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 February 23, 1997 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 March 23, 1997 was 238,804,275 PART I - FINANCIAL INFORMATION CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Millions) FEB 23, MAY 26, FEB 25, 1997 1996 1996 ________ ________ ________ ASSETS Current assets: Cash and cash equivalents $ 64.5 $ 113.7 $ 59.1 Receivables, less allowance for doubtful accounts of $75.4, $52.1 and $72.4 2,053.0 1,428.4 2,092.0 Inventory: Hedged commodities 1,143.6 1,369.4 1,484.9 Other 2,548.4 2,204.0 2,463.9 _________ _________ ________ Total inventory 3,692.0 3,573.4 3,948.8 Prepaid expenses 434.1 451.4 407.2 _________ _________ ________ Total current assets 6,243.6 5,566.9 6,507.1 _________ _________ ________ Property, plant and equipment: Cost 5,321.2 4,971.3 5,291.2 Less accumulated depreciation 2,091.2 1,915.0 2,008.1 Less valuation reserve related to restructuring 152.0 235.8 - __________ _________ _________ Property, plant and equipment, net 3,078.0 2,820.5 3,283.1 Brands, trademarks and goodwill, at cost less accumulated amortization 2,446.4 2,405.6 2,549.4 Other assets 409.6 403.6 415.6 __________ __________ __________ $ 12,177.6 $ 11,196.6 $ 12,755.2 __________ __________ __________ __________ __________ __________ The accompanying notes are an integral part of the consolidated financial statements. CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Millions) FEB 23, MAY 26, FEB 25, 1997 1996 1996 __________ __________ ________ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 1,992.8 $ 416.3 $ 2,810.9 Current installments of long-term debt 340.6 142.5 136.4 Accounts payable 2,025.1 1,856.9 1,785.8 Advances on sales 217.4 1,390.9 293.3 Other accrued liabilities 1,411.8 1,387.1 1,473.8 __________ __________ ________ Total current liabilities 5,987.7 5,193.7 6,500.2 __________ __________ ________ Senior long-term debt, excluding current installments 1,583.5 1,512.9 1,600.3 Other noncurrent liabilities 911.5 959.5 904.7 Subordinated debt 750.0 750.0 750.0 Preferred securities of subsidiary company 525.0 525.0 525.0 Common stockholders' equity: Common stock of $5 par value, authorized 1,200,000,000 shares, issued 253,060,007, 252,990,917 and 253,151,573 1,265.3 1,264.9 1,265.8 Additional paid-in capital 573.0 423.1 454.4 Retained earnings 1,935.8 1,683.5 1,931.1 Foreign currency translation adjustment (25.8) (39.1) (39.1) Less treasury stock, at cost, common shares 13,422,401, 9,834,464 and 10,073,548 (556.8) (390.0) (399.1) __________ ________ _______ 3,191.5 2,942.4 3,213.1 Less unearned restricted stock and value of 13,854,176, 16,014,644 and 16,647,309 common shares held in EEF (771.6) (686.9) (738.1) __________ _________ ________ Total common stockholders' equity 2,419.9 2,255.5 2,475.0 __________ _________ ________ $ 12,177.6 $11,196.6 $12,755.2 __________ _________ ________ __________ _________ ________ 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 FEB 23, FEB 25, 1997 1996 __________ __________ Net sales $ 5,635.0 $ 5,772.9 __________ __________ Costs and expenses: Cost of goods sold 4,757.4 4,905.2 Selling, general and administrative expenses 561.2 570.5 Interest expense, net 73.3 82.6 __________ __________ 5,391.9 5,558.3 __________ __________ Income before income taxes 243.1 214.6 Income taxes 98.0 86.2 __________ __________ Net income 145.1 128.4 Less preferred dividends - - __________ __________ Net income available for common stock $ 145.1 $ 128.4 __________ __________ __________ __________ Earnings per common and common equivalent share $ 0.63 $ 0.55 __________ __________ __________ __________ Weighted average number of common and common equivalent shares outstanding 229.8 232.7 __________ __________ __________ __________ Cash dividends declared per common share $ 0.273 $ 0.238 __________ __________ __________ __________ CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and shares in millions except per share amounts) THIRTY-NINE WEEKS ENDED FEB 23, FEB 25, 1997 1996 __________ __________ Net sales $ 18,803.8 $ 18,839.0 __________ __________ Costs and expenses: Cost of goods sold 16,176.1 16,217.0 Selling, general and administrative expenses 1,689.4 1,740.4 Interest expense, net 216.1 236.1 __________ __________ 18,081.6 18,193.5 __________ __________ Income before income taxes 722.2 645.5 