UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 25, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________to_____________ Commission File Number 1-7275 ___________________________________________ CONAGRA, INC. __________________________________________________________________ (Exact name of registrant, as specified in charter) Delaware 47-0248710 __________________________________________________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One ConAgra Drive, Omaha, Nebraska 68102-5001 __________________________________________________________________ (Address of Principal Executive Offices) (Zip Code) (402) 595-4000 __________________________________________________________________ (Registrant's telephone number, including area code) NA __________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _______ _______ Number of shares outstanding of issuer's common stock, as of September 22, 1996 was 240,757,570. PART I - FINANCIAL INFORMATION CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Millions) AUG 25, MAY 26, AUG 27, 1996 1996 1995 _________ _________ _________ ASSETS Current assets: Cash and cash equivalents $ 34.5 $ 113.7 $ 92.2 Receivables, less allowance for doubtful accounts of $61.5, $52.1 and $61.3 2,376.7 1,428.4 2,472.3 Inventory: Hedged commodities 904.8 1,369.4 1,037.9 Other 2,521.9 2,204.0 2,471.8 _________ _________ _________ Total inventory 3,426.7 3,573.4 3,509.7 Prepaid expenses 439.4 451.4 401.5 _________ _________ _________ Total current assets 6,277.3 5,566.9 6,475.7 _________ _________ _________ Property, plant and equipment: Cost 5,022.3 4,971.3 4,666.2 Less accumulated depreciation 1,948.9 1,915.0 1,800.5 Less valuation reserve related to restructuring 176.8 235.8 - _________ _________ _________ Property, plant and equipment, net 2,896.6 2,820.5 2,865.7 Brands, trademarks and goodwill, at cost less accumulated amortization 2,457.3 2,405.6 2,519.1 Other assets 390.4 403.6 429.7 _________ _________ _________ $12,021.6 $11,196.6 $12,290.2 _________ _________ _________ _________ _________ _________ The accompanying notes are an integral part of the consolidated financial statements. CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Millions) AUG 25, MAY 26, AUG 27, 1996 1996 1995 _________ _________ _________ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 3,521.5 $ 416.3 $ 3,062.5 Current installments of long-term debt 80.2 142.5 108.1 Accounts payable 861.5 1,856.9 1,004.1 Advances on sales 190.6 1,390.9 190.2 Other accrued liabilities 1,408.6 1,387.1 1,463.1 _________ _________ _________ Total current liabilities 6,062.4 5,193.7 5,828.0 _________ _________ _________ Senior long-term debt, excluding current installments 1,502.3 1,512.9 1,664.2 Other noncurrent liabilities 959.9 959.5 920.4 Subordinated debt 750.0 750.0 750.0 Preferred securities of subsidiary company 525.0 525.0 525.0 Preferred shares subject to mandatory redemption - - 269.5 Common stockholders' equity: Common stock of $5 par value, authorized 1,200,000,000 shares, issued 253,025,715, 252,990,917 and 252,922,486 1,265.1 1,264.9 1,264.6 Additional paid-in capital 434.4 423.1 513.7 Retained earnings 1,726.1 1,683.5 1,748.1 Foreign currency translation adjustment (33.3) (39.1) (45.2) Less treasury stock, at cost, common shares 12,278,568, 9,834,464 and 12,353,384 (497.4) (390.0) (414.8) _________ _________ _________ 2,894.9 2,942.4 3,066.4 Less unearned restricted stock and value of 15,271,433, 16,014,644 and 18,239,477 common shares held in EEF (672.9) (686.9) (733.3) _________ _________ _________ Total common stockholders' equity 2,222.0 2,255.5 2,333.1 _________ _________ _________ $12,021.6 $11,196.6 $12,290.2 _________ _________ _________ _________ _________ _________ The accompanying notes are an integral part of the consolidated financial statements. CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and shares in millions except per share amounts) THIRTEEN WEEKS ENDED AUG 25, AUG 27, 1996 1995 _________ _________ Net sales $ 6,404.3 $ 6,436.2 _________ _________ Costs and expenses: Cost of goods sold 5,612.4 5,634.4 Selling, administrative and general expenses 559.0 578.3 Interest expense, net 70.1 75.9 _________ _________ 6,241.5 6,288.6 _________ _________ Income before income