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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Number of shares outstanding of issuer's common stock as of November 28, 2021 was
Table of Contents
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1 |
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Item 1 |
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1 |
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1 |
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2 |
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Unaudited Condensed Consolidated Balance Sheets as of November 28, 2021 and May 30, 2021 |
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3 |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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5 |
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Item 2 |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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25 |
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Item 3 |
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36 |
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Item 4 |
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37 |
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38 |
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Item 1 |
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38 |
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Item 1A |
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38 |
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Item 6 |
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39 |
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40 |
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Exhibit 101 Exhibit 104 |
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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions except per share amounts)
(unaudited)
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Thirteen Weeks Ended |
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Twenty-Six Weeks Ended |
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November 28, 2021 |
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November 29, 2020 |
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November 28, 2021 |
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November 29, 2020 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Costs and expenses: |
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Cost of goods sold |
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Selling, general and administrative expenses |
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Pension and postretirement non-service income |
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( |
) |
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( |
) |
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( |
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( |
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Interest expense, net |
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Income before income taxes and equity method investment earnings |
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Income tax expense |
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Equity method investment earnings |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Less: Net income attributable to noncontrolling interests |
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Net income attributable to Conagra Brands, Inc. |
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$ |
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$ |
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$ |
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$ |
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Earnings per share — basic |
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Net income attributable to Conagra Brands, Inc. common stockholders |
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$ |
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$ |
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$ |
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$ |
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Earnings per share — diluted |
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Net income attributable to Conagra Brands, Inc. common stockholders |
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$ |
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$ |
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$ |
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$ |
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See Notes to the Condensed Consolidated Financial Statements.
1
Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(unaudited)
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Thirteen Weeks Ended |
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November 28, 2021 |
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November 29, 2020 |
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Pre-Tax Amount |
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Tax (Expense) Benefit |
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After- Tax Amount |
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Pre-Tax Amount |
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Tax (Expense) Benefit |
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After- Tax Amount |
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Net income |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Other comprehensive income: |
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Derivative adjustments: |
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Unrealized derivative adjustments |
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( |
) |
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( |
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Reclassification for derivative adjustments included in net income |
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( |
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( |
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( |
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( |
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Unrealized currency translation gains (losses) |
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( |
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( |
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( |
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Pension and post-employment benefit obligations: |
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Reclassification for pension and post-employment benefit obligations included in net income |
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( |
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( |
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( |
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( |
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Comprehensive income |
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( |
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( |
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Comprehensive loss attributable to noncontrolling interests |
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( |
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( |
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( |
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( |
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( |
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Comprehensive income attributable to Conagra Brands, Inc. |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
( |
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$ |
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Twenty-Six Weeks Ended |
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November 28, 2021 |
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November 29, 2020 |
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Pre-Tax Amount |
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Tax (Expense) Benefit |
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After- Tax Amount |
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Pre-Tax Amount |
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Tax (Expense) Benefit |
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After- Tax Amount |
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Net income |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Other comprehensive income: |
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Derivative adjustments: |
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Unrealized derivative adjustments |
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( |
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( |
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( |
) |
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Reclassification for derivative adjustments included in net income |
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( |
) |
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( |
) |
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( |
) |
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( |
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Unrealized currency translation gains (losses) |
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( |
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( |
) |
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( |
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Pension and post-employment benefit obligations: |
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Unrealized pension and post-employment benefit obligations |
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( |
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( |
) |
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Reclassification for pension and post-employment benefit obligations included in net income |
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( |
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( |
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( |
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( |
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Comprehensive income |
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( |
) |
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( |
) |
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Comprehensive income (loss) attributable to noncontrolling interests |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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Comprehensive income attributable to Conagra Brands, Inc. |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See Notes to the Condensed Consolidated Financial Statements.
2
Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions except share data)
(unaudited)
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November 28, 2021 |
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May 30, 2021 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, less allowance for doubtful accounts of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Current assets held for sale |
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Total current assets |
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Property, plant and equipment |
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Less accumulated depreciation |
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( |
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( |
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Property, plant and equipment, net |
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Goodwill |
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Brands, trademarks and other intangibles, net |
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Other assets |
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Noncurrent assets held for sale |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Notes payable |
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$ |
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$ |
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Current installments of long-term debt |
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Accounts payable |
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Accrued payroll |
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Other accrued liabilities |
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Current liabilities held for sale |
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Total current liabilities |
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Senior long-term debt, excluding current installments |
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Other noncurrent liabilities |
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Noncurrent liabilities held for sale |
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Total liabilities |
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Common stockholders' equity |
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Common stock of $ issued |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive income (loss) |
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( |
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Less treasury stock, at cost, |
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( |
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( |
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Total Conagra Brands, Inc. common stockholders' equity |
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Noncontrolling interests |
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Total stockholders' equity |
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$ |
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$ |
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See Notes to the Condensed Consolidated Financial Statements.
3
Conagra Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
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Twenty-Six Weeks Ended |
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November 28, 2021 |
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November 29, 2020 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash flows from operating activities: |
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Depreciation and amortization |
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Asset impairment charges |
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Loss on extinguishment of debt |
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Gain on divestiture |
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( |
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Equity method investment earnings in excess of distributions |
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( |
) |
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( |
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Stock-settled share-based payments expense |
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Contributions to pension plans |
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( |
) |
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( |
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Pension benefit |
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( |
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( |
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Other items |
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( |
) |
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Change in operating assets and liabilities excluding effects of business acquisitions and dispositions: |
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Receivables |
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( |
) |
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( |
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Inventories |
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( |
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( |
) |
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Deferred income taxes and income taxes payable, net |
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( |
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( |
) |
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Prepaid expenses and other current assets |
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( |
) |
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( |
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Accounts payable |
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( |
) |
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Accrued payroll |
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( |
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( |
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Other accrued liabilities |
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( |
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Deferred employer payroll taxes |
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Net cash flows from operating activities |
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Cash flows from investing activities: |
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Additions to property, plant and equipment |
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( |
) |
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( |
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Sale of property, plant and equipment |
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Purchase of marketable securities |
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( |
) |
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( |
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Sale of marketable securities |
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Proceeds from divestitures |
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Other items |
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Net cash flows from investing activities |
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( |
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( |
) |
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Cash flows from financing activities: |
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Issuance of short-term borrowings, maturities greater than 90 days |
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Repayment of short-term borrowings, maturities greater than 90 days |
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( |
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Net issuance (repayment) of other short-term borrowings |
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( |
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Issuance of long-term debt |
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Repayment of long-term debt |
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( |
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( |
) |
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Debt issuance costs |
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( |
) |
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( |
) |
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Repurchase of Conagra Brands, Inc. common shares |
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( |
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Payment of intangible asset financing arrangement |
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|
( |
) |
|
|
( |
) |
|
Cash dividends paid |
|
|
( |
) |
|
|
( |
) |
|
Exercise of stock options and issuance of other stock awards, including tax withholdings |
|
|
( |
) |
|
|
( |
) |
|
Other items |
|
|
( |
) |
|
|
|
|
|
Net cash flows from financing activities |
|
|
( |
) |
|
|
( |
) |
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
|
Net change in cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
|
Cash and cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at end of period |
|
$ |
|
|
|
$ |
|
|
See Notes to the Condensed Consolidated Financial Statements.
4
Conagra Brands, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(columnar dollars in millions except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented. The adjustments are of a normal recurring nature, except as otherwise noted. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in the Conagra Brands, Inc. (the "Company", "Conagra Brands", "we", "us", or "our") Annual Report on Form 10-K for the fiscal year ended May 30, 2021.
The results of operations for any quarter or a partial fiscal year period are not necessarily indicative of the results to be expected for other periods or the full fiscal year.
Basis of Consolidation — The Condensed Consolidated Financial Statements include the accounts of Conagra Brands and all majority-owned subsidiaries. All significant intercompany investments, accounts, and transactions have been eliminated.
Revenue Recognition — Our revenues primarily consist of the sale of food products that are sold to retailers and foodservice customers through direct sales forces, broker, and distributor arrangements. These revenue contracts generally have single performance obligations. Revenue, which includes shipping and handling charges billed to the customer, is reported net of consideration payable to our customers, including applicable discounts, returns, allowances, trade promotion, consumer coupon redemption, unsaleable product, and other costs. Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis and, therefore, we do not have any significant financing components.
We recognize revenue when (or as) performance obligations are satisfied by transferring control of the goods to customers. Control is transferred upon delivery of the goods to the customer. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. We assess the goods and services promised in our customers' purchase orders and identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct.
We offer various forms of trade promotions and the methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. Our promotional activities are conducted either through the retail trade or directly with consumers and include activities such as in-store displays and events, feature price discounts, consumer coupons, and loyalty programs. The costs of these activities are recognized at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by either the retail trade or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and actual redemptions are recognized as a change in management estimate in a subsequent period.
Comprehensive Income — Comprehensive income includes net income, currency translation adjustments, certain derivative-related activity, and changes in prior service cost and net actuarial gains (losses) from pension (for amounts not in excess of the 10% "corridor") and postretirement health care plans. On foreign investments we deem to be essentially permanent in nature, we do not provide for taxes on currency translation adjustments arising from converting an investment denominated in a foreign currency to U.S. dollars. When we determine that a foreign investment, as well as undistributed earnings, are no longer permanent in nature, estimated taxes will be provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments.
The following table details the accumulated balances for each component of other comprehensive income (loss), net of tax:
|
|
|
November 28, 2021 |
|
|
May 30, 2021 |
|
||
|
Currency translation losses, net of reclassification adjustments |
|
$ |
( |
) |
|
$ |
( |
) |
|
Derivative adjustments, net of reclassification adjustments |
|
|
|
|
|
|
|
|
|
Pension and postretirement benefit obligations, net of reclassification adjustments |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
$ |
( |
) |
|
$ |
|
|
5
The following table summarizes the reclassifications from accumulated other comprehensive income (loss) into income:
|
|
|
Thirteen Weeks Ended |
|
|
Affected Line Item in the Condensed Consolidated Statement of Earnings1 |
|||||
|
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
|
||
|
Net derivative adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
$ |
( |
) |
|
$ |
( |
) |
|
Interest expense, net |
|
Cash flow hedges |
|
|
|
|
|
|
( |
) |
|
Selling, general and administrative expenses |
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
Equity method investment earnings |
|
|
|
|
( |
) |
|
|
( |
) |
|
Total before tax |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net of tax |
|
Pension and postretirement liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost |
|
$ |
|
|
|
$ |
|
|
|
Pension and postretirement non-service income |
|
Net actuarial gain |
|
|
( |
) |
|
|
( |
) |
|
Pension and postretirement non-service income |
|
|
|
|
( |
) |
|
|
( |
) |
|
Total before tax |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net of tax |
|
|
|
Twenty-Six Weeks Ended |
|
|
Affected Line Item in the Condensed Consolidated Statement of Earnings1 |
|||||
|
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
|
||
|
Net derivative adjustment, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
$ |
( |
) |
|
$ |
( |
) |
|
Interest expense, net |
|
Cash flow hedges |
|
|
|
|
|
|
( |
) |
|
Selling, general and administrative expenses |
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
Equity method investment earnings |
|
|
|
|
( |
) |
|
|
( |
) |
|
Total before tax |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net of tax |
|
Pension and postretirement liabilities: |
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost |
|
$ |
|
|
|
$ |
|
|
|
Pension and postretirement non-service income |
|
Net actuarial gain |
|
|
( |
) |
|
|
( |
) |
|
Pension and postretirement non-service income |
|
|
|
|
( |
) |
|
|
( |
) |
|
Total before tax |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net of tax |
1Amounts in parentheses indicate income recognized in the Condensed Consolidated Statements of Earnings.
