Notes to Consolidated Financial Statements
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
— The fiscal year of ConAgra Foods, Inc. (“ConAgra Foods”, “Company”, “we”, “us”, or “our”) ends the last Sunday in May. The fiscal years for the consolidated financial statements presented consist of a
52-week
period for fiscal year 2016, a 53-week period for fiscal 2015, and a
52-week
period for fiscal year 2014.
Basis of Consolidation
— The consolidated financial statements include the accounts of ConAgra Foods, 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.
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.
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
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
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 two-step 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 two-step quantitative impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. The first step of the test compares the carrying value of a reporting unit, including goodwill, with its fair value. 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 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. If the carrying value of a reporting unit exceeds its fair value, we complete the second step of the test to determine the amount of goodwill impairment loss, if any, to be recognized. In the second step, we estimate 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 is equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill.
In the fourth quarter of fiscal 2016, in conjunction with our annual review for impairment, we performed a qualitative analysis of goodwill for the reporting units in our Consumer Foods and Commercial Foods segments. Because sales and profits for our International reporting unit were below our expectations throughout fiscal 2016, largely as a result of foreign exchange rates, we performed a quantitative analysis of goodwill on the International reporting unit in the fourth quarter of fiscal 2016. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, industry and economic conditions. No impairment charges were recorded in fiscal 2016.
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 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. Refer to Note 9 for the details of the impairment charge in fiscal 2016.
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
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
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.
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.
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
$371.4 million
,
$330.0 million
, and
$395.7 million
in fiscal
2016
,
2015
, and
2014
, respectively, and are included in selling, general and administrative expenses.
Research and Development
— We incurred expenses of
$66.7 million
,
$70.4 million
, and
$86.0 million
for research and development activities in fiscal
2016
,
2015
, and
2014
, 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. We generally deem our foreign investments to be essentially permanent in nature and we do not provide for taxes on currency translation adjustments arising from converting the 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 are provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
The following table details the accumulated balances for each component of other comprehensive income (loss), net of tax (except for currency translation adjustments):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Currency translation gains (losses), net of reclassification adjustments
|
$
|
(95.2
|
)
|
|
$
|
(113.9
|
)
|
|
$
|
23.7
|
|
Derivative adjustments, net of reclassification adjustments
|
(0.4
|
)
|
|
0.9
|
|
|
1.2
|
|
Unrealized losses on available-for-sale securities
|
(0.6
|
)
|
|
(0.7
|
)
|
|
(1.1
|
)
|
Pension and post-employment benefit obligations, net of reclassification adjustments
|
(248.3
|
)
|
|
(215.8
|
)
|
|
(158.1
|
)
|
Accumulated other comprehensive loss
|
$
|
(344.5
|
)
|
|
$
|
(329.5
|
)
|
|
$
|
(134.3
|
)
|
The following table summarizes the reclassifications from accumulated other comprehensive loss into income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affected Line Item in the Consolidated Statement of Operations
1
|
|
2016
|
|
2015
|
|
|
Net derivative adjustment, net of tax:
|
|
|
|
|
|
Cash flow hedges
|
$
|
(2.1
|
)
|
|
$
|
(0.5
|
)
|
|
Interest expense, net
|
|
(2.1
|
)
|
|
(0.5
|
)
|
|
Total before tax
|
|
0.8
|
|
|
0.2
|
|
|
Income tax expense (benefit)
|
|
$
|
(1.3
|
)
|
|
$
|
(0.3
|
)
|
|
Net of tax
|
Amortization of pension and postretirement healthcare liabilities:
|
|
|
|
|
|
Net prior service benefit
|
$
|
(5.1
|
)
|
|
$
|
(4.2
|
)
|
|
Selling, general and administrative expenses
|
Divestiture of Private Brands
|
(4.3
|
)
|
|
—
|
|
|
Income (loss) from discontinued operations, net of tax
|
Pension settlement of equity method investment
|
(5.2
|
)
|
|
—
|
|
|
Equity method investment earnings
|
Net actuarial loss
|
0.1
|
|
|
3.5
|
|
|
Selling, general and administrative expenses
|
Curtailment
|
—
|
|
|
1.5
|
|
|
Cost of goods sold
|
|
(14.5
|
)
|
|
0.8
|
|
|
Total before tax
|
|
4.9
|
|
|
(0.3
|
)
|
|
Income tax expense (benefit)
|
|
$
|
(9.6
|
)
|
|
$
|
0.5
|
|
|
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
$7.7 million
,
$2.9 million
, and
$5.4 million
in fiscal
2016
,
2015
, and
2014
, respectively, in selling, general and administrative 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.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
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 November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes,
which will require entities to present deferred tax assets ("DTAs") and deferred tax liabilities ("DTLs") as noncurrent in a classified balance sheet. The ASU simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. The effective date for the standard is for fiscal years beginning after December 15, 2016. Early adoption was permitted. We adopted this standard for the fiscal year ended May 29, 2016. As a result, we have retrospectively adjusted Other current assets and Non-current liabilities by
$104.3 million
for the year ended May 30, 2015.
Recently Issued Accounting Standards
— In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. 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. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. The standard permits the use of either the retrospective or cumulative effect transition method.
In July 2015, the FASB issued 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. The effective date for the standard is for fiscal years beginning after December 15, 2016. Early adoption is permitted. We do not expect ASU 2015-11 to have a material impact to our financial statements. The standard is to be applied prospectively.
In February 2016, the FASB issued its final lease accounting standard, FASB Accounting Standard Codification ("ASC") Topic 842,
Leases
, 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 ASC 842 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 March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting,
which simplifies the accounting for income taxes, among other changes, related to stock-based compensation. We plan to early adopt ASU 2016-09 in the first quarter of 2017 with an effective date of May 30, 2016. We are evaluating the effect that ASU 2016-09 will have on our consolidated financial statements.
2. ACQUISITIONS
In May 2015, we acquired Blake's All Natural Foods, a family-owned company specializing in all natural and organic frozen meals, including pot pies, casseroles, pasta dishes, and other entrees, for
$20.7 million
in cash net of cash acquired. Approximately
$20.0 million
of the purchase price has been classified as goodwill. The goodwill is deductible for income tax purposes. This business is included in the Consumer Foods segment.
In July 2014, we acquired TaiMei Potato Industry Limited, a potato processor in China, for
$92.2 million
, consisting of
$74.9 million
in cash, net of cash acquired, plus assumed liabilities. The purchase included property and equipment associated with making frozen potato products. Approximately
$23.8 million
of the purchase price has been classified as goodwill and
$3.5 million
to other intangible assets. The amount allocated to goodwill is not deductible for income tax purposes. This business is included in the Commercial Foods segment.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
In September 2013, we acquired frozen dessert production assets from Harlan Bakeries for
$39.9 million
in cash. The purchase included machinery, operating systems, warehousing/storage, and other assets associated with making frozen fruit pies, cream pies, pastry shells, and loaf cakes. This business is included in the Consumer Foods segment.
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.
3. RESTRUCTURING ACTIVITIES
Supply Chain and Administrative Efficiency Plan
We previously announced a plan for the integration and restructuring of the operations of Ralcorp Holdings, Inc. ("Ralcorp"), optimization of the entire Company's supply chain network, manufacturing assets, and dry distribution and mixing centers, and improvement of selling, general and administrative effectiveness and efficiencies, which we refer to as the Supply Chain and Administrative Efficiency Plan (the "SCAE Plan"). Although the divestiture of the Private Brands business was completed in the third quarter of fiscal 2016, we will continue to implement portions of the SCAE Plan, including work related to optimizing our supply chain network and pursue cost reductions through our selling, general and administrative functions and productivity improvements. The SCAE Plan also includes plans announced in the second quarter of fiscal 2016 to realize efficiency benefits through a combination of reductions in selling, general and administrative expenses and enhancements to trade spend processes and tools.
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 2016, 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 29, 2016, our Board of Directors has approved the incurrence of up to
$739.0 million
of expenses in connection with the SCAE Plan, including expenses allocated for the Private Brands operations. We have incurred or expect to incur approximately
$443.9 million
of charges, which includes
$315.5 million
of cash charges and
$128.4 million
of non-cash charges, for actions identified to date under the SCAE Plan related to our continuing operations. We recognized charges of
$281.8 million
,
$47.7 million
, and
$31.3 million
in relation to the SCAE Plan related to our continuing operations in fiscal 2016, 2015, and 2014, 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 associated with the SCAE Plan related to our continuing operations (amounts include charges recognized from plan inception to May 29, 2016):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
Corporate
|
|
Commercial Foods
|
|
Total
|
Multi-employer pension costs
|
$
|
31.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31.3
|
|
Accelerated depreciation
|
50.9
|
|
|
1.2
|
|
|
—
|
|
|
52.1
|
|
Other cost of goods sold
|
7.8
|
|
|
—
|
|
|
—
|
|
|
7.8
|
|
Total cost of goods sold
|
90.0
|
|
|
1.2
|
|
|
—
|
|
|
91.2
|
|
Severance and related costs
|
35.4
|
|
|
99.7
|
|
|
8.1
|
|
|
143.2
|
|
Accelerated depreciation
|
0.1
|
|
|
1.5
|
|
|
—
|
|
|
1.6
|
|
Consulting/Professional fees
|
1.1
|
|
|
63.2
|
|
|
—
|
|
|
64.3
|
|
Fixed asset impairment /Net loss on disposal
|
10.8
|
|
|
0.8
|
|
|
—
|
|
|
11.6
|
|
Contract/Lease termination expenses
|
1.3
|
|
|
64.1
|
|
|
—
|
|
|
65.4
|
|
Other selling, general and administrative expenses
|
15.7
|
|
|
50.9
|
|
|
—
|
|
|
66.6
|
|
Total selling, general and administrative expenses
|
64.4
|
|
|
280.2
|
|
|
8.1
|
|
|
352.7
|
|
Consolidated total
|
$
|
154.4
|
|
|
$
|
281.4
|
|
|
$
|
8.1
|
|
|
$
|
443.9
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
During fiscal 2016, we recognized the following pre-tax expenses for the SCAE Plan related to our continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
Corporate
|
|
Commercial Foods
|
|
Total
|
Multi-employer pension costs
|
$
|
29.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29.8
|
|
Accelerated depreciation
|
17.3
|
|
|
0.2
|
|
|
—
|
|
|
17.5
|
|
Other cost of goods sold
|
1.7
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
Total cost of goods sold
|
48.8
|
|
|
0.2
|
|
|
—
|
|
|
49.0
|
|
Severance and related costs
|
11.8
|
|
|
88.6
|
|
|
0.1
|
|
|
100.5
|
|
Accelerated depreciation
|
—
|
|
|
0.5
|
|
|
—
|
|
|
0.5
|
|
Consulting/Professional fees
|
0.1
|
|
|
48.0
|
|
|
—
|
|
|
48.1
|
|
Fixed asset impairment /Net loss on disposal
|
9.7
|
|
|
0.8
|
|
|
—
|
|
|
10.5
|
|
Contract/Lease termination expenses (recoveries)
|
(0.1
|
)
|
|
61.4
|
|
|
—
|
|
|
61.3
|
|
Other selling, general and administrative expenses
|
3.8
|
|
|
8.1
|
|
|
—
|
|
|
11.9
|
|
Total selling, general and administrative expenses
|
25.3
|
|
|
207.4
|
|
|
0.1
|
|
|
232.8
|
|
Consolidated total
|
$
|
74.1
|
|
|
$
|
207.6
|
|
|
$
|
0.1
|
|
|
$
|
281.8
|
|
Included in the above results are
$195.7 million
of charges that have resulted or will result in cash outflows and
$86.2 million
in non-cash charges. Not included in the above amounts are
$11.8 million
of pre-tax expenses related to the Private Brands operations we sold in the third quarter of fiscal 2016.
During the second quarter of 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, leases on the
two
Omaha corporate buildings were canceled. We have 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
.
We recognized the following cumulative (plan inception to
May 29, 2016
) pre-tax expenses related to the SCAE Plan in our Consolidated Statement of Operations related to our continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Foods
|
|
Corporate
|
|
Commercial Foods
|
|
Total
|
Multi-employer pension costs
|
$
|
31.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31.3
|
|
Accelerated depreciation
|
38.8
|
|
|
1.2
|
|
|
—
|
|
|
40.0
|
|
Other cost of goods sold
|
3.8
|
|
|
—
|
|
|
—
|
|
|
3.8
|
|
Total cost of goods sold
|
73.9
|
|
|
1.2
|
|
|
—
|
|
|
75.1
|
|
Severance and related costs
|
33.4
|
|
|
96.4
|
|
|
8.1
|
|
|
137.9
|
|
Accelerated depreciation
|
—
|
|
|
1.3
|
|
|
—
|
|
|
1.3
|
|
Consulting/Professional fees
|
1.1
|
|
|
50.8
|
|
|
—
|
|
|
51.9
|
|
Fixed asset impairment / Net loss on disposal
|
10.8
|
|
|
0.8
|
|
|
—
|
|
|
11.6
|
|
Contract/Lease termination expenses
|
1.3
|
|
|
61.7
|
|
|
—
|
|
|
63.0
|
|
Other selling, general and administrative expenses
|
7.0
|
|
|
13.0
|
|
|
—
|
|
|
20.0
|
|
Total selling, general and administrative expenses
|
53.6
|
|
|
224.0
|
|
|
8.1
|
|
|
285.7
|
|
Consolidated total
|
$
|
127.5
|
|
|
$
|
225.2
|
|
|
$
|
8.1
|
|
|
$
|
360.8
|
|
Included in the above results are
$248.8 million
of charges that have resulted or will result in cash outflows and
$112.0 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.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
Liabilities recorded for the SCAE Plan and changes therein for fiscal 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31,
2015
|
|
Costs Incurred
and Charged
to Expense
|
|
Costs Paid
or Otherwise Settled
|
|
Changes in
Estimates
|
|
Balance at
May 29,
2016
|
Multi-employer pension costs
|
$
|
11.4
|
|
|
$
|
30.0
|
|
|
$
|
(0.7
|
)
|
|
$
|
—
|
|
|
$
|
40.7
|
|
Severance and related costs
|
16.4
|
|
|
84.8
|
|
|
(46.5
|
)
|
|
(7.5
|
)
|
|
47.2
|
|
Consulting
|
0.2
|
|
|
48.2
|
|
|
(43.7
|
)
|
|
—
|
|
|
4.7
|
|
Contract termination
|
3.1
|
|
|
6.0
|
|
|
(2.5
|
)
|
|
(0.3
|
)
|
|
6.3
|
|
Other costs
|
1.2
|
|
|
10.5
|
|
|
(11.2
|
)
|
|
—
|
|
|
0.5
|
|
Total
|
$
|
32.3
|
|
|
$
|
179.5
|
|
|
$
|
(104.6
|
)
|
|
$
|
(7.8
|
)
|
|
$
|
99.4
|
|
Acquisition-related Restructuring Costs
During fiscal 2012, we started incurring costs in connection with actions taken to attain synergies when integrating businesses acquired prior to the third quarter of fiscal 2013. These costs, collectively referred to as "acquisition-related restructuring costs", include severance and other costs associated with consolidating facilities and administrative functions. In connection with the acquisition-related restructuring costs, we have incurred charges of
$23.7 million
,
$15.8 million
of which are charges that have resulted or will result in cash outflows and
$7.9 million
of which are non-cash charges. At the end of fiscal 2014, the acquisition-related restructuring costs were substantially complete.