Income taxes 293.7 262.9 __________ __________ Net income 428.5 382.6 Less preferred dividends - 8.6 __________ __________ Net income available for common stock $ 428.5 $ 374.0 __________ __________ __________ __________ Earnings per common and common equivalent share $ 1.87 $ 1.63 __________ __________ __________ __________ Weighted average number of common and common equivalent shares outstanding 229.5 229.0 __________ __________ __________ __________ Cash dividends declared per common share $ 0.783 $ 0.683 __________ __________ __________ __________ The accompanying notes are an integral part of the consolidated financial statements. CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Millions) THIRTY-NINE WEEKS ENDED FEB 23, FEB 25, Decrease in Cash and Cash Equivalents 1997 1996 __________ __________ Cash flows from operating activities Net income $ 428.5 $ 382.6 Adjustments to reconcile net income to net cash used in operating activities Depreciation and other amortization 261.4 241.4 Goodwill amortization 52.2 54.0 Other noncash items (includes nonpension postretirement benefits) (6.6) 30.2 Change in assets and liabilities before effects from business acquisitions (1,593.7) (1,749.0) __________ __________ Net cash flows from operating activities (858.2) (1,040.8) __________ __________ Cash flows from investing activities: Sale of property, plant and equipment 24.6 66.4 Additions to property, plant and equipment (446.1) (414.6) Payment for business acquisitions (197.8) (493.6) Monfort Finance Company notes receivable (17.4) 70.4 Other items (14.3) 26.7 __________ __________ Net cash flows from investing activities (651.0) (744.7) __________ __________ Cash flows from financing activities: Net short-term borrowings 1,561.2 2,808.2 Decrease in accounts receivable sold (50.5) - Proceeds from issuance of long-term debt 397.5 - Cash dividends paid (168.5) (160.5) Repayment of long-term debt (130.2) (163.0) Treasury stock purchases (160.0) (664.0) Employee Equity Fund stock transactions 12.4 7.5 Other items (1.9) (43.6) __________ __________ Net cash flows from financing activities 1,460.0 1,784.6 __________ __________ Net decrease in cash and cash equivalents (49.2) (0.9) Cash and cash equivalents at beginning of year 113.7 60.0 __________ __________ Cash and cash equivalents at end of period $ 64.5 $ 59.1 __________ __________ __________ __________ The accompanying notes are an integral part of the consolidated financial statements. CONAGRA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FEBRUARY 23, 1997 (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): FEB 23, MAY 26, FEB 25, 1997 1996 1996 __________ __________ __________ Hedged commodities $ 1,143.6 $ 1,369.4 $ 1,484.9 Food products and livestock 1,252.2 1,219.9 1,385.3 Agricultural chemicals, fertilizer and feed 498.4 399.4 430.0 Retail merchandise 106.0 122.7 163.4 Other, principally ingredients and supplies 691.8 462.0 485.2 __________ __________ __________ $ 3,692.0 $ 3,573.4 $ 3,948.8 __________ __________ __________ __________ __________ __________ (3) On August 29, 1996, the Company purchased certain assets of Gilroy Foods from McCormick & Company, Inc. for approximately $121 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 0.4 1.0 0.5 1.9 EEF*: stock option, incentive and other employee benefit plans 7.0 57.0 64.0 Fair market valuation of EEF shares 141.9 (141.9) - Acquisitions 0.5 0.5 Shares acquired Incentive plans (7.8) 0.2 (7.6) Treasury shares purchased (160.0) (160.0) Foreign currency translation adjustment 13.3 13.3 Cash dividends declared - common stock (176.2) (176.2) Net income 428.5 428.5 ___________ ___________ ___________ ___________ ___________ ___________ ___________ Balance 2/23/97 $ $1,265.3 $ $573.0 $ $1,935.8 $ ($25.8)$ ($556.8)$ ($771.6) $ $2,419.9 ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ *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. Various state tax returns of Beatrice 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 43 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) The Company adopted Statement of Financial Accounting Standards No. 125 ("SFAS 125"), which is effective for transfers of financial assets beginning in 1997. SFAS 125 will have no impact on the Company's reported results of operation or financial position. (8) 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. (8) In December, 1996, the Company's Board of Directors authorized ConAgra to purchase up to five million shares of the Company's outstanding common stock from time to time in the open market in continuation of the Company's systematic pattern of common stock purchases designed to avoid the dilutive effect on earnings per share of stock based compensation programs and acquisitions using stock accounted for as purchases. 