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 net realizable value for valuing inventories.
Reclassifications and other changes — Certain prior year amounts have been reclassified to conform with current year presentation.
6
2. DIVESTITURES AND ASSETS HELD FOR SALE
Divestitures
During the fourth quarter of fiscal 2021, we completed the sale of our Egg Beaters® business for net proceeds of $
During the third quarter of fiscal 2021, we completed the sale of our Peter Pan® peanut butter business for net proceeds of $
During the second quarter of fiscal 2021, we completed the sale of our H.K. Anderson® business for net proceeds of $
Other Assets Held for Sale
During the second quarter of fiscal 2022, we initiated a plan to sell businesses with operating results included within our Grocery & Snacks, Refrigerated & Frozen, and Foodservice segments. The assets and liabilities have been reclassified as assets and liabilities held for sale within our Condensed Consolidated Balance Sheets for all periods presented and are expected to be sold in the next twelve months. In connection with this planned divestiture, we recognized an impairment charge of $
In addition, we actively market certain other assets from time to time. These assets have been reclassified as assets held for sale within our Condensed Consolidated Balance Sheets for periods prior to the disposal of the individual asset groups.
The assets and liabilities classified as held for sale reflected in our Condensed Consolidated Balance Sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
November 28, 2021 |
|
|
May 30, 2021 |
|
||
|
Current assets |
|
$ |
|
|
|
$ |
|
|
|
Noncurrent assets (including goodwill of $23.6 million and $34.6 million, respectively) |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
3. RESTRUCTURING ACTIVITIES
Pinnacle Integration Restructuring Plan
In December 2018, our Board of Directors (the "Board") approved a restructuring and integration plan related to the ongoing integration of the operations of Pinnacle Foods, Inc. (the "Pinnacle Integration Restructuring Plan"), for the purpose of achieving significant cost synergies between the companies, as a result of which we expect to incur material charges for exit and disposal activities under U.S. GAAP. We expect to incur approximately $
7
We anticipate that we will recognize the following pre-tax expenses in association with the Pinnacle Integration Restructuring Plan (amounts include charges recognized from plan inception through the second quarter of fiscal 2022):
|
|
|
Grocery & Snacks |
|
|
Refrigerated & Frozen |
|
|
International |
|
|
Corporate |
|
|
Total |
|
|||||
|
Accelerated depreciation |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Other cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Severance and related costs |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment (net of gains on disposal) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Contract/lease termination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting/professional fees |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
During the second quarter of fiscal 2022, we recognized the following pre-tax expenses for the Pinnacle Integration Restructuring Plan:
|
|
|
Grocery & Snacks |
|
|
Refrigerated & Frozen |
|
|
Corporate |
|
|
Total |
|
||||
|
Other cost of goods sold |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Total cost of goods sold |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Severance and related costs |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Asset impairment (net of gains on disposal) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Consulting/professional fees |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Other selling, general and administrative expenses |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Included in the above results are $
During the first half of fiscal 2022, we recognized the following pre-tax expenses for the Pinnacle Integration Restructuring Plan:
|
|
|
Grocery & Snacks |
|
|
Refrigerated & Frozen |
|
|
Corporate |
|
|
Total |
|
||||
|
Other cost of goods sold |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Total cost of goods sold |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Severance and related costs |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Asset impairment (net of gains on disposal) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Contract/lease termination |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Consulting/professional fees |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Other selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Included in the above results are $
8
We recognized the following cumulative (plan inception to November 28, 2021) pre-tax expenses for the Pinnacle Integration Restructuring Plan in our Condensed Consolidated Statement of Earnings:
|
|
|
Grocery & Snacks |
|
|
Refrigerated & Frozen |
|
|
International |
|
|
Corporate |
|
|
Total |
|
|||||
|
Accelerated depreciation |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Other cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Severance and related costs |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment (net of gains on disposal) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Contract/lease termination |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting/professional fees |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Included in the above results are $
Liabilities recorded for the Pinnacle Integration Restructuring Plan and changes therein for the first half of fiscal 2022 were as follows:
|
|
|
Balance at May 30, 2021 |
|
|
Costs Incurred and Charged to Expense |
|
|
Costs Paid or Otherwise Settled |
|
|
Changes in Estimates |
|
|
Balance at November 28, 2021 |
|
|||||
|
Severance and related costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
|
Contract/lease termination |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Consulting/professional fees |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
Other costs |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
Conagra Restructuring Plan
In fiscal 2019, senior management initiated a restructuring plan for costs incurred in connection with actions taken to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network (the "Conagra Restructuring Plan"). Although we remain unable to make good faith estimates relating to the entire Conagra Restructuring Plan, we are reporting on actions initiated through the end of the second quarter of fiscal 2022, 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 November 28, 2021, we have approved the incurrence of $
9
We anticipate that we will recognize the following pre-tax expenses in association with the Conagra Restructuring Plan (amounts include charges recognized from plan inception through the second quarter of fiscal 2022):
|
|
|
Grocery & Snacks |
|
|
Refrigerated & Frozen |
|
|
International |
|
|
Foodservice |
|
|
Corporate |
|
|
Total |
|
||||||
|
Accelerated depreciation |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Other cost of goods sold |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total cost of goods sold |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Severance and related costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment (net of gains on disposal) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Contract/lease termination |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Consulting/professional fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Other selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Pension and postretirement non-service income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
During the second quarter of fiscal 2022, we recognized the following pre-tax expenses for the Conagra Restructuring Plan:
|
|
|
Grocery & Snacks |
|
|
Refrigerated & Frozen |
|
|
Corporate |
|
|
Total |
|
||||
|
Accelerated depreciation |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Other cost of goods sold |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total cost of goods sold |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Severance and related costs |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Asset impairment (net of gains on disposal) |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
Contract/lease termination |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other selling, general and administrative expenses |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
Included in the above results are $
During the first half of fiscal 2022, we recognized the following pre-tax expenses for the Conagra Restructuring Plan:
|
|
|
Grocery & Snacks |
|
|
Refrigerated & Frozen |
|
|
Foodservice |
|
|
Corporate |
|
|
Total |
|
|||||
|
Accelerated depreciation |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Other cost of goods sold |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total cost of goods sold |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Severance and related costs |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment (net of gains on disposal) |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Contract/lease termination |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other selling, general and administrative expenses |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
10
Included in the above results are $4.6 million in charges that have resulted or will result in cash outflows and $10.5 million in non-cash charges.
We recognized the following cumulative (plan inception to November 28, 2021) pre-tax expenses for the Conagra Restructuring Plan in our Condensed Consolidated Statement of Earnings:
|
|
|
Grocery & Snacks |
|
|
Refrigerated & Frozen |
|
|
International |
|
|
Foodservice |
|
|
Corporate |
|
|
Total |
|
||||||
|
Accelerated depreciation |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Other cost of goods sold |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total cost of goods sold |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Severance and related costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment (net of gains on disposal) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Contract/lease termination |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Other selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Pension and postretirement non-service income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Included in the above results are $
Liabilities recorded for the Conagra Restructuring Plan and changes therein for the first half of fiscal 2022 were as follows:
|
|
|
Balance at May 30, 2021 |
|
|
Costs Incurred and Charged to Expense |
|
|
Costs Paid or Otherwise Settled |
|
|
Changes in Estimates |
|
|
Balance at November 28, 2021 |
|
|||||
|
Severance and related costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Contract/lease termination |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Other costs |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
During the first quarter of fiscal 2022, we issued $
During the fourth quarter of fiscal 2021, we repaid the remaining outstanding $
During the third quarter of fiscal 2021, we redeemed $
During the second quarter of fiscal 2021, we issued $
During the second quarter of fiscal 2021, we also repaid the entire outstanding $
During the first quarter of fiscal 2021, we repaid the remaining outstanding $
11
At November 28, 2021, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial institutions providing for a maximum aggregate principal amount outstanding at any one time of $
In the first quarter of fiscal 2022, we entered into an amendment to the Revolving Credit Facility (the "Amended Revolving Credit Facility"). The Amended Revolving Credit Facility generally requires our ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") to interest expense not to be less than
Net interest expense consists of:
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
||||||||||
|
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
||||
|
Long-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Short-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Interest capitalized |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
5. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for the first half of fiscal 2022, excluding amounts classified as held for sale (see Note 2), was as follows:
|
|
|
Grocery & Snacks |
|
|
Refrigerated & Frozen |
|
|
International |
|
|
Foodservice |
|
|
Total |
|
|||||
|
Balance as of May 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Currency translation |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance as of November 28, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other identifiable intangible assets, excluding amounts classified as held for sale, were as follows:
|
|
|
November 28, 2021 |
|
|
May 30, 2021 |
|
||||||||||
|
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
||||
|
Non-amortizing intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands and trademarks |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
Amortizing intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships and intellectual property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
406.3 |
|
|
$ |
|
|
|
$ |
377.3 |
|
Amortizing intangible assets carry a remaining weighted average life of approximately
6. 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.
12
Commodity 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, diesel fuel and electricity. Generally, we economically hedge a portion of our anticipated consumption of commodity inputs for periods of up to
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 November 28, 2021, we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through August 2022.
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 the first quarter of fiscal 2019, we entered into deal-contingent forward starting interest rate swap contracts to hedge a portion of the interest rate risk related to our issuance of long-term debt to help finance the acquisition of Pinnacle. We settled these contracts during the second quarter of fiscal 2019 and deferred a $
Economic Hedges of Forecasted Cash Flows
Many of our derivatives do not qualify for, and we do not currently designate certain commodity or foreign currency derivatives to achieve, hedge accounting treatment. We reflect realized and unrealized gains and losses from derivatives used to economically hedge anticipated commodity consumption and to mitigate foreign currency cash flow risk in earnings immediately within general corporate expense (within cost of goods sold). The gains and losses are reclassified to segment operating results in the period in which the underlying item being economically hedged is recognized in cost of goods sold. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results immediately.
Economic Hedges of Fair Values — Foreign Currency Exchange Rate Risk
We may use options and cross currency swaps to economically hedge the fair value of certain monetary assets and liabilities (including intercompany balances) denominated in a currency other than the functional currency. These derivatives are marked-to-market with gains and losses immediately recognized in SG&A expenses. These substantially offset the foreign currency transaction gains or losses recognized as values of the monetary assets or liabilities being economically hedged change.