During fiscal 2015 and 2014, we recognized
$0.2 million
and
$9.4 million
, respectively, of pre-tax expenses for acquisition-related restructuring costs, primarily representing impairment of equipment, all within our Consumer Foods segment.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
4. LONG-TERM DEBT
|
|
|
|
|
|
|
|
|
|
May 29, 2016
|
|
May 31, 2015
|
4.65% senior debt due January 2043
|
$
|
176.7
|
|
|
$
|
737.0
|
|
6.625% senior debt due August 2039
|
91.4
|
|
|
450.0
|
|
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
|
|
|
372.4
|
|
3.2% senior debt due January 2023
|
837.0
|
|
|
1,000.0
|
|
3.25% senior debt due September 2022
|
250.0
|
|
|
250.0
|
|
9.75% subordinated debt due March 2021
|
195.9
|
|
|
195.9
|
|
4.95% senior debt due August 2020
|
197.7
|
|
|
300.0
|
|
7.0% senior debt due April 2019
|
335.0
|
|
|
475.0
|
|
2.1% senior debt due March 2018
|
225.0
|
|
|
225.0
|
|
1.9% senior debt due January 2018
|
1,000.0
|
|
|
1,000.0
|
|
5.819% senior debt due June 2017
|
475.0
|
|
|
475.0
|
|
LIBOR plus 0.37% senior notes due July 2016
|
550.0
|
|
|
550.0
|
|
1.3% senior debt due January 2016
|
—
|
|
|
750.0
|
|
1.35% senior debt due September 2015
|
—
|
|
|
250.0
|
|
2.00% to 9.59% lease financing obligations due on various dates through 2040
|
149.2
|
|
|
68.4
|
|
Other indebtedness
|
40.4
|
|
|
10.9
|
|
Total face value of debt
|
5,477.2
|
|
|
7,801.0
|
|
Unamortized fair value adjustment of senior debt in connection with Ralcorp
|
39.8
|
|
|
146.7
|
|
Unamortized discounts/premiums
|
(19.8
|
)
|
|
(32.8
|
)
|
Unamortized debt issuance costs
|
(14.6
|
)
|
|
(30.1
|
)
|
Adjustment due to hedging activity
|
6.6
|
|
|
11.8
|
|
Less current installments
|
(571.4
|
)
|
|
(1,007.8
|
)
|
Total long-term debt
|
$
|
4,917.8
|
|
|
$
|
6,888.8
|
|
The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years following
May 29, 2016
, are as follows:
|
|
|
|
|
2017
|
$
|
571.7
|
|
2018
|
1,714.0
|
|
2019
|
347.8
|
|
2020
|
31.6
|
|
2021
|
402.2
|
|
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 including a
$109.5 million
tender premium, resulting in a net loss of
$23.9 million
as a cost of early retirement of debt.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
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 in an aggregate principal amount of
$33.9 million
in the third quarter of fiscal 2016.
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.
During fiscal 2015, we repurchased
$225.0 million
aggregate principal amount of senior notes due in 2023,
$200.0 million
aggregate principal amount of senior notes due 2043,
$25.0 million
aggregate principal amount of senior notes due 2019,
$25.0 million
aggregate principal amount of senior notes due 2018, and
$25.0 million
aggregate principal amount of senior notes due 2017, in each case prior to maturity in a tender offer, resulting in a net loss of
$16.3 million
as a cost of early retirement of debt, including a
$9.5 million
tender premium.
During the first quarter of fiscal 2015, we repaid the remaining borrowings of our unsecured term loan facility (the "Term Loan Facility") of
$900.0 million
(with interest rate at LIBOR plus
1.75%
per annum), prior to maturity, resulting in a loss of
$8.3 million
as a cost of early retirement of debt. The Term Loan Facility was terminated after repayment.
During fiscal 2015, we issued
$550.0 million
aggregate principal amount of floating rate notes due July 21, 2016. The notes bear interest at a rate equal to three-month LIBOR plus
0.37%
per annum.
During fiscal 2014, we repaid the entire principal balance of
$500.0 million
of our
5.875%
senior notes, which were due April 15, 2014.
Net interest expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Long-term debt
|
$
|
304.5
|
|
|
$
|
335.0
|
|
|
$
|
391.9
|
|
Short-term debt
|
2.4
|
|
|
2.8
|
|
|
1.5
|
|
Interest income
|
(1.3
|
)
|
|
(1.2
|
)
|
|
(2.3
|
)
|
Interest capitalized
|
(7.8
|
)
|
|
(6.6
|
)
|
|
(13.6
|
)
|
|
$
|
297.8
|
|
|
$
|
330.0
|
|
|
$
|
377.5
|
|
Interest paid from continuing operations was
$323.8 million
,
$335.4 million
, and
$393.7 million
in fiscal
2016
,
2015
, and
2014
, respectively.
Our net interest expense in fiscal 2015 and 2014 was reduced by
$7.1 million
and
$4.1 million
, respectively, due to the impact of the interest rate swap contracts designated as fair value hedges entered into in the third quarter of fiscal 2014. The interest rate swaps effectively converted the interest on our senior long-term debt instruments maturing in fiscal 2019 and 2020 from fixed rate to floating rate (see Note 18). These interest rate swap contracts were terminated during the third quarter of fiscal 2015. The cumulative adjustments to the fair value of the debt instruments that were hedged (the effective portion of the hedges), totaling
$12.6 million
, will be amortized as a reduction of interest expense over the remaining lives of the debt instruments (through fiscal 2020). Our net interest expense was reduced by
$2.1 million
and
$0.8 million
for fiscal
2016
and fiscal 2015, respectively, as a result of this amortization.
We entered into interest rate swaps during fiscal 2010 that effectively changed our interest rate on the senior long-term debt instrument that matured in fiscal 2014 from fixed to variable. During the second quarter of fiscal 2011, we terminated these interest rate swap contracts and received proceeds of
$28.2 million
. The cumulative adjustment to the fair value of the debt instrument that was hedged (the effective portion of the hedge) was amortized as a reduction of interest expense over the remaining life of the debt instrument (through fiscal 2014). Net interest expense for fiscal
2014
was reduced by
$8.6 million
due to the impact of the interest rate swap contracts.
As a result of our acquisition of Ralcorp, senior unsecured notes issued in exchange for senior notes issued by Ralcorp of
$716.0 million
were recorded at fair value. The fair value adjustment on these notes was
$156.8 million
and is being
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
amortized within interest expense over the life of the respective notes. The portion written off related to the third quarter of fiscal 2016 tender offers totaled
$94.2 million
. Our net interest expense in fiscal
2016
,
2015
, and
2014
was reduced by
$6.7 million
,
$7.4 million
, and
$6.7 million
, respectively, as a result of this amortization.
5. CREDIT FACILITIES AND BORROWINGS
At
May 29, 2016
, we had a
$1.50 billion
multi-year revolving credit facility with a syndicate of financial institutions that matures in September 2018. The multi-year facility has historically been used principally as a back-up facility for our commercial paper program. As of
May 29, 2016
, there were
no
outstanding borrowings under the credit facility. Borrowings under the multi-year facility, based on our fiscal year-end credit rating, bear interest at
1.25%
over LIBOR and may be prepaid without penalty. The multi-year revolving credit facility requires us to repay borrowings if our consolidated funded debt exceeds
65%
of our consolidated capital base, or if our fixed charges coverage ratio is less than
1.75
to 1.0 on a four-quarter rolling basis. In the fourth quarter of fiscal 2015 and the second quarter of fiscal 2016, the Company entered into amendments to exclude certain non-cash impairments from the calculation of the fixed charge coverage ratio. As of
May 29, 2016
, we were in compliance with all financial covenants in the facility.
We finance our short-term liquidity needs with bank borrowings, commercial paper borrowings, and bankers’ acceptances. As of
May 29, 2016
and
May 31, 2015
, there were
no
outstanding borrowings under our commercial paper program.
6. DISCONTINUED OPERATIONS
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, subject to working capital and other adjustments.
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. The assets and liabilities of the discontinued business have been reclassified as assets and liabilities held for sale within our Consolidated Balance Sheets for all periods presented prior to the divestiture.
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.
In connection with classifying the Private Brands operations as assets held for sale, we recognized, in fiscal 2016, a deferred tax asset of
$1.54 billion
on the capital loss of our investment in this business. A partial valuation allowance is recorded as we have not met the accounting requirements for recognition of a benefit at this time. In fiscal 2016, we recognized an income tax benefit of
$20.7 million
, resulting primarily from prior period capital gains. In addition, we released
$147.3 million
of the valuation allowance in the fourth quarter of fiscal 2016 due to the impending Spicetec and JM Swank dispositions.
In fiscal 2015, we recorded a
$1.51 billion
impairment of goodwill and
$57.6 million
of impairment charges to write-down various brands and fixed assets, which are reflected in discontinued operations. In fiscal 2014, we recorded a
$593.2 million
impairment of goodwill and
$3.0 million
of impairment charges to write-down a small brand, which are reflected in discontinued operations.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
The summary comparative financial results of the Private Brands business, included within discontinued operations, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales
|
$
|
2,490.6
|
|
|
$
|
3,895.4
|
|
|
$
|
4,005.4
|
|
Long-lived asset impairment charges
|
$
|
(1,923.0
|
)
|
|
$
|
(1,564.6
|
)
|
|
$
|
(596.2
|
)
|
Income from operations of discontinued operations before income taxes
|
168.0
|
|
|
68.8
|
|
|
186.5
|
|
Loss before income taxes and equity method investment earnings
|
(1,755.0
|
)
|
|
(1,495.8
|
)
|
|
(409.7
|
)
|
Income tax expense (benefit)
|
(593.1
|
)
|
|
(128.1
|
)
|
|
41.8
|
|
Loss from discontinued operations, net of tax
|
$
|
(1,161.9
|
)
|
|
$
|
(1,367.7
|
)
|
|
$
|
(451.5
|
)
|
The assets and liabilities classified as held for sale reflected in our Consolidated Balance Sheets related to the Private Brands business were as follows:
|
|
|
|
|
|
|
|
May 31, 2015
|
Cash and cash equivalents
|
|
$
|
18.4
|
|
Receivables, less allowance for doubtful accounts of $0.5
|
|
199.3
|
|
Inventories
|
|
489.3
|
|
Prepaids and other current assets
|
|
37.3
|
|
Current assets held for sale
|
|
$
|
744.3
|
|
Property, plant and equipment, net
|
|
$
|
920.4
|
|
Goodwill
|
|
1,600.8
|
|
Brands, trademarks and other intangibles, net
|
|
1,716.6
|
|
Other assets
|
|
9.1
|
|
Noncurrent assets held for sale
|
|
$
|
4,246.9
|
|
Accounts payable
|
|
$
|
219.5
|
|
Accrued payroll
|
|
7.0
|
|
Other accrued liabilities
|
|
67.5
|
|
Current liabilities held for sale
|
|
$
|
294.0
|
|
Other noncurrent liabilities
|
|
$
|
711.0
|
|
Noncurrent liabilities held for sale
|
|
$
|
711.0
|
|
ConAgra Mills Operations
On May 29, 2014, the Company, Cargill, Incorporated ("Cargill"), and CHS, Inc. ("CHS") completed the formation of Ardent Mills. In connection with the formation, we contributed all of the assets of ConAgra Mills, our milling operations. For further details about the joint venture, see Note 7. We reflected the results of the ConAgra Mills operations as discontinued operations for all periods presented. The assets and liabilities of the discontinued business have been reclassified as assets and liabilities held for sale within our Consolidated Balance Sheet for the period presented prior to divestiture. Our equity in the earnings of Ardent Mills is reflected in our continuing operations.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
The summary comparative financial results of the ConAgra Mills operations, included within discontinued operations, were as follows:
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
Net sales
|
$
|
16.2
|
|
|
$
|
1,859.0
|
|
Income (loss) from operations of discontinued operations before income taxes
|
(9.2
|
)
|
|
124.8
|
|
Net gain on sale of businesses
|
627.3
|
|
|
90.3
|
|
Income before income taxes and equity method investment earnings
|
618.1
|
|
|
215.1
|
|
Income tax expense
|
251.1
|
|
|
78.0
|
|
Equity method investment earnings
|
—
|
|
|
0.3
|
|
Income from discontinued operations, net of tax
|
$
|
367.0
|
|
|
$
|
137.4
|
|
Medallion Foods
In fiscal 2014, we completed the sale of a small snack business, Medallion Foods, for
$32.0 million
in cash. The business results were previously reflected in the Private Brands segment. We reflected the results of these operations as discontinued operations for all periods presented. We recognized a pre-tax loss of
$5.8 million
(
$3.5 million
after-tax) on the sale of this business in fiscal 2014. In fiscal 2014, we recognized an impairment charge related to allocated amounts of goodwill and intangible assets, totaling
$25.4 million
(
$15.2 million
after-tax), in anticipation of this divestiture. Net sales, income from operations of discontinued operations before income taxes, and income tax benefit for fiscal 2014 related to Medallion Foods were
$59.1 million
,
$5.9 million
, and
$10.2 million
, respectively.
Lightlife
®
Operations
In fiscal 2014, we completed the sale of the assets of the
Lightlife
®
business for
$54.7 million
in cash. This business produced and sold vegetarian-based burgers, hot dogs, and other meatless frozen and refrigerated items. The results of this business were previously reflected in the Consumer Foods segment. We reflected the results of these operations as discontinued operations for all periods presented. We recognized a pre-tax gain of
$32.1 million
(
$19.8 million
after-tax) on the sale of this business in fiscal 2014. Loss from operations of discontinued operations before income taxes and income tax benefit for fiscal 2015 related to the
Lightlife
®
business were
$0.7 million
and
$0.3 million
, respectively. Net sales, income from operations of discontinued operations before income taxes, and income tax expense for fiscal 2014 related to the
Lightlife
®
business were
$11.2 million
,
$1.9 million
, and
$14.9 million
, respectively.
