions favorable to us have been rendered in Rhode Island, New Jersey, Wisconsin, and Ohio, we remain a defendant in active suits in Illinois and California. ConAgra Grocery Products has denied liability in both suits, both on the merits of the claims and on the basis that we do not believe it to be the successor to any liability attributable to W. P. Fuller & Co. The California suit is discussed in the following paragraph. The Illinois suit seeks class-wide relief for reimbursement of costs associated with the testing of lead levels in blood. We do not believe it is probable that we have incurred any liability with respect to the Illinois case, nor is it possible to estimate any potential exposure.
In California, a number of cities and counties joined in a consolidated action seeking abatement of an alleged public nuisance in the form of lead-based paint potentially present on the interior of residences, regardless of its condition. On September 23, 2013, a trial of the California case concluded in the Superior Court of California for the County of Santa Clara, and on January 27, 2014, the court entered a judgment (the "Judgment") against ConAgra Grocery Products and
two
other defendants ordering the creation of a California abatement fund in the amount of
$1.15 billion
. Liability is joint and several. The Company appealed the Judgment, and on November 14, 2017 the California Court of Appeal for the Sixth Appellate District reversed in part, holding that the defendants were not liable to pay for abatement of homes built after 1950, but affirmed the Judgment as to homes built before 1951. The Court of Appeal remanded the case to the trial court with directions to recalculate the amount of the abatement fund estimated to be necessary to cover the cost of remediating pre-1951 homes, and to hold an evidentiary hearing regarding appointment of a suitable receiver. ConAgra Grocery Products and the other defendants petitioned the California Supreme Court for review of the decision, which we believe to be an unprecedented expansion of current California law. On February 14, 2018, the California Supreme Court denied the petition and declined to review the merits of the case, and the case was remanded to the trial court for further proceedings. ConAgra Grocery Products and the other defendants have indicated that they will seek further review of certain issues from the Supreme Court of the United States, although further appeal is discretionary and may not be granted. Further proceedings in the trial court may not be stayed pending the outcome of any further appeal. In light of the decision rendered by the California Appellate Court on November 14, 2017, and the California Supreme Court's decision on February 14, 2018 not to review the Appellate Court's decision, we
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
have concluded that the liability has likely become probable as contemplated by Accounting Standards Codification Topic 450, however many uncertainties remain which make it difficult to estimate the potential liability, including the following: (i) the trial court has not yet recalculated its estimate of the amount needed to remediate pre-1951 homes in the plaintiff jurisdictions or entered a new judgment to replace the one vacated by the California Appellate Court; (ii) although liability is joint and several, it is unknown what amount each defendant may ultimately be required to pay or how allocation among the defendants (and other potentially responsible parties such as property owners who may have violated the applicable housing codes) will be determined; (iii) according to the trial court's original order, participation in the abatement program by eligible homeowners is voluntary and it is unknown what percentage of eligible homeowners will choose to participate or how such claims will be administered; (iv) the trial court's original order required that any amounts paid by the defendants into the fund that were not spent within four years would be returned to the defendants, and it is unknown whether this feature of the fund will be retained or, if it is retained, how much will be spent during that time period; and (v) defendants will have a new right to appeal any new aspects of the judgment entered by the trial court upon remand, although it is unknown whether the court would stay execution of any new judgment while a subsequent appeal is pending.
To assist the trial court in satisfying its responsibilities, during our fourth quarter of fiscal 2018, the defendants and plaintiff each submitted information to the court regarding recalculation of the abatement fund. In addition, one of the defendants entered into a proposed settlement with the plaintiff, contingent upon a judicial good faith determination under California law. We are uncertain as to when the court will make a ruling on a recalculated abatement fund or the proposed settlement. Notwithstanding the uncertainties described above, this additional information was used by the Company in concluding that a loss is now reasonably estimable. While the ultimate amount of any loss and timing of payments related thereto remain uncertain and could change as further information is obtained, we believe that our share of the loss could range from
$60 million
to
$335 million
and have recorded a liability for the amount in that range that we believe is a better estimate than the low or high ends of the range. The extent of insurance coverage is uncertain and the Company's carriers are on notice; however, any possible insurance recovery has not been considered for purposes of determining our liability. We cannot assure that the final resolution of these matters will not have a material adverse effect on its financial condition, results of operations, or liquidity.
In June 2009, an accidental explosion occurred at our manufacturing facility in Garner, North Carolina. This facility was the primary production facility for our
Slim Jim
®
branded meat snacks. In June 2009, the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives announced its determination that the explosion was the result of an accidental natural gas release and not a deliberate act. During the fourth quarter of fiscal 2011, we settled our property and business interruption claims related to the Garner accident with our insurance providers. During the fourth quarter of fiscal 2011, Jacobs Engineering Group Inc. ("Jacobs"), our engineer and project manager at the site, filed a declaratory judgment action against us seeking indemnity for personal injury claims brought against it as a result of the accident. During the first quarter of fiscal 2012, our motion for summary judgment was granted and the suit was dismissed without prejudice on the basis that the suit was filed prematurely. In the third quarter of fiscal 2014, Jacobs refiled its action seeking indemnity. On March 25, 2016, a Douglas County jury in Nebraska rendered a verdict in favor of Jacobs and against us in the amount of
$108.9 million
plus post-judgment interest. We filed our Notice of Appeal in September 2016, the appeal was heard by the Nebraska Supreme Court in November 2017, and the case is awaiting decision by the Nebraska Supreme Court. The appeal will be decided directly by the Nebraska Supreme Court. Although our insurance carriers have provided customary notices of reservation of their rights under the policies of insurance, we expect any ultimate exposure in this case to be limited to the applicable insurance deductible.
We are party to a number of putative class action lawsuits challenging various product claims made in the Company's product labeling. These matters include Briseno v. ConAgra Foods, Inc., in which it is alleged that the labeling for
Wesson
®
oils as 100% natural is false and misleading because the oils contain genetically modified plants and organisms. In February 2015, the U.S. District Court for the Central District of California granted class certification to permit plaintiffs to pursue state law claims. The Company appealed to the United States Court of Appeals for the Ninth Circuit, which affirmed class certification in January 2017. The Supreme Court of the United States declined to review the decision and the case has been remanded to the trial court for further proceedings. While we cannot predict with certainty the results of this or any other legal proceeding, we do not expect this matter to have a material adverse effect on our financial condition, results of operations, or business.
We are party to matters challenging the Company's wage and hour practices. These matters include a number of putative class actions consolidated under the caption Negrete v. ConAgra Foods, Inc., et al, pending in the U.S. District Court for the Central District of California, in which the plaintiffs allege a pattern of violations of California and/or federal law at several current and former Company manufacturing facilities across the State of California. While we cannot predict with certainty
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
the results of this or any other legal proceeding, we do not expect this matter to have a material adverse effect on our financial condition, results of operations, or business.
In the fourth quarter of fiscal 2018, we accrued
$151.0 million
in new legal reserves relating to the matters set forth above.