All derivative instruments are recognized on our balance sheets at fair value (refer to Note 14 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 U.S. GAAP, 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 November 28, 2021 and May 30, 2021, amounts representing an obligation to return cash collateral of $
Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or an obligation to return cash collateral were reflected in our Condensed Consolidated Balance Sheets as follows:
|
|
|
November 28, 2021 |
|
|
May 30, 2021 |
|
||
|
Prepaid expenses and other current assets |
|
$ |
|
|
|
$ |
|
|
|
Other accrued liabilities |
|
|
— |
|
|
|
|
|
13
The following table presents our derivative assets and liabilities, at November 28, 2021, on a gross basis, prior to the setoff of $
|
|
|
Derivative Assets |
|
|
Derivative Liabilities |
|
||||||
|
|
|
Balance Sheet Location |
|
Fair Value |
|
|
Balance Sheet Location |
|
Fair Value |
|
||
|
Commodity contracts |
|
Prepaid expenses and other current assets |
|
$ |
|
|
|
Other accrued liabilities |
|
$ |
|
|
|
Foreign exchange contracts |
|
Prepaid expenses and other current assets |
|
|
|
|
|
Other accrued liabilities |
|
|
— |
|
|
Total derivatives not designated as hedging instruments |
|
$ |
|
|
|
|
|
$ |
|
|
||
The following table presents our derivative assets and liabilities at May 30, 2021, on a gross basis, prior to the setoff of $
|
|
|
Derivative Assets |
|
|
Derivative Liabilities |
|
||||||
|
|
|
Balance Sheet Location |
|
Fair Value |
|
|
Balance Sheet Location |
|
Fair Value |
|
||
|
Commodity contracts |
|
Prepaid expenses and other current assets |
|
$ |
|
|
|
Other accrued liabilities |
|
$ |
|
|
|
Foreign exchange contracts |
|
Prepaid expenses and other current assets |
|
|
— |
|
|
Other accrued liabilities |
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
$ |
|
|
|
|
|
$ |
|
|
||
The location and amount of gains (losses) from derivatives not designated as hedging instruments in our Condensed Consolidated Statements of Earnings were as follows:
|
|
|
Location in Condensed Consolidated |
|
Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statements of Earnings for the Thirteen Weeks Ended |
|
|||||
|
Derivatives Not Designated as Hedging Instruments |
|
Statements of Earnings of Gains (Losses) Recognized on Derivatives |
|
November 28, 2021 |
|
|
November 29, 2020 |
|
||
|
Commodity contracts |
|
Cost of goods sold |
|
$ |
|
|
|
$ |
|
|
|
Foreign exchange contracts |
|
Cost of goods sold |
|
|
|
|
|
|
( |
) |
|
Total gains from derivative instruments not designated as hedging instruments |
|
$ |
|
|
|
$ |
|
|
||
|
|
|
Location in Condensed Consolidated |
|
Gains (Losses) Recognized on Derivatives in Condensed Consolidated Statements of Earnings for the Twenty-six Weeks Ended |
|
|||||
|
Derivatives Not Designated as Hedging Instruments |
|
Statements of Earnings of Gains (Losses) Recognized on Derivatives |
|
November 28, 2021 |
|
|
November 29, 2020 |
|
||
|
Commodity contracts |
|
Cost of goods sold |
|
$ |
|
|
|
$ |
|
|
|
Foreign exchange contracts |
|
Cost of goods sold |
|
|
|
|
|
|
( |
) |
|
Total gains (losses) from derivative instruments not designated as hedging instruments |
|
$ |
|
|
|
$ |
( |
) |
||
As of November 28, 2021, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $
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.
14
At November 28, 2021, 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 contract, was $
7. SHARE-BASED PAYMENTS
For the second quarter and first half of fiscal 2022, we recognized total stock-based compensation expense (including restricted stock units, performance shares, and performance-based restricted stock units) of $
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 periods ending in fiscal 2022 (the "2022 performance period") and fiscal 2024 (the "2024 performance period") are based on our diluted earnings per share ("EPS") compound annual growth rate ("CAGR"), subject to certain adjustments, measured over the defined performance periods. The performance goal for one-third of the target number of performance shares for the three-year performance period ending in fiscal 2023 (the "2023 performance period") is based on our fiscal 2021 diluted EPS CAGR, subject to certain adjustments. The performance goal for the final two-thirds of the target number of performance shares granted for the 2023 performance period is based on our diluted EPS CAGR, subject to certain adjustments, measured over the two-year period ending in fiscal 2023. For each of the 2022 performance period, 2023 performance period, and 2024 performance period, the awards actually earned will range from
Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in our performance share plan, any shares earned will be distributed after the end of the performance period, and generally only if the participant continues to be employed with the Company through the date of distribution. For awards where performance against the performance target has not been certified, the value of the performance shares is adjusted based upon the market price of our common stock and current forecasted performance against the performance targets at the end of each reporting period and amortized as compensation expense over the vesting period. Forfeitures are accounted for as they occur.
8. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average outstanding shares of common stock. Diluted earnings per share is computed on the basis of basic weighted average outstanding shares of common stock adjusted for the dilutive effect of stock options, restricted stock unit awards, and other dilutive securities.
The following table reconciles the income and average share amounts used to compute both basic and diluted earnings per share:
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
||||||||||
|
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
||||
|
Net income attributable to Conagra Brands, Inc. common stockholders: |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the second quarter and first half of fiscal 2022, there were
15
9. INVENTORIES
The major classes of inventories were as follows:
|
|
|
November 28, 2021 |
|
|
May 30, 2021 |
|
||
|
Raw materials and packaging |
|
$ |
|
|
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Supplies and other |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
10. INCOME TAXES
In the second quarter of fiscal 2022 and 2021, we recognized income tax expense of $
The effective tax rate in the second quarter of fiscal 2022 reflected additional tax expense associated with non-deductible goodwill related to assets held for sale for which an impairment charge was recognized, a tax benefit resulting from state law changes, and a benefit from statute lapses on state tax issues that were previously reserved.
The effective tax rate in the first half of fiscal 2022 reflected the above-cited items, as well as a benefit of $
The effective tax rate for the second quarter of fiscal 2021 reflected a benefit of $
The effective tax rate for the first half of fiscal 2021 reflected the above-cited items, as well as a benefit of $
The amount of gross unrecognized tax benefits for uncertain tax positions was $
The net amount of unrecognized tax benefits at November 28, 2021 and May 30, 2021 that, if recognized, would favorably impact the Company's effective tax rate was $
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $
In fiscal 2021, we completed a restructuring of our ownership interest in the Ardent Mills joint venture, a milling business, that utilized a portion of our capital loss carryforward prior to its expiration. Also in fiscal 2021, we completed several other transactions related to retained assets in conjunction with the divestitures of the Peter Pan® peanut butter and Egg Beaters® businesses that we believe will utilize a portion of the remaining capital loss carryforward. These transactions are subject to certain elections and are currently under review by the Internal Revenue Service. We believe they may result in increases to the tax basis in those assets and if successful would result in tax benefits being realized in future periods.
We have not provided any deferred taxes on undistributed earnings of our foreign subsidiaries. Deferred taxes will be provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested and will result in a tax liability upon distribution.
16
11. CONTINGENCIES
Litigation Matters
We are a party to certain litigation matters relating to our acquisition of Beatrice Company ("Beatrice") in fiscal 1991, including litigation proceedings related to businesses divested by Beatrice prior to our acquisition of the company. These proceedings have included suits against a number of lead paint and pigment manufacturers, including ConAgra Grocery Products Company, LLC, a wholly owned subsidiary of the Company ("ConAgra Grocery Products") as alleged successor to W. P. Fuller & Co., a lead paint and pigment manufacturer owned and operated by a predecessor to Beatrice from 1962 until 1967. These lawsuits generally seek damages for personal injury, property damage, economic loss, and governmental expenditures allegedly caused by the use of lead-based paint, and/or injunctive relief for inspection and abatement. When such lawsuits have been brought, ConAgra Grocery Products has denied liability, both on the merits of the claims and on the basis that we do not believe it to be the successor to any liability attributable to W. P. Fuller & Co. Decisions favorable to us were rendered in Rhode Island, New Jersey, Wisconsin, and Ohio. ConAgra Grocery Products was held liable for the abatement of a public nuisance in California, and the case was dismissed pursuant to settlement in July 2019 as discussed in the following paragraph. We remain a defendant in
In California, a number of cities and counties joined in a consolidated action seeking abatement of an alleged public nuisance in the form of lead-based paint potentially present on the interior of residences, regardless of its condition. On September 23, 2013, a trial of the California case concluded in the Superior Court of California for the County of Santa Clara, and on January 27, 2014, the court entered a judgment (the "Judgment") against ConAgra Grocery Products and
We have accrued $
We are party to a number of putative class action lawsuits challenging various product claims made in the Company's product labeling. These matters include Briseno v. ConAgra Foods, Inc. in which it is alleged that the labeling for Wesson® oils as 100% natural is false and misleading because the oils contain genetically modified plants and organisms. In February 2015, the U.S. District Court for the Central District of California granted class certification to permit plaintiffs to pursue state law claims. The Company appealed to the United States Court of Appeals for the Ninth Circuit, which affirmed class certification in January 2017. The Supreme Court of the United States declined to review the decision and the case was remanded to the trial court for further proceedings. On April 4, 2019, the trial court granted preliminary approval of a settlement in this matter. In the second quarter of fiscal 2020, a single objecting class member appealed the court's decision approving the settlement to the United States Court of Appeals for the Ninth Circuit. On June 1, 2021, the appellate court rejected the settlement and remanded to the trial court for further proceedings. While we cannot predict with certainty the results of this or any other legal proceeding challenging our product claims, we do not expect these matters to have a material adverse effect on our financial condition, results of operations, or business.
We are party to matters challenging the Company's wage and hour practices. These matters include a number of class actions consolidated under the caption Negrete v. ConAgra Foods, Inc., et al., pending in the U.S. District Court for the Central District of California, in which the plaintiffs allege a pattern of violations of California and/or federal law at several current and former Company manufacturing facilities across the State of California. On June 21, 2021, the trial court granted preliminary approval of a settlement in this matter. If final approval is obtained, the settlement will require a payment by the Company of $
17
accrued within other accrued liabilities. While we cannot predict with certainty the results of this or any other legal proceeding, we do not expect this matter to have a material adverse effect on our financial condition, results of operations, or business.
We are party to a number of matters asserting product liability claims against the Company related to certain Pam® and other cooking spray products. These lawsuits generally seek damages for personal injuries allegedly caused by defects in the design, manufacture, or safety warnings of the cooking spray products. We have put the Company's insurance carriers on notice. While we cannot predict with certainty the results of these or any other legal proceedings, we do not expect these matters to have a material adverse effect on our financial condition, results of operations, or business.
