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 28, 1999 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) <TABLE> <S> <C> 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) </TABLE> (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 28, 1999 was 488,212,411.
PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in millions except per share amounts) (unaudited) <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------- THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED FEBRUARY 28, FEBRUARY 22, FEBRUARY 28, FEBRUARY 22, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $ 5,693.3 $ 5,468.0 $ 18,581.1 $ 18,278.9 Costs and expenses Cost of goods sold 4,686.2 4,592.5 15,550.6 15,482.8 Selling, administrative and general expenses 640.4 581.9 1,962.6 1,810.0 Interest expense 88.0 76.2 255.4 225.3 ------- -------- -------- -------- 5,414.6 5,250.6 17,768.6 17,518.1 ------- -------- -------- -------- Income before income taxes 278.7 217.4 812.5 760.8 Income taxes 107.3 83.7 312.8 291.6 ------- -------- -------- -------- Income before cumulative effect of change in accounting 171.4 133.7 499.7 469.2 Cumulative effect of change in accounting -- (14.8) -- (14.8) ------- -------- -------- -------- Net income $ 171.4 $ 118.9 $ 499.7 $ 454.4 ------- ------- -------- -------- ------- ------- -------- -------- Income per share - basic Income before cumulative effect of change in accounting $ 0.36 $ 0.29 $ 1.06 $ 1.01 Cumulative effect of change in accounting -- (0.03) -- (0.03) ------- ------- -------- -------- Net income $ 0.36 $ 0.26 $ 1.06 $ 0.98 ------- ------- -------- -------- ------- ------- -------- -------- Income per share - diluted Income before cumulative effect of change in accounting $ 0.36 $ 0.28 $ 1.05 $ 0.99 Cumulative effect of change in accounting -- (0.03) -- (0.03) ------- ------- -------- -------- Net income $ 0.36 $ 0.25 $ 1.05 $ 0.96 ------- ------- -------- -------- ------- ------- -------- -------- - ------------------------------------------------------------------------------------------------------------- </TABLE> See notes to the condensed consolidated financial statements. 2
CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) (unaudited) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------- THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED FEBRUARY 28, FEBRUARY 22, FEBRUARY 28, FEBRUARY 22, 1999 1998 1999 1998 ----------- ----------- ------------ ------------ <S> <C> <C> <C> <C> Net income $171.4 $118.9 $499.7 $454.4 Other comprehensive income/(loss): Currency translation adjustment (4.2) (11.6) 1.0 (28.1) ----- ----- ----- ----- Comprehensive income $167.2 $107.3 $500.7 $426.3 ----- ----- ----- ----- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------------- </TABLE> See notes to the condensed consolidated financial statements. 3
CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in millions except per share amount) (unaudited) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------- FEBRUARY 28, MAY 31, FEBRUARY 22, 1999 1998 1998 ----------- ----------- ----------- <S> <C> <C> <C> ASSETS Current assets Cash and cash equivalents $ 22.9 $ 108.4 $ 44.6 Receivables, less allowance for doubtful accounts of $85.1, $68.2 and $84.7 2,447.8 1,546.9 2,220.4 Inventories 4,008.5 3,540.8 3,955.3 Prepaid expenses 320.7 341.6 412.5 ----------- ----------- ----------- Total current assets 6,799.9 5,537.7 6,632.8 ----------- ----------- ----------- Property, plant and equipment 6,227.6 5,761.1 5,609.9 Less accumulated depreciation (2,579.9) (2,311.4) (2,286.0) ----------- ----------- ----------- Property, plant and equipment, net 3,647.7 3,449.7 3,323.9 ----------- ----------- ----------- Brands, trademarks and goodwill 2,627.3 2,391.7 2,388.2 Other assets 462.0 429.4 395.0 ----------- ----------- ----------- $ 13,536.9 $ 11,808.5 $ 12,739.9 ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable $ 2,653.7 $ 858.1 $ 2,405.0 Current installments of long-term debt 19.2 52.7 80.2 Accounts payable 2,225.4 1,971.0 2,068.2 Advances on sales 180.7 829.7 173.5 Other accrued liabilities 1,376.9 1,382.2 1,398.2 ----------- ----------- ----------- Total current liabilities 6,455.9 5,093.7 6,125.1 ----------- ----------- ----------- Senior long-term debt, excluding current installments 1,888.0 1,753.5 1,708.9 Other noncurrent liabilities 787.8 847.3 907.9 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 519,621,865, 519,424,034 and 519,174,540 2,598.1 2,597.1 2,595.9 Additional paid-in capital 298.9 320.0 312.1 Retained earnings 1,595.2 1,337.7 1,237.3 Foreign currency translation adjustment (66.6) (67.6) (59.8) Less treasury stock, at cost, common shares 30,991,229, 30,011,958 and 29,871,431 (735.5) (705.2) (700.7) ----------- ----------- ----------- 3,690.1 3,482.0 3,384.8 Less unearned restricted stock and value of 18,089,367, 21,376,632 and 22,601,229 common shares held in Employee Equity Fund (559.9) (643.0) (661.8) ----------- ----------- ----------- Total common stockholders' equity 3,130.2 2,839.0 2,723.0 ----------- ----------- ----------- $ 13,536.9 $ 11,808.5 $ 12,739.9 ----------- ----------- ----------- ----------- ----------- ----------- - ------------------------------------------------------------------------------------------------------------ </TABLE> See notes to the condensed consolidated financial statements. 4
CONAGRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------- THIRTY-NINE WEEKS ENDED FEBRUARY 28, FEBRUARY 22, 1999 1998 ---------- ---------- <S> <C> <C> Cash flows from operating activities Net income $ 499.7 $ 454.4 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and other amortization 321.1 291.7 Goodwill amortization 51.7 52.4 Cumulative effect of change in accounting -- 24.0 Other noncash items (includes nonpension postretirement benefits) 66.1 67.1 Change in assets and liabilities before effects from business acquisitions (1,737.7) (2,081.1) ---------- ---------- Net cash flows from operating activities (799.1) (1,191.5) ---------- ---------- Cash flows from investing activities Additions to property, plant and equipment (439.9) (326.4) Payment for business acquisitions (401.4) -- Sale of businesses and property, plant and equipment 13.3 141.6 Notes receivable and other items 4.4 (24.4) ---------- ---------- Net cash flows from investing activities (823.6) (209.2) ---------- ---------- Cash flows from financing activities Net short-term borrowings 1,793.1 1,864.0 Proceeds from issuance of long-term debt 595.2 311.8 Repayment of long-term debt (495.9) (507.0) Cash dividends paid (307.2) (192.5) Cash distributions of pooled companies (1.2) (3.3) Treasury stock purchases (18.9) (153.1) Employee Equity Fund stock transactions 7.0 38.5 Other items (34.9) (20.0) ---------- ---------- Net cash flows from financing activities 1,537.2 1,338.4 ---------- ---------- Net change in cash and cash equivalents (85.5) (62.3) Cash and cash equivalents at beginning of period 108.4 106.9 ---------- ---------- Cash and cash equivalents at end of period $ 22.9 $ 44.6 ---------- ---------- ---------- ---------- - ------------------------------------------------------------------------------------------------------------- </TABLE> See notes to the condensed consolidated financial statements. 5
CONAGRA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 28, 1999 (COLUMNAR DATA IN MILLIONS) 1. ACCOUNTING POLICIES The unaudited interim financial information included herein reflects the adjustments (consisting solely of normal recurring 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. Such interim information should be read in conjunction with the financial statements and notes thereto included in the Company's report on Form 8-K dated September 29, 1998. The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year. ACCOUNTING CHANGES In the first quarter of fiscal 1999, ConAgra adopted Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130), which establishes standards for reporting comprehensive income in financial statements. Comprehensive income includes all changes in equity during a period except those resulting from investments by or distributions to stockholders. The adoption of this statement had no impact on net income or shareholders' equity. Comprehensive income for all periods presented consists of net income and foreign currency translation adjustments. Amounts in prior year financial statements have been reclassified to conform to SFAS No. 130 requirements. ConAgra deems its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from converting the investment in a foreign currency to U.S. dollars. There are no reclassification adjustments to be reported in periods presented. 2. BUSINESS COMBINATIONS On July 31, 1998, GoodMark Foods, Inc. (GoodMark) merged with ConAgra through an exchange of shares. ConAgra issued approximately 7.8 million shares of common stock for all outstanding shares of GoodMark. On July 31, 1998, Fernando's Foods Corporation (Fernando's) merged with ConAgra through an exchange of shares. ConAgra issued approximately 1.3 million shares of common stock for all outstanding shares of Fernando's. During fiscal 1998, ConAgra completed mergers with Hester Industries, Inc. (Hester) and A.M. Gilardi & Sons, Inc. (Gilardi), exchanging 3.7 million and 3.8 million shares of ConAgra stock, respectively, for all outstanding shares of Hester and Gilardi. The above business combinations have been accounted for as poolings of interest. The historical financial statements of the Company have been restated to give effect to all of the above acquisitions as though the companies had operated together from the beginning of the earliest period presented. 6