Environmental Matters
We are a party to certain environmental proceedings relating to our acquisition of Beatrice in fiscal 1991. Such proceedings include proceedings related to businesses divested by Beatrice prior to our acquisition of Beatrice. The current environmental proceedings associated with Beatrice include litigation and administrative proceedings involving Beatrice's possible status as a potentially responsible party at approximately
40
Superfund, proposed Superfund, or state-equivalent sites (the "Beatrice sites"). These sites involve locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides, fertilizers, dyes, inks, solvents, PCBs, acids, lead, sulfur, tannery wastes, and/or other contaminants. In the past five years, Beatrice has paid or is in the process of paying its liability share at
31
of these sites. Reserves for these Beatrice environmental proceedings have been established based on our best estimate of the undiscounted remediation liabilities, which estimates include evaluation of investigatory studies, extent of required clean-up, the known volumetric contribution of Beatrice and other potentially responsible parties, and its experience in remediating sites. The accrual for Beatrice-related environmental matters totaled
$52.4 million
as of
May 27, 2018
, a majority of which relates to the Superfund and state-equivalent sites referenced above. During the third quarter of fiscal 2017, a final Remedial Investigation/Feasibility Study was submitted for the Southwest Properties portion of the Wells G&H Superfund site, which is one of the Beatrice sites. The U.S. Environmental Protection Agency (the "EPA") issued a Record of Decision (the "ROD") for the Southwest Properties portion of the site on September 29, 2017, and has entered into negotiations with potentially responsible parties to determine final responsibility for implementing the ROD.
Guarantees and Other Contingencies
In certain limited situations, we guarantee obligations of the Lamb Weston business pursuant to guarantee arrangements that existed prior to the Spinoff and remained in place following completion of the Spinoff until such guarantee obligations are substituted for guarantees issued by Lamb Weston. Such guarantee arrangements are described below. Pursuant to the Separation and Distribution Agreement, dated as of November 8, 2016 (the "Separation Agreement"), between us and Lamb Weston, these guarantee arrangements are deemed liabilities of Lamb Weston that were transferred to Lamb Weston as part of the Spinoff. Accordingly, in the event that we are required to make any payments as a result of these guarantee arrangements, Lamb Weston is obligated to indemnify us for any such liability, reduced by any insurance proceeds received by us, in accordance with the terms of the indemnification provisions under the Separation Agreement.
Lamb Weston is a party to a warehouse services agreement with a third-party warehouse provider through July 2035. Under this agreement, Lamb Weston is required to make payments for warehouse services based on the quantity of goods stored and other service factors. We have guaranteed the warehouse provider that we will make the payments required under the agreement in the event that Lamb Weston fails to perform. Minimum payments of
$1.5 million
per month are required under this agreement. It is not possible to determine the maximum amount of the payment obligations under this agreement. Upon completion of the Spinoff, we recognized a liability for the estimated fair value of this guarantee. As of
May 27, 2018
, the amount of this guarantee, recorded in other noncurrent liabilities, was
$28.1 million
.
Lamb Weston is a party to an agricultural sublease agreement with a third party for certain farmland through 2020 (subject, at Lamb Weston's option, to extension for
two
additional
five
-year periods). Under the terms of the sublease agreement, Lamb Weston is required to make certain rental payments to the sublessor. We have guaranteed the sublessor Lamb Weston's performance and the payment of all amounts (including indemnification obligations) owed by Lamb Weston under the sublease agreement, up to a maximum of
$75.0 million
. We believe the farmland associated with this sublease agreement is readily marketable for lease to other area farming operators. As such, we believe that any financial exposure to the company, in the event that we were required to perform under the guaranty, would be largely mitigated.
We lease or leased certain office buildings from entities that we have determined to be variable interest entities. The lease agreements with these entities include fixed-price purchase options for the assets being leased. The lease agreements also contain contingent put options (the "lease put options") that allow or allowed the lessors to require us to purchase the buildings at the greater of original construction cost, or fair market value, without a lease agreement in place (the "put price") in certain limited circumstances. As a result of substantial impairment charges related to our divested Private Brands operations, these lease put options became exercisable. During fiscal 2016, we entered into a series of related transactions in which we exchanged
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
a warehouse we owned in Indiana for two buildings and parcels of land that we leased as part of our Omaha corporate offices. Concurrent with the asset exchange, the leases on the two Omaha corporate buildings subject to contingent put options were canceled. We recognized aggregate charges of
$55.6 million
for the early termination of these leases. We also entered into a lease for the warehouse in Indiana and we recorded a financing lease obligation of
$74.2 million
. During fiscal 2017, one of these lease agreements expired. As a result of this expiration, we reversed the applicable accrual and recognized a benefit of $
6.7 million
in SG&A expenses. During the third quarter of fiscal 2018, we purchased two buildings that were subject to lease put options and recognized net losses totaling
$48.2 million
for the early exit of unfavorable lease contracts. As of
May 27, 2018
, there was one remaining leased building subject to a lease put option for which the put option price exceeded the estimated fair value of the property by
$8.2 million
, of which we had accrued
$1.2 million
. We are amortizing the difference between the put price and the estimated fair value (without a lease agreement in place) of the property over the remaining lease term within SG&A expenses. This lease is accounted for as an operating lease, and accordingly, there are no material assets and liabilities, other than the accrued portion of the put price, associated with this entity included in the Consolidated Balance Sheets. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of this entity. In making this determination, we have considered, among other items, the terms of the lease agreement, the expected remaining useful life of the asset leased, and the capital structure of the lessor entity.
General
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity; however, it is reasonably possible that a change of the estimates of any of the foregoing matters may occur in the future and, as noted, the lead paint matter could result in a material final judgment which could have a material adverse effect on our financial condition, results of operations, or liquidity.
Costs of legal services associated with the foregoing matters are recognized in earnings as services are provided.
18. DERIVATIVE FINANCIAL INSTRUMENTS
Our operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and energy, foreign currency exchange rates, and interest rates. In the normal course of business, these risks are managed through a variety of strategies, including the use of derivatives.
Commodity and commodity index futures and option contracts are used from time to time to economically hedge commodity input prices on items such as natural gas, vegetable oils, proteins, packaging materials, dairy, grains, and electricity. Generally, we economically hedge a portion of our anticipated consumption of commodity inputs for periods of up to
36
months. We may enter into longer-term economic hedges on particular commodities, if deemed appropriate. As of
May 27, 2018
, we had economically hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with expiration dates through March 2019.
In order to reduce exposures related to changes in foreign currency exchange rates, we enter into forward exchange, option, or swap contracts from time to time for transactions denominated in a currency other than the applicable functional currency. This includes, but is not limited to, hedging against foreign currency risk in purchasing inventory and capital equipment, sales of finished goods, and future settlement of foreign-denominated assets and liabilities. As of
May 27, 2018
, we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through February 2019.
From time to time, we may use derivative instruments, including interest rate swaps, to reduce risk related to changes in interest rates. This includes, but is not limited to, hedging against increasing interest rates prior to the issuance of long-term debt and hedging the fair value of our senior long-term debt.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
Economic Hedges of Forecasted Cash Flows
Many of our derivatives do not qualify for, and we do not currently designate certain commodity or foreign currency derivatives to achieve, hedge accounting treatment. We reflect realized and unrealized gains and losses from derivatives used to economically hedge anticipated commodity consumption and to mitigate foreign currency cash flow risk in earnings immediately within general corporate expense (within cost of goods sold). The gains and losses are reclassified to segment operating results in the period in which the underlying item being economically hedged is recognized in cost of goods sold. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results immediately.