Other Assets Held for Sale
During late fiscal 2016 and early fiscal 2017, we announced the agreements to sell Spicetec and JM Swank, parts of our Commercial segment. We expect to realize net proceeds from the sales in early fiscal 2017 of
$316.5 million
and
$162.4 million
, respectively. The assets and liabilities of these businesses have been reclassified as assets and liabilities held for sale within our Consolidated Balance Sheets for all periods presented.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
The assets and liabilities classified as held for sale reflected in our Consolidated Balance Sheets related to the Spicetec and JM Swank businesses were as follows:
|
|
|
|
|
|
|
|
|
|
May 29, 2016
|
|
May 31, 2015
|
Spicetec:
|
|
|
|
Current assets
|
$
|
43.3
|
|
|
$
|
38.0
|
|
Noncurrent assets (including goodwill of $102.4 million)
|
145.9
|
|
|
148.2
|
|
Current liabilities
|
10.3
|
|
|
14.7
|
|
Noncurrent liabilities
|
1.2
|
|
|
1.6
|
|
Swank:
|
|
|
|
Current assets
|
$
|
73.7
|
|
|
$
|
66.6
|
|
Noncurrent assets (including goodwill of $52.5 million)
|
73.0
|
|
|
74.3
|
|
Current liabilities
|
44.3
|
|
|
48.0
|
|
Noncurrent liabilities
|
0.4
|
|
|
0.4
|
|
In addition, we are actively marketing certain other long-lived assets. These assets have been reclassified as assets held for sale within our Consolidated Balance Sheets for all periods presented. These assets were held within our Corporate and Consumer Foods segments, respectively. The balance of these noncurrent assets classified as held for sale was
$6.9 million
and
$16.7 million
at May 29, 2016 and May 31, 2015, respectively.
7. INVESTMENTS IN JOINT VENTURES
In the first quarter of fiscal 2015, the Company, Cargill, and CHS, completed the formation of Ardent Mills. In connection with the formation, we contributed all of the assets of ConAgra Mills, our milling operations, including
$49.0 million
of cash, to Ardent Mills, we received a
44%
ownership interest in Ardent Mills, and Ardent Mills distributed
$391.4 million
in cash to us as a return of capital. The contribution of the assets of ConAgra Mills in exchange for a non-controlling interest in the newly formed joint venture was required to be accounted for at fair value, and accordingly, we recognized a gain of
$625.6 million
(
$379.6 million
after-tax) in fiscal 2015 in income from discontinued operations, to reflect the excess of the fair value of our interest over its carrying value at the time of the transfer. As part of the formation of Ardent Mills, in the fourth quarter of fiscal 2014, pursuant to an agreement with the U.S. Department of Justice, we sold
three
flour milling facilities to Miller Milling Company LLC for
$163.0 million
. We received the cash proceeds from the sale of these flour milling facilities in the first quarter of fiscal 2015. In the first quarter of fiscal 2015, we used the net cash proceeds from the Ardent Mills transaction to repay debt. The business results were previously reflected in the Commercial Foods segment. The operating results of our legacy milling business, including the disposition of three mills aforementioned, are included as discontinued operations within our Consolidated Statement of Operations.
We recognized the
44%
ownership interest in Ardent Mills at fair value, as of the date of the formation of the joint venture. We now recognize our proportionate share of the earnings of Ardent Mills under the equity method of accounting within results of continuing operations. Due to differences in fiscal reporting periods, we recognized the equity method earnings on a lag of approximately one month; and as a result, we recognized only 11 months of earnings from Ardent Mills in fiscal 2015. The carrying value of our Ardent Mills equity method investment at the end of fiscal 2016 and 2015 was
$732.8 million
and
$708.4 million
, respectively.
We also have potato joint ventures in our Commercial Foods segment and other equity method investments in our Consumer Foods segment. We recognized a gain of
$17.7 million
in fiscal 2016 related to the settlement of a pension plan of an international potato venture, classified within equity method investment earnings.
The total carrying value of our equity method investments at the end of fiscal 2016 and 2015 was
$910.8 million
and
$853.0 million
, respectively. These amounts are included in Other assets.
In fiscal 2016, we had sales to and purchases from our equity method invest
ments of
$16.6 million
and
$90.8 million
,
respectively. Total dividends received from equity method investments in fiscal 2016 were $
78.3 million
.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
In fiscal 2015, we had sales to and purchases from our equity method investments of
$9.5 million
and
$98.0 million
, respectively. Total dividends received from equity method investments in fiscal 2015 were
$91.3 million
.
We entered into transition services agreements in connection with the Ardent Mills formation and recognized
$9.7 million
and
$14.1 million
of income for the performance of transition services during fiscal 2016 and 2015, respectively, classified within Selling, general and administrative expenses.
Summarized combined financial information for our equity method investments on a 100% basis is as follows:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Net Sales:
|
|
|
|
Ardent Mills
|
$
|
3,395.3
|
|
|
$
|
3,299.2
|
|
Potato joint ventures
|
917.3
|
|
|
872.1
|
|
Others
|
167.2
|
|
|
167.3
|
|
Total net sales
|
$
|
4,479.8
|
|
|
$
|
4,338.6
|
|
Gross margin:
|
|
|
|
|
Ardent Mills
|
339.2
|
|
|
365.3
|
|
Potato joint ventures
|
167.0
|
|
|
171.7
|
|
Others
|
32.8
|
|
|
33.3
|
|
Total gross margin
|
539.0
|
|
|
570.3
|
|
Earnings after income taxes:
|
|
|
|
|
Ardent Mills
|
$
|
142.9
|
|
|
$
|
173.5
|
|
Potato joint ventures
|
101.3
|
|
|
99.8
|
|
Others
|
6.4
|
|
|
6.1
|
|
Total earnings after income taxes
|
$
|
250.6
|
|
|
$
|
279.4
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2016
|
|
May 31,
2015
|
Ardent Mills:
|
|
|
|
Current assets
|
$
|
988.4
|
|
|
$
|
1,080.3
|
|
Noncurrent assets
|
1,695.3
|
|
|
1,692.5
|
|
Current liabilities
|
507.7
|
|
|
415.3
|
|
Noncurrent liabilities
|
545.0
|
|
|
649.5
|
|
Potato joint ventures:
|
|
|
|
Current assets
|
$
|
304.8
|
|
|
$
|
285.3
|
|
Noncurrent assets
|
294.8
|
|
|
193.0
|
|
Current liabilities
|
202.2
|
|
|
151.8
|
|
Noncurrent liabilities
|
81.7
|
|
|
47.1
|
|
Others:
|
|
|
|
Current assets
|
$
|
80.8
|
|
|
$
|
73.1
|
|
Noncurrent assets
|
10.5
|
|
|
10.8
|
|
Current liabilities
|
51.0
|
|
|
42.2
|
|
Noncurrent liabilities
|
—
|
|
|
—
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
8. VARIABLE INTEREST ENTITIES
Variable Interest Entities Consolidated
We own a
49.99%
interest in Lamb Weston BSW, LLC ("Lamb Weston BSW"), a potato processing venture with Ochoa Ag Unlimited Foods, Inc. ("Ochoa"). We provide all sales and marketing services to Lamb Weston BSW. Under certain circumstances, we could be required to compensate Ochoa for lost profits resulting from significant production shortfalls ("production shortfalls"). Commencing on June 1, 2018, or on an earlier date under certain circumstances, we have a contractual right to purchase the remaining equity interest in Lamb Weston BSW from Ochoa (the "call option"). We are currently subject to a contractual obligation to purchase all of Ochoa's equity investment in Lamb Weston BSW at the option of Ochoa (the "put option"). The purchase prices under the call option and the put option (the "options") are based on the book value of Ochoa's equity interest at the date of exercise, as modified by an agreed-upon rate of return for the holding period of the investment balance. The agreed-upon rate of return varies depending on the circumstances under which any of the options are exercised. As of
May 29, 2016
, the price at which Ochoa had the right to put its equity interest to us was
$47.4 million
. This amount is presented within other noncurrent liabilities in our Consolidated Balance Sheets. We have determined that Lamb Weston BSW is a variable interest entity and that we are the primary beneficiary of the entity. Accordingly, we consolidate the financial statements of Lamb Weston BSW.
At May 31, 2015, we held a promissory note from Lamb Weston BSW with a balance of
$36.1 million
. The promissory note and accrued interest was repaid in full during the third quarter of fiscal 2016. In addition, as of May 31, 2015, we provided lines of credit of up to
$15.0 million
to Lamb Weston BSW which were terminated in the third quarter of fiscal 2016. The amounts owed by Lamb Weston BSW to the Company as of May 31, 2015 were not reflected in our Consolidated Balance Sheet, as they were eliminated in consolidation.
During the third quarter of fiscal 2016, Lamb Weston BSW issued a
$30.0 million
promissory note with a financial institution. The note includes a
$23.0 million
fixed rate loan segment with interest at
4.34%
and a
$7.0 million
variable rate loan segment with interest at LIBOR plus an applicable margin ranging from
1.90%
to
2.30%
, payable in semi-annual installments through fiscal 2032. Lamb Weston BSW also issued a
$10.0 million
revolving note with interest at LIBOR plus an applicable margin ranging from
1.75%
to
2.00%
that matures in June 2021. As of May 29, 2016, Lamb Weston BSW had
$1.0 million
outstanding against this revolving note.
Our variable interests in Lamb Weston BSW include an equity investment in the venture, the options, the promissory note, certain fees paid to us by Lamb Weston BSW for sales and marketing services, the contingent obligation related to production shortfalls, and the lines of credit advanced to Lamb Weston BSW. Our maximum exposure to loss as a result of our involvement with this venture is equal to our equity investment in the venture, the balance of the promissory note extended to the venture, the amount, if any, advanced under the lines of credit, and the amount, if any, by which the put option exercise price exceeds the fair value of the noncontrolling interest in Lamb Weston BSW upon its exercise. Also, in the event of a production shortfall, we could be required to compensate Ochoa for lost profits. It is not possible to determine the maximum exposure to losses from the potential exercise of the put option or from potential production shortfalls. However, we do not expect to incur material losses resulting from these potential exposures.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
Due to the consolidation of these variable interest entities, we reflected the following in our Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
May 29,
2016
|
|
May 31,
2015
|
Cash and cash equivalents
|
$
|
4.3
|
|
|
$
|
13.7
|
|
Receivables, less allowance for doubtful accounts
|
0.1
|
|
|
0.2
|
|
Inventories
|
1.2
|
|
|
1.3
|
|
Prepaid expenses and other current assets
|
0.4
|
|
|
0.3
|
|
Property, plant and equipment, net
|
52.2
|
|
|
53.2
|
|
Goodwill
|
18.8
|
|
|
18.8
|
|
Brands, trademarks and other intangibles, net
|
5.2
|
|
|
6.0
|
|
Total assets
|
$
|
82.2
|
|
|
$
|
93.5
|
|
Notes payable
|
$
|
1.0
|
|
|
$
|
—
|
|
Current installments of long-term debt
|
0.5
|
|
|
—
|
|
Accounts payable
|
10.9
|
|
|
16.9
|
|
Accrued payroll
|
0.8
|
|
|
0.7
|
|
Other accrued liabilities
|
0.9
|
|
|
0.6
|
|
Senior long-term debt, excluding current installments
|
29.5
|
|
|
—
|
|
Other noncurrent liabilities (minority interest)
|
32.2
|
|
|
31.3
|
|
Total liabilities
|
$
|
75.8
|
|
|
$
|
49.5
|
|
The liabilities recognized as a result of consolidating the Lamb Weston BSW entity do not represent additional claims on our general assets. The creditors of Lamb Weston BSW have claims only on the assets of Lamb Weston BSW. The assets recognized as a result of consolidating Lamb Weston BSW are the property of the venture and are not available to us for any other purpose, other than as a secured lender under the promissory note and lines of credit.
Variable Interest Entities Not Consolidated
We also have variable interests in certain other entities that we have determined to be variable interest entities, but for which we are not the primary beneficiary. We do not consolidate the financial statements of these entities.
We hold a
50%
interest in Lamb Weston RDO, a potato processing venture (see Note 7). We provide all sales and marketing services to Lamb Weston RDO. We receive a fee for these services based on a percentage of the net sales of the venture. We reflect the value of our ownership interest in this venture in other assets in our Consolidated Balance Sheets, based upon the equity method of accounting. The balance of our investment was
$16.9 million
and
$14.6 million
at
May 29, 2016
and
May 31, 2015
, respectively, representing our maximum exposure to loss as a result of our involvement with this venture. The capital structure of Lamb Weston RDO includes owners' equity of
$33.9 million
and term borrowings from banks of
$41.1 million
as of
May 29, 2016
. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of this venture.
We lease 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 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 Private Brands operations, these lease put options are exercisable now and remain exercisable until generally
30
days after the end of the respective lease agreements. We are amortizing the difference between the estimated put price and the estimated fair value (without a lease agreement in place) of each respective property over the remaining respective lease term within selling, general and administrative expenses. As of
May 29, 2016
, the estimated amount by which the put prices exceeded the fair values of the related properties was
$58.5 million
, of which we have accrued
$9.3 million
. As these buildings are worth considerably more when under lease agreements than when vacant, we may be able to mitigate some, or all of the financial exposure created by the put options by maintaining active lease agreements and/or by subleasing the buildings to credit worthy tenants. We do not expect to ultimately incur material financial
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
losses as a result of the potential exercise of the lease put options by the lessors. These leases are accounted for as operating leases, and accordingly, there are no material assets or liabilities, other than the accrued portion of the put price, associated with these entities included in our 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 these entities. In making this determination, we have considered, among other items, the terms of the lease agreements, the expected remaining useful lives of the assets leased, and the capital structure of the lessor entities.
9. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for fiscal
2016
and
2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Foods
|
|
Commercial
Foods
|
|
Total
|
Balance as of May 25, 2014
|
$
|
3,850.9
|
|
|
$
|
697.7
|
|
|
$
|
4,548.6
|
|
Impairment
|
(20.9
|
)
|
|
—
|
|
|
(20.9
|
)
|
Acquisitions
|
20.0
|
|
|
23.8
|
|
|
43.8
|
|
Currency translation and purchase accounting adjustments
|
(25.4
|
)
|
|
(1.5
|
)
|
|
(26.9
|
)
|
Balance as of May 31, 2015
|
$
|
3,824.6
|
|
|
$
|
720.0
|
|
|
$
|
4,544.6
|
|
Currency translation
|
(9.8
|
)
|
|
(1.0
|
)
|
|
(10.8
|
)
|
Balance as of May 29, 2016
|
$
|
3,814.8
|
|
|
$
|
719.0
|
|
|
$
|
4,533.8
|
|
Other identifiable intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Non-amortizing intangible assets
|
$
|
857.9
|
|
|
$
|
—
|
|
|
$
|
915.4
|
|
|
$
|
—
|
|
Amortizing intangible assets
|
584.0
|
|
|
165.1
|
|
|
489.6
|
|
|
132.5
|
|
|
$
|
1,441.9
|
|
|
$
|
165.1
|
|
|
$
|
1,405.0
|
|
|
$
|
132.5
|
|
During fiscal 2015, we recorded charges totaling
$20.9 million
for the impairment of goodwill in the portion of the business we retained from the Private Brands segment that is now included in the Grocery reporting unit of the Consumer Foods segment.
During fiscal 2014, we recorded a
$9.0 million
charge for the impairment of goodwill in the portion of the business we retained from the Private Brands segment that is now included in our Grocery reporting unit of the Consumer Foods segment.
In fiscal 2016, we elected to perform a quantitative impairment test for indefinite lived intangibles.During fiscal 2016, we recognized impairment charges of
$50.1 million
in our Consumer Foods segment for our
Chef Boyardee
®
brand.
In fiscal 2015 and 2014, we also elected to perform a quantitative impairment test for indefinite lived intangibles. During fiscal 2015, we recognized impairment charges of
$4.8 million
in our Consumer Foods segment for our
Poppycock
®
brand.
During fiscal 2014, we recognized impairment charges of
$72.7 million
in our Consumer Foods segment, primarily for our
Chef Boyardee
®
brand. We also recognized a
$3.2 million
impairment charge for an amortizable technology license in Corporate expenses in fiscal 2014.
See Note 6 for a discussion of impairments related to discontinued operations.
Amortizing intangible assets, carrying a remaining weighted average life of approximately
16 years
, are principally composed of customer relationships, licensing arrangements, and intellectual property. For fiscal
2016
,
2015
, and
2014
, we recognized amortization expense of
$36.7 million
,
$28.8 million
, and
$28.9 million
, respectively. Based on amortizing assets recognized in our Consolidated Balance Sheet as of
May 29, 2016
, amortization expense is estimated to average
$35.6 million
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
for each of the next five years, with a high expense of
$36.8 million
in fiscal year 2017 and decreasing to a low expense of
$34.8 million
in fiscal year 2021.
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
, of which only
$10.4 million
was a cash payment made in the first quarter of fiscal 2016. Remaining payments will be made over a
six
-year period.
10. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average outstanding common shares. Diluted earnings per share is computed on the basis of basic weighted average outstanding common shares 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 per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net income (loss) available to ConAgra Foods, Inc. common stockholders:
|
|
|
|
|
|
Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders
|
$
|
484.9
|
|
|
$
|
748.5
|
|
|
$
|
613.2
|
|
Loss from discontinued operations, net of tax, attributable to ConAgra Foods, Inc. common stockholders
|
(1,161.9
|
)
|
|
(1,001.1
|
)
|
|
(310.1
|
)
|
Net income (loss) attributable to ConAgra Foods, Inc. common stockholders
|
$
|
(677.0
|
)
|
|
$
|
(252.6
|
)
|
|
$
|
303.1
|
|
Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated
|
4.8
|
|
|
1.7
|
|
|
1.7
|
|
Net income (loss) available to ConAgra Foods, Inc. common stockholders
|
$
|
(681.8
|
)
|
|
$
|
(254.3
|
)
|
|
$
|
301.4
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
Basic weighted average shares outstanding
|
434.4
|
|
|
426.1
|
|
|
421.3
|
|
Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities
|
4.1
|
|
|
5.2
|
|
|
6.2
|
|
Diluted weighted average shares outstanding
|
438.5
|
|
|
431.3
|
|
|
427.5
|
|
For fiscal 2016, 2015, and 2014, there were
0.4 million
,
3.3 million
, and
3.1 million
stock options outstanding, respectively, that were excluded from the computation of shares contingently issuable upon exercise of the stock options because exercise prices exceeded the average market value of our common stock during the period.
11. INVENTORIES
The major classes of inventories were as follows:
|
|
|
|
|
|
|
|
|
|
May 29, 2016
|
|
May 31, 2015
|
Raw materials and packaging
|
$
|
300.5
|
|
|
$
|
364.0
|
|
Work in process
|
119.4
|
|
|
125.3
|
|
Finished goods
|
1,082.9
|
|
|
1,073.1
|
|
Supplies and other
|
79.3
|
|
|
80.2
|
|
Total
|
$
|
1,582.1
|
|
|
$
|
1,642.6
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
12. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consisted of:
|
|
|
|
|
|
|
|
|
|
May 29, 2016
|
|
May 31, 2015
|
Postretirement health care and pension obligations
|
$
|
1,147.8
|
|
|
$
|
769.9
|
|
Noncurrent income tax liabilities
|
491.7
|
|
|
850.0
|
|
Self-insurance liabilities
|
61.0
|
|
|
67.0
|
|
Environmental liabilities (see Note 17)
|
55.8
|
|
|
55.0
|
|
Accrued legal settlement costs (see Note 17)
|
108.9
|
|
|
—
|
|
Technology agreement liability (see Note 9)
|
84.5
|
|
|
—
|
|
Other
|
302.9
|
|
|
266.0
|
|
|
2,252.6
|
|
|
2,007.9
|
|
Less current portion
|
(108.5
|
)
|
|
(92.0
|
)
|
|
$
|
2,144.1
|
|
|
$
|
1,915.9
|
|
13. CAPITAL STOCK
We have authorized shares of preferred stock as follows:
Class B—
$50
par value;
150,000
shares
Class C—
$100
par value;
250,000
shares
Class D—without par value;
1,100,000
shares
Class E—without par value;
16,550,000
shares
There were
no
preferred shares issued or outstanding as of
May 29, 2016
.
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 December 2011, our Board of Directors approved a
$750.0 million
increase to the share repurchase program. We repurchased
1.4 million
shares of our common stock for approximately
$50.0 million
and
2.9 million
shares of our common stock for approximately
$100.0 million
in fiscal
2015
and
2014
, 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 Foods 2014 Stock Plan, which authorized the issuance of up to
30.0 million
shares of ConAgra Foods 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 29, 2016
, approximately
30.2 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.
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.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
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:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Expected volatility (%)
|
17.88
|
|
17.45
|
|
21.13
|
Dividend yield (%)
|
2.74
|
|
3.10
|
|
3.24
|
Risk-free interest rates (%)
|
1.60
|
|
1.58
|
|
1.37
|
Expected life of stock option (years)
|
4.96
|
|
4.92
|
|
4.91
|
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 29, 2016
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 31, 2015
|
15.5
|
|
|
$
|
28.28
|
|
|
|
|
|
Granted
|
1.6
|
|
|
$
|
43.14
|
|
|
|
|
|
Exercised
|
(8.8
|
)
|
|
$
|
24.19
|
|
|
|
|
$
|
165.6
|
|
Forfeited
|
(1.2
|
)
|
|
$
|
35.63
|
|
|
|
|
|
Expired
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Outstanding at May 29, 2016
|
7.1
|
|
|
$
|
33.11
|
|
|
6.73
|
|
$
|
234.1
|
|
Exercisable at May 29, 2016
|
4.0
|
|
|
$
|
30.21
|
|
|
5.47
|
|
$
|
119.9
|
|
We recognize compensation expense using the straight-line method over the requisite service period. During fiscal
2016
,
2015
, and
2014
, the Company granted
1.6 million
options,
4.4 million
options, and
3.6 million
options, respectively, with a weighted average grant date value of
$5.08
,
$3.36
, and
$4.71
, respectively. The total intrinsic value of options exercised was
$165.6 million
,
$69.5 million
, and
$46.9 million
for fiscal
2016
,
2015
, and
2014
, respectively. The closing market price of our common stock on the last trading day of fiscal
2016
was
$45.29
per share.
Compensation expense for stock option awards totaled
$9.4 million
,
$12.4 million
, and
$15.3 million
for fiscal
2016
,
2015
, and
2014
, respectively. Included in the compensation expense for stock option awards for fiscal
2016
,
2015
, and
2014
was
$1.0 million
,
$1.4 million
, and
$2.7 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
2016
,
2015
, and
2014
was
$3.6 million
,
$4.8 million
, and
$5.7 million
, respectively.
At
May 29, 2016
, we had
$6.6 million
of total unrecognized compensation expense, net of estimated forfeitures, related to stock options that will be recognized over a weighted average period of
1.3 years
.
Cash received from option exercises for the fiscal years ended
May 29, 2016
,
May 31, 2015
, and
May 25, 2014
was
$228.7 million
,
$150.2 million
, and
$104.6 million
, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled
$57.3 million
,
$26.7 million
, and
$17.4 million
for fiscal
2016
,
2015
, and
2014
, respectively.
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
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
payments. We recognize compensation expense for share unit awards on a straight-line basis over the requisite service period. All cash-settled restricted stock units are marked-to-market and presented within other current and noncurrent liabilities in our Consolidated Balance Sheets. The compensation expense for our stock-settled share unit awards totaled
$25.1 million
,
$21.0 million
, and
$26.1 million
for fiscal
2016
,
2015
, and
2014
, respectively. The tax benefit related to the stock-settled share unit award compensation expense for fiscal
2016
,
2015
, and
2014
was
$9.6 million
,
$8.1 million
, and
$9.8 million
, respectively.
The compensation expense for our cash-settled share unit awards totaled
$33.9 million
,
$29.2 million
, and
$12.4 million
for fiscal
2016
,
2015
, and
2014
, respectively. The tax benefit related to the cash-settled share unit award compensation expense for fiscal
2016
,
2015
, and
2014
was
$13.0 million
,
$11.2 million
, and
$4.6 million
, respectively.
The following table summarizes the nonvested share units as of
May 29, 2016
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 31, 2015
|
2.16
|
|
|
$
|
31.20
|
|
|
2.17
|
|
|
$
|
30.74
|
|
Granted
|
1.04
|
|
|
$
|
43.64
|
|
|
0.79
|
|
|
$
|
44.48
|
|
Vested/Issued
|
(1.12
|
)
|
|
$
|
29.29
|
|
|
(1.02
|
)
|
|
$
|
28.25
|
|
Forfeited
|
(0.54
|
)
|
|
$
|
37.74
|
|
|
(0.48
|
)
|
|
$
|
37.98
|
|
Nonvested share units at May 29, 2016
|
1.54
|
|
|
$
|
38.67
|
|
|
1.46
|
|
|
$
|
37.53
|
|
During fiscal
2016
,
2015
, and
2014
, we granted
1.0 million
,
0.9 million
, and
0.9 million
stock-settled share units, respectively, with a weighted average grant date value of
$43.64
,
$31.71
, and
$36.22
, respectively. During fiscal
2016
,
2015
, and
2014
, we granted
0.8 million
,
0.9 million
, and
0.8 million
cash-settled share units, respectively, with a weighted average grant date value of
$44.48
,
$30.89
, and
$36.89
, respectively.
The total intrinsic value of stock-settled share units vested was
$48.8 million
,
$46.6 million
, and
$46.4 million
during fiscal
2016
,
2015
, and
2014
, respectively. The total intrinsic value of cash-settled share units vested was
$44.9 million
and
$1.6 million
during fiscal
2016
and 2015, respectively.
At
May 29, 2016
, we had
$22.5 million
and
$21.7 million
of total unrecognized compensation expense, net of estimated forfeitures, that will be recognized over a weighted average period of
2.0 years
and
1.7 years
, 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 goals for the performance period ending in fiscal 2015 are based upon our operating cash flow return on operations, a measure of operating cash flow as a percentage of invested capital, and revenue growth, each measured over a defined performance period. The performance goals for the performance periods ending in fiscal 2016 and 2017 are based upon our earnings before interest, taxes, depreciation, and amortization ("EBITDA") return on capital, and revenue growth, each measured over the defined performance period. The awards actually earned will range from
zero
to
two hundred twenty
percent of the targeted number of performance shares for each of the performance periods. Subject to overarching minimum earnings per share performance requirements for executive officers, a payout equal to
25
percent of approved target incentive is required to be paid out for each performance period, as applicable, if we achieve a threshold level of cash flow return on operations for the performance period ending in fiscal 2015, and a threshold level of EBITDA return on capital for the performance periods ending in fiscal 2016 and 2017. 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 at the end of the performance period. The value of the performance shares is adjusted based upon the market price of our common stock at the end of each reporting period and amortized as compensation expense over the vesting period.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
A summary of the activity for performance share awards as of
May 29, 2016
and changes during the fiscal year then ended is presented below:
|
|
|
|
|
|
|
|
Performance Shares
|
Shares
(in Millions)
|
|
Weighted
Average
Grant-Date
Fair Value
|
Nonvested performance shares at May 31, 2015
|
1.06
|
|
|
$
|
29.74
|
|
Granted
|
0.27
|
|
|
$
|
41.70
|
|
Adjustments for performance results attained and dividend equivalents
|
(0.11
|
)
|
|
$
|
24.94
|
|
Vested/Issued
|
(0.29
|
)
|
|
$
|
24.92
|
|
Forfeited
|
(0.18
|
)
|
|
$
|
33.62
|
|
Nonvested performance shares at May 29, 2016
|
0.75
|
|
|
$
|
36.09
|
|
The compensation expense for our performance share awards totaled
$14.2 million
,
$5.7 million
, and
$6.5 million
for fiscal
2016
,
2015
, and
2014
, respectively. The tax benefit related to the compensation expense for fiscal
2016
,
2015
, and
2014
was
$5.4 million
,
$2.2 million
, and
$2.4 million
, respectively.
The total intrinsic value of share units vested (including shares paid in lieu of dividends) during fiscal
2016
,
2015
, and
2014
was
$12.7 million
,
$13.9 million
, and
$10.4 million
, respectively.
Based on estimates at
May 29, 2016
, the Company had
$9.7 million
of total unrecognized compensation expense, net of estimated forfeitures, related to performance shares that will be recognized over a weighted average period of
1.6 years
.