CONAGRA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 28, 1999 (COLUMNAR DATA IN MILLIONS) Results of operations of the acquired businesses prior to acquisition date were as follows: <TABLE> <CAPTION> THIRTEEN THIRTY-NINE WEEKS ENDED WEEKS ENDED FEBRUARY 22, FEBRUARY 22, 1998 1998 ----------- ------------ <S> <C> <C> Net sales $ 83.0 $ 319.9 Net income (loss) $ (4.9) $ 9.9 </TABLE> 3. INCOME PER SHARE The following table reconciles the income and average share amounts used to compute both basic and diluted income per share: <TABLE> <CAPTION> THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED FEB. 28, FEB. 22, FEB. 28, FEB. 22, 1999 1998 1999 1998 ------- ------- ------- ------- <S> <C> <C> <C> <C> INCOME PER SHARE - BASIC Income before cumulative effect of change in accounting $ 171.4 $ 133.7 $ 499.7 $ 469.2 Cumulative effect of change in accounting -- (14.8) -- (14.8) ------- ------- ------- ------- Net income $ 171.4 $ 118.9 $ 499.7 $ 454.4 ------- ------- ------- ------- ------- ------- ------- ------- Weighted average shares outstanding - basic 470.8 465.5 469.8 464.9 ------- ------- ------- ------- ------- ------- ------- ------- INCOME PER SHARE - DILUTED Income before cumulative effect of change in accounting $ 171.4 $ 133.7 $ 499.7 $ 469.2 Cumulative effect of change in accounting -- (14.8) -- (14.8) ------- ------- ------- ------- Net income $ 171.4 $ 118.9 $ 499.7 $ 454.4 ------- ------- ------- ------- ------- ------- ------- ------- Weighted average shares outstanding - basic 470.8 465.5 469.8 464.9 Add shares contingently issuable upon exercise of stock options 7.8 9.7 7.2 10.3 ------- ------- ------- ------- Weighted average shares outstanding - diluted 478.6 475.2 477.0 475.2 ------- ------- ------- ------- ------- ------- ------- ------- </TABLE> 7
CONAGRA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED FEBRUARY 28, 1999 (COLUMNAR DATA IN MILLIONS) 4. INVENTORIES The major classes of inventories are as follows: <TABLE> <CAPTION> FEB. 28, MAY 31, FEB. 22, 1999 1998 1998 ---------- ---------- ---------- <S> <C> <C> <C> Hedged commodities $ 1,308.5 $ 1,199.3 $ 1,346.6 Food products and livestock 1,269.6 1,263.3 1,393.2 Agricultural chemicals, fertilizer and feed 682.1 581.4 596.4 Other, principally ingredients and supplies 748.3 496.8 619.1 ---------- ---------- ---------- $ 4,008.5 $ 3,540.8 $ 3,955.3 ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> 5. CONTINGENCIES 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 reflected significant liabilities and valuation allowances associated with the estimated resolution of these contingencies. The material pre-acquisition tax contingencies were resolved in fiscal 1995. 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 40 of these sites. Substantial reserves for these matters have been established based on the Company'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 its experience in remediating sites. ConAgra is a 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 operations or liquidity. 6. ACQUISITIONS On August 17, 1998, ConAgra acquired the Egg Beaters and Tablespreads businesses from Nabisco, Inc. for $400 million. The Tablespreads business manufactures and markets margarine under Parkay, Blue Bonnet, Fleischmann's, Touch of Butter, Chiffon and Move Over Butter brand names. Egg Beaters is an egg alternative product. Annual sales of the combined businesses are approximately $480 million. The acquisition was accounted for as a purchase. 8
CONAGRA, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 2. 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 condensed consolidated financial statements. Results for the thirteen and thirty-nine week periods ended February 28, 1999 are not necessarily indicative of results that may be attained in the future. This report contains forward-looking statements. The statements reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The statements are based on many assumptions and factors including availability and prices of raw materials, product pricing, competitive environment and related market conditions, operating efficiencies, access to capital and actions of governments. Any changes in such assumptions or factors could produce significantly different results. All prior period results have been restated to give effect to mergers accounted for as poolings of interest. See Note 2 to consolidated financial statements. FINANCIAL CONDITION ConAgra's earnings are generated principally from its capital investment, which consists of working capital (current assets less current liabilities) plus all noncurrent assets. Capital investment is financed with stockholders' equity, long-term debt and other noncurrent liabilities. Capital investment increased $366.2 million, or 5.5%, compared to May 31, 1998. Working capital decreased $100.0 million, and noncurrent assets increased $466.2 million. The decrease in working capital was primarily caused by increases in short-term debt used to fund normal seasonal increases in accounts receivable and inventory, as well as acquisitions. The increase in noncurrent assets was primarily caused by the Egg Beaters and Tablespreads acquisitions. ConAgra invested $439.9 million in property, plant and equipment and $401.4 million for business acquisitions in the thirty-nine week