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 third quarter and first nine months 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) increased $187.0 million. Working capital decreased $117.3 million and noncurrent assets increased $304.3 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. At February 23,1997, senior long-term debt was 30 percent of total long-term debt plus equity compared to 30 percent at May 26,1996 and 30 percent at February 25, 1996. 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 FEB. 23, 1997 & FEB. 25, 1996 THIRTEEN WEEKS THIRTY-NINE WEEKS DOLLARS % DOLLARS % ________________________________ Net sales (137.9) (2.4) (35.2) (0.2) Cost of goods sold (147.8) (3.0) (40.9) (0.3) Gross profit 9.9 1.1 5.7 0.2 Selling, general and administrative expenses (9.3) (1.6) (51.0) (2.9) Interest expense, net (9.3) (11.3) (20.0) (8.5) Income before income taxes 28.5 13.3 76.7 11.9 Income taxes 11.8 13.7 30.8 11.7 Net income 16.7 13.0 45.9 12.0 Preferred Dividends - - (8.6) (100.0) Net Income available for common stock 16.7 13.0 54.5 14.6 Earnings per common and common equivalent share 0.08 14.5 0.24 14.7 Two of ConAgra's industry segments, Grocery/Diversified Products and Refrigerated Foods increased operating profit in the third quarter while operating profit in the Foods Inputs & Ingredients segment decreased, versus third quarter fiscal 1996. Operating profit for the first nine months of fiscal 1997, versus the same period in fiscal 1996, increased in the Foods Inputs & Ingredients and the Grocery/Diversified Products segments. The increase in those segments was somewhat offset by a decrease in the Refrigerated Foods segment operating profit for the first nine months. ConAgra's total sales and cost of sales were lower by 2 percent and 3 percent, respectively, in the third quarter and about even for the first nine months of fiscal 1997, compared to the same periods last year. Selling, general and administrative expenses were down 2 percent in the third quarter and down 3 percent for the first nine months of fiscal 1997 versus fiscal 1996. In the Grocery/Diversified Products segment, sales and related cost of goods sold increased during the third quarter and first nine months of fiscal 1997 versus fiscal 1996. In the Foods Inputs & Ingredients segment, increased sales and cost of sales in the specialty food ingredient and agri-products businesses were offset by declines in the other businesses. Refrigerated Foods segment sales and related cost of sales declined in the third quarter and first nine months. Selling, general and administrative expenses for all segments in the third quarter and first nine months of fiscal 1997 were lower than the same periods in fiscal 1996. Net income increased $16.7 million in the third quarter and $45.9 million in the first nine months of fiscal 1997 versus the same periods last year. In the Grocery/Diversified Products segment, operating profit increased 12 percent in the third quarter and 20 percent in the first nine months of fiscal 1997 versus the same periods last year. Sales increased 4 percent in fiscal 1997's third quarter and 8 percent in the first nine months versus the same periods in fiscal 1996. ConAgra Frozen Foods increased third quarter and nine month operating profit over 20 percent. Hunt-Wesson's operating profit increased in the third quarter and first nine months. Combined Hunt-Wesson/Frozen Foods unit volume growth was up 4 percent through nine months, but down about 3 percent in the third quarter, reflecting soft grocery industry sales. Benefiting from value-added products, operating productivity and volume growth, the Lamb-Weston potato products business increased third quarter and nine month operating profit. Golden Valley Microwave Foods' operating profit was down in the third quarter but up 22 percent through nine months. Seafood operating profit increased in both