Accounting guidance requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow in our Consolidated Statement of Cash Flows. As a result, in fiscal
2016
,
2015
, and
2014
, our net operating cash flows decreased and our net financing cash flows increased by approximately
$51.3 million
,
$24.0 million
, and
$18.9 million
, respectively.
15. PRE-TAX INCOME AND INCOME TAXES
Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
United States
|
$
|
629.1
|
|
|
$
|
1,015.7
|
|
|
$
|
704.4
|
|
Canada
|
20.3
|
|
|
36.6
|
|
|
42.9
|
|
Foreign - other
|
72.0
|
|
|
70.1
|
|
|
56.2
|
|
|
$
|
721.4
|
|
|
$
|
1,122.4
|
|
|
$
|
803.5
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
The provision for income taxes included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current
|
|
|
|
|
|
Federal
|
$
|
338.2
|
|
|
$
|
284.6
|
|
|
$
|
280.0
|
|
State
|
39.4
|
|
|
26.4
|
|
|
26.0
|
|
Canada
|
5.3
|
|
|
5.7
|
|
|
10.2
|
|
Foreign - other
|
15.2
|
|
|
23.4
|
|
|
10.9
|
|
|
398.1
|
|
|
340.1
|
|
|
327.1
|
|
Deferred
|
|
|
|
|
|
Federal
|
(139.7
|
)
|
|
22.7
|
|
|
(67.4
|
)
|
State
|
(38.1
|
)
|
|
6.1
|
|
|
(67.0
|
)
|
Canada
|
(0.8
|
)
|
|
1.1
|
|
|
1.0
|
|
Foreign - other
|
5.9
|
|
|
(7.9
|
)
|
|
(15.4
|
)
|
|
(172.7
|
)
|
|
22.0
|
|
|
(148.8
|
)
|
|
$
|
225.4
|
|
|
$
|
362.1
|
|
|
$
|
178.3
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Computed U.S. Federal income taxes
|
$
|
252.5
|
|
|
$
|
392.8
|
|
|
$
|
281.2
|
|
State income taxes, net of U.S. Federal tax impact
|
1.2
|
|
|
22.1
|
|
|
10.9
|
|
Tax credits and domestic manufacturing deduction
|
(29.3
|
)
|
|
(31.4
|
)
|
|
(27.9
|
)
|
Audit adjustments and settlements
|
(2.3
|
)
|
|
—
|
|
|
(15.3
|
)
|
Effect of taxes booked on foreign operations
|
(6.4
|
)
|
|
(11.7
|
)
|
|
(19.7
|
)
|
Statute lapses on previously reserved items
|
(3.0
|
)
|
|
(5.2
|
)
|
|
(5.1
|
)
|
Goodwill and intangible impairments
|
—
|
|
|
6.6
|
|
|
4.1
|
|
Change in legal structure and other state elections
|
—
|
|
|
—
|
|
|
(23.5
|
)
|
Change in estimate related to tax methods used for certain international sales, federal credits, and state credits
|
6.0
|
|
|
(2.4
|
)
|
|
(20.9
|
)
|
Other
|
6.7
|
|
|
(8.7
|
)
|
|
(5.5
|
)
|
|
$
|
225.4
|
|
|
$
|
362.1
|
|
|
$
|
178.3
|
|
Income taxes paid, net of refunds, were
$442.6 million
,
$283.7 million
, and
$223.9 million
in fiscal
2016
,
2015
, and
2014
, respectively.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
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 29, 2016
|
|
May 31, 2015
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Property, plant and equipment
|
$
|
—
|
|
|
$
|
411.6
|
|
|
$
|
—
|
|
|
$
|
392.1
|
|
Goodwill, trademarks and other intangible assets
|
—
|
|
|
698.8
|
|
|
—
|
|
|
699.0
|
|
Accrued expenses
|
20.4
|
|
|
—
|
|
|
20.7
|
|
|
—
|
|
Compensation related liabilities
|
88.7
|
|
|
—
|
|
|
78.1
|
|
|
—
|
|
Pension and other postretirement benefits
|
437.6
|
|
|
—
|
|
|
290.9
|
|
|
—
|
|
Investment in unconsolidated subsidiaries
|
—
|
|
|
256.8
|
|
|
—
|
|
|
211.6
|
|
Other liabilities that will give rise to future tax deductions
|
147.5
|
|
|
—
|
|
|
109.0
|
|
|
—
|
|
Net capital and operating loss carryforwards
|
1,595.7
|
|
|
—
|
|
|
34.1
|
|
|
—
|
|
Other
|
78.3
|
|
|
10.0
|
|
|
71.0
|
|
|
63.1
|
|
|
2,368.2
|
|
|
1,377.2
|
|
|
603.8
|
|
|
1,365.8
|
|
Less: Valuation allowance
|
(1,448.0
|
)
|
|
—
|
|
|
(38.0
|
)
|
|
—
|
|
Net deferred taxes
|
$
|
920.2
|
|
|
$
|
1,377.2
|
|
|
$
|
565.8
|
|
|
$
|
1,365.8
|
|
The liability for gross unrecognized tax benefits at May 29, 2016 was
$38.4 million
, excluding a related liability of
$9.3
million for gross interest and penalties. Included in the balance at
May 29, 2016
are
$1.1 million
of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. Any associated interest and penalties imposed would affect the tax rate. As of May 31, 2015, our gross liability for unrecognized tax benefits was
$35.3 million
, excluding a related liability of
$9.5 million
for gross interest and penalties. Included in the balance at May 31, 2015 are
$1.7 million
of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Interest and penalties recognized in the Consolidated Statement of Earnings was a benefit of
$0.2 million
in fiscal 2016,
$0.4 million
in fiscal 2015 and
$1.3 million
in fiscal 2014.
The net amount of unrecognized tax benefits at
May 29, 2016
and
May 31, 2015
that, if recognized, would favorably impact our effective tax rate was
$21.3 million
and
$23.1 million
, respectively.
We accrue interest and penalties associated with uncertain tax positions as part of income tax expense.
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
3
to
5
years.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to
$9.0 million
over the next twelve months due to various Federal, state, and foreign audit settlements and the expiration of statutes of limitations.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
The change in the unrecognized tax benefits for the year ended
May 29, 2016
was:
|
|
|
|
|
Beginning balance on May 31, 2015
|
$
|
35.3
|
|
Increases from positions established during prior periods
|
1.9
|
|
Decreases from positions established during prior periods
|
(2.3
|
)
|
Increases from positions established during the current period
|
11.4
|
|
Decreases relating to settlements with taxing authorities
|
(4.0
|
)
|
Reductions resulting from lapse of applicable statute of limitation
|
(3.5
|
)
|
Other adjustments to liability
|
(0.4
|
)
|
Ending balance on May 29, 2016
|
$
|
38.4
|
|
We have approximately
$87.0 million
of foreign net operating loss carryforwards (
$65.3 million
will expire between fiscal
2017
and 2037 and
$22.0 million
have no expiration dates) and
$13.3 million
of Federal net operating loss carryforwards which expire between fiscal 2027 and 2031. Federal capital loss carryforwards related to the private brands divestiture of approximately
$4.0 billion
will expire in fiscal 2021. Included in net deferred tax liabilities are
$43.9 million
of tax effected state net operating loss carryforwards that expire in various years ranging from fiscal 2017 to 2036 and included in net deferred tax assets are
$202.7 million
of tax effected state capital loss carryforwards related to the divestiture of private brands, the vast majority of which expire in fiscal 2021. Substantially all of our foreign tax credits will expire in fiscal 2025. State tax credits of approximately
$21.4 million
will expire in various years ranging from fiscal
2017
to 2020. Preliminary estimates of the deferred tax asset associated with the capital loss carryforwards were reduced by
$55.1 million
for Federal and increased by
$5.1 million
for state as refinements were made to the detailed tax computations in the fourth quarter. Further adjustments may result from changes in tax attributes based upon contract terms of the private brands sale and review of this transaction by the tax authorities. Any such adjustments are expected to be immaterial.
We have recognized a valuation allowance for the portion of the net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized. The net impact on income tax expense related to changes in the valuation allowance for fiscal
2016
was expense of
$1.4 billion
. For fiscal
2015
and
2014
, changes in the valuation allowance were a benefit of
$1.4 million
and a benefit of
$2.0 million
, respectively. The fiscal 2016 change principally relates to a full valuation being set up on the capital gain generated from the private brands disposition, less
$147.3 million
that was released in the fourth quarter of fiscal 2016 due to the impending Spicetec and JM Swank dispositions.
As of
May 29, 2016
, undistributed earnings of the Company’s foreign subsidiaries amounted to approximately
$540 million
. Those earnings are considered to be indefinitely reinvested and accordingly, no U.S. federal income taxes have been provided thereon. We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that the Company considers to be reinvested indefinitely. 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 the cumulative earnings of non-U.S. affiliates and associated companies. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested.
16. OPERATING 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
$153.7 million
,
$151.6 million
, and
$156.4 million
in fiscal
2016
,
2015
, and
2014
, respectively.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
A summary of non-cancellable operating lease commitments for fiscal years following
May 29, 2016
, was as follows:
|
|
|
|
|
2017
|
$
|
64.8
|
|
2018
|
57.5
|
|
2019
|
44.5
|
|
2020
|
30.0
|
|
2021
|
21.1
|
|
Later years
|
119.9
|
|
|
$
|
337.8
|
|
17. CONTINGENCIES
In fiscal 1991, we acquired Beatrice Company ("Beatrice"). As a result of the acquisition of Beatrice and the significant pre-acquisition contingencies of the Beatrice businesses and its former subsidiaries, our condensed consolidated post-acquisition financial statements reflect liabilities associated with the estimated resolution of these contingencies. These include various litigation and environmental proceedings related to businesses divested by Beatrice prior to its acquisition by us. The litigation includes suits against a number of lead paint and pigment manufacturers, including ConAgra Grocery Products Company, a wholly owned subsidiary of the Company ("ConAgra Grocery Products"), and the Company as alleged successors to W. P. Fuller Co., a lead paint and pigment manufacturer owned and operated by Beatrice until 1967. 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. The Illinois suit seeks class-wide relief for reimbursement of costs associated with the testing of lead levels in blood. In California, a number of cities and counties joined in a consolidated action seeking abatement of the alleged public nuisance. 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 Judgment (the "Judgment") against ConAgra Grocery Products and
two
other defendants, which orders the creation of a California abatement fund in the amount of
$1.15 billion
. Liability is joint and several. The Company believes ConAgra Grocery Products did not inherit any liabilities of W. P. Fuller Co. The Company will continue to vigorously defend itself in this case and has appealed the Judgment to The Court of Appeal of the State of California Sixth Appellate District. The Company expects the appeal process will last several years. The absence of any linkage between ConAgra Grocery Products and W. P. Fuller Co. is a critical issue among others that the Company will continue to advance throughout the appeals process. It is not possible to estimate exposure in this case or the remaining case in Illinois (which is based on different legal theories). If ultimately necessary, the Company will look to its insurance policies for coverage; its carriers are on notice. However, the extent of insurance coverage is uncertain, and the Company cannot absolutely assure that the final resolution of these matters will not have a material adverse effect on its financial condition, results of operations, or liquidity.
The environmental proceedings associated with Beatrice include litigation and administrative proceedings involving Beatrice's status as a potentially responsible party at
37
Superfund, proposed Superfund, or state-equivalent sites. These sites involve locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides, fertilizers, dyes, inks, solvents, PCBs, acids, lead, sulfur, tannery wastes, and/or other contaminants. Beatrice has paid or is in the process of paying its liability share at
33
of these sites. Reserves for these matters 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
$54.0 million
as of
May 29, 2016
, a majority of which relates to the Superfund and state-equivalent sites referenced above. We expect expenditures for Beatrice-related environmental matters to continue for up to
18 years
.
In certain limited situations, we will guarantee an obligation of an unconsolidated entity. At the time in which we initially provide such a guarantee, we assess the risk of financial exposure to us under these agreements. We consider the credit-worthiness of the guaranteed party, the value of any collateral pledged against the related obligation, and any other factors that may mitigate our risk. We actively monitor market and entity-specific conditions that may result in a change of our assessment of the risk of loss under these agreements.
We are a party to various potato supply agreements. Under the terms of certain such potato supply agreements, we have guaranteed repayment of short-term bank loans of the potato suppliers, under certain conditions. At
May 29, 2016
, the amount
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
of supplier loans we have effectively guaranteed was
$40.5 million
. We have not established a liability for these guarantees, as we have determined that the likelihood of our required performance under the guarantees is remote.
Federal income tax credits were generated related to our sweet potato production facility in Delhi, Louisiana. Third parties invested in these income tax credits. We have guaranteed these third parties the face value of these income tax credits over their statutory lives, through fiscal 2017, in the event that the income tax credits are recaptured or reduced. The face value of the income tax credits was
$26.7 million
as of
May 29, 2016
. We believe the likelihood of recapture or reduction of the income tax credits is remote, and therefore we have not established a liability in connection with these guarantees.
We are a party to a number of lawsuits and claims arising out of our ongoing business operations. Among these, there are lawsuits, claims, and matters related to the February 2007 recall of our peanut butter products. Among the matters outstanding during fiscal 2016 related to the peanut butter recall was an investigation by the U.S. Attorney's office in Georgia and the Consumer Protection Branch of the Department of Justice into the 2007 recall. Just prior to the end of fiscal 2015, we negotiated a resolution of this matter, which resulted in an executed plea agreement pursuant to which ConAgra Grocery Products will plead guilty to a single misdemeanor violation of the Food, Drug & Cosmetics Act. If the plea is accepted by the U.S. District Court for the Middle District of Georgia, the government’s investigation into the 2007 recall will conclude and ConAgra Grocery Products will make payments totaling
$11.2 million
to the federal government. Expenses related to this payment were accrued in previous periods. During fiscal 2013 and 2012, we recognized charges of
$7.5 million
and
$17.5 million
, respectively, in connection with this matter. During the fourth quarter of fiscal 2014, we reduced our accrual by
$6.7 million
. During the first quarter of fiscal 2015, we further reduced our accrual by
$5.8 million
and further reduced it by
$1.2 million
in the second quarter of fiscal 2015, based on ongoing discussions with the U.S. Attorney's office and the Department of Justice. The plea agreement is subject to Court approval, which will be sought along with the formal sentencing process in the coming months.