Economic Hedges of Fair Values — Foreign Currency Exchange Rate Risk
We may use options and cross currency swaps to economically hedge the fair value of certain monetary assets and liabilities (including intercompany balances) denominated in a currency other than the functional currency. These derivatives are marked-to-market with gains and losses immediately recognized in SG&A expenses. These substantially offset the foreign currency transaction gains or losses recognized as values of the monetary assets or liabilities being economically hedged.
All derivative instruments are recognized on the Consolidated Balance Sheets at fair value (refer to Note 20 for additional information related to fair value measurements). The fair value of derivative assets is recognized within prepaid expenses and other current assets, while the fair value of derivative liabilities is recognized within other accrued liabilities. In accordance with generally accepted accounting principles, we offset certain derivative asset and liability balances, as well as certain amounts representing rights to reclaim cash collateral and obligations to return cash collateral, where master netting agreements provide for legal right of setoff. At
May 27, 2018
and May 28, 2017,
$1.0 million
, representing an obligation to return cash collateral, and
$0.9 million
, representing a right to reclaim cash collateral, respectively, were included in prepaid expenses and other current assets in our Consolidated Balance Sheets.
Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or obligation to return cash collateral were reflected in our Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
May 27, 2018
|
|
May 28, 2017
|
Prepaid expenses and other current assets
|
$
|
4.4
|
|
|
$
|
2.3
|
|
Other accrued liabilities
|
0.1
|
|
|
1.3
|
|
The following table presents our derivative assets and liabilities at
May 27, 2018
, on a gross basis, prior to the setoff of
$1.4 million
to total derivative assets and
$0.4 million
to total derivative liabilities where legal right of setoff existed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Balance Sheet
Location
|
|
Fair Value
|
Commodity contracts
|
Prepaid expenses and other current assets
|
|
$
|
3.7
|
|
|
Other accrued liabilities
|
|
$
|
0.4
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
2.1
|
|
|
Other accrued liabilities
|
|
—
|
|
Other
|
Prepaid expenses and other current assets
|
|
—
|
|
|
Other accrued liabilities
|
|
0.1
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
5.8
|
|
|
|
|
$
|
0.5
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The following table presents our derivative assets and liabilities, at
May 28, 2017
, on a gross basis, prior to the setoff of
$0.5 million
to total derivative assets and
$1.4 million
to total derivative liabilities where legal right of setoff existed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Balance Sheet
Location
|
|
Fair Value
|
Commodity contracts
|
Prepaid expenses and other current assets
|
|
$
|
2.6
|
|
|
Other accrued liabilities
|
|
$
|
1.4
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
0.2
|
|
|
Other accrued liabilities
|
|
1.1
|
|
Other
|
Prepaid expenses and other current assets
|
|
—
|
|
|
Other accrued liabilities
|
|
0.2
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
2.8
|
|
|
|
|
$
|
2.7
|
|
The location and amount of gains (losses) from derivatives not designated as hedging instruments in our Consolidated Statements of Operations were as follows:
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended May 27, 2018
|
Derivatives Not Designated as Hedging Instruments
|
|
Location in Consolidated Statement of Operations of
Gain (Loss) Recognized on Derivatives
|
|
Amount of Gain (Loss)
Recognized on Derivatives
in Consolidated
Statement of Operations
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
3.0
|
|
Foreign exchange contracts
|
|
Cost of goods sold
|
|
(3.9
|
)
|
Foreign exchange contracts
|
|
Selling, general and administrative expense
|
|
0.3
|
|
Total loss from derivative instruments not designated as hedging instruments
|
|
|
|
$
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended May 28, 2017
|
Derivatives Not Designated as Hedging Instruments
|
|
Location in Consolidated Statement of Operations of
Gain (Loss) Recognized on Derivatives
|
|
Amount of Gain (Loss)
Recognized on Derivatives
in Consolidated
Statement of Operations
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
0.9
|
|
Foreign exchange contracts
|
|
Cost of goods sold
|
|
(0.3
|
)
|
Foreign exchange contracts
|
|
Selling, general and administrative expense
|
|
0.2
|
|
Total gain from derivative instruments not designated as hedging instruments
|
|
|
|
$
|
0.8
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended May 29, 2016
|
Derivatives Not Designated as Hedging Instruments
|
|
Location in Consolidated Statement of Operations of
Gain (Loss) Recognized on Derivatives
|
|
Amount of Gain (Loss)
Recognized on Derivatives
in Consolidated
Statement of Operations
|
Commodity contracts
|
|
Cost of goods sold
|
|
$
|
(8.1
|
)
|
Foreign exchange contracts
|
|
Cost of goods sold
|
|
0.7
|
|
Foreign exchange contracts
|
|
Selling, general and administrative expense
|
|
2.9
|
|
Total loss from derivative instruments not designated as hedging instruments
|
|
|
|
$
|
(4.5
|
)
|
As of
May 27, 2018
, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of
$100.0 million
and
$34.2 million
for purchase and sales contracts, respectively. As of
May 28, 2017
, our open commodity contracts had a notional value of
$76.8 million
and
$73.4 million
for purchase and sales contracts, respectively. The notional amount of our foreign currency forward and cross currency swap contracts as of
May 27, 2018
and
May 28, 2017
was
$82.4 million
and
$81.9 million
, respectively.
We enter into certain commodity, interest rate, and foreign exchange derivatives with a diversified group of counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit exposure to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these counterparties. We have not incurred a material loss due to nonperformance in any period presented and do not expect to incur any such material loss. We also enter into futures and options transactions through various regulated exchanges.
At
May 27, 2018
, the maximum amount of loss due to the credit risk of the counterparties, had the counterparties failed to perform according to the terms of the contracts, was
$2.7 million
.
19. PENSION AND POSTRETIREMENT BENEFITS
We have defined benefit retirement plans ("plans") 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. We also sponsor postretirement plans which provide certain medical and dental benefits ("other postretirement benefits") to qualifying U.S. employees. Effective August 1, 2013, our defined benefit pension plan for eligible salaried employees was closed to new hire salaried employees. New hire salaried employees will generally be eligible to participate in our defined contribution plan.
During the second quarter of fiscal 2018, we approved the amendment of our salaried and non-qualified pension plans effective as of December 31, 2017. The amendment froze the compensation and service periods used to calculate pension benefits for active employees who participate in the plans. Beginning January 1, 2018, impacted employees do not accrue additional benefit for future service and eligible compensation received under these plans.
As a result of the amendment, we remeasured our pension plan liability as of September 30, 2017. In connection with the remeasurement, we updated the effective discount rate assumption from
3.90%
to
3.78%
. The curtailment and related remeasurement resulted in a net decrease to the underfunded status of the pension plans by
$43.5 million
with a corresponding benefit within other comprehensive income (loss) for the second quarter of fiscal 2018. In addition, we recorded charges of
$3.4 million
and
$0.7 million
reflecting the write-off of actuarial losses in excess of 10% of our pension liability and a curtailment charge, respectively.