taxes 162.8 147.6 Income taxes 66.7 60.5 _________ _________ Net income 96.1 87.1 Less preferred dividends - 5.1 _________ _________ Net income available for common stock $ 96.1 $ 82.0 _________ _________ _________ _________ Earnings per common and common equivalent share $ 0.42 $ 0.36 _________ _________ _________ _________ Weighted average number of common and common equivalent shares outstanding 228.9 227.5 _________ _________ _________ _________ Cash dividends declared per common share $ 0.238 $ 0.208 _________ _________ _________ _________ The accompanying notes are an integral part of the consolidated financial statements. CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Millions) THIRTEEN WEEKS ENDED AUG 25, AUG 27, Increase (decrease) in Cash and Cash Equivalents 1996 1995 _________ _________ Cash flows from operating activities: Net income $ 96.1 $ 87.1 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and other amortization 88.0 87.2 Goodwill amortization 17.2 17.7 Other noncash items (includes nonpension postretirement benefits) 10.3 16.7 Change in assets and liabilities before effects from business acquisitions (2,980.1) (2,600.0) _________ _________ Net cash flows from operating activities (2,768.5) (2,391.3) _________ _________ Cash flows from investing activities: Sale of property, plant and equipment 5.9 8.6 Additions to property, plant and equipment (124.4) (120.9) Payment for business acquisitions (76.7) (162.7) Monfort Finance Company notes receivable and other items 11.2 40.2 _________ _________ Net cash flows from investing activities (184.0) (234.8) _________ _________ Cash flows from financing activities: Net short term borrowings 3,105.2 3,062.5 Cash dividends paid (53.9) (53.1) Repayment of long-term debt (78.4) (46.5) Treasury stock purchases (105.4) (311.6) Employee Equity Fund stock transactions 4.4 1.9 Other items 1.4 5.1 _________ _________ Net cash flows from financing activities 2,873.3 2,658.3 _________ _________ Net increase (decrease) in cash & cash equivalents (79.2) 32.2 Cash and cash equivalents at beginning of year 113.7 60.0 _________ _________ Cash and cash equivalents at end of period $ 34.5 $ 92.2 _________ _________ _________ _________ The accompanying notes are an integral part of the consolidated financial statements. CONAGRA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AUGUST 25, 1996 (1) The information furnished herein relating to interim periods has not been examined by independent Certified Public Accountants. In the opinion of management, all adjustments necessary for a fair statement of the results for the periods covered have been included. All such adjustments are of a normal recurring nature. The accounting policies followed by the Company, and additional footnotes, are set forth in the financial statements included in the Company's 1996 annual report, which report was incorporated by reference in Form 10-K for the fiscal year ended May 26, 1996. (2) The composition of inventories is as follows (in millions): AUG 25, MAY 26, AUG 27, 1996 1996 1995 __________ __________ __________ Hedged commodities $ 904.8 $ 1,369.4 $ 1,037.9 Food products and livestock 1,257.5 1,219.9 1,253.8 Agricultural chemicals, fertilizer and feed 654.9 399.4 583.8 Retail merchandise 120.0 122.7 180.2 Other, principally ingredients and supplies 489.5 462.0 454.0 __________ __________ __________ $ 3,426.7 $ 3,573.4 $ 3,509.7 __________ __________ __________ __________ __________ __________ (3) On August 29, 1996, the Company purchased certain assets of Gilroy Foods from McCormick & Company, Inc. for approximately $132 million in cash. Gilroy Foods, based in Gilroy, California, manufactures dehydrated garlic and onion products principally for industrial markets. Gilroy Foods' sales in 1995 were approximately $200 million. (4) Following is a condensed statement of common stockholders' equity (in millions): <TABLE> <captions> Unearned Add'l Foreign Restricted Common Paid-In Retained Curr Treasury & EEF Stock Capital Earnings Trns Adj Stock Stock Total __________ __________ __________ __________ __________ __________ __________ <S> <C> <C> <C> <C> <C> <C> <C> Balance 5/26/96 $ $1,264.9 $ $423.1 $ $1,683.5 $ ($39.1)$ ($390.0)$ ($686.9) $ $2,255.5 Shares issued Stock option