period in fiscal 1999 compared to $326.4 million in additions to property, plant and equipment in the same period in fiscal 1998. Sales of property and businesses totaled $13.3 million in the thirty-nine week period in fiscal 1999 versus $141.6 million in same period in fiscal 1998. Depreciation and amortization totaled $372.8 million in the thirty-nine week period compared to $344.1 million in the same period last year. In the second quarter of fiscal 1999, ConAgra issued $400 million of 7.0% senior notes, due October 1, 2028 and $200 million of 5.5 % senior notes, due October 15, 2002. In the thirty-nine weeks ending February 28, 1999, ConAgra repaid $61.1 million of senior long-term debt and reduced the amount of short-term borrowings backed by long-term credit agreements and classified as long-term by $434.8 million. In the thirty-nine weeks ending February 22, 1998, ConAgra repaid $331.3 million of senior long-term debt and reduced the amount of short-term borrowings backed by long-term credit agreements and classified as long-term by $175.7 million. During the thirty-nine weeks of fiscal 1998, ConAgra issued $312 million of senior long-term notes, with $300 million issued at 6.70%. 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. 9
CONAGRA, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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). <TABLE> <CAPTION> THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED FEB. 28, 1999 AND FEB. 22, 1998 FEB. 28, 1999 AND FEB. 22, 1998 ------------------------------- ------------------------------- DOLLAR PERCENT DOLLAR PERCENT CHANGE CHANGE CHANGE CHANGE ---------- ------- ---------- ------- <S> <C> <C> <C> <C> Net sales $ 225.3 4.1% $ 302.2 1.7% Costs and expenses Cost of goods sold 93.7 2.0 67.8 0.4 Selling, administrative and general expenses 58.5 10.1 152.6 8.4 Interest expense 11.8 15.5 30.1 13.4 ---------- ----- ---------- ----- 164.0 3.1 250.5 1.4 ---------- ----- ---------- ----- Income before income taxes 61.3 28.2 51.7 6.8 Income taxes 23.6 28.2 21.2 7.3 ---------- ----- ---------- ----- Income before cumulative effect of change in accounting 37.7 28.2 30.5 6.5 Cumulative effect of change in accounting 14.8 100.0 14.8 100.0 ---------- ----- ---------- ----- Net income $ 52.5 44.2% $ 45.3 10.0% ---------- ----- ---------- ----- ---------- ----- ---------- ----- Income per share - basic Income before cumulative effect of change in accounting $ 0.07 24.1% $ 0.05 5.0% Cumulative effect of change in accounting 0.03 100.0 0.03 100.0 ---------- ----- ---------- ----- Net income $ 0.10 38.5% $ 0.08 8.2% ---------- ----- ---------- ----- ---------- ----- ---------- ----- Income per share - diluted Income before cumulative effect of change in accounting $ 0.08 28.6% $ 0.06 6.1% Cumulative effect of change in accounting 0.03 100.0 0.03 100.0 ---------- ----- ---------- ----- Net income $ 0.11 44.0% $ 0.09 9.4% ---------- ----- ---------- ----- ---------- ----- ---------- ----- </TABLE> In ConAgra's Refrigerated Foods business segment, fiscal 1999 third quarter operating profit was up 1,700 percent, versus results in fiscal 1998's third quarter. Fiscal 1999 nine month segment operating profit increased 56 percent versus fiscal 1998's first nine months. Segment sales increased 8 percent in the third quarter and 4 percent through nine months despite the negative effect of lower pork and beef raw materials prices passed through as lower selling prices. The Refrigerated Foods segment's five businesses all increased fiscal 1999 third quarter and nine month operating profit versus the same periods in fiscal 1998. Unit volume growth supported branded packaged meats' operating profit growth. An acquisition contributed to operating profit growth in the cheese and tablespreads business. The beef, pork and poultry businesses rebounded from last year's results, which were depressed by excess industry production and reduced Asian export demand. In ConAgra's Grocery & Diversified Products business segment, operating profit was up 3 percent in the third quarter and 4 percent in the first nine months of fiscal 1999 versus the same periods in fiscal 1998. Segment sales increased 1 percent in both periods. ConAgra frozen prepared foods boosted unit volumes 10