We recognize the funded status of our plans and other benefits in the Consolidated Balance Sheets. For our plans, we also recognize as a component of accumulated other comprehensive loss, the net of tax results of the actuarial gains or losses within the corridor and prior service costs or credits that arise during the period but are not recognized in net periodic benefit cost. For our other benefits, we also recognize as a component of accumulated other comprehensive income (loss), the net of tax results of the gains or losses and prior service costs or credits that arise during the period but are not recognized in net periodic benefit cost. These amounts will be adjusted out of accumulated other comprehensive income (loss) as they are subsequently recognized as components of net periodic benefit cost. For our pension plans, we have elected to immediately recognize
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
actuarial gains and losses in our operating results in the year in which they occur, to the extent they exceed the corridor, eliminating amortization. Amounts are included in the components of pension benefit and other postretirement benefit costs, below, as recognized net actuarial loss.
The information below includes the activities of our continuing and discontinued operations.
The changes in benefit obligations and plan assets at
May 27, 2018
and
May 28, 2017
are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
3,548.7
|
|
|
$
|
3,903.0
|
|
|
$
|
156.9
|
|
|
$
|
201.7
|
|
Service cost
|
42.8
|
|
|
56.9
|
|
|
0.2
|
|
|
0.3
|
|
Interest cost
|
111.1
|
|
|
116.8
|
|
|
3.9
|
|
|
4.6
|
|
Plan participants' contributions
|
—
|
|
|
—
|
|
|
4.7
|
|
|
4.7
|
|
Amendments
|
0.6
|
|
|
5.5
|
|
|
(17.2
|
)
|
|
—
|
|
Actuarial gain
|
(9.4
|
)
|
|
(51.5
|
)
|
|
(13.2
|
)
|
|
(32.0
|
)
|
Plan settlements
|
(10.2
|
)
|
|
(287.5
|
)
|
|
—
|
|
|
—
|
|
Special termination benefits
|
—
|
|
|
1.5
|
|
|
—
|
|
|
—
|
|
Curtailments
|
(79.5
|
)
|
|
(18.1
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
(181.3
|
)
|
|
(169.7
|
)
|
|
(16.2
|
)
|
|
(19.0
|
)
|
Currency
|
0.8
|
|
|
(0.8
|
)
|
|
0.2
|
|
|
(0.2
|
)
|
Business divestitures
|
—
|
|
|
(7.4
|
)
|
|
—
|
|
|
(3.2
|
)
|
Benefit obligation at end of year
|
$
|
3,423.6
|
|
|
$
|
3,548.7
|
|
|
$
|
119.3
|
|
|
$
|
156.9
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
2,983.6
|
|
|
$
|
2,959.4
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Actual return on plan assets
|
276.1
|
|
|
346.1
|
|
|
3.7
|
|
|
—
|
|
Employer contributions
|
312.6
|
|
|
163.0
|
|
|
11.5
|
|
|
14.2
|
|
Plan participants' contributions
|
—
|
|
|
—
|
|
|
4.7
|
|
|
4.7
|
|
Plan settlements
|
(10.2
|
)
|
|
(287.5
|
)
|
|
—
|
|
|
—
|
|
Investment and administrative expenses
|
(26.5
|
)
|
|
(26.7
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
(181.3
|
)
|
|
(169.7
|
)
|
|
(16.2
|
)
|
|
(19.0
|
)
|
Currency
|
0.8
|
|
|
(1.0
|
)
|
|
—
|
|
|
—
|
|
Fair value of plan assets at end of year
|
$
|
3,355.1
|
|
|
$
|
2,983.6
|
|
|
$
|
3.7
|
|
|
$
|
—
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The funded status and amounts recognized in our Consolidated Balance Sheets at
May 27, 2018
and
May 28, 2017
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Funded Status
|
|
$
|
(68.5
|
)
|
|
$
|
(565.1
|
)
|
|
$
|
(115.6
|
)
|
|
$
|
(156.9
|
)
|
Amounts Recognized in Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
103.0
|
|
|
$
|
17.1
|
|
|
$
|
2.6
|
|
|
$
|
—
|
|
Other accrued liabilities
|
|
(11.8
|
)
|
|
(10.9
|
)
|
|
(16.2
|
)
|
|
(18.4
|
)
|
Other noncurrent liabilities
|
|
(159.7
|
)
|
|
(571.3
|
)
|
|
(102.0
|
)
|
|
(138.5
|
)
|
Net Amount Recognized
|
|
$
|
(68.5
|
)
|
|
$
|
(565.1
|
)
|
|
$
|
(115.6
|
)
|
|
$
|
(156.9
|
)
|
Amounts Recognized in Accumulated Other Comprehensive (Income) Loss (Pre-tax)
|
|
|
|
|
|
|
|
|
Actuarial net loss (gain)
|
|
$
|
48.8
|
|
|
$
|
174.2
|
|
|
$
|
(25.8
|
)
|
|
$
|
(9.0
|
)
|
Net prior service cost (benefit)
|
|
13.8
|
|
|
16.0
|
|
|
(18.4
|
)
|
|
(4.6
|
)
|
Total
|
|
$
|
62.6
|
|
|
$
|
190.2
|
|
|
$
|
(44.2
|
)
|
|
$
|
(13.6
|
)
|
Weighted-Average Actuarial Assumptions Used to Determine Benefit Obligations at May 27, 2018 and May 28, 2017
|
|
|
|
|
|
|
|
|
Discount rate
|
|
4.14
|
%
|
|
3.90
|
%
|
|
3.81
|
%
|
|
3.33
|
%
|
Long-term rate of compensation increase
|
|
N/A
|
|
|
3.63
|
%
|
|
N/A
|
|
|
N/A
|
|
The accumulated benefit obligation for all defined benefit pension plans was
$3.4 billion
and
$3.5 billion
at
May 27, 2018
and
May 28, 2017
, respectively.
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets at
May 27, 2018
and
May 28, 2017
were:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Projected benefit obligation
|
|
$
|
951.1
|
|
|
$
|
3,433.6
|
|
Accumulated benefit obligation
|
|
950.1
|
|
|
3,357.1
|
|
Fair value of plan assets
|
|
779.5
|
|
|
2,851.4
|
|
Components of pension benefit and other postretirement benefit costs included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
Service cost
|
$
|
42.8
|
|
|
$
|
56.9
|
|
|
$
|
93.8
|
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
Interest cost
|
111.1
|
|
|
116.8
|
|
|
159.8
|
|
|
3.9
|
|
|
4.6
|
|
|
7.5
|
|
Expected return on plan assets
|
(218.3
|
)
|
|
(207.4
|
)
|
|
(259.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost (benefit)
|
2.9
|
|
|
2.6
|
|
|
2.7
|
|
|
(3.4
|
)
|
|
(6.6
|
)
|
|
(7.8
|
)
|
Special termination benefits
|
—
|
|
|
1.5
|
|
|
25.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Recognized net actuarial loss
|
3.4
|
|
|
1.2
|
|
|
348.5
|
|
|
—
|
|
|
0.5
|
|
|
0.1
|
|
Settlement loss
|
1.3
|
|
|
13.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Curtailment loss
|
0.7
|
|
|
1.7
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefit cost — Company plans
|
(56.1
|
)
|
|
(12.9
|
)
|
|
370.8
|
|
|
0.7
|
|
|
(1.2
|
)
|
|
0.2
|
|
Pension benefit cost — multi-employer plans
|
7.1
|
|
|
12.0
|
|
|
42.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total benefit (income) cost
|
$
|
(49.0
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
413.7
|
|
|
$
|
0.7
|
|
|
$
|
(1.2
|
)
|
|
$
|
0.2
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
As a result of the Spinoff, during fiscal 2017, we recorded a pension curtailment gain of
$19.5 million
within other comprehensive income (loss) and remeasured a significant qualified pension plan as of November 9, 2016. In connection with the remeasurement, we updated the effective discount rate assumption from
3.86%
to
4.04%
. The remeasurement and the curtailment gain decreased the underfunded status of the pension plans by
$66.0 million
with a corresponding benefit within other comprehensive income (loss).