The Company, its directors, and several of its executive officers are defendants in several class actions alleging violations of federal securities laws. The lawsuits assert that the Company's officers made material misstatements and omissions that caused the market to have an unrealistically positive assessment of the Company's financial prospects in light of the acquisition of Pinnacle, thus causing the Company's securities to be overvalued prior to the release of the Company's consolidated financial results on December 20, 2018 for the second quarter of fiscal year 2019. The first of these lawsuits, captioned West Palm Beach Firefighters' Pension Fund v. Conagra Brands, Inc., et al., with which subsequent lawsuits alleging similar facts have been consolidated, was filed on February 22, 2019 in the U.S. District Court for the Northern District of Illinois. That consolidated lawsuit was dismissed with prejudice on December 23, 2020 for failure to state a claim. On January 22, 2021, the plaintiff filed a notice of appeal of the trial court's decision to the U.S. Court of Appeals for the Seventh Circuit. In addition, on May 9, 2019, a stockholder filed a derivative action on behalf of the Company against the Company's directors captioned Klein v. Arora, et al. in the U.S. District Court for the Northern District of Illinois asserting harm to the Company due to alleged breaches of fiduciary duty and mismanagement in connection with the Pinnacle acquisition. On July 9, 2019, September 20, 2019, and March 10, 2020, the Company received three separate demands from stockholders under Delaware law to inspect the Company's books and records related to the Board of Directors' review of the Pinnacle business, acquisition, and the Company's public statements related to them. On July 22, 2019 and August 6, 2019, respectively, two additional stockholder derivative lawsuits captioned Opperman v. Connolly, et al. and Dahl v. Connolly, et al. were filed in the U.S. District Court for the Northern District of Illinois asserting similar facts and claims as the Klein v. Arora, et al. matter. On October 21, 2019, the Company received an additional demand from a stockholder under Delaware law to appoint a special committee to investigate the conduct of certain officers and directors in connection with the Pinnacle acquisition and the Company's public statements. All remaining stockholder lawsuits and demands are currently stayed by agreement pending the final outcome of the West Palm Beach Firefighters' Pension Fund matter. We have put the Company's insurance carriers on notice of each of these securities and stockholder matters. While we cannot predict with certainty the results of these or any other legal proceedings, we do not expect these matters to have a material adverse effect on our financial condition, results of operations, or business.
Environmental Matters
Securities and Exchange Commission (the "SEC") regulations require us to disclose certain information about environmental proceedings if a governmental authority is a party to such proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will exceed a stated threshold. Pursuant to the SEC regulations, the Company uses a threshold of $
In October 2019, the Minnesota Pollution Control Agency ("MPCA") initiated an odor complaint investigation at our Waseca, Minnesota vegetable processing facility. As a result of the investigation, the MPCA required implementation of a continuous monitoring system running from May 1 – October 31 to monitor hydrogen sulfide emissions at the wastewater treatment facility. As a result of the monitoring data findings, the MPCA has alleged violations of Minnesota Ambient Air Quality Standards based on our hydrogen sulfide emissions during calendar years 2020 and 2021. The MPCA proposed a penalty of $
We are a party to certain environmental proceedings relating to our acquisition of Beatrice in fiscal 1991. Such proceedings include proceedings related to businesses divested by Beatrice prior to our acquisition of Beatrice. The current environmental proceedings associated with Beatrice include litigation and administrative proceedings involving Beatrice's possible status as a potentially responsible party at approximately
18
Guarantees and Other Contingencies
In certain limited situations, we will guarantee an obligation of an unconsolidated entity. We guarantee an obligation of the Lamb Weston business pursuant to a guarantee arrangement that existed prior to the spinoff of the Lamb Weston business (the "Spinoff"). The guarantee remained in place following completion of the Spinoff and it will remain in place until such guarantee obligation is substituted for guarantees issued by Lamb Weston. Pursuant to the separation and distribution agreement, dated as of November 8, 2016 (the "Separation Agreement"), between us and Lamb Weston, this guarantee arrangement is deemed a liability of Lamb Weston that was transferred to Lamb Weston as part of the Spinoff. Accordingly, in the event that we are required to make any payments as a result of this guarantee arrangement, Lamb Weston is obligated to indemnify us for any such liability, reduced by any insurance proceeds received by us, in accordance with the terms of the indemnification provisions under the Separation Agreement. Lamb Weston is a party to an agricultural sublease agreement with a third party for certain farmland through 2025 (subject, at Lamb Weston's option, to extension for
We also guarantee a lease resulting from an exited facility. As of November 28, 2021, the remaining term of this arrangement did not exceed
General
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity; however, it is reasonably possible that a change of the estimates of any of the foregoing matters may occur in the future which could have a material adverse effect on our financial condition, results of operations, or liquidity.
Costs of legal services associated with the foregoing matters are recognized in earnings as services are provided.
12. PENSION AND POSTRETIREMENT BENEFITS
We have defined benefit retirement plans ("pension 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 to qualifying U.S. employees.
Components of pension and postretirement plan costs (benefits) are:
|
|
|
Pension Plans |
|
|||||||||||||
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
||||||||||
|
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension cost (benefit) — Company plans |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Pension cost (benefit) — multi-employer plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension cost (benefit) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
19
|
|
|
Postretirement Plans |
|
|||||||||||||
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
||||||||||
|
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (benefit) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Recognized net actuarial gain |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total postretirement cost (benefit) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The Company uses a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost.
The weighted-average discount rates for service and interest costs under the spot-rate approach used for pension cost in fiscal 2022 were
During the second quarter and first half of fiscal 2022, we contributed $
13. STOCKHOLDERS' EQUITY
The following table presents a reconciliation of our stockholders' equity accounts for the twenty-six weeks ended November 28, 2021:
|
|
|
Conagra Brands, Inc. Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
Common Shares |
|
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Treasury Stock |
|
|
Noncontrolling Interests |
|
|
Total Equity |
|
||||||||
|
Balance at May 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Stock option and incentive plans |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Repurchase of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Derivative adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on common stock; $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 29, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Stock option and incentive plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Derivative adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Dividends declared on common stock; $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 28, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
20
The following table presents a reconciliation of our stockholders' equity accounts for the twenty-six weeks ended November 29, 2020:
|
|
|
Conagra Brands, Inc. Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
Common Shares |
|
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Treasury Stock |
|
|
Noncontrolling Interests |
|
|
Total Equity |
|
||||||||
|
Balance at May 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Stock option and incentive plans |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASU 2016-13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Dividends declared on common stock; $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 30, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Stock option and incentive plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Derivative adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Activities of noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement healthcare benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Dividends declared on common stock; $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Net income attributable to Conagra Brands, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 29, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
14. FAIR VALUE MEASUREMENTS
Financial Accounting Standards Board 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 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.
Our Level 3 available-for-sale debt securities consist of a convertible note receivable acquired in the second quarter of fiscal 2022. The convertible note receivable is not traded in active markets and the fair value was determined using a discounted cash flow valuation model.
21
The following table presents our financial instruments measured at fair value on a recurring basis for which, based upon the level within the fair value hierarchy in which the fair value measurements fall, as of November 28, 2021:
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Net Value |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 30, 2021:
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Net Value |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Deferred compensation liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Certain assets and liabilities, including long-lived assets, goodwill, asset retirement obligations, and equity investments are measured at fair value on a nonrecurring basis using Level 3 inputs.
In the second quarter of fiscal 2022, we recognized impairment charges totaling $
In the first quarter of fiscal 2021, we recognized charges totaling $
The carrying amount of long-term debt (including current installments) was $
15. BUSINESS SEGMENTS AND RELATED INFORMATION
We reflect our results of operations in
The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail channels in the United States.
The Refrigerated & Frozen reporting segment principally includes branded, temperature-controlled food products sold in various retail channels in the United States.
The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States.
22
The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and a variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments primarily in the United States.
We do not aggregate operating segments when determining our reporting segments.
Operating profit for each of the segments is based on net sales less all identifiable operating expenses.
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
||||||||||
|
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
||||
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Refrigerated & Frozen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foodservice |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grocery & Snacks |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Refrigerated & Frozen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foodservice |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Equity method investment earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement non-service income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less: Net income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Conagra Brands, Inc. |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table presents further disaggregation of our net sales:
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
||||||||||
|
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
||||
|
Frozen |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Staples |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other shelf-stable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refrigerated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Snacks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foodservice |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
To be consistent with the manner in which we present certain disaggregated net sales information to investors, we have categorized certain net sales of our segments as "Staples", which includes all of our U.S. domestic retail refrigerated products and other shelf-stable grocery products. Management continues to regularly review financial results and make decisions about allocating resources based upon the four reporting segments outlined above.
Presentation of Derivative Gains (Losses) from 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
23
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:
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
||||||||||
|
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
||||
|
Gross derivative gains (losses) incurred |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
Less: Net derivative gains (losses) allocated to reporting segments |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net derivative gains (losses) recognized in general corporate expenses |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net derivative gains (losses) allocated to Grocery & Snacks |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Net derivative gains (losses) allocated to Refrigerated & Frozen |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net derivative gains (losses) allocated to International |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Net derivative gains (losses) allocated to Foodservice |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net derivative gains (losses) included in segment operating profit |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
As of November 28, 2021, 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 $
Assets by Segment
The majority of our manufacturing assets are shared across multiple reporting segments. Output from these facilities used by each reporting segment can change over time. Also, working capital balances are not tracked by reporting segment. Therefore, it is impracticable to allocate those assets to the reporting segments, as well as disclose total assets by segment. Total depreciation expense was $
Other Information
Our operations are principally in the United States. With respect to operations outside of the United States, no single foreign country or geographic region was significant with respect to consolidated operations for the second quarter and first half of fiscal 2022 and 2021. Foreign net sales, including sales by domestic segments to customers located outside of the United States, were approximately $
Our largest customer, Walmart, Inc. and its affiliates, accounted for approximately
Walmart, Inc. and its affiliates accounted for approximately
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information contained in this report includes forward-looking statements within the meaning of the federal securities laws. Examples of forward-looking statements include statements regarding our expected future financial performance or position, results of operations, business strategy, plans and objectives of management for future operations, and other statements that are not historical facts. You can identify forward-looking statements by their use of forward-looking words, such as "may", "will", "anticipate", "expect", "believe", "estimate", "intend", "plan", "should", "seek", or comparable terms.
Readers of this report should understand that these forward-looking statements are not guarantees of performance or results. Forward-looking statements provide our current expectations and beliefs concerning future events and are subject to risks, uncertainties, and factors relating to our business and operations, all of which are difficult to predict and could cause our actual results to differ materially from the expectations expressed in or implied by such forward-looking statements. These risks, uncertainties, and factors include, among other things: the risk that the cost savings and any other synergies from the acquisition of Pinnacle Foods, Inc. (the "Pinnacle acquisition") may not be fully realized or may take longer to realize than expected; the risk that the Pinnacle acquisition may not be accretive within the expected timeframe or to the extent anticipated; the risks that the Pinnacle acquisition and related integration will create disruption to the Company and its management and impede the achievement of business plans; risks related to our ability to achieve the intended benefits of other recent acquisitions and divestitures; risks associated with general economic and industry conditions; risks associated with our ability to successfully execute our long-term value creation strategies; risks related to our ability to deleverage on currently anticipated timelines, and to continue to access capital on acceptable terms or at all; risks related to our ability to execute operating and restructuring plans and achieve targeted operating efficiencies from cost-saving initiatives, and to benefit from trade optimization programs; risks related to the effectiveness of our hedging activities and ability to respond to volatility in commodities; risks related to the Company's competitive environment and related market conditions; risks related to our ability to respond to changing consumer preferences and the success of our innovation and marketing investments; risks related to the ultimate impact of any product recalls and litigation, including litigation related to the lead paint and pigment matters, as well as any securities litigation, including securities class action lawsuits; risk associated with actions of governments and regulatory bodies that affect our businesses, including the ultimate impact of new or revised regulations or interpretations; risks related to the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees; risks related to our forecasts of consumer eat-at-home habits as the impacts of the COVID-19 pandemic abate; risks related to the availability and prices of supply chain resources, including raw materials, packaging, and transportation, including any negative effects caused by changes in inflation rates, weather conditions, or health pandemics; disruptions or inefficiencies in our supply chain and/or operations, including from the COVID-19 pandemic; risks associated with actions by our customers, including changes in distribution and purchasing terms; risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges; risks related to a material failure in or breach of our or our vendors' information technology systems; the amount and timing of future dividends, which remain subject to Board approval and depend on market and other conditions; and other risks described in our reports filed from time to time with the Securities and Exchange Commission (the "SEC"). We caution readers not to place undue reliance on any forward-looking statements included in this report, which speak only as of the date of this report. We undertake no responsibility to update these statements, except as required by law.