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. In 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 for 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
. The case will be appealed. 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 hold a
50%
ownership interest in Lamb-Weston/Meijer, V.O.F. (“Lamb Weston Meijer”), a Netherlands joint venture, headquartered in the Netherlands, that manufactures and sells frozen potato products principally in Europe. We and our partner are jointly and severally liable for all legal liabilities of Lamb Weston Meijer. As of May 29, 2016 and May 31, 2015, the total liabilities of Lamb Weston Meijer were
$203.7 million
and
$129.1 million
, respectively. Lamb Weston Meijer is well capitalized, with partners’ equity of
$284.5 million
and
$255.9 million
as of May 29, 2016 and May 31, 2015, respectively. We have not established a liability on our balance sheets for the obligations of Lamb Weston Meijer, as we have determined the likelihood of any required payment by us to settle such liabilities of Lamb Weston Meijer is remote.
We lease certain office buildings from entities that we have determined to be variable interest entities. The lease agreements contain put options exercisable now and remain exercisable until generally
30
days after the end of the respective lease agreements, that allow the lessors to require us to purchase the buildings at the greater of original construction cost, or fair market value, without a lease in place. We have financial exposure with respect to these entities in the event we are required to purchase the leased buildings for a price in excess of the then current fair value under the applicable lease purchase options. We are amortizing the difference between the estimated put price and the estimated fair value (without a lease agreement in place) of each respective property over the remaining respective lease term within selling, general, and administrative expenses. As of May 29, 2016, the estimated amount by which the put prices exceeded the fair values of the related properties was
$58.5 million
, of which we have accrued
$9.3 million
. As these buildings are worth considerably more when under lease agreements than when vacant, we may be able to mitigate some, or all, of the related financial exposure created by the put options by maintaining active lease agreements and/or by subleasing the buildings to credit worthy tenants. We do not expect to ultimately incur material financial losses as a result of the potential exercise of the lease put options by the lessors.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
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. It is reasonably possible that a change in one of the estimates of the foregoing matters may occur in the future and, as noted, while unlikely, the lead paint matter could result in a material final judgment. 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 29, 2016
, we had economically hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with expiration dates through January 2017.
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 29, 2016
, we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through May 2017.
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.
Derivatives Designated as Cash Flow Hedges
During 2011, we entered into interest rate swap contracts to hedge the interest rate risk related to our forecasted issuance of long-term debt in April 2014 (based on the anticipated refinancing of the senior long-term debt maturing at that time). We designated these interest rate swaps as cash flow hedges of the forecasted interest payments related to this anticipated debt issuance and recorded the unrealized loss in accumulated other comprehensive loss. In the third quarter of fiscal 2014, we determined that we would not issue long-term debt to refinance the debt maturing in April 2014. Accordingly, we recognized a charge to earnings, within selling, general and administrative expenses, of
$54.9 million
in fiscal 2014.
Derivatives Designated as Fair Value Hedges
During fiscal 2014, we entered into interest rate swap contracts to hedge the fair value of certain of our senior long-term debt instruments maturing in fiscal 2019 and 2020. These contracts, with a total notional amount of
$500 million
, effectively converted interest on this debt from fixed rate to floating rate. We designated these interest rate swap contracts as fair value hedges of the debt instruments. During fiscal 2015, we terminated the interest rate swap contracts and received proceeds of
$21.9 million
. The proceeds include
$3.9 million
of accrued interest from the interest rate swap contract, gains of
$5.4 million
representing the change in fair value of the interest rate swap contracts (the ineffective portion of the hedge) recognized within selling, general and administrative expenses, and
$12.6 million
of cumulative adjustment to the fair value of the debt instruments that were hedged (the effective portion of the hedge), that will be amortized as a reduction to interest expense over the remaining life of the debt instruments through fiscal 2020. The unamortized amount of the deferred gain was
$6.6 million
at
May 29, 2016
. The portion written off related to the third quarter of fiscal 2016 tender offers totaled
$3.0 million
(see Note 4).
Changes in fair value of such derivative instruments were immediately recognized in earnings along with changes in the fair value of the items being hedged (based solely on the change in the benchmark interest rate). In fiscal 2015 and 2014, we recognized gains of
$8.9 million
and
$9.1 million
, respectively, representing the fair value of the interest rate swap contracts and losses of
$5.8 million
and
$6.8 million
, respectively, representing the change in fair value of the related senior long-term
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
debt. The net gains of
$3.1 million
and
$2.3 million
for fiscal 2015 and 2014, respectively, are classified within selling, general and administrative expenses.
The entire change in fair value of the derivative instruments was included in our assessment of hedge effectiveness.
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 selling, general and administrative expenses. These substantially offset the foreign currency transaction gains or losses recognized as values of the monetary assets or liabilities being economically hedged change.
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 29, 2016
and
May 31, 2015
amounts representing a right to reclaim cash collateral of
$0.3 million
and
$5.9 million
, 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 29, 2016
|
|
May 31, 2015
|
Prepaid expenses and other current assets
|
$
|
26.1
|
|
|
$
|
32.2
|
|
Other accrued liabilities
|
0.7
|
|
|
14.2
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
The following table presents our derivative assets and liabilities, at
May 29, 2016
, on a gross basis, prior to the setoff of
$1.8 million
to total derivative assets and
$2.1 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
|
|
$
|
6.5
|
|
|
Other accrued liabilities
|
|
$
|
2.3
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
21.4
|
|
|
Other accrued liabilities
|
|
0.2
|
|
Other
|
Prepaid expenses and other current assets
|
|
—
|
|
|
Other accrued liabilities
|
|
0.3
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
27.9
|
|
|
|
|
$
|
2.8
|
|
Total derivatives
|
|
|
$
|
27.9
|
|
|
|
|
$
|
2.8
|
|
The following table presents our derivative assets and liabilities, at
May 31, 2015
, on a gross basis, prior to the setoff of
$7.3 million
to total derivative assets and
$13.2 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
|
|
$
|
20.8
|
|
|
Other accrued liabilities
|
|
$
|
26.9
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
17.7
|
|
|
Other accrued liabilities
|
|
0.4
|
|
Other
|
Prepaid expenses and other current assets
|
|
1.0
|
|
|
Other accrued liabilities
|
|
0.1
|
|
Total derivatives not designated as hedging instruments
|
|
|
$
|
39.5
|
|
|
|
|
$
|
27.4
|
|
Total derivatives
|
|
|
$
|
39.5
|
|
|
|
|
$
|
27.4
|
|
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 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
|
|
$
|
(13.4
|
)
|
Foreign exchange contracts
|
|
Cost of goods sold
|
|
1.5
|
|
Foreign exchange contracts
|
|
Selling, general and administrative expense
|
|
2.9
|
|
Total loss from derivative instruments not designated as hedging instruments
|
|
|
|
$
|
(9.0
|
)
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended May 31, 2015
|
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
|
|
$
|
(80.5
|
)
|
Foreign exchange contracts
|
|
Cost of goods sold
|
|
1.3
|
|
Foreign exchange contracts
|
|
Selling, general and administrative expense
|
|
10.3
|
|
Interest rate contracts
|
|
Selling, general and administrative expense
|
|
(1.4
|
)
|
Total loss from derivative instruments not designated as hedging instruments
|
|
|
|
$
|
(70.3
|
)
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended May 25, 2014
|
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
|
|
$
|
18.9
|
|
Foreign exchange contracts
|
|
Cost of goods sold
|
|
1.9
|
|
Commodity contracts
|
|
Selling, general and administrative expense
|
|
7.9
|
|
Foreign exchange contracts
|
|
Selling, general and administrative expense
|
|
(54.9
|
)
|
Total loss from derivative instruments not designated as hedging instruments
|
|
|
|
$
|
(26.2
|
)
|
As of
May 29, 2016
, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of
$107.5 million
and
$55.1 million
for purchase and sales contracts, respectively. As of
May 31, 2015
, our open commodity contracts had a notional value of
$554.9 million
and
$393.1 million
for purchase and sales contracts, respectively. The notional amount of our foreign currency forward and cross currency swap contracts as of
May 29, 2016
and
May 31, 2015
was
$120.0 million
and
$108.6 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 29, 2016
, 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
$21.4 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.
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
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
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 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 29, 2016
and
May 31, 2015
are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
4,092.2
|
|
|
$
|
3,979.0
|
|
|
$
|
235.4
|
|
|
$
|
283.5
|
|
Service cost
|
93.8
|
|
|
88.5
|
|
|
0.4
|
|
|
0.6
|
|
Interest cost
|
159.8
|
|
|
161.3
|
|
|
7.5
|
|
|
9.9
|
|
Plan participants’ contributions
|
—
|
|
|
—
|
|
|
4.8
|
|
|
5.9
|
|
Amendments
|
2.0
|
|
|
0.7
|
|
|
—
|
|
|
(3.3
|
)
|
Actuarial loss (gain)
|
(18.5
|
)
|
|
35.7
|
|
|
0.6
|
|
|
(35.9
|
)
|
Special termination benefits
|
25.6
|
|
|
6.9
|
|
|
—
|
|
|
—
|
|
Curtailments
|
(18.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
(168.2
|
)
|
|
(176.7
|
)
|
|
(21.9
|
)
|
|
(24.3
|
)
|
Currency
|
(1.0
|
)
|
|
(3.2
|
)
|
|
(0.2
|
)
|
|
(1.0
|
)
|
Business divestitures
|
(263.9
|
)
|
|
|
|
|
(24.9
|
)
|
|
|
|
Benefit obligation at end of year
|
$
|
3,903.0
|
|
|
$
|
4,092.2
|
|
|
$
|
201.7
|
|
|
$
|
235.4
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
3,539.0
|
|
|
$
|
3,546.0
|
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
Actual return on plan assets
|
(146.2
|
)
|
|
178.6
|
|
|
—
|
|
|
(0.3
|
)
|
Employer contributions
|
11.9
|
|
|
13.5
|
|
|
17.1
|
|
|
18.5
|
|
Plan participants’ contributions
|
—
|
|
|
—
|
|
|
4.8
|
|
|
5.9
|
|
Investment and administrative expenses
|
(22.0
|
)
|
|
(18.8
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
(168.2
|
)
|
|
(176.7
|
)
|
|
(21.9
|
)
|
|
(24.3
|
)
|
Currency
|
(1.1
|
)
|
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
Business divestitures
|
(254.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Fair value of plan assets at end of year
|
$
|
2,959.4
|
|
|
$
|
3,539.0
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
The funded status and amounts recognized in our Consolidated Balance Sheets at
May 29, 2016
and
May 31, 2015
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Funded Status
|
|
$
|
(943.6
|
)
|
|
$
|
(553.2
|
)
|
|
$
|
(201.6
|
)
|
|
$
|
(235.3
|
)
|
Amounts Recognized in Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
3.0
|
|
|
$
|
20.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other accrued liabilities
|
|
(10.6
|
)
|
|
(10.7
|
)
|
|
(21.8
|
)
|
|
(23.3
|
)
|
Other noncurrent liabilities
|
|
(936.0
|
)
|
|
(563.0
|
)
|
|
(179.8
|
)
|
|
(212.0
|
)
|
Net Amount Recognized
|
|
$
|
(943.6
|
)
|
|
$
|
(553.2
|
)
|
|
$
|
(201.6
|
)
|
|
$
|
(235.3
|
)
|
Amounts Recognized in Accumulated Other Comprehensive (Income) Loss (Pre-tax)
|
|
|
|
|
|
|
|
|
Actuarial net loss
|
|
$
|
373.0
|
|
|
$
|
339.6
|
|
|
$
|
23.9
|
|
|
$
|
16.1
|
|
Net prior service cost (benefit)
|
|
13.4
|
|
|
14.2
|
|
|
(11.6
|
)
|
|
(25.0
|
)
|
Total
|
|
$
|
386.4
|
|
|
$
|
353.8
|
|
|
$
|
12.3
|
|
|
$
|
(8.9
|
)
|
Weighted-Average Actuarial Assumptions Used to Determine Benefit Obligations at May 29, 2016 and May 31, 2015
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.83
|
%
|
|
4.10
|
%
|
|
3.18
|
%
|
|
3.50
|
%
|
Long-term rate of compensation increase
|
|
3.66
|
%
|
|
3.70
|
%
|
|
N/A
|
|
|
N/A
|
|
The accumulated benefit obligation for all defined benefit pension plans was
$3.8 billion
and
$3.9 billion
at
May 29, 2016
and
May 31, 2015
, 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 29, 2016
and
May 31, 2015
were:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Projected benefit obligation
|
|
$
|
3,809.5
|
|
|
$
|
3,805.8
|
|
Accumulated benefit obligation
|
|
3,734.6
|
|
|
3,658.3
|
|
Fair value of plan assets
|
|
2,862.9
|
|
|
3,232.1
|
|
Components of pension benefit and other postretirement benefit costs included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Service cost
|
$
|
93.8
|
|
|
$
|
88.5
|
|
|
$
|
89.0
|
|
|
$
|
0.4
|
|
|
$
|
0.6
|
|
|
$
|
0.7
|
|
Interest cost
|
159.8
|
|
|
161.3
|
|
|
151.1
|
|
|
7.5
|
|
|
9.9
|
|
|
9.7
|
|
Expected return on plan assets
|
(259.9
|
)
|
|
(267.9
|
)
|
|
(252.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost (benefit)
|
2.7
|
|
|
3.7
|
|
|
3.8
|
|
|
(7.8
|
)
|
|
(7.9
|
)
|
|
(7.2
|
)
|
Special termination benefits
|
25.6
|
|
|
6.9
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Recognized net actuarial loss
|
348.5
|
|
|
6.9
|
|
|
2.7
|
|
|
0.1
|
|
|
3.5
|
|
|
6.7
|
|
Curtailment loss
|
0.3
|
|
|
1.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefit cost — Company plans
|
370.8
|
|
|
0.9
|
|
|
(5.9
|
)
|
|
0.2
|
|
|
6.1
|
|
|
9.9
|
|
Pension benefit cost — multi-employer plans
|
42.9
|
|
|
12.4
|
|
|
12.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total benefit cost
|
$
|
413.7
|
|
|
$
|
13.3
|
|
|
$
|
6.7
|
|
|
$
|
0.2
|
|
|
$
|
6.1
|
|
|
$
|
9.9
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
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. Special termination benefits granted in connection with the formation of Ardent Mills resulted in the recognition of
$6.9 million
of expense during fiscal 2015. This expense was included in results of discontinued operations.
In fiscal 2016, the Company recorded a charge of
$348.5 million
reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability.
The Company recorded an expense of
$29.8 million
during fiscal 2016 related to our expected incurrence of certain multi-employer plan withdrawal costs. This expense was included in restructuring activities.