During fiscal 2017, we provided a voluntary lump-sum settlement offer to certain terminated vested participants in our salaried pension plan. Lump-sum settlement payments totaling
$287.5 million
were distributed from pension plan assets to such participants. Due to the pension settlement, we were required to remeasure our pension plan liability. In connection with the remeasurement, we updated the effective discount rate assumption to
4.11%
, as of
December 31, 2016
. The settlement and related remeasurement resulted in the recognition of a settlement charge of
13.8 million
, reflected in SG&A expenses, as well as a benefit to accumulated other comprehensive income (loss) totaling
$62.2 million
.
Special termination benefits granted in connection with the voluntary retirement program resulted in the recognition of
$25.6 million
of expense during fiscal 2016. This expense was included in restructuring activities.
In fiscal 2018, 2017, and 2016, the Company recorded charges of
$3.4 million
,
$1.2 million
, and
$348.5 million
, respectively, reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability.
The Company recorded an expense of
$0.6 million
(primarily within restructuring activities),
$4.0 million
(
$2.1 million
was recorded in discontinued operations and
$1.9 million
was recorded in restructuring activities), and
$31.8 million
(
$2.0 million
was recorded in discontinued operations and
$29.8 million
was recorded in restructuring activities) during fiscal 2018, 2017, and 2016, respectively, related to our expected incurrence of certain multi-employer plan withdrawal costs.
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net actuarial gain
|
|
$
|
120.0
|
|
|
$
|
183.1
|
|
|
$
|
16.8
|
|
|
$
|
32.4
|
|
Amendments
|
|
(0.6
|
)
|
|
(5.5
|
)
|
|
17.2
|
|
|
(0.4
|
)
|
Amortization of prior service cost (benefit)
|
|
2.9
|
|
|
2.9
|
|
|
(3.4
|
)
|
|
(6.6
|
)
|
Settlement and curtailment loss
|
|
2.0
|
|
|
13.8
|
|
|
—
|
|
|
—
|
|
Recognized net actuarial loss
|
|
3.4
|
|
|
1.2
|
|
|
—
|
|
|
0.5
|
|
Net amount recognized
|
|
$
|
127.7
|
|
|
$
|
195.5
|
|
|
$
|
30.6
|
|
|
$
|
25.9
|
|
Weighted-Average Actuarial Assumptions Used to Determine Net Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
Discount rate
|
|
3.90
|
%
|
|
3.83
|
%
|
|
4.10
|
%
|
|
3.33
|
%
|
|
3.18
|
%
|
|
3.50
|
%
|
Long-term rate of return on plan assets
|
|
7.50
|
%
|
|
7.50
|
%
|
|
7.75
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Long-term rate of compensation increase
|
|
3.63
|
%
|
|
3.66
|
%
|
|
3.70
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Beginning in fiscal 2017, the Company has elected to use a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans. Historically, a single weighted-average discount rate was used in the calculation of service and interest costs, both of which are components of pension benefit costs. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost. This change is considered a change in accounting estimate and has been applied prospectively. The pre-tax reduction in total pension benefit cost associated with this change in fiscal 2017 was approximately
$27.0 million
.
We amortize prior service cost for our pension plans and postretirement plans, as well as amortizable gains and losses for our postretirement plans, in equal annual amounts over the average expected future period of vested service. For plans with no active participants, average life expectancy is used instead of average expected useful service.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net expense during the next year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
Prior service cost (benefit)
|
|
$
|
2.9
|
|
|
$
|
(2.2
|
)
|
Net actuarial gain
|
|
N/A
|
|
|
(1.5
|
)
|
Plan Assets
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 20, as of
May 27, 2018
, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
|
$
|
1.0
|
|
|
$
|
65.0
|
|
|
$
|
—
|
|
|
$
|
66.0
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
319.8
|
|
|
124.0
|
|
|
—
|
|
|
443.8
|
|
International equity securities
|
|
256.5
|
|
|
1.0
|
|
|
—
|
|
|
257.5
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
Government bonds
|
|
—
|
|
|
1,854.8
|
|
|
—
|
|
|
1,854.8
|
|
Corporate bonds
|
|
—
|
|
|
4.7
|
|
|
—
|
|
|
4.7
|
|
Mortgage-backed bonds
|
|
—
|
|
|
9.3
|
|
|
—
|
|
|
9.3
|
|
Real estate funds
|
|
7.7
|
|
|
—
|
|
|
—
|
|
|
7.7
|
|
Master limited partnerships
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Net payables for unsettled transactions
|
|
10.9
|
|
|
—
|
|
|
—
|
|
|
10.9
|
|
Fair value measurement of pension plan assets in the fair value hierarchy
|
|
$
|
596.3
|
|
|
$
|
2,058.8
|
|
|
$
|
—
|
|
|
$
|
2,655.1
|
|
Investments measured at net asset value
|
|
|
|
|
|
|
|
700.0
|
|
Total pension plan assets
|
|
|
|
|
|
|
|
|
|
|
$
|
3,355.1
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 20, as of
May 28, 2017
, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
|
$
|
1.0
|
|
|
$
|
94.0
|
|
|
$
|
—
|
|
|
$
|
95.0
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
494.0
|
|
|
13.7
|
|
|
—
|
|
|
507.7
|
|
International equity securities
|
|
249.9
|
|
|
13.2
|
|
|
—
|
|
|
263.1
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
Government bonds
|
|
51.1
|
|
|
224.3
|
|
|
—
|
|
|
275.4
|
|
Corporate bonds
|
|
4.4
|
|
|
279.5
|
|
|
—
|
|
|
283.9
|
|
Mortgage-backed bonds
|
|
63.3
|
|
|
6.2
|
|
|
—
|
|
|
69.5
|
|
Real estate funds
|
|
9.5
|
|
|
—
|
|
|
—
|
|
|
9.5
|
|
Master limited partnerships
|
|
173.5
|
|
|
—
|
|
|
—
|
|
|
173.5
|
|
Net receivables for unsettled transactions
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
Fair value measurement of pension plan assets in the fair value hierarchy
|
|
$
|
1,047.4
|
|
|
$
|
630.9
|
|
|
$
|
—
|
|
|
$
|
1,678.3
|
|
Investments measured at net asset value
|
|
|
|
|
|
|
|
1,305.3
|
|
Total pension plan assets
|
|
|
|
|
|
|
|
$
|
2,983.6
|
|
Level 1 assets are valued based on quoted prices in active markets for identical securities. The majority of the Level 1 assets listed above include the common stock of both U.S. and international companies, mutual funds, master limited partnership units, and real estate investment trusts, all of which are actively traded and priced in the market.