The discussion that follows should be read together with the unaudited Condensed Consolidated Financial Statements and related notes contained in this report and with the financial statements, related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended May 30, 2021 and subsequent filings with the SEC. Results for the second quarter of fiscal 2022 are not necessarily indicative of results that may be attained in the future.
EXECUTIVE OVERVIEW
Conagra Brands, Inc. (the "Company", "Conagra Brands", "we", "us", or "our"), headquartered in Chicago, is one of North America's leading branded food companies. Guided by an entrepreneurial spirit, the Company combines a rich heritage of making great food with a sharpened focus on innovation. The Company's portfolio is evolving to satisfy people's changing food preferences. Its iconic brands such as Birds Eye®, Marie Callender's®, Banquet®, Healthy Choice®, Slim Jim®, Reddi-wip®, and Vlasic® as well as emerging brands, including Angie's® BOOMCHICKAPOP®, Duke's®, Earth Balance®, Gardein®, and Frontera®, offer choices for every occasion.
Fiscal 2022 Second Quarter Results
In the second quarter of fiscal 2022, results reflected an increase in net sales, with organic (excludes the impacts of foreign exchange and divested businesses) increases in our Refrigerated & Frozen, International, and Foodservice segments partially offset by
25
organic decreases in our Grocery & Snacks segment, in each case compared to the second quarter of fiscal 2021. Overall gross profit decreased primarily as a result of input cost inflation, higher transportation costs, and lost profits from divested businesses, which were partially offset by higher organic net sales, supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, and lower COVID-19 pandemic-related expenses. Overall segment operating profit decreased in all of our operating segments. Corporate expenses were lower primarily due to items impacting comparability, as discussed below. There were lower selling, general and administrative ("SG&A") expenses primarily due to lower stock-based and incentive compensation offset by higher advertising and promotion expenses. We recognized higher equity method investment earnings, lower interest expense, and higher income tax expense, in each case compared to the second quarter of fiscal 2021. Excluding items impacting comparability, our effective tax rate was slightly lower compared to the second quarter of fiscal 2021.
Diluted earnings per share in the second quarter of fiscal 2022 were $0.57. Diluted earnings per share in the second quarter of fiscal 2021 were $0.77. Diluted earnings per share were affected by lower net income in the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021.
In the second quarter of fiscal 2022, we continued to experience higher than expected input cost inflation, including higher transportation and supply chain costs, that negatively impacted gross margins. We expect input cost inflation to remain elevated throughout the rest of fiscal 2022. Supply chain realized productivity and pricing actions are expected to mitigate some of the inflationary pressures, but we do not expect such benefits to occur in time to fully offset the higher costs in fiscal 2022. As our estimates of inflation for fiscal 2022 continue to change, it is impractical to quantify the impact at this time.
Items Impacting Comparability
Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and economic hedging of foreign currency exchange rate risks of anticipated transactions is discussed in the "Segment Review" below.
Items of note impacting comparability for the second quarter of fiscal 2022 included the following:
|
|
• |
charges totaling $39.2 million ($32.2 million after-tax) related to the impairment of businesses held for sale, |
|
|
• |
a gain of $14.6 million ($11.0 million after-tax) related to a legal settlement, |
|
|
• |
charges totaling $12.4 million ($9.3 million after-tax) in connection with our restructuring plans, and |
|
|
• |
a gain of $3.3 million ($2.8 million after-tax) related to proceeds received from the sale of a legacy investment. |
Items of note impacting comparability for the second quarter of fiscal 2021 included the following:
|
|
• |
charges totaling $44.3 million ($33.2 million after-tax) related to early extinguishment of debt, |
|
|
• |
charges totaling $20.7 million ($15.4 million after-tax) in connection with our restructuring plans, |
|
|
• |
a gain of $5.3 million ($3.5 million after tax) associated with the divestiture of a business, and |
|
|
• |
an income tax benefit of $25.3 million related to a release of a valuation allowance associated with the planned divestiture of the Peter Pan® peanut butter business. |
Items of note impacting comparability for the first half of fiscal 2022 included the following:
|
|
• |
charges totaling $39.2 million ($32.2 million after-tax) related to the impairment of businesses held for sale, |
|
|
• |
charges totaling $28.2 million ($21.2 million after-tax) in connection with our restructuring plans, |
|
|
• |
a gain of $14.6 million ($11.0 million after-tax) related to a legal settlement, |
|
|
• |
an income tax benefit of $3.6 million related to the settlement of a tax matter that was previously reserved, and |
|
|
• |
a gain of $3.3 million ($2.8 million after-tax) related to proceeds received from the sale of a legacy investment. |
Items of note impacting comparability for the first half of fiscal 2021 included the following:
|
|
• |
charges totaling $46.6 million ($34.9 million after-tax) in connection with our restructuring plans, |
|
|
• |
charges totaling $44.3 million ($33.2 million after-tax) related to early extinguishment of debt, |
|
|
• |
a gain of $5.3 million ($3.5 million after-tax) associated with the divestiture of a business, |
26
|
|
• |
an income tax benefit of $7.6 million related to certain final tax regulations on prior year federal tax matters, and |
|
|
• |
an income tax benefit of $25.3 million related to a release of a valuation allowance associated with the planned divestiture of the Peter Pan® peanut butter business. |
Divestitures
During the fourth quarter of fiscal 2021, we completed the sale of our Egg Beaters® business for net proceeds of $50.7 million, including working capital adjustments. The results of operations of the divested Egg Beaters® business were primarily included in our Refrigerated & Frozen segment, and to a lesser extent within our International and Foodservice segments, for the periods preceding the completion of the transaction.
During the third quarter of fiscal 2021, we completed the sale of our Peter Pan® peanut butter business for net proceeds of $101.5 million, including working capital adjustments. The results of operations of the divested Peter Pan® peanut butter business are primarily included in our Grocery & Snacks segment, and to a lesser extent within our International and Foodservice segments, for the periods preceding the completion of the transaction.
Restructuring Plans
In December 2018, our Board of Directors (the "Board") approved a restructuring and integration plan related to the ongoing integration of the operations of Pinnacle Foods, Inc. (the "Pinnacle Integration Restructuring Plan"), for the purpose of achieving significant cost synergies between the companies, as a result of which we expect to incur material charges for exit and disposal activities under U.S. generally accepted accounting principles. We expect to incur approximately $346.5 million of charges ($278.0 million of cash charges and $68.5 million of non-cash charges) for actions identified to date under the Pinnacle Integration Restructuring Plan. The Board and/or our senior management have authorized incurrence of these charges. In the second quarter and first half of fiscal 2022, we recognized charges of $5.8 million and $13.1 million, respectively, in connection with the Pinnacle Integration Restructuring Plan. In the second quarter and first half of fiscal 2021, we recognized charges of $10.2 million and $18.8 million, respectively, in connection with the Pinnacle Integration Restructuring Plan. We expect to incur costs related to the Pinnacle Integration Restructuring Plan over a multi-year period.
In fiscal 2019, senior management initiated a restructuring plan for costs incurred in connection with actions taken to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network (the "Conagra Restructuring Plan"). Although we remain unable to make good faith estimates relating to the entire Conagra Restructuring Plan, we are reporting on actions initiated through the end of the second quarter of fiscal 2022, 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 November 28, 2021, we have approved the incurrence of $172.6 million ($45.8 million of cash charges and $126.8 million of non-cash charges) for several projects associated with the Conagra Restructuring Plan. As of November 28, 2021, we have incurred or expect to incur $143.4 million of charges ($40.2 million of cash charges and $103.2 million of non-cash charges) for actions identified to date under the Conagra Restructuring Plan. In the second quarter and first half of fiscal 2022, we recognized charges of $6.6 million and $15.1 million, respectively, in connection with the Conagra Restructuring Plan. In the second quarter and first half of fiscal 2021, we recognized charges of $10.5 million and $27.8 million, respectively, in connection with the Conagra Restructuring Plan. We expect to incur costs related to the Conagra Restructuring Plan over a multi-year period.
COVID–19 Pandemic
We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business. During the second quarter of fiscal 2022, we continued to experience elevated demand for our products in the retail segments, but volumes were lower compared to the second quarter of fiscal 2021 as we lap the surge in demand in at-home food consumption from the pandemic. We experienced higher demand for our foodservice products across all of our major markets during the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021 as consumer traffic in away-from-home food outlets continue to recover from the impacts of the pandemic. During the second quarter of fiscal 2022, we incurred $21.0 million of supply chain costs associated with the COVID-19 pandemic, which was a decrease in comparison to the second quarter of fiscal 2021.
As we progress through fiscal 2022, we generally expect retail demand levels to remain elevated versus pre-pandemic levels and we continue to expect foodservice demand levels to return to more historical norms. However, uncertainty still remains with the pandemic and such trends ultimately depend on the length and severity of the pandemic, inclusive of the introduction of new strains and variants of the virus; infection rates in the markets where we do business; the federal, state, and local government actions taken in response; vaccine effectiveness; and the macroeconomic environment. In the second half of fiscal 2022, we continue to expect to see inflationary headwinds but anticipate that they will be partially mitigated by supply chain realized productivity and sales price increases that have either taken effect or are expected to take effect in the remaining part of the fiscal year. We also continue to expect
27
a decrease in costs related to the COVID-19 pandemic and a decrease in supply chain costs as we continue to recover our supply and service levels. However, we do not expect full realization of such benefits to occur in time to fully offset the higher costs overall in fiscal 2022. We will continue to evaluate the extent to which the COVID-19 pandemic will impact our business, consolidated results of operations, and financial condition.
Beginning in February 2020 and over the course of the COVID-19 pandemic, we created cross functional teams in order to review and assess the evolving COVID-19 pandemic, and to recommend risk mitigation actions for the health and safety of our employees. In order to enhance the safety of our employees during the COVID-19 pandemic, these teams have recommended and implemented various measures, including the installation of physical barriers between employees, cleaning and sanitation protocols, execution of a phased return to office approach to enable in-person work for corporate personnel, implementation of work-from-home initiatives, and increased access to vaccines for employees. The implementation of such safety measures has not resulted in any meaningful change to our financial control environment.
We have experienced some challenges in connection with the COVID-19 pandemic, including with respect to the supply of our ingredients, packaging, or other sourced materials. Despite these challenges, all of our production facilities remain open. We cannot predict the ultimate COVID-19 impact on our suppliers, distributors, and manufacturers.
SEGMENT REVIEW
We reflect our results of operations in four reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice.
Grocery & Snacks
The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail channels in the United States.
Refrigerated & Frozen
The Refrigerated & Frozen reporting segment principally includes branded, temperature-controlled food products sold in various retail channels in the United States.
International
The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States.
