CAG-2.24.2013-10Q3
Table of Contents

 
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 24, 2013
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 FOODS, INC.
(Exact name of registrant as specified in its charter)
______________________________________________________ 
Delaware
 
47-0248710
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
One ConAgra Drive,
Omaha, Nebraska
 
68102-5001
(Address of principal executive offices)
 
(Zip Code)
(402) 240-4000
(Registrant’s telephone number, including area code)
(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  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x     No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x

Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x 
Number of shares outstanding of issuer’s common stock, as of March 24, 2013, was 416,805,822.
 


Table of Contents

Table of Contents
 
Item 1
 
 
 
 
 
Item 2
Item 3
Item 4
Item 1
Item 1A
Item 2
Item 6
 
Exhibit 12
 
Exhibit 31.1
 
Exhibit 31.2
 
Exhibit 32.1
 
Exhibit 101.1
 


Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ConAgra Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions except per share amounts)

(unaudited)
 
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
February 24,
2013
 
February 26,
2012
 
February 24,
2013
 
February 26,
2012
Net sales
$
3,850.5

 