Level 2 assets are valued based on other significant observable inputs including quoted prices for similar securities, yield curves, indices, etc. Level 2 assets consist primarily of individual fixed income securities where values are based on quoted prices of similar securities and observable market data.
Level 3 assets consist of investments where active market pricing is not readily available and, as such, fair value is estimated using significant unobservable inputs.
Certain assets that are measured at fair value using the NAV (net asset value) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. Such investments are generally considered long-term in nature with varying redemption availability. For certain of these investments, with a fair value of approximately
$487.2 million
as of
May 27, 2018
, the asset managers have the ability to impose customary redemption gates which may further restrict or limit the redemption of invested funds therein. As of
May 27, 2018
, funds with a fair value of
$0.1 million
have imposed such gates.
As of
May 27, 2018
, we have unfunded commitments for additional investments of
$65.4 million
in private equity funds and
$26.7 million
in natural resources funds. We expect unfunded commitments to be funded from plan assets rather than the general assets of the Company.
To develop the expected long-term rate of return on plan assets assumption for the pension plans, we consider the current asset allocation strategy, the historical investment performance, and the expectations for future returns of each asset class.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
Our pension plan weighted-average asset allocations by asset category were as follows:
|
|
|
|
|
|
|
|
|
|
May 27, 2018
|
|
May 28, 2017
|
Equity securities
|
|
21
|
%
|
|
39
|
%
|
Debt securities
|
|
58
|
%
|
|
25
|
%
|
Real estate funds
|
|
10
|
%
|
|
11
|
%
|
Multi-strategy hedge funds
|
|
4
|
%
|
|
11
|
%
|
Private equity
|
|
4
|
%
|
|
4
|
%
|
Other
|
|
3
|
%
|
|
10
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
Due to the salaried pension plan freeze, the Company's pension asset strategy is now designed to align our pension plan assets with our projected benefit obligation to reduce volatility by targeting an investment strategy of approximately
90%
in fixed-income securities and approximately
10%
in return seeking assets, primarily equity securities, real estate, and private assets.
Other investments are primarily made up of cash and master limited partnerships.
Assumed health care cost trend rates have a significant effect on the benefit obligation of the postretirement plans.
|
|
|
|
|
|
|
|
Assumed Health Care Cost Trend Rates at:
|
|
May 27, 2018
|
|
May 28, 2017
|
Initial health care cost trend rate
|
|
7.87
|
%
|
|
8.44
|
%
|
Ultimate health care cost trend rate
|
|
4.5
|
%
|
|
4.5
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
2024
|
|
|
2024
|
|
A one percentage point change in assumed health care cost rates would have the following effect:
|
|
|
|
|
|
|
|
|
|
|
|
One Percent
Increase
|
|
One Percent
Decrease
|
Effect on total service and interest cost
|
|
$
|
0.3
|
|
|
$
|
(0.3
|
)
|
Effect on postretirement benefit obligation
|
|
3.9
|
|
|
(3.5
|
)
|
We currently anticipate making contributions of approximately
$19.6 million
to our pension plans in fiscal
2019
. We anticipate making contributions of
$16.2 million
to our other postretirement plans in fiscal
2019
. These estimates are based on ERISA guidelines, current tax laws, plan asset performance, and liability assumptions, which are subject to change.
The following table presents estimated future gross benefit payments for our plans:
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Health Care and Life Insurance
Benefits
|
2019
|
|
$
|
188.7
|
|
|
$
|
16.4
|
|
2020
|
|
184.2
|
|
|
14.7
|
|
2021
|
|
186.5
|
|
|
13.4
|
|
2022
|
|
189.0
|
|
|
12.1
|
|
2023
|
|
191.3
|
|
|
11.0
|
|
Succeeding 5 years
|
|
980.7
|
|
|
40.1
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
Multiemployer Pension Plans
The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements that cover certain of its union-represented employees. The risks of participating in such plans are different from the risks of single-employer plans, in the following respects:
|
|
a.
|
Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
|
|
|
b.
|
If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
|
|
|
c.
|
If the Company ceases to have an obligation to contribute to a multiemployer plan in which it had been a contributing employer, it may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of the Company's participation in the plan prior to the cessation of its obligation to contribute. The amount that an employer that has ceased to have an obligation to contribute to a multiemployer plan is required to pay to the plan is referred to as a withdrawal liability.
|
The Company's participation in multiemployer plans for the fiscal year ended
May 27, 2018
is outlined in the table below. For each plan that is individually significant to the Company the following information is provided:
|
|
•
|
The "EIN / PN" column provides the Employer Identification Number and the three-digit plan number assigned to a plan by the Internal Revenue Service.
|
|
|
•
|
The most recent Pension Protection Act Zone Status available for 2017 and 2016 is for plan years that ended in calendar years 2017 and 2016, respectively. The zone status is based on information provided to the Company by each plan. A plan in the "red" zone has been determined to be in "critical status", based on criteria established under the Internal Revenue Code ("Code"), and is generally less than
65%
funded. A plan in the "yellow" zone has been determined to be in "endangered status", based on criteria established under the Code, and is generally less than
80%
funded. A plan in the "green" zone has been determined to be neither in "critical status" nor in "endangered status", and is generally at least
80%
funded.
|
|
|
•
|
The "FIP/RP Status Pending/Implemented" column indicates whether a Funding Improvement Plan, as required under the Code to be adopted by plans in the "yellow" zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the "red" zone, is pending or has been implemented by the plan as of the end of the plan year that ended in calendar year 2017.
|
|
|
•
|
Contributions by the Company are the amounts contributed in the Company's fiscal periods ending in the specified year.
|
|
|
•
|
The "Surcharge Imposed" column indicates whether the Company contribution rate for its fiscal year that ended on
May 27, 2018
included an amount in addition to the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in "critical status", in accordance with the requirements of the Code.
|
|
|
•
|
The last column lists the expiration dates of the collective bargaining agreements pursuant to which the Company contributes to the plans.
|
For plans that are not individually significant to Conagra Brands the total amount of contributions is presented in the aggregate.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection Act
Zone Status
|
FIP /
RP Status
Pending /
Implemented
|
Contributions by
the Company
(millions)
|
|
Expiration
Dates of
Collective
Bargaining
Agreements
|
Pension Fund
|
EIN / PN
|
2017
|
2016
|
FY18
|
FY17
|
FY16
|
Surcharge
Imposed
|
Bakery and Confectionary Union and Industry International Pension Plan
|
52-6118572
/ 001
|
Red, Critical and Declining
|
Red, Critical and Declining
|
RP Implemented
|
$
|
1.5
|
|
$
|
1.8
|
|
$3.1
|
No
|
2/28/2020
|
Central States, Southeast and Southwest Areas Pension Fund
|
36-6044243
/ 001
|
Red, Critical and Declining
|
Red
|
RP Implemented
|
1.8
|
|
1.8
|
|
1.9
|
No
|
5/31/2020
|
Western Conference of Teamsters Pension Plan
|
91-6145047
/ 001
|
Green
|
Green
|
N/A
|
2.8
|
|
4.0
|
|
5.4
|
No
|
06/30/2018
|
Other Plans
|
0.4
|
|
0.4
|
|
0.7
|
|
|
Total Contributions
|
$
|
6.5
|
|
$8.0
|
$11.1
|
|
|
The Company was not listed in the Forms 5500 filed by any of the other plans or for any of the other years as providing more than
5%
of the plan's total contributions. At the date our financial statements were issued, Forms 5500 were not available for plan years ending in calendar year
2017
.