Foodservice
The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces, and a variety of custom-manufactured culinary products that are packaged for sale to restaurants and other foodservice establishments primarily in the United States.
Presentation of Derivative Gains (Losses) from 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. See Note 15 "Business Segments and Related Information", to the Condensed Consolidated Financial Statements contained in this report for further discussion.
28
Net Sales
|
|
|
Net Sales |
|
|||||||||||||||||||||
|
($ in millions) |
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
||||||||||||||||||
|
Reporting Segment |
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
% Inc (Dec) |
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
% Inc (Dec) |
|
||||||
|
Grocery & Snacks |
|
$ |
1,264.5 |
|
|
$ |
1,283.1 |
|
|
|
(1 |
)% |
|
$ |
2,339.6 |
|
|
$ |
2,414.1 |
|
|
|
-3 |
% |
|
Refrigerated & Frozen |
|
|
1,285.9 |
|
|
|
1,248.0 |
|
|
|
3 |
% |
|
|
2,387.7 |
|
|
|
2,378.6 |
|
|
|
- |
% |
|
International |
|
|
262.2 |
|
|
|
249.8 |
|
|
|
5 |
% |
|
|
498.8 |
|
|
|
468.8 |
|
|
|
6 |
% |
|
Foodservice |
|
|
246.3 |
|
|
|
214.3 |
|
|
|
15 |
% |
|
|
486.1 |
|
|
|
412.6 |
|
|
|
18 |
% |
|
Total |
|
$ |
3,058.9 |
|
|
$ |
2,995.2 |
|
|
|
2 |
% |
|
$ |
5,712.2 |
|
|
$ |
5,674.1 |
|
|
|
1 |
% |
Net sales for the second quarter of fiscal 2022 in our Grocery & Snacks segment included a decrease in volumes of 5%, excluding the impact of divestitures, compared to the prior-year period. The decrease in volumes was primarily due to lapping the prior year's surge in at-home food consumption from the COVID-19 pandemic. Price/mix increased 5% for the second quarter of fiscal 2022, excluding the impact of divestitures, when compared to the prior-year period due to favorability in net pricing and favorable brand mix. The second quarter of fiscal 2021 included $9.1 million of net sales related to our Peter Pan® peanut butter business, which was sold in the third quarter of fiscal 2021. The second quarter of fiscal 2021 also included $1.7 million of net sales related to our H.K. Anderson® business, which was sold in the second quarter of fiscal 2021.
Net sales for the first half of fiscal 2022 in our Grocery & Snacks segment included a decrease in volumes of 4%, excluding the impact of divestitures, compared to the prior-year period. The decrease in volumes was primarily due to lapping the prior year's surge in at-home food consumption from the COVID-19 pandemic and replenishment of customer inventory levels in connection with the COVID-19 pandemic. Price/mix increased 2% for the first half of fiscal 2022, excluding the impact of divestitures, when compared to the prior-year period due to favorability in net pricing and a benefit in the prior-year period of $7.4 million related to a change in estimate associated with our fiscal 2020 fourth quarter trade accrual. The first half of fiscal 2021 included $25.9 million of net sales related to our Peter Pan® peanut butter business, which was sold in the third quarter of fiscal 2021. The first half of fiscal 2021 also included $3.6 million of net sales related to our H.K. Anderson® business, which was sold in the second quarter of fiscal 2021.
Net sales for the second quarter of fiscal 2022 in our Refrigerated & Frozen segment reflected a decrease in volumes of 5%, excluding the impact of divestitures, compared to the prior-year period primarily due to lapping the prior year's surge in at-home food consumption from the COVID-19 pandemic. Price/mix increased by 9% for the second quarter of fiscal 2022, excluding the impact of divestitures, when compared to the prior-year period due to favorable brand mix and favorability in net pricing. The second quarter of fiscal 2021 included $10.1 million of net sales related to our Egg Beaters® business, which was sold in the fourth quarter of fiscal 2021.
Net sales for the first half of fiscal 2022 in our Refrigerated & Frozen segment reflected a decrease in volumes of 4%, excluding the impact of divestitures, compared to the prior-year period primarily due to lapping the prior year's surge in at-home food consumption from the COVID-19 pandemic and replenishment of inventory levels in connection with the COVID-19 pandemic. Price/mix increased by 6% for the first half of fiscal 2022, excluding the impact of divestitures, when compared to the prior-year period due to favorable brand mix and favorability in net pricing partially offset by a benefit in the prior-year period of $7.4 million related to a change in estimate associated with our fiscal 2020 fourth quarter trade accrual. The first half of fiscal 2021 included $19.3 million of net sales related to our Egg Beaters® business, which was sold in the fourth quarter of fiscal 2021.
Net sales for the second quarter of fiscal 2022 in our International segment reflected a 6% decrease in volumes, a 3% increase due to favorable foreign exchange rates, and an 8% increase in price/mix, excluding the impact of divestitures, in each case compared to the prior-year period. The decrease in volumes was driven by lapping the prior year's surge in at-home food demand from the COVID-19 pandemic. The increase in price/mix was primarily due to inflation-driven pricing and favorable product mix.
Net sales for the first half of fiscal 2022 in our International segment reflected a 5% decrease in volumes, a 5% increase due to favorable foreign exchange rates, and a 7% increase in price/mix, excluding the impact of divestitures, in each case compared to the prior-year period. The decrease in volumes was driven by lapping the prior year's surge in at-home food demand from the COVID-19 pandemic. The increase in price/mix was primarily due to inflation-driven pricing and favorable product mix offset by a benefit in the prior-year period of $2.8 million related to a change in estimate associated with our fiscal 2020 fourth quarter trade accrual.
Net sales for the second quarter of fiscal 2022 in our Foodservice segment reflected a 9% increase in volumes, excluding the impact of divestitures, compared to the prior-year period. The increase in volume reflected the continued recovery of away-from-home
29
food outlets from the impacts of the COVID-19 pandemic. Price/mix, excluding the impact of divestitures, increased by 6% in the second quarter of fiscal 2022 compared to the prior-year period, reflecting inflation-driven pricing and favorable product mix.
Net sales for the first half of fiscal 2022 in our Foodservice segment reflected a 14% increase in volumes, excluding the impact of divestitures, compared to the prior-year period. The increase in volume reflected the continued recovery of away-from-home food outlets from the impacts of the COVID-19 pandemic. Price/mix, excluding the impact of divestitures, increased by 4% in the first half of fiscal 2022 compared to the prior-year period, reflecting inflation-driven pricing and favorable product mix.
SG&A Expenses (includes general corporate expenses)
SG&A expenses totaled $345.4 million for the second quarter of fiscal 2022, a decrease of $12.3 million, as compared to the second quarter of fiscal 2021. SG&A expenses for the second quarter of fiscal 2022 reflected the following:
Items impacting comparability of earnings
|
|
• |
expense of $39.2 million related to the impairment of businesses held for sale, |
|
|
• |
a net benefit of $14.6 related to a legal settlement, |
|
|
• |
a benefit of $3.3 million related to the sale of a legacy investment, |
|
|
• |
expenses of $2.5 million in connection with our restructuring plans, and |
|
|
• |
expenses of $1.7 million associated with consulting fees for certain tax matters. |
Other changes in expenses compared to the second quarter of fiscal 2021
|
|
• |
an increase in salary, wage, and fringe benefit expense of $9.8 million, |
|
|
• |
a decrease in short-term incentive expense of $9.1 million, due to the expectation of exceeding certain performance targets in the prior year, |
|
|
• |
an increase in advertising and promotion expense of $7.8 million driven primarily by higher eCommerce investments, |
|
|
• |
a decrease in share-based payment and deferred compensation expense of $6.7 million, primarily due to a decrease in our share price and market declines, and |
|
|
• |
an increase of $5.7 million in self-insurance expense due to favorable claim development in the prior year. |
SG&A expenses for the second quarter of fiscal 2021 included the following items impacting the comparability of earnings:
|
|
• |
expenses of $44.3 million associated with the early extinguishment of debt, |
|
|
• |
expenses of $11.2 million in connection with our restructuring plans, and |
|
|
• |
a gain of $5.3 million related to the divestiture of a business. |
SG&A expenses totaled $655.5 million for the first half of fiscal 2022, a decrease of $2.5 million, as compared to the first half of fiscal 2021. SG&A expenses for the first half of fiscal 2022 reflected the following:
Items impacting comparability of earnings
|
|
• |
expense of $39.2 million related to the impairment of businesses held for sale, |
|
|
• |
a net benefit of $14.6 related to a legal settlement, |
|
|
• |
expenses of $11.9 million in connection with our restructuring plans, |
|
|
• |
a benefit of $3.3 million related to the sale of a legacy investment, and |
|
|
• |
expenses of $1.7 million associated with consulting fees for certain tax matters. |
Other changes in expenses compared to the first half of fiscal 2021
|
|
• |
an increase in advertising and promotion expense of $24.1 million driven primarily by higher eCommerce investments, |
30
|
|
• |
a decrease in share-based payment and deferred compensation expense of $24.0 million, due to a decrease in our share price, market declines, and a reduction of estimated level of achievement of certain performance targets, |
|
|
• |
an increase in salary, wage, and fringe benefit expense of $13.0 million, |
|
|
• |
a decrease in short-term incentive expense of $9.1 million, due to the expectation of exceeding certain performance targets in the prior year, |
|
|
• |
an increase of $6.9 million in foreign currency transaction losses, primarily due to remeasuring certain intercompany notes payable, |
|
|
• |
an increase of $6.8 million in self-insurance expense due to favorable claim development in the prior year, |
|
|
• |
an increase in information technology-related expenses of $5.8 million, and |
|
|
• |
an increase in professional fees of $2.7 million. |
SG&A expenses for the first half of fiscal 2021 included the following items impacting the comparability of earnings:
|
|
• |
expenses of $44.3 million associated with the early extinguishment of debt, |
|
|
• |
expenses of $26.7 million in connection with our restructuring plans, |
|
|
• |
a gain of $5.3 million related to the divestiture of a business, |
|
|
• |
expenses of $3.2 million associated with costs incurred for planned divestitures, |
|
|
• |
a benefit of $2.0 million related to a previous legal matter, and |
|
|
• |
expenses of $1.2 million associated with consulting fees for certain tax matters. |
Segment Operating Profit (Earnings before general corporate expenses, pension and postretirement non-service income, interest expense, net, income taxes, and equity method investment earnings)
|
|
|
Operating Profit |
|
|||||||||||||||||||||
|
($ in millions) |
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
||||||||||||||||||
|
Reporting Segment |
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
% Inc (Dec) |
|
|
November 28, 2021 |
|
|
November 29, 2020 |
|
|
% Inc (Dec) |
|
||||||
|
Grocery & Snacks |
|
$ |
249.2 |
|
|
$ |
316.1 |
|
|
|
(21 |
)% |
|
$ |
465.1 |
|
|
$ |
599.2 |
|
|
|
(22 |
)% |
|
Refrigerated & Frozen |
|
|
168.3 |
|
|
|
264.3 |
|
|
|
(36 |
)% |
|
|
325.9 |
|
|
|
504.4 |
|
|
|
(35 |
)% |
|
International |
|
|
37.1 |
|
|
|
39.5 |
|
|
|
(6 |
)% |
|
|
71.2 |
|
|
|
78.0 |
|
|
|
(9 |
)% |
|
Foodservice |
|
|
13.8 |
|
|
|
22.6 |
|
|
|
(39 |
)% |
|
|
34.1 |
|
|
|
48.0 |
|
|
|
(29 |
)% |
Operating profit in our Grocery & Snacks segment for the second quarter of fiscal 2022 reflected a decrease in gross profits of $50.8 million compared to the second quarter of fiscal 2021. The lower gross profit was driven by the net sales decline discussed above, the impacts of input cost inflation, higher inventory write-offs, unfavorable fixed cost leverage, and a reduction in profit associated with the divestitures of our H.K. Anderson® and Peter Pan® peanut butter businesses, partially offset by the benefits of supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, and a decrease in COVID-19 pandemic-related costs. Pandemic-related costs included investments in employee safety protocols, bonuses paid to supply chain employees, and costs necessary to meet elevated levels of demand. Operating profit of the Grocery & Snacks segment was impacted by expense of $2.0 million and $7.8 million related to our restructuring plans in the second quarter of fiscal 2022 and 2021, respectively. The second quarter of fiscal 2022 included expense of $22.4 million related to the impairment of businesses held for sale. The second quarter of fiscal 2021 included a gain of $5.3 million related to the divestiture of a business.