CONAGRA, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and increased third quarter and nine month operating profit significantly, led by the Gilardi Foods and Pierce Foods businesses. The Lamb-Weston potato products business nearly equaled last year's third quarter operating profit and was ahead through nine months. In shelf-stable foods, operating profit decreased slightly in both periods. In ConAgra's Food Inputs & Ingredients business segment, operating profit was down 9 percent in the third quarter and 5 percent in the first nine months of fiscal 1999 versus the same periods in fiscal 1998. Segment sales decreased 4 percent in the third quarter and 2 percent through nine months. Business dispositions and lower commodity selling prices reduced segment sales over 3 percent in both periods. ConAgra's major crop inputs business, United Agri Products, increased operating profit in fiscal 1999's third quarter and first nine months. In the ingredients sector, third quarter and nine month operating profit growth in international operations was more than offset by a decline in commodity trading and grain processing operating profit in both periods. For ConAgra in total, before the accounting change last year, fiscal 1999 third quarter net income increased 28 percent to $171.4 from $133.7 million, and nine month net income increased 6.5 percent to $499.7 million from $469.2 million. Including a provision of $14.8 million after tax for the accounting change for business systems reengineering costs, fiscal 1998 third quarter net income was $118.9 million, and nine month net income was $454.4 million. Fiscal 1999 third quarter net sales were $5.69 billion, up 4 percent from $5.47 billion in fiscal 1998's third quarter. Fiscal 1999 nine month net sales were $18.58 billion, up 2 percent from $18.28 billion in fiscal 1998's first nine months. Adjusted for business dispositions, acquisitions and lower commodity selling prices, fiscal 1999 nine month sales increased 4 percent versus fiscal 1998's nine month sales. Comparable adjustments had less effect on third quarter sales comparisons. YEAR 2000 The Year 2000 ("Y2K") computer software compliance issues affect ConAgra and most companies in the world. Historically, certain computer programs were written using two digits rather than four to define the applicable year. As a result, software may recognize a date using the two digits "00" as 1900 rather than the year 2000. Computer programs that do not recognize the proper date could generate erroneous data or cause systems to fail. ConAgra has established a Y2K project office and has retained an independent consulting group to provide assistance with regard to ConAgra's Y2K compliance. ConAgra's Y2K project covers both traditional computer systems and infrastructure ("IT systems") and computer-based manufacturing, logistical and related systems ("non-IT systems"). The Y2K project has six phases: systems inventory, assessment, renovation, validation, implementation, and contingency planning. ConAgra operates on a decentralized independent operating company ("IOC") structure. Consequently, the Y2K project efforts may vary by IOC. For IT systems, the status of the project generally ranges from renovation to contingency planning. For non-IT systems, the status of the project generally ranges from assessment to contingency planning. Based on its assessment of its major information technology systems, ConAgra expects that necessary modifications and/or replacements will be completed in a timely manner to insure that each IOC's systems are Y2K compliant. ConAgra's Y2K project also considers the readiness of significant customers and suppliers. ConAgra does not have any suppliers or customers that are material to its operations as a whole. Each IOC is verifying the readiness of suppliers and customers that may be significant for such IOC. 11
CONAGRA, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Due to the decentralized IOC structure, there are few IT systems and non-IT systems, the failure of which would have a material effect on ConAgra as a whole. Such material systems include general ledger, payroll, fixed assets and cash management systems. ConAgra's Y2K project includes contingency plans for these systems that involve, among other things, manual workarounds and extra staffing. ConAgra's Y2K project includes the development of a full contingency plan for each IOC and ConAgra presently expects to have such contingency arrangements completed by August 1999. ConAgra has incurred approximately $32 million of Y2K project expenses to date. Future expenses are expected to include $32 to $42 million of additional costs, plus approximately $6 million of systems initiatives that have been accelerated in connection with the Y2K project. Such cost estimates are based upon presently available information and may change as ConAgra continues with its Y2K project. 12
CONAGRA, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's market risk during the thirty-nine weeks ended February 28, 1999. For additional information, refer to pages 6-8 of the Company's report on Form 8-K, dated September 29, 1998. 13
CONAGRA, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits 3(ii) - ConAgra Bylaws as amended to date 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 Executive Vice President, Chief Financial Officer and Corporate Secretary By: /s/ Jay D. Bolding ---------------------- Jay D. Bolding Vice President, Controller Dated this 14th day of April, 1999. 14
CONAGRA, INC. AND SUBSIDIARIES EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT DESCRIPTION PAGE <S> <C> 3(ii) Amendment of by-laws 16 12 Statement regarding computation of ratio of 35 earnings to fixed charges </TABLE> 15