and incentive plans 0.1 0.2 0.3 EEF*: stock option, incentive and other employee benefit plans 24.3 24.3 Fair market valuation of EEF shares 7.6 (7.6) - Acquisitions 0.1 (20.8) 0.5 Shares acquired Incentive plans (2.0) 0.4 (1.6) Treasury shares purchased (105.4) (105.4) Foreign currency translation adjustment 5.8 5.8 Cash dividends declared - common stock (53.5) (53.5) Net income 96.1 96.1 __________ __________ __________ __________ __________ __________ __________ Balance 8/25/96 $ $1,265.1 $ $434.4 $ $1,726.1 $ ($33.3)$ ($497.4)$ ($672.9) $ $2,222.0 __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ __________ *Employee Equity Fund </TABLE> (5) In fiscal 1991, ConAgra acquired Beatrice Company (Beatrice). As a result of the acquisition and the significant pre-acquisition tax and other contingencies of the Beatrice businesses and its former subsidiaries, the consolidated post-acquisition financial statements of ConAgra have reflected significant liabilities and valuation allowances associated with the estimated resolution of these contingencies. As a result of a settlement reached with the Internal Revenue Service in fiscal 1995, ConAgra released $230.0 million of a valuation allowance and reduced noncurrent liabilities by $135.0 million, with a resulting reduction of goodwill associated with the Beatrice acquisition of $365.0 million. Federal income tax returns of Beatrice for its fiscal 1990 and various state tax returns remain open. However, after taking into account the foregoing adjustments, management believes that the ultimate resolution of all remaining pre-acquisition Beatrice tax contingencies should not exceed the reserves established for such matters. Beatrice is also engaged in various litigation and environmental proceedings related to businesses divested by Beatrice prior to its acquisition by ConAgra. The environmental proceedings include litigation and administrative proceedings involving Beatrice's status as a potentially responsible party at 44 Superfund, proposed Superfund or state-equivalent sites. Beatrice has paid or is in the process of paying its liability share at 41 of these sites. Beatrice has established substantial reserves for these matters. The environmental reserves are based on Beatrice's best estimate of its undiscounted remediation liabilities, which estimates include evaluation of investigatory studies, extent of required cleanup, the known volumetric contribution of Beatrice and other potentially responsible parties and Beatrice's prior experience in remediating sites. Management believes the ultimate resolution of such Beatrice legal and environmental contingenices should not exceed the reserves established for such matters. ConAgra is party to a number of other lawsuits and claims arising out of the operation of its businesses. After taking into account liabilities recorded for all of the foregoing matters, management believes the ultimate resolution of such matters should not have a material adverse effect on ConAgra's financial condition, results of operation or liquidity. (6) Earnings per common and common equivalent share are calculated on the basis of the weighted average outstanding common shares and, when applicable, those outstanding options that are dilutive and after giving effect to the preferred stock dividend requirements. Fully diluted earnings per share did not differ significantly from primary earnings per share in any period presented. (7) On October 3, 1996, the Company issued $400 million of senior notes with an interest rate of 7.125% due October 1, 2026 and redeemable at the option of the holders on October 1, 2006. The notes were priced at 99.375% of par. CONAGRA, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following is management's discussion and analysis of certain significant factors which have affected the Company's financial condition and operating results for the periods included in the accompanying consolidated condensed financial statements. Results for the fiscal 1997 first quarter are not necessarily indicative of results which may be attained in the future. FINANCIAL CONDITION Versus fiscal year end 1996, the Company's capital investment (working capital plus noncurrent assets) decreased $43.7 million. Working capital