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net actuarial gain (loss)
|
|
$
|
(390.5
|
)
|
|
$
|
(143.8
|
)
|
|
$
|
(8.0
|
)
|
|
$
|
35.8
|
|
Amendments
|
|
(2.0
|
)
|
|
(0.6
|
)
|
|
(5.6
|
)
|
|
3.3
|
|
Amortization of prior service cost (benefit)
|
|
2.7
|
|
|
5.2
|
|
|
(7.8
|
)
|
|
(7.9
|
)
|
Recognized net actuarial loss
|
|
348.5
|
|
|
6.9
|
|
|
0.1
|
|
|
3.5
|
|
Net amount recognized
|
|
$
|
(41.3
|
)
|
|
$
|
(132.3
|
)
|
|
$
|
(21.3
|
)
|
|
$
|
34.7
|
|
Weighted-Average Actuarial Assumptions Used to Determine Net Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
|
4.10
|
%
|
|
4.15
|
%
|
|
4.05
|
%
|
|
3.50
|
%
|
|
3.65
|
%
|
|
3.35
|
%
|
Long-term rate of return on plan assets
|
|
7.75
|
%
|
|
7.75
|
%
|
|
7.75
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Long-term rate of compensation increase
|
|
3.70
|
%
|
|
4.25
|
%
|
|
4.25
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
At May 29, 2016, the Company elected to further refine its approach for calculating its service and interest costs beginning in fiscal 2017 by applying a split discount rate (spot rate approach) under which specific spot rates along the selected yield curve are applied to the relevant projected cash flows as the Company believes this method more precisely measures its obligations.
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.
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)
|
|
$
|
2.6
|
|
|
$
|
(6.8
|
)
|
Net actuarial loss
|
|
NA
|
|
|
0.4
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
Plan Assets
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 20, as of
May 29, 2016
, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
|
$
|
0.9
|
|
|
$
|
73.4
|
|
|
$
|
—
|
|
|
$
|
74.3
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
453.5
|
|
|
13.2
|
|
|
—
|
|
|
466.7
|
|
International equity securities
|
|
267.5
|
|
|
318.1
|
|
|
—
|
|
|
585.6
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
Government bonds
|
|
43.3
|
|
|
232.8
|
|
|
—
|
|
|
276.1
|
|
Corporate bonds
|
|
23.6
|
|
|
242.6
|
|
|
—
|
|
|
266.2
|
|
Mortgage-backed bonds
|
|
58.1
|
|
|
64.4
|
|
|
—
|
|
|
122.5
|
|
Real estate funds
|
|
—
|
|
|
—
|
|
|
425.0
|
|
|
425.0
|
|
Multi-strategy hedge funds
|
|
—
|
|
|
—
|
|
|
466.4
|
|
|
466.4
|
|
Private equity funds
|
|
—
|
|
|
—
|
|
|
89.7
|
|
|
89.7
|
|
Master limited partnerships
|
|
155.8
|
|
|
—
|
|
|
—
|
|
|
155.8
|
|
Private natural resources funds
|
|
—
|
|
|
—
|
|
|
27.9
|
|
|
27.9
|
|
Net receivables for unsettled transactions
|
|
3.2
|
|
|
—
|
|
|
—
|
|
|
3.2
|
|
Total assets
|
|
$
|
1,005.9
|
|
|
$
|
944.5
|
|
|
$
|
1,009.0
|
|
|
$
|
2,959.4
|
|
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 20, as of
May 31, 2015
, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
|
$
|
2.4
|
|
|
$
|
80.3
|
|
|
$
|
—
|
|
|
$
|
82.7
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
U.S. equity securities
|
|
542.2
|
|
|
90.9
|
|
|
—
|
|
|
633.1
|
|
International equity securities
|
|
362.9
|
|
|
448.8
|
|
|
—
|
|
|
811.7
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
Government bonds
|
|
43.9
|
|
|
290.5
|
|
|
—
|
|
|
334.4
|
|
Corporate bonds
|
|
49.6
|
|
|
394.9
|
|
|
—
|
|
|
444.5
|
|
Mortgage-backed bonds
|
|
49.5
|
|
|
24.0
|
|
|
—
|
|
|
73.5
|
|
Real estate funds
|
|
—
|
|
|
6.6
|
|
|
344.9
|
|
|
351.5
|
|
Multi-strategy hedge funds
|
|
—
|
|
|
—
|
|
|
484.5
|
|
|
484.5
|
|
Private equity funds
|
|
—
|
|
|
—
|
|
|
93.0
|
|
|
93.0
|
|
Master limited partnerships
|
|
191.4
|
|
|
—
|
|
|
—
|
|
|
191.4
|
|
Private natural resources funds
|
|
—
|
|
|
11.9
|
|
|
19.9
|
|
|
31.8
|
|
Net receivables for unsettled transactions
|
|
6.9
|
|
|
—
|
|
|
—
|
|
|
6.9
|
|
Total assets
|
|
$
|
1,248.8
|
|
|
$
|
1,347.9
|
|
|
$
|
942.3
|
|
|
$
|
3,539.0
|
|
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. The Level 2 assets listed above consist primarily of commingled equity investments where values are based on the net asset value of the underlying investments held, individual fixed income securities where values are based on quoted prices of
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
similar securities and observable market data, and commingled fixed income investments where values are based on the net asset value of the underlying investments held. Level 3 assets are those where the fair value is determined based on unobservable inputs. The Level 3 assets listed above consist of alternative investments where active market pricing is not readily available and, as such, we use net asset values as an estimate of fair value as a practical expedient. For real estate funds, the value is based on the net asset value provided by the investment manager who uses market data and independent third party appraisals to determine fair market value. For the multi-strategy hedge funds, the value is based on the net asset values provided by a third party administrator. For private equity and private energy funds, the investment manager provides the valuation using, among other things, comparable transactions, comparable public company data, discounted cash flow analysis, and market conditions.
Level 3 investments are generally considered long-term in nature with varying redemption availability. Certain of our Level 3 investments, with a fair value of approximately
$896.1 million
as of
May 29, 2016
, have the ability to impose customary redemption gates which may further restrict or limit the redemption of invested funds therein. As of
May 29, 2016
, Level 3 investments with a fair value of
$0.3 million
have imposed such gates.
As of
May 29, 2016
, we have unfunded commitments for additional investments of
$94.3 million
in private equity funds,
$41.6 million
in natural resources funds, and
$15.5 million
in real estate 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.
Our pension plan weighted-average asset allocations and our target asset allocations, by asset category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2016
|
|
May 31, 2015
|
|
Target
Allocation
|
Equity securities
|
|
36
|
%
|
|
41
|
%
|
|
25% - 45%
|
Debt securities
|
|
22
|
%
|
|
24
|
%
|
|
14% - 24%
|
Real estate funds
|
|
14
|
%
|
|
10
|
%
|
|
1% - 19%
|
Multi-strategy hedge funds
|
|
16
|
%
|
|
14
|
%
|
|
5% - 25%
|
Private equity
|
|
3
|
%
|
|
2
|
%
|
|
3% - 13%
|
Other
|
|
9
|
%
|
|
9
|
%
|
|
3% - 30%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
|
The Company’s investment strategy reflects the expectation that equity securities and multi-strategy hedge funds will outperform debt securities over the long term. Assets are invested in a prudent manner to maintain the security of funds while maximizing returns within the Company’s Investment Policy guidelines. The strategy is implemented utilizing indexed and actively managed assets from the categories listed.
The investment goals are to provide a total return that, over the long term, increases the ratio of plan assets to liabilities subject to an acceptable level of risk. This is accomplished through diversification of assets in accordance with the Investment Policy guidelines. Investment risk is mitigated by periodic rebalancing between asset classes as necessitated by changes in market conditions within the Investment Policy guidelines.
Other investments are primarily made up of cash and master limited partnerships.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
Level 3 Gains and Losses
The change in the fair value of the plan’s Level 3 assets is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
May 31, 2015
|
|
Realized Gains (Losses)
|
|
Unrealized
Gains (Losses)
|
|
Net Purchases and Sales
|
|
Fair Value
May 29, 2016
|
Real estate funds
|
|
$
|
344.9
|
|
|
$
|
0.4
|
|
|
$
|
46.1
|
|
|
$
|
33.6
|
|
|
$
|
425.0
|
|
Multi-strategy hedge funds
|
|
484.5
|
|
|
0.2
|
|
|
(17.2
|
)
|
|
(1.1
|
)
|
|
466.4
|
|
Private equity
|
|
93.0
|
|
|
2.2
|
|
|
(0.5
|
)
|
|
(5.0
|
)
|
|
89.7
|
|
Private natural resources
|
|
19.9
|
|
|
—
|
|
|
(6.1
|
)
|
|
14.1
|
|
|
27.9
|
|
Total
|
|
$
|
942.3
|
|
|
$
|
2.8
|
|
|
$
|
22.3
|
|
|
$
|
41.6
|
|
|
$
|
1,009.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
May 25, 2014
|
|
Realized Gains (Losses)
|
|
Unrealized
Gains (Losses)
|
|
Net Purchases and Sales
|
|
Fair Value
May 31, 2015
|
Real estate funds
|
|
$
|
170.6
|
|
|
$
|
0.5
|
|
|
$
|
21.0
|
|
|
$
|
152.8
|
|
|
$
|
344.9
|
|
Multi-strategy hedge funds
|
|
462.3
|
|
|
0.3
|
|
|
22.8
|
|
|
(0.9
|
)
|
|
484.5
|
|
Private equity
|
|
81.3
|
|
|
2.7
|
|
|
(3.3
|
)
|
|
12.3
|
|
|
93.0
|
|
Private natural resources
|
|
16.6
|
|
|
—
|
|
|
0.5
|
|
|
2.8
|
|
|
19.9
|
|
Total
|
|
$
|
730.8
|
|
|
$
|
3.5
|
|
|
$
|
41.0
|
|
|
$
|
167.0
|
|
|
$
|
942.3
|
|
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 29, 2016
|
|
May 31, 2015
|
Initial health care cost trend rate
|
|
9.0
|
%
|
|
9.0
|
%
|
Ultimate health care cost trend rate
|
|
4.5
|
%
|
|
4.5
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
2024
|
|
|
2023
|
|
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
|
|
$
|
0.4
|
|
|
$
|
(0.4
|
)
|
Effect on postretirement benefit obligation
|
|
11.3
|
|
|
(10.1
|
)
|
We currently anticipate making contributions of approximately
$12.5 million
to our pension plans in fiscal
2017
. We anticipate making contributions of
$22.1 million
to our other postretirement plans in fiscal
2017
. These estimates are based on 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
|
2017
|
|
$
|
183.8
|
|
|
$
|
22.1
|
|
2018
|
|
190.4
|
|
|
21.0
|
|
2019
|
|
194.7
|
|
|
19.8
|
|
2020
|
|
199.6
|
|
|
18.6
|
|
2021
|
|
204.2
|
|
|
17.5
|
|
Succeeding 5 years
|
|
1,080.3
|
|
|
69.0
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(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 29, 2016
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 2015 and 2014 is for plan years that ended in calendar years 2015 and 2014, 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 2015.
|
|
|
•
|
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 29, 2016
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 Foods the total amount of contributions is presented in the aggregate.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(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
|
2015
|
2014
|
FY16
|
FY15
|
FY14
|
Surcharge
Imposed
|
Bakery and Confectionary Union and Industry International Pension Plan
|
52-6118572
/ 001
|
Red
|
Red
|
RP Implemented
|
$
|
3.1
|
|
$3.7
|
$3.5
|
No
|
2/28/2020
|
Central States, Southeast and Southwest Areas Pension Fund
|
36-6044243
/ 001
|
Red
|
Red
|
RP Implemented
|
1.9
|
|
2.0
|
2.1
|
No
|
6/04/2017
|
National Conference of Fireman & Oilers National Pension Fund
|
52-6085445 / 003
|
Yellow
|
Yellow
|
FIP Implemented
|
—
|
|
0.6
|
0.7
|
No
|
11/19/2015
|
Western Conference of Teamsters Pension Plan
|
91-6145047
/ 001
|
Green
|
Green
|
N/A
|
5.4
|
|
4.9
|
4.9
|
No
|
05/31/2016 to 06/30/2018
|
Other Plans
|
0.7
|
|
0.8
|
1.2
|
|
|
Total Contributions
|
$
|
11.1
|
|
$12.0
|
$12.4
|
|
|
The Company was listed in its plans\' Forms 5500 as providing more than
5%
of the plan's total contributions for the National Conference of Firemen & Oilers National Pension Fund for the plan year ending in calendar year
2014
. The Company withdrew from participation in that plan on or about June 1, 2015.
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
2015
.
In addition to the contributions listed in the table above, we recorded an additional expense of
$31.8 million
,
$0.4 million
, and
$0.2 million
in fiscal
2016
,
2015
, and
2014
, 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
$35.4 million
,
$40.6 million
, and
$40.2 million
in fiscal
2016
,
2015
, and
2014
, 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, interest rate swaps, and cross-currency swaps.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(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 29, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Derivative assets
|
$
|
4.7
|
|
|
$
|
21.4
|
|
|
$
|
—
|
|
|
$
|
26.1
|
|
Available-for-sale securities
|
3.0
|
|
|
—
|
|
|
—
|
|
|
3.0
|
|
Deferred compensation assets
|
0.7
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
Total assets
|
$
|
8.4
|
|
|
$
|
21.4
|
|
|
$
|
—
|
|
|
$
|
29.8
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
Deferred compensation liabilities
|
46.5
|
|
|
—
|
|
|
—
|
|
|
46.5
|
|
Total liabilities
|
$
|
46.5
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
47.2
|
|
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 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Derivative assets
|
$
|
13.6
|
|
|
$
|
18.6
|
|
|
$
|
—
|
|
|
$
|
32.2
|
|
Available-for-sale securities
|
2.8
|
|
|
—
|
|
|
—
|
|
|
2.8
|
|
Deferred compensation assets
|
0.9
|
|
|
—
|
|
|
—
|
|
|
0.9
|
|
Total assets
|
$
|
17.3
|
|
|
$
|
18.6
|
|
|
$
|
—
|
|
|
$
|
35.9
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
14.2
|
|
|
$
|
—
|
|
|
$
|
14.2
|
|
Deferred compensation liabilities
|
43.7
|
|
|
—
|
|
|
—
|
|
|
43.7
|
|
Total liabilities
|
$
|
43.7
|
|
|
$
|
14.2
|
|
|
$
|
—
|
|
|
$
|
57.9
|
|
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. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported.
During fiscal 2015, goodwill impairment charges of
$20.9 million
were recognized within the Consumer Foods segment. See Note 9 for a discussion of the methodology employed to measure these impairments.