Operating profit in our Grocery & Snacks segment for the first half of fiscal 2022 reflected a decrease in gross profits of $118.2 million compared to the first half of fiscal 2021. The lower gross profit was driven by the net sales decline discussed above, the impacts of input cost inflation, higher inventory write-offs, unfavorable fixed cost leverage, and a reduction in profit associated with the divestitures of our H.K. Anderson® and Peter Pan® peanut butter businesses, partially offset by the benefits of supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, and a decrease in COVID-19 pandemic-related costs. Operating profit of the Grocery & Snacks segment was impacted by expense of $6.1 million and $21.7 million related to our restructuring plans in the first half of fiscal 2022 and 2021, respectively. The first half of fiscal 2022 included expense of $22.4 million related to the impairment of businesses held for sale. The first half of fiscal 2021 included a gain of $5.3 million related to the divestiture of a business.
31
Operating profit in our Refrigerated & Frozen segment for the second quarter of fiscal 2022 reflected a decrease in gross profits of $76.1 million compared to the second quarter of fiscal 2021. The decrease was driven by the impacts of input cost inflation, unfavorable fixed cost leverage, higher inventory write-offs, and a reduction in profit associated with the divestiture of our Egg Beaters® business, partially offset by the benefits of supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, and a decrease in COVID-19 pandemic-related costs. Operating profit of the Refrigerated & Frozen segment was impacted by expense of $6.8 million and $7.2 million related to our restructuring plans in the second quarter of fiscal 2022 and 2021, respectively. The second quarter of fiscal 2022 included expense of $12.0 million related to the impairment of businesses held for sale. Advertising and promotion expenses for the second quarter of fiscal 2022 increased by $7.2 million compared to the second quarter of fiscal 2021.
Operating profit in our Refrigerated & Frozen segment for the first half of fiscal 2022 reflected a decrease in gross profits of $151.0 million compared to the first half of fiscal 2021. The decrease was driven by the impacts of input cost inflation, unfavorable fixed cost leverage, higher inventory write-offs, and a reduction in profit associated with the divestiture of our Egg Beaters® business, partially offset by the benefits of supply chain realized productivity, cost synergies associated with the Pinnacle acquisition, and a decrease in COVID-19 pandemic-related costs. Operating profit of the Refrigerated & Frozen segment was impacted by expense of $11.8 million and $12.9 million related to our restructuring plans in the first half of fiscal 2022 and 2021, respectively. The first half of fiscal 2022 included expense of $12.0 million related to the impairment of businesses held for sale. Advertising and promotion expenses for the first half of fiscal 2022 increased by $18.4 million compared to the first half of fiscal 2021.
Operating profit in our International segment for the second quarter of fiscal 2022 reflected an increase in gross profits of $3.3 million when compared to the prior-year period due to the net sales growth discussed above and the benefits of supply chain realized productivity, partially offset by the impacts of input cost inflation. The increase in gross profit was more than offset by an increase in SG&A expenses of $5.7 million driven by higher foreign currency transaction losses, advertising and promotion expenses, and salary, wage, and fringe benefits.
Operating profit in our International segment for the first half of fiscal 2022 reflected an increase in gross profits of $5.6 million when compared to the prior-year period due to the net sales growth discussed above and the benefits of supply chain realized productivity, partially offset by the impacts of input cost inflation. The increase in gross profit was more than offset by an increase in SG&A expenses of $12.4 million driven by higher foreign currency transaction losses, advertising and promotion expenses, salary, wage, and fringe benefits, and commission expenses.
Operating profit in our Foodservice segment for the second quarter of fiscal 2022 reflected a decrease in gross profits of $5.4 million compared to the second quarter of fiscal 2021. The lower gross profit was driven by input cost inflation, which more than offset the net sales growth discussed above and the benefits of supply chain realized productivity. The second quarter of fiscal 2022 included expense of $4.8 million related to the impairment of businesses held for sale.
Operating profit in our Foodservice segment for the first half of fiscal 2022 reflected a decrease in gross profits of $9.9 million compared to the first half of fiscal 2021. The lower gross profit was driven by input cost inflation and higher inventory write-offs, which more than offset the net sales growth discussed above and the benefits of supply chain realized productivity. The first half of fiscal 2022 included expense of $4.8 million related to the impairment of businesses held for sale.
Pension and Postretirement Non-service Income
In the second quarter of fiscal 2022, pension and postretirement non-service income was $16.1 million, an increase of $2.4 million compared to the second quarter of fiscal 2021. In the first half of fiscal 2022, pension and postretirement non-service income was $32.2 million, an increase of $4.7 million compared to the first half of fiscal 2021. The second quarter and first half of fiscal 2022 reflected lower interest costs and an increase in expected returns on plan assets.
Interest Expense, Net
Net interest expense was $94.9 million and $107.7 million for the second quarter of fiscal 2022 and 2021, respectively. Net interest expense was $189.1 million and $221.4 million for the first half of fiscal 2022 and 2021, respectively. The decrease was driven by a lower weighted average interest rate on outstanding debt. See Note 4, "Long-Term Debt and Revolving Credit Facility", to the Condensed Consolidated Financial Statements contained in this report for further discussion.
32
Income Taxes
In the second quarter and first half of fiscal 2022, we recognized income tax expense of $84.2 million and $153.9 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was approximately 23.4% and 23.1% for the second quarter and first half of fiscal 2022, respectively. In the second quarter and first half of fiscal 2021, we recognized income tax expense of $80.7 million and $167.4 million, respectively. The effective tax rate was approximately 17.6% and 19.1% for the second quarter and first half of fiscal 2021, respectively. See Note 10, "Income Taxes", to the Condensed Consolidated Financial Statements contained in this report for a discussion on the change in effective tax rates.
In fiscal 2021, we completed a restructuring of our ownership interest in the Ardent Mills joint venture, a milling business ("Ardent Mills"), that utilized a portion of our capital loss carryforward prior to its expiration. Also in fiscal 2021, we completed several other transactions related to retained assets in conjunction with the divestitures of the Peter Pan® peanut butter and Egg Beaters® businesses that we believe will utilize a portion of the remaining capital loss carryforward. These transactions are subject to certain elections and are currently under review by the Internal Revenue Service. We believe they may result in increases to the tax basis in those assets and if successful would result in tax benefits being realized in future periods.
Equity Method Investment Earnings
Equity method investment earnings were $29.5 million and $23.0 million for the second quarter of fiscal 2022 and 2021, respectively. Equity method investment earnings were $49.7 million and $29.5 million for the first half of fiscal 2022 and 2021, respectively. Ardent Mills earnings for the second quarter and first half of fiscal 2022 reflected favorable market conditions.
Earnings Per Share
Diluted earnings per share in the second quarter of fiscal 2022 and 2021 were $0.57 and $0.77, respectively. Diluted earnings per share in the first half of fiscal 2022 and 2021 were $1.06 and $1.44, respectively. The decrease in diluted earnings per share reflected lower net income.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital
The primary objective of our financing strategy is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives. We use a combination of equity and short- and long-term debt. We use short-term debt principally to finance ongoing operations, including our seasonal requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts payable, accrued payroll, and other accrued liabilities). We are committed to maintaining solid investment grade credit ratings.
Management believes that existing cash balances, cash flows from operations, existing credit facilities, our commercial paper program and access to capital markets will provide sufficient liquidity to meet our debt obligations, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months.
Borrowing Facilities and Long-Term Debt
At November 28, 2021, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial institutions providing for a maximum aggregate principal amount outstanding at any one time of $1.6 billion (subject to increase to a maximum aggregate principal amount of $2.1 billion with the consent of the lenders). The Revolving Credit Facility matures on July 11, 2024 and is unsecured. The term of the Revolving Credit Facility may be extended for additional one-year or two-year periods from the then-applicable maturity date on an annual basis. In the first quarter of fiscal 2022, we entered into an amendment to the Revolving Credit Facility, which modified the ratio of funded debt to earnings before interest, taxes, depreciation, and amortization ("EBITDA") financial covenant to require a ratio of not greater than 4.5 to 1.0 on a rolling four-quarter basis. We have historically used a credit facility principally as a back-up for our commercial paper program. As of November 28, 2021, there were no outstanding borrowings under the Revolving Credit Facility.
As of November 28, 2021, we had $580.3 million outstanding under our commercial paper program. The highest level of borrowings during the first half of fiscal 2022 was $989.0 million. We had $705.7 million outstanding under our commercial paper program as of May 30, 2021.
During the first quarter of fiscal 2022, we issued $500.0 million aggregate principal amount of 0.500% senior notes due August 11, 2023. The proceeds were primarily used to refinance commercial paper borrowings.
33
For additional information about our long-term debt balances, refer to Note 4, " Long-Term Debt and Revolving Credit Facility", to the Condensed Consolidated Financial Statements contained in this report and Note 4, "Long-Term Debt", to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended May 30, 2021. The weighted average coupon interest rate of long-term debt obligations outstanding as of November 28, 2021, was approximately 4.4%.
We expect to maintain or have access to sufficient liquidity to retire or refinance long-term debt at maturity or otherwise, from operating cash flows, our commercial paper program, access to the capital markets, and our Revolving Credit Facility. We continuously evaluate opportunities to refinance our debt; however, any refinancing is subject to market conditions and other factors, including financing options that may be available to us from time to time, and there can be no assurance that we will be able to successfully refinance any debt on commercially acceptable terms at all.
As of the end of the second quarter of fiscal 2022, our senior long-term debt ratings were all investment grade. A significant downgrade in our credit ratings would not affect our ability to borrow amounts under the Revolving Credit Facility, although borrowing costs would increase. A downgrade of our short-term credit ratings would impact our ability to borrow under our commercial paper program by negatively impacting borrowing costs and causing shorter durations, as well as making access to commercial paper more difficult, or impossible.
Our most restrictive debt agreement (the Revolving Credit Facility) generally requires our ratio of EBITDA to interest expense be not less than 3.0 to 1.0 and our ratio of funded debt to EBITDA not to exceed 4.5 to 1.0, with each ratio to be calculated on a rolling four-quarter basis. As of November 28, 2021, we were in compliance with these financial covenants.