On May 31, 2018, subsequent to the end of fiscal
2018
, we ceased to participate in the Bakery and Confectionary Union and Industry International Fund in conjunction with our sale of the Trenton, Missouri plant.
In addition to the contributions listed in the table above, we recorded an additional expense of
$0.6 million
,
$4.0 million
, and
$31.8 million
in fiscal
2018
,
2017
, and
2016
, respectively, related to our expected incurrence of certain withdrawal costs.
Certain of our employees are covered under defined contribution plans. The expense related to these plans was
$24.5 million
,
$18.0 million
, and
$35.4 million
in fiscal
2018
,
2017
, and
2016
, respectively.
20. FAIR VALUE MEASUREMENTS
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities,
Level 2 — Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, and
Level 3 — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.
The fair values of our Level 2 derivative instruments were determined using valuation models that use market observable inputs including interest rate curves and both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level 2 primarily represent commodity and foreign currency option and forward contracts and cross-currency swaps.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of
May 27, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Derivative assets
|
$
|
1.7
|
|
|
$
|
2.7
|
|
|
$
|
—
|
|
|
$
|
4.4
|
|
Available-for-sale securities
|
4.8
|
|
|
—
|
|
|
—
|
|
|
4.8
|
|
Total assets
|
$
|
6.5
|
|
|
$
|
2.7
|
|
|
$
|
—
|
|
|
$
|
9.2
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Deferred compensation liabilities
|
51.6
|
|
|
—
|
|
|
—
|
|
|
51.6
|
|
Total liabilities
|
$
|
51.6
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
51.7
|
|
The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of
May 28, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Derivative assets
|
$
|
2.0
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
Available-for-sale securities
|
3.5
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
Total assets
|
$
|
5.5
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
5.8
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
Deferred compensation liabilities
|
47.2
|
|
|
—
|
|
|
—
|
|
|
47.2
|
|
Total liabilities
|
$
|
47.2
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
48.5
|
|
Certain assets and liabilities, including long-lived assets, goodwill, asset retirement obligations, and cost and equity investments are measured at fair value on a nonrecurring basis.
During fiscal 2018, a charge of
$4.7 million
was recognized in the Corporate segment for the impairment of certain long-lived assets. The impairment was measured based upon the estimated sales price of the assets.
During fiscal 2017, a charge of
$27.6 million
was recognized in the Grocery & Snacks segment for the impairment of our
Wesson
®
oil production facility. The impairment was measured based upon the estimated sales price of the facility (See Note 6).
During fiscal 2017, goodwill impairment charges totaling
$198.9 million
were recognized within our International segment. See Note 9 for discussion of the methodology employed to measure these impairments.
During fiscal 2018, we recognized indefinite-lived brand impairment charges of $
4.0 million
in our Grocery & Snacks segment and $
0.8 million
in our International segment. We recognized indefinite-lived brand impairment charges of $
37.0 million
in our International segment and $
68.2 million
in our Grocery & Snacks segment for fiscal 2017, and $
50.1 million
in our Grocery and Snacks segment for fiscal 2016. The fair values of these brands were estimated using the "relief from royalty" method (See Note 9).
The carrying amount of long-term debt (including current installments) was
$3.54 billion
as of
May 27, 2018
and
$2.97 billion
as of
May 28, 2017
. Based on current market rates, the fair value of this debt (level 2 liabilities) at
May 27, 2018
and
May 28, 2017
was estimated at
$3.76 billion
and
$3.32 billion
, respectively.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
21. BUSINESS SEGMENTS AND RELATED INFORMATION
During fiscal 2017, we reorganized our reporting segments. We now reflect our results of operations in
five
reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, Foodservice, and Commercial. Prior periods have been reclassified to conform to the revised segment presentation.
In the second quarter of fiscal 2017, we completed the Spinoff of Lamb Weston. The Lamb Weston business had previously been included in the Commercial segment. The results of operations of the Lamb Weston business have been classified as discontinued operations for all periods presented.
The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail channels in the United States.
The Refrigerated & Frozen reporting segment includes branded, temperature-controlled food products sold in various retail channels in the United States.
The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States.
The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and a variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments primarily in the United States.
The Commercial reporting segment included commercially branded and private label food and ingredients, which were sold primarily to commercial, restaurant, foodservice, food manufacturing, and industrial customers. The segment's primary food items included a variety of vegetable, spice, and frozen bakery goods, which were sold under brands such as
Spicetec Flavors & Seasonings
®
. The Spicetec and JM Swank businesses were sold in the first quarter of fiscal 2017.
We do not aggregate operating segments when determining our reporting segments.
Intersegment sales have been recorded at amounts approximating market. Operating profit for each of the segments is based on net sales less all identifiable operating expenses. General corporate expense, net interest expense, and income taxes have been excluded from segment operations.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net sales
|
|
|
|
|
|
Grocery & Snacks
|
$
|
3,287.0
|
|
|
$
|
3,208.8
|
|
|
$
|
3,377.1
|
|
Refrigerated & Frozen
|
2,753.0
|
|
|
2,652.7
|
|
|
2,867.8
|
|
International
|
843.5
|
|
|
816.0
|
|
|
846.6
|
|
Foodservice
|
1,054.8
|
|
|
1,078.3
|
|
|
1,104.5
|
|
Commercial
|
—
|
|
|
71.1
|
|
|
468.1
|
|
Total net sales
|
$
|
7,938.3
|
|
|
$
|
7,826.9
|
|
|
$
|
8,664.1
|
|
Operating profit
|
|
|
|
|
|
Grocery & Snacks
|
$
|
724.8
|
|
|
$
|
653.7
|
|
|
$
|
592.9
|
|
Refrigerated & Frozen
|
479.4
|
|
|
445.8
|
|
|
420.4
|
|
International
|
86.5
|
|
|
(168.9
|
)
|
|
66.7
|
|
Foodservice
|
121.8
|
|
|
105.1
|
|
|
97.7
|
|
Commercial
|
—
|
|
|
202.6
|
|
|
45.4
|
|
Total operating profit
|
$
|
1,412.5
|
|
|
$
|
1,238.3
|
|
|
$
|
1,223.1
|
|
Equity method investment earnings
|
97.3
|
|
|
71.2
|
|
|
66.1
|
|
General corporate expenses
|
379.0
|
|
|
313.3
|
|
|
818.5
|
|
Interest expense, net
|
158.7
|
|
|
195.5
|
|
|
295.8
|
|
Income tax expense
|
174.6
|
|
|
254.7
|
|
|
46.4
|
|
Income from continuing operations
|
$
|
797.5
|
|
|
$
|
546.0
|
|
|
$
|
128.5
|
|
Less: Net income attributable to noncontrolling interests of continuing operations
|
3.4
|
|
|
1.9
|
|
|
1.9
|
|
Income from continuing operations attributable to Conagra Brands, Inc.