periods. In ConAgra's Refrigerated Foods segment, operating profit increased 35 percent in the third quarter and declined 11 percent in the first nine months of fiscal 1997 versus the same periods in fiscal 1996. Segment sales decreased 2 percent in the third quarter and 3 percent in the first nine months of fiscal 1997 primarily due to beef and poultry restructuring initiatives subsequent to last year's third quarter. Branded processed meats, the segment's largest profit contributor increased operating profit 24 percent in the third quarter and 13 percent for the first nine months of fiscal 1997. U.S beef operating profit rebounded in this year's third quarter and was up through nine months. Australia beef operating profit improved in both periods. Third quarter and nine month operating profit decreased in the pork business. However, the Company considers this earnings level to be satisfactory given the industry's current high cost of raw materials. Poultry products operating profit decreased in both periods as did operating profit in the cheese business. In ConAgra's Food Inputs & Ingredients segment, operating profit decreased 14 percent in the third quarter and increased 6 percent in the first nine months of fiscal 1997 compared to the same periods in fiscal 1996. Segment sales decreased 10 percent in the third quarter and 1 percent through nine months. Business dispositions, lower wheat prices and reduced international fertilizer sales drove the sales decline. Third quarter operating profit gains in a number of businesses, notably flour milling and specialty food ingredients, were more than offset by declines in other businesses, in particular specialty grain and grain merchandising. Sources of the nine month operating profit gain included flour milling, specialty food ingredients, European operations and dry edible beans partially offset by profit declines in specialty grain and other businesses. United Agri Products, the major crop inputs business, and specialty retailing increased operating profit in both periods. 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 third quarter compared to fiscal 1996's third quarter: earnings per share 63 cents, up 14.5 percent from 55 cents; net income and net income available for common stock (net income minus preferred dividends) $145.1 million, up 13 percent from $128.4 million; net sales $5.64 billion, down 2 percent from $5.77 billion. For fiscal 1997's first nine months: earnings per share $1.87, up 14.7 percent from $1.63; net income $428.5 million, up 12 percent from $382.6 million; net income available for common stock $428.5 million, up 15 percent from $374.0 million; net sales $18.80 billion, down from $18.84 billion. As mentioned, fiscal 1997 third quarter and nine month sales were reduced by business dispositions and restructuring initiatives. For the nine month period, the relevant net earnings comparison is net income available for common stock because it includes comparable financing expense in both years: preferred dividends in fiscal 1996 and the cost of preferred stock redemption in fiscal 1997. Weighted average shares outstanding decreased in fiscal 1997's third quarter over the same period in fiscal 1996 primarily due to the timing of common stock repurchases. CONAGRA, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 2(c). RECENT SALES OF UNREGISTERED SECURITIES ConAgra issued 23,159 shares of its common stock in connection with the acquisition of Creative Seasonings, Inc. in a merger transaction on January 10, 1997. The common stock was issued to the two shareholders of Creative Seasonings, Inc. in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and Regulation D thereunder. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS. 10.1 - Employment contracts between the Company and Bruce Rohde. 10.2 - Second Amendment to the Directors' Unfunded Deferred Compensation Plan. 12 - Statement regarding computation of ratio of earnings to fixed charges. (B) REPORTS ON FORM 8-K. None. 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 April, 1997. EXHIBIT INDEX EXHIBIT DESCRIPTION PAGE 10.1 Employment contracts between the Company and Bruce Rohde.............. 18 10.2 Second Amendment to the Directors' Unfunded Deferred Compensation Plan.. 35 12 Statement regarding computation of ratio of earnings to fixed charges... 36