Equity and Dividends
We repurchase shares of our common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board. Under the share repurchase authorization, we may repurchase our shares periodically over several years, depending on market conditions and other factors, and may do so in open market purchases or privately negotiated transactions. The share repurchase authorization has no expiration date. During the first quarter of fiscal 2022, we repurchased 1.5 million shares of our common stock under this authorization for an aggregate of $50.0 million. We did not repurchase any shares of common stock during the second quarter of fiscal 2022. The Company's total remaining share repurchase authorization as of November 28, 2021, was $1.07 billion.
On December 1, 2021, the Company paid a quarterly cash dividend on shares of its common stock of $0.3125 per share to stockholders of record as of the close of business on November 1, 2021. On December 8, 2021, our Board announced a quarterly dividend payment of $0.3125 per share to be paid on March 2, 2022, to stockholders of record as of close of business on January 31, 2022.
Contractual Obligations
As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments. These obligations impact our liquidity and capital resource needs. In addition to principal and interest payments on our outstanding long-term debt and notes payable balances, discussed above, our contractual obligations primarily consist of leases payments, income taxes, pension and postretirement benefits, and unconditional purchase obligations.
As of November 28, 2021, our finance and operating lease liabilities reported in our Condensed Consolidated Balance Sheet totaled $138.5 million and $255.5 million, respectively. We have entered into contracts that are or contain a lease that have not yet commenced with aggregate payments totaling $279.4 million, as of November 28, 2021. For additional information, refer to Note 15, "Leases", to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended May 30, 2021.
The liability for gross unrecognized tax benefits related to uncertain tax positions was $25.3 million as of November 28, 2021. For additional information, refer to Note 10, " Income Taxes", to the Condensed Consolidated Financial Statements contained in this report and Note 14, "Pre-Tax Income and Income Taxes", to the Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended May 30, 2021.
As of May 30, 2021, we had an aggregate funded pension asset of $109.6 million and an aggregate unfunded postretirement benefit obligation totaling $78.2 million. We expect to make payments totaling approximately $12.3 million and $9.0 million in fiscal 2022 to fund our pension and postretirement plans, respectively. See Note 12 "Pension and Postretirement Benefits", to the
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Condensed Consolidated Financial Statements contained in this report and Note 18, "Pension and Postretirement Benefits", to the Consolidated Financial Statements and "Critical Accounting Estimates – Employment-Related Benefits" contained in the Company's Annual Report on Form 10-K for the fiscal year ended May 30, 2021, for further discussion of our pension obligation and factors that could affect estimates of these obligations.
As of November 28, 2021, our unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-pay" contracts) totaled approximately $1.83 billion. Approximately $1.38 billion of this balance is due in less than one year. Included in this amount are open purchase orders and other supply agreements totaling approximately $1.20 billion, which are generally settleable in the ordinary course of business. Some are not legally binding and/or may be cancellable. Warehousing service agreements totaling approximately $390 million make up a majority of our remaining unconditional purchase obligations, with various terms of up to 20 years.
Capital Expenditures
We continue to make investments in our business and operating facilities. Our estimate of capital expenditures for fiscal 2022 is approximately $500 million.
Supplier Arrangements
We offer certain suppliers access to a third-party service that allows them to view our scheduled payments online. The third-party service also allows suppliers to finance advances on our scheduled payments at the sole discretion of the supplier and the third party. We have no economic interest in these financing arrangements and no direct relationship with the suppliers, the third party, or any financial institutions concerning this service. All balances remain as obligations to our suppliers as stated in our supplier agreements and are reflected in accounts payable within our Condensed Consolidated Balance Sheets. The associated payments are included in net cash flows from operating activities within our Condensed Consolidated Statements of Cash Flows. As of November 28, 2021 and May 31, 2020, $271.6 million and $279.3 million, respectively, of our total accounts payable was payable to suppliers who utilize this third-party service.
The program commenced at about the same time that we began an initiative to negotiate extended payment terms with our suppliers. Although difficult to predict, we generally expect the incremental cash flow benefits associated with these extended payment terms to increase at a slower rate in the future. A number of factors may impact our future payment terms, including our relative creditworthiness, overall market liquidity, and changes in interest rates and other general economic conditions.
Cash Flows
During the first half of fiscal 2022, we used $11.5 million of cash, which was the net result of $262.1 million generated from operating activities, $244.2 million used in investing activities, $23.7 million used in financing activities, and a decrease of $5.7 million due to the effects of changes in foreign currency exchange rates.
Cash generated from operating activities totaled $262.1 million and $541.4 million in the first half of fiscal 2022 and 2021, respectively. The decrease in operating cash flows for the first half of fiscal 2022 compared to the first half of fiscal 2021 was primarily driven by lower gross profits, which reflect the impact of realized input cost inflation and higher transportation costs. Comparative changes in working capital balances were also negatively impacted by the timing of accounts payable payments. This was partially offset by decreased tax, interest, and pension contribution payments for the first half of fiscal 2022 compared to fiscal 2021. Tax payments for the first quarter of fiscal 2021 included approximately $47.0 million of fourth quarter fiscal 2020 tax payments, which were deferred due to the extension of the deadline for certain federal cash tax payments. Operating cash flows in the first half of fiscal 2021 benefited from the deferral of $29.2 million of employer payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act. Payments totaling 50% of such amounts will occur in the third quarter of both fiscal 2022 and 2023.
Cash used in investing activities totaled $244.2 million and $270.5 million in the first half of fiscal 2022 and 2021, respectively. Net cash outflows from investing activities in the first half of fiscal 2022 and 2021 consisted primarily of capital expenditures totaling $257.5 million and $282.0 million, respectively. Investing cash flows for the first half of fiscal 2021 also included proceeds from divestitures totaling $8.6 million, mainly from the sale of our H.K. Anderson® business.
Cash used in financing activities totaled $23.7 million and $760.0 million in the first half of fiscal 2022 and 2021, respectively. Financing activities in the first half of fiscal 2022 principally reflect net proceeds of $499.1 million from the issuance of $500.0 million aggregate principal amount of long-term debt, net short-term borrowing repayments of $121.6 million, cash dividends paid of $282.0 million, and common stock repurchases of $50.0 million. Financing activities in the first half of fiscal 2021 reflect repayments
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of long-term debt of $1.88 billion, the issuance of long-term debt totaling $988.2 million, net short-term borrowings of $367.5 million, and cash dividends paid of $207.3 million.
Cash Held by International Subsidiaries
The Company had cash and cash equivalents of $68.7 million at November 28, 2021 and $79.2 million at May 30, 2021, of which $59.4 million at November 28, 2021, and $72.4 million at May 30, 2021 was held in foreign countries. We believe that our foreign subsidiaries have invested or will invest any undistributed earnings indefinitely, or that any undistributed earnings will be remitted in a tax-neutral transaction, and, therefore, do not provide deferred taxes on the cumulative undistributed earnings of our foreign subsidiaries.
CRITICAL ACCOUNTING ESTIMATES
For further discussion of our critical accounting estimates, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended May 30, 2021.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks affecting us are exposures to price fluctuations of commodity and energy inputs, interest rates, and foreign currencies.
Other than the changes noted below, there have been no material changes in our market risk during the twenty-six weeks ended November 28, 2021. For additional information, refer to the "Quantitative and Qualitative Disclosures About Market Risk" section in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended May 30, 2021.
Commodity Market Risk
We purchase commodity inputs such as wheat, corn, oats, soybean meal, soybean oil, meat, dairy products, nuts, sugar, natural gas, electricity, and packaging materials to be used in our operations. These commodities are subject to price fluctuations that may create price risk. We enter into commodity hedges to manage this price risk using physical forward contracts or derivative instruments. We have policies governing the hedging instruments our businesses may use. These policies include limiting the dollar risk exposure for each of our businesses. We also monitor the amount of associated counter-party credit risk for all non-exchange-traded transactions.
Interest Rate Risk
We may use interest rate swaps to manage the effect of interest rate changes on the fair value of our existing debt as well as the forecasted interest payments for the anticipated issuance of debt.
The carrying amount of long-term debt (including current installments) was $8.80 billion as of November 28, 2021. Based on current market rates, the fair value of this debt at November 28, 2021 was estimated at $10.19 billion. As of November 28, 2021, a 1% increase in the interest rates would decrease the fair value of our fixed rate debt by approximately $666.8 million, while a 1% decrease in interest rates would increase the fair value of our fixed rate debt by approximately $762.2 million.
Foreign Currency Risk
In order to reduce exposures for our processing activities related to changes in foreign currency exchange rates, we may enter into forward exchange or option contracts for transactions denominated in a currency other than the functional currency for certain of our operations. This activity primarily relates to economically hedging against foreign currency risk in purchasing inventory and capital equipment, sales of finished goods, and future settlement of foreign denominated assets and liabilities.
Effect of Hypothetical 10% Fluctuation
We changed the disclosure alternative for reporting our commodity and foreign exchange derivatives (inclusive of commodity and foreign exchange swaps, futures, forwards, and options) in the second quarter of fiscal 2022 from a value-at-risk ("VaR") model to a hypothetical sensitivity analysis. The change in the methodology was made to simplify and enhance the information presented about the sensitivities of our derivative positions.
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The potential gain or loss on the fair value of our outstanding commodity and foreign exchange contracts, assuming a hypothetical 10% fluctuation in commodity prices and foreign currency exchange rates, would have been (in millions):
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Fair Value Impact |
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In Millions |
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November 28, 2021 |
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November 29, 2020 |
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Energy commodities |
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$ |
1.3 |
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$ |
2.9 |
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Agriculture commodities |
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4.2 |
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1.5 |
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Foreign exchange |
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8.6 |
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10.1 |
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It should be noted that any change in the fair value of our derivative contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. In relation to foreign currency contracts, this hypothetical calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's management carried out an evaluation, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of November 28, 2021. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated any change in the Company's internal control over financial reporting that occurred during the quarter covered by this report and determined that there was no change in our internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For additional information on legal proceedings, please refer to Note 16, "Contingencies," to the financial statements contained in our Annual Report on Form 10-K for the year ended May 30, 2021 and Note 11, "Contingencies," to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
A discussion of our risk factors can be found in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended May 30, 2021 and in our other filings with the SEC. During the second quarter of fiscal 2022, there were no material changes to our previously disclosed risk factors.
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ITEM 6. EXHIBITS
All documents referenced below were filed pursuant to the Securities Exchange Act of 1934, as amended, by Conagra Brands, Inc. (file number 001-07275), unless otherwise noted.
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EXHIBIT |
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DESCRIPTION |
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3.1 |
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3.2 |
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31.1 |
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31.2 |
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32 |
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101 |
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The following materials from Conagra Brands' Quarterly Report on Form 10-Q for the quarter ended November 28, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) Notes to Condensed Consolidated Financial Statements, and (vi) document and entity information. |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CONAGRA BRANDS, INC. |
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By: |
/s/ DAVID S. MARBERGER |
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David S. Marberger |
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Executive Vice President and Chief Financial Officer |
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By: |
/s/ ROBERT G. WISE |
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Robert G. Wise |
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Senior Vice President and Corporate Controller |
Dated this 6th day of January, 2022.
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