During fiscal 2016, we recognized impairment charges of
$50.1 million
in our Consumer Foods segment for our
Chef Boyardee
®
brand. During fiscal 2015, an impairment of an indefinite-lived brand was recognized for
$4.8 million
in the Consumer Foods segment. The fair values of these brands were estimated using the “relief from royalty” method (see Note 9).
During fiscal 2015, we recognized impairment charges of
$1.51 billion
and
$43.9 million
for goodwill and indefinite-lived intangibles, respectively, in our Private Brands business. During fiscal 2015, we also recognized a charge of
$13.7 million
in our Private Brands business for the impairment of certain long-lived assets. The impairment was measured based upon an estimated disposal value for the related production facility. These impairment charges are included in discontinued operations. (see Note 6).
The carrying amount of long-term debt (including current installments) was
$5.5 billion
as of
May 29, 2016
and
$7.9 billion
as of
May 31, 2015
. Based on current market rates, the fair value of this debt (level 2 liabilities) at
May 29, 2016
and
May 31, 2015
was estimated at
$5.9 billion
and
$8.2 billion
, respectively.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
21. BUSINESS SEGMENTS AND RELATED INFORMATION
We report our operations in
two
reporting segments: Consumer Foods and Commercial Foods. In the third quarter of fiscal 2016, we completed the sale of substantially all of the operations that were previously reported within the Private Brands segment. The Private Brands operations we sold are classified as held for sale for periods prior to the sale and the results of operations have been classified as discontinued operations for all periods presented. Minor portions of the former Private Brands segment were retained and have been included in the Consumer Foods and Commercial Foods segments for all periods presented. Minor portions of the Consumer Foods and Commercial Foods segments have been classified as discontinued operations as they were included with the sale of the Private Brands operations.
The Consumer Foods reporting segment principally includes branded food sold in various retail channels primarily in North America. Our food products are sold in a variety of categories (meals, entrees, condiments, pasta, sides, snacks, and desserts) in various retail channels across frozen, refrigerated, and shelf-stable temperature classes.
The Commercial Foods reporting segment includes commercially branded and private label food and ingredients, which are sold primarily to commercial, foodservice, restaurant, food manufacturing, and industrial customers. The segment's primary food items include: frozen potato and sweet potato items and a variety of vegetable, spice, and frozen bakery goods, which are sold under brands such as
Lamb Weston
®
and
Spicetec Flavors & Seasonings
®
.
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 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales
|
|
|
|
|
|
Consumer Foods
|
$
|
7,225.1
|
|
|
$
|
7,565.3
|
|
|
$
|
7,596.3
|
|
Commercial Foods
|
4,417.8
|
|
|
4,371.7
|
|
|
4,241.9
|
|
Total net sales
|
$
|
11,642.9
|
|
|
$
|
11,937.0
|
|
|
$
|
11,838.2
|
|
Operating profit
|
|
|
|
|
|
Consumer Foods
|
$
|
1,087.6
|
|
|
$
|
1,068.0
|
|
|
$
|
900.5
|
|
Commercial Foods
|
633.2
|
|
|
566.2
|
|
|
533.5
|
|
Total operating profit
|
$
|
1,720.8
|
|
|
$
|
1,634.2
|
|
|
$
|
1,434.0
|
|
Equity method investment earnings
|
|
|
|
|
|
Consumer Foods
|
$
|
3.2
|
|
|
$
|
3.0
|
|
|
$
|
2.8
|
|
Commercial Foods
|
134.6
|
|
|
119.1
|
|
|
29.7
|
|
Total equity method investment earnings
|
$
|
137.8
|
|
|
$
|
122.1
|
|
|
$
|
32.5
|
|
Operating profit plus equity method investment earnings
|
|
|
|
|
|
Consumer Foods
|
$
|
1,090.8
|
|
|
$
|
1,071.0
|
|
|
$
|
903.3
|
|
Commercial Foods
|
767.8
|
|
|
685.3
|
|
|
563.2
|
|
Total operating profit plus equity method investment earnings
|
$
|
1,858.6
|
|
|
$
|
1,756.3
|
|
|
$
|
1,466.5
|
|
General corporate expenses
|
$
|
839.4
|
|
|
$
|
303.9
|
|
|
$
|
285.5
|
|
Interest expense, net
|
297.8
|
|
|
330.0
|
|
|
377.5
|
|
Income tax expense
|
225.4
|
|
|
362.1
|
|
|
178.3
|
|
Income from continuing operations
|
$
|
496.0
|
|
|
$
|
760.3
|
|
|
$
|
625.2
|
|
Less: Net income attributable to noncontrolling interests
|
11.1
|
|
|
11.8
|
|
|
12.0
|
|
Income from continuing operations attributable to ConAgra Foods, Inc.
|
$
|
484.9
|
|
|
$
|
748.5
|
|
|
$
|
613.2
|
|
Identifiable assets
|
|
|
|
|
|
Consumer Foods
|
$
|
7,811.3
|
|
|
$
|
7,792.7
|
|
|
$
|
7,917.4
|
|
Commercial Foods
|
3,770.9
|
|
|
3,678.1
|
|
|
2,954.3
|
|
Corporate
|
1,465.6
|
|
|
632.2
|
|
|
591.2
|
|
Held for Sale
|
342.8
|
|
|
5,334.8
|
|
|
7,778.6
|
|
Total identifiable assets
|
$
|
13,390.6
|
|
|
$
|
17,437.8
|
|
|
$
|
19,241.5
|
|
Additions to property, plant and equipment
|
|
|
|
|
|
Consumer Foods
|
$
|
198.8
|
|
|
$
|
133.7
|
|
|
$
|
183.5
|
|
Commercial Foods
|
151.1
|
|
|
117.4
|
|
|
205.6
|
|
Corporate
|
79.9
|
|
|
100.1
|
|
|
72.0
|
|
Total additions to property, plant and equipment
|
$
|
429.8
|
|
|
$
|
351.2
|
|
|
$
|
461.1
|
|
Depreciation and amortization
|
|
|
|
|
|
Consumer Foods
|
$
|
210.4
|
|
|
$
|
209.0
|
|
|
$
|
191.4
|
|
Commercial Foods
|
102.5
|
|
|
105.3
|
|
|
98.8
|
|
Corporate
|
61.0
|
|
|
66.1
|
|
|
64.4
|
|
Total depreciation and amortization
|
$
|
373.9
|
|
|
$
|
380.4
|
|
|
$
|
354.6
|
|
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
Net sales by product type within each segment were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales
|
|
|
|
|
|
|
Consumer Foods:
|
|
|
|
|
|
|
Grocery
|
|
$
|
3,382.0
|
|
|
$
|
3,503.7
|
|
|
$
|
4,182.1
|
|
Frozen
|
|
2,867.4
|
|
|
2,985.5
|
|
|
2,288.1
|
|
International
|
|
874.8
|
|
|
970.8
|
|
|
1,010.7
|
|
Other Brands
|
|
100.9
|
|
|
105.3
|
|
|
115.4
|
|
Total Consumer Foods
|
|
$
|
7,225.1
|
|
|
$
|
7,565.3
|
|
|
$
|
7,596.3
|
|
Commercial Foods:
|
|
|
|
|
|
|
Specialty Potatoes
|
|
$
|
2,968.1
|
|
|
$
|
2,892.4
|
|
|
$
|
2,792.7
|
|
Foodservice
|
|
1,449.7
|
|
|
1,479.3
|
|
|
1,449.2
|
|
Total Commercial Foods
|
|
$
|
4,417.8
|
|
|
$
|
4,371.7
|
|
|
$
|
4,241.9
|
|
Total net sales
|
|
$
|
11,642.9
|
|
|
$
|
11,937.0
|
|
|
$
|
11,838.2
|
|
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net derivative gains (losses) incurred
|
$
|
(12.1
|
)
|
|
$
|
(79.3
|
)
|
|
$
|
21.2
|
|
Less: Net derivative losses allocated to reporting segments
|
(30.2
|
)
|
|
(46.6
|
)
|
|
(1.6
|
)
|
Net derivative gains (losses) recognized in general corporate expenses
|
$
|
18.1
|
|
|
$
|
(32.7
|
)
|
|
$
|
22.8
|
|
Net derivative losses allocated to Consumer Foods
|
$
|
(21.1
|
)
|
|
$
|
(41.9
|
)
|
|
$
|
(5.9
|
)
|
Net derivative gains (losses) allocated to Commercial Foods
|
(9.1
|
)
|
|
(4.7
|
)
|
|
4.3
|
|
Net derivative losses included in segment operating profit
|
$
|
(30.2
|
)
|
|
$
|
(46.6
|
)
|
|
$
|
(1.6
|
)
|
As of
May 29, 2016
, 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
. This amount reflected net gains of
$3.6 million
incurred during the fiscal year ended
May 29, 2016
, as well as net losses of
$0.4 million
incurred prior to fiscal
2016
. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify to segment operating results gains of
$2.4 million
in fiscal
2017
and gains of
$0.8 million
in fiscal
2018
and thereafter.
In the second quarter of fiscal 2015, management determined that certain derivatives that had been previously entered into as an economic hedge of forecasted commodity purchases had ceased to function as economic hedges. We recognized
$18.9 million
and
$1.4 million
of net derivative losses during fiscal 2015 within the operating results of the Consumer Foods and Commercial Foods segments, respectively, in connection with these derivatives. Management effectively exited these derivative positions in the third quarter of fiscal 2015.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
Other Information
At
May 29, 2016
, ConAgra Foods and its subsidiaries had approximately
20,900
employees, primarily in the United States. Approximately
36%
of our employees are parties to collective bargaining agreements. Of the employees subject to collective bargaining agreements, approximately
31%
are parties to collective bargaining agreements scheduled to expire during fiscal
2017
.
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
2016
,
2015
, and
2014
. Foreign net sales, including sales by domestic segments to customers located outside of the United States, were approximately
$1.5 billion
,
$1.6 billion
, and
$1.7 billion
in fiscal
2016
,
2015
, and
2014
, respectively. Our long-lived assets located outside of the United States are not significant.
Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately
16%
,
16%
, and
17%
of consolidated net sales for fiscal
2016
,
2015
, and
2014
, respectively, significantly impacting the Consumer Foods segment.
Wal-Mart Stores, Inc. and its affiliates accounted for approximately
20%
and
16%
of consolidated net receivables as of
May 29, 2016
and
May 31, 2015
, respectively, significantly impacting the Consumer Foods segment.
We were a party to a supply agreement with an onion processing company where we had guaranteed, under certain conditions, repayment of up to
$25.0 million
payable under a secured loan (the "Secured Loan") of this onion products supplier to the supplier's lender. During the fourth quarter of fiscal 2012, we received notice from the lender that the supplier had defaulted on the Secured Loan and we exercised our option to purchase the Secured Loan from the lender for
$40.8 million
, thereby assuming first-priority secured rights to the underlying collateral for the amount of the Secured Loan, and cancelling our guarantee. The supplier filed for bankruptcy during the fourth quarter of fiscal 2012 and during the second quarter of fiscal 2013, we acquired ownership and all rights to the underlying collateral, consisting of agricultural land and an onion processing facility. During the third quarter of fiscal 2013, we recognized an impairment charge of
$10.2 million
in our Commercial Foods segment to reduce the carrying amount of these assets to their estimated fair value based upon updated appraisals. During the second quarter of fiscal 2014, we recognized an additional impairment charge of
$8.9 million
in our Commercial Foods segment to reduce the carrying amount of the processing facility to its estimated fair value based upon expected sales proceeds. In the fourth quarter of fiscal 2014, we sold the land and recognized a gain of
$5.1 million
in our Commercial Foods segment. In the third quarter of fiscal 2015, we sold the processing facility and recognized an immaterial gain in our Commercial Foods segment.
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 29, 2016, May 31, 2015, and May 25, 2014
(columnar dollars in millions except per share amounts)
22. QUARTERLY FINANCIAL DATA (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Net sales
|
$
|
2,796.2
|
|
|
$
|
3,095.1
|
|
|
$
|
2,924.1
|
|
|
$
|
2,827.5
|
|
|
$
|
2,765.5
|
|
|
$
|
3,138.7
|
|
|
$
|
2,907.3
|
|
|
$
|
3,125.5
|
|
Gross profit
|
701.0
|
|
|
828.5
|
|
|
800.4
|
|
|
760.9
|
|
|
591.3
|
|
|
757.7
|
|
|
720.0
|
|
|
806.6
|
|
Income (loss) from continuing operations, net of tax
|
167.4
|
|
|
166.1
|
|
|
187.6
|
|
|
(25.1
|
)
|
|
95.4
|
|
|
218.1
|
|
|
212.3
|
|
|
234.5
|
|
Income (loss) from discontinued operations, net of tax
|
(1,319.8
|
)
|
|
(6.8
|
)
|
|
18.7
|
|
|
146.0
|
|
|
389.1
|
|
|
(202.2
|
)
|
|
(1,165.0
|
)
|
|
(23.0
|
)
|
Net income (loss) attributable to ConAgra Foods, Inc.
|
(1,154.1
|
)
|
|
154.9
|
|
|
204.6
|
|
|
117.6
|
|
|
482.3
|
|
|
10.0
|
|
|
(954.1
|
)
|
|
209.2
|
|
Earnings per share (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to ConAgra Foods, Inc. common stockholders
|
$
|
(2.68
|
)
|
|
$
|
0.36
|
|
|
$
|
0.46
|
|
|
$
|
0.27
|
|
|
$
|
1.14
|
|
|
$
|
0.02
|
|
|
$
|
(2.23
|
)
|
|
$
|
0.49
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to ConAgra Foods, Inc. common stockholders
|
$
|
(2.65
|
)
|
|
$
|
0.35
|
|
|
$
|
0.46
|
|
|
$
|
0.27
|
|
|
$
|
1.12
|
|
|
$
|
0.02
|
|
|
$
|
(2.21
|
)
|
|
$
|
0.48
|
|
Dividends declared per common share
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
Share price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
$
|
45.49
|
|
|
$
|
42.75
|
|
|
$
|
42.70
|
|
|
$
|
46.43
|
|
|
$
|
32.85
|
|
|
$
|
35.65
|
|
|
$
|
37.29
|
|
|
$
|
38.90
|
|
Low
|
37.42
|
|
|
38.84
|
|
|
38.70
|
|
|
42.06
|
|
|
28.73
|
|
|
31.87
|
|
|
33.57
|
|
|
33.58
|
|
|
|
(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.
|