decreased $158.3 million and noncurrent assets increased $114.6 million. The decrease in working capital resulted from an increase in short term debt due to business acquisitions, normal property, plant and equipment additions, from treasury stock purchases and a normal seasonal increase in accounts receivable. The Company's objective is that senior long-term debt normally will not exceed 30 percent of total long-term debt plus equity. This objective was met for all periods presented. OPERATING RESULTS A summary of the period to period increases (decreases) in the principal components of operations is shown below (dollars in millions, except per share amounts). COMPARISON OF THE PERIODS ENDED AUG. 25, 1996 & AUG. 27, 1995 THIRTEEN WEEKS DOLLARS % ________________ Net sales (31.9) (0.5) Cost of goods sold (22.0) (0.4) Gross profit (9.9) (1.2) Selling, administrative and general expenses (19.3) (3.3) Interest expense, net (5.8) (7.6) Income before income taxes 15.2 10.3 Income taxes 6.2 10.2 Net income 9.0 10.3 Preferred Dividends (5.1) (100.0) Net Income available for common stock 14.1 17.2 Earnings per common and common equivalent share 0.06 16.7 Two of ConAgra's industry segments, Food Inputs & Ingredients and Grocery/Diversified Products increased operating profit in the first quarter of fiscal 1997 versus the same period in fiscal 1996. The increase in those segments was somewhat offset by a decrease in the Refrigerated Foods segment first quarter operating profit. ConAgra's total sales in the first quarter were about even with the same period last year, while costs and expenses were down versus the first quarter of fiscal 1996. Sources of increased sales and related cost of goods sold during the first quarter of fiscal 1997 were the Grocery/Diversified Products segment and the inputs and grain processing businesses in the Food Inputs & Ingredients segment. Refrigerated Foods segment sales and related cost of sales declined in the first quarter, mainly due to beef and poultry business dispositions in fiscal 1996 and lower selling prices in the beef business. Selling, general and administrative expenses for all segments in the first quarter of fiscal 1997 were lower than the same period in fiscal 1996. Consequently, net income increased $9 million in the first quarter of fiscal 1997 versus the same period last year. In the Grocery/Diversified Products industry segment, operating profit increased 19 percent and sales increased 9 percent in fiscal 1997's first quarter versus fiscal 1996's first quarter. Unit volume growth in the two largest Grocery Products businesses, Hunt-Wesson and ConAgra Frozen Foods, contributed to increased operating profit. Golden Valley Microwave Foods also increased operating profit. The Lamb-Weston potato products business had earnings below last year's results. In ConAgra's Food Inputs & Ingredients industry segment, operating profit increased 20 percent and sales increased 1 percent in fiscal 1997's first quarter versus fiscal 1996's first quarter. Excluding business dispositions during and after fiscal 1996's first quarter, segment sales increased nearly 5 percent. Grain merchandising was the largest source of the Food Input & Ingredients segment's operating profit growth. Flour milling, Europe processing operations, the dry edible beans business, commodity services and specialty retailing contributed to segment profit growth. Crop input earnings declined as weather conditions delayed planting and deferred sales of crop protection chemicals and fertilizer. In ConAgra's Refrigerated Foods industry segment, operating profit decreased 8 percent and sales decreased 4 percent in fiscal 1997's first quarter versus fiscal 1996's first quarter. First quarter earnings were on plan. The sales decline was caused by beef and poultry business dispositions last year and lower selling prices in the U.S. beef industry. In the U.S. beef business, first quarter operating profit declined compared to last year, while pork products increased its operating profit. High grain-based feed ingredients caused poulty products operating profit to decline. Processed meats earnings were down, while cheese products earnings rose. Operating profit is based on net sales less all identifiable operating expenses and