|
$
|
794.1
|
|
|
$
|
544.1
|
|
|
$
|
126.6
|
|
Net sales by product type were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Shelf-stable
|
$
|
4,660.1
|
|
|
$
|
4,682.4
|
|
|
$
|
5,256.8
|
|
Temperature-controlled
|
3,278.2
|
|
|
3,144.5
|
|
|
3,407.3
|
|
Total net sales
|
$
|
7,938.3
|
|
|
$
|
7,826.9
|
|
|
$
|
8,664.1
|
|
Presentation of Derivative Gains (Losses) for Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives are recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results, immediately.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net derivative gains (losses) incurred
|
$
|
(0.9
|
)
|
|
$
|
0.6
|
|
|
$
|
(7.4
|
)
|
Less: Net derivative gains (losses) allocated to reporting segments
|
(7.1
|
)
|
|
5.7
|
|
|
(23.8
|
)
|
Net derivative gains (losses) recognized in general corporate expenses
|
$
|
6.2
|
|
|
$
|
(5.1
|
)
|
|
$
|
16.4
|
|
Net derivative gains (losses) allocated to Grocery & Snacks
|
$
|
0.2
|
|
|
$
|
3.4
|
|
|
$
|
(14.4
|
)
|
Net derivative gains (losses) allocated to Refrigerated & Frozen
|
(0.3
|
)
|
|
0.8
|
|
|
(6.2
|
)
|
Net derivative gains (losses) allocated to International
|
(6.9
|
)
|
|
1.6
|
|
|
(0.5
|
)
|
Net derivative losses allocated to Foodservice
|
(0.1
|
)
|
|
—
|
|
|
(1.0
|
)
|
Net derivative losses allocated to Commercial
|
—
|
|
|
(0.1
|
)
|
|
(1.7
|
)
|
Net derivative gains (losses) included in segment operating profit
|
$
|
(7.1
|
)
|
|
$
|
5.7
|
|
|
$
|
(23.8
|
)
|
As of
May 27, 2018
, the cumulative amount of net derivative gains from economic hedges that had been recognized in general corporate expenses and not yet allocated to reporting segments was
$3.2 million
, all of which was incurred during the fiscal year ended
May 27, 2018
. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results gains of
$2.5 million
in fiscal
2019
and
$0.7 million
in fiscal
2020
and thereafter.
Assets by Segment
The majority of our manufacturing assets are shared across multiple reporting segments. Output from these facilities used by each reporting segment can change over time. Also, working capital balances are not tracked by reporting segment. Therefore, it is impracticable to allocate those assets to the reporting segments, as well as disclose total assets by segment. Total depreciation expense for fiscal
2018
,
2017
, and
2016
was
$222.1 million
,
$234.4 million
, and
$243.9 million
, respectively.
Other Information
Our operations are principally in the United States. With respect to operations outside of the United States, no single foreign country or geographic region was significant with respect to consolidated operations for fiscal
2018
,
2017
, and
2016
. Foreign net sales, including sales by domestic segments to customers located outside of the United States, were approximately
$918.4 million
,
$887.2 million
, and
$937.9 million
in fiscal
2018
,
2017
, and
2016
, respectively. Our long-lived assets located outside of the United States are not significant.
Our largest customer, Walmart, Inc. and its affiliates, accounted for approximately
24%
of consolidated net sales for both fiscal
2018
and
2017
and
23%
of consolidated net sales for fiscal
2016
, significantly impacting the Grocery & Snacks and Refrigerated & Frozen segments.
Walmart, Inc. and its affiliates accounted for approximately
25%
and
26%
of consolidated net receivables as of
May 27, 2018
and
May 28, 2017
, respectively.
We offer certain suppliers access to a third-party service that allows them to view our scheduled payments online. The third-party service also allows suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third-party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third-party, or any financial institutions concerning this service. All of our accounts payable remain as obligations to our suppliers as stated in our supplier agreements. As of
May 27, 2018
,
$103.1 million
of our total accounts payable is payable to suppliers who utilize this third-party service.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 27, 2018, May 28, 2017, and May 29, 2016
(columnar dollars in millions except per share amounts)
22. QUARTERLY FINANCIAL DATA (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Net sales
|
$
|
1,804.2
|
|
|
$
|
2,173.4
|
|
|
$
|
1,994.5
|
|
|
$
|
1,966.2
|
|
|
$
|
1,895.6
|
|
|
$
|
2,088.4
|
|
|
$
|
1,981.2
|
|
|
$
|
1,861.7
|
|
Gross profit
|
519.0
|
|
|
658.3
|
|
|
598.8
|
|
|
575.4
|
|
|
544.6
|
|
|
647.5
|
|
|
621.0
|
|
|
529.0
|
|
Income from continuing operations, net of tax
|
153.6
|
|
|
224.1
|
|
|
349.2
|
|
|
70.6
|
|
|
98.6
|
|
|
114.3
|
|
|
179.5
|
|
|
153.6
|
|
Income (loss) from discontinued operations, net of tax
|
(0.3
|
)
|
|
0.4
|
|
|
14.5
|
|
|
(0.3
|
)
|
|
91.4
|
|
|
11.6
|
|
|
0.7
|
|
|
(1.7
|
)
|
Net income attributable to Conagra Brands, Inc.
|
152.5
|
|
|
223.5
|
|
|
362.8
|
|
|
69.6
|
|
|
186.2
|
|
|
122.1
|
|
|
179.7
|
|
|
151.3
|
|
Earnings per share
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Conagra Brands, Inc. common stockholders
|
$
|
0.37
|
|
|
$
|
0.55
|
|
|
$
|
0.91
|
|
|
$
|
0.18
|
|
|
$
|
0.42
|
|
|
$
|
0.28
|
|
|
$
|
0.42
|
|
|
$
|
0.36
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Conagra Brands, Inc. common stockholders
|
$
|
0.36
|
|
|
$
|
0.54
|
|
|
$
|
0.90
|
|
|
$
|
0.18
|
|
|
$
|
0.42
|
|
|
$
|
0.28
|
|
|
$
|
0.41
|
|
|
$
|
0.36
|
|
Dividends declared per common share
(3)
|
$
|
0.2125
|
|
|
$
|
0.2125
|
|
|
$
|
0.2125
|
|
|
$
|
0.2125
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Share price
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
$
|
39.95
|
|
|
$
|
35.87
|
|
|
$
|
38.50
|
|
|
$
|
38.29
|
|
|
$
|
48.39
|
|
|
$
|
48.68
|
|
|
$
|
41.16
|
|
|
$
|
41.50
|
|
Low
|
33.07
|
|
|
32.43
|
|
|
35.47
|
|
|
35.34
|
|
|
45.70
|
|
|
34.30
|
|
|
36.47
|
|
|
37.29
|
|
|
|
(1)
|
Basic and diluted earnings per share are calculated independently for each of the quarters presented. Accordingly, the sum of the quarterly earnings per share amounts may not agree with the total year.
|
|
|
(2)
|
Historical market prices do not reflect any adjustment for the impact of the Lamb Weston Spinoff.
|
|
|
(3)
|
Per share dividend declared in the third quarter and fourth quarter of fiscal 2017 includes impact of the Lamb Weston Spinoff.
|