includes the related equity in earnings of companies included on the basis of the equity method of accounting. General corporate expense, interest expense (except financial businesses), income taxes and goodwill amortization are excluded from segment operating profit. For financial businesses, operating profit includes the effect of interest, which is a large element of their operating costs. Summarizing ConAgra's results for fiscal 1997's first quarter compared to fiscal 1996's first quarter: earnings per share 42 cents, up 17 percent from 36 cents; net income available for common stock (net income minus preferred dividends) $96.1 million, up 17 percent from $82.0 million; net sales $6.40 billion down from $6.44 billion due to business dispositions and lower beef selling prices. Fiscal 1997 first quarter earnings per share growth of 17 percent is consistent with the 17 percent increase in net income available for common stock, the net earnings measure which includes comparable financing expense. ConAgra redeemed the company's Class E preferred stock during fiscal 1996's second quarter. The reduction of $5.1 million in preferred dividends from fiscal 1996's first quarter to fiscal 1997's first quarter is approximately offset by the expense of financing the Class E preferred stock redemption. Weighted average shares outstanding increased in fiscal 1997's first quarter over fiscal 1996's first quarter as a result of common stock repurchases in fiscal 1996's first quarter in anticipation of the conversion of the Class E preferred stock. CONAGRA, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. ConAgra's annual meeting of stockholders was held on September 26, 1996. The stockholders elected five directors to serve three-year terms and ratified the appointment of Deloitte & Touche to examine ConAgra's financial statements. Voting on these items was as follows: 1. ELECTION OF DIRECTORS. FOR WITHHELD R. W. Roskens 199,838,041 5,070,336 J. J. Thompson 201,113,459 3,794,918 F. B. Wells 199,893,040 5,015,337 T. R. Williams 200,131,198 4,777,179 C. Yeutter 201,069,615 3,838,762 2. RATIFICATION OF ACCOUNTANTS FOR: 204,979,362 AGAINST: 750,086 ABSTAIN: 1,076,960 BROKER/NON-VOTES: -0- ITEM 5. OTHER INFORMATION. On September 26, 1996, ConAgra's Board of Directors established committees of the Board of Directors as follows: Executive Committee consisting of Charles M. Harper (Chairman), Philip B. Fletcher, Walter Scott, Jr., Gerald Rauenhorst and Bruce Rohde; Audit Committee consisting of Walter Scott, Jr. (Chairman), Robert A. Krane, Jane J. Thompson and Frederick B. Wells; Human Resources Committee consisting of Carl Reichardt (Chairman), Thomas R. Williams and Clayton Yeutter; and Corporate Affairs Committee consisting of William G. Stocks (Chairman), Ronald W. Roskens, Marjorie M. Scardino and Gerald Rauenhorst. On September 26, 1996, ConAgra's Board of Directors approved a 14.7% increase in the Company's common stock dividend. A quarterly common stock dividend of $.2725 per share was declared payable December 2, 1996 to stockholders of record November 1, 1996. The new indicated annual dividend rate is $1.09 per share, up from $.95 per share. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS. 12 - Statement regarding computation of ratio of earnings to fixed charges. 4 - Form of Note in connection with the Company's sale of senior notes on October 3, 1996. (B) REPORTS ON FORM 8-K. ConAgra filed a report on Form 8-K dated August 26, 1996 reporting that ConAgra's Board of Directors had (i) elected Bruce Rohde a member of the Board of Directors, Vice Chairman of the Board and President of ConAgra, and (ii) formed an Office of the Chairman consisting of Philip B. Fletcher, Bruce Rohde and Leroy Lochmann. CONAGRA, INC. By: /s/ James P. O'Donnell _________________________ James P. O'Donnell Senior Vice President and Chief Financial Officer By: /s/ Kenneth W. DiFonzo _________________________ Kenneth W. DiFonzo Vice President and Controller Dated this 8th day of October, 1996. EXHIBIT INDEX EXHIBIT DESCRIPTION PAGE 4 - Form of Note in connection with the Company's sale of senior notes on October 3, 1996.............................. 12 - Statement regarding computation of ratio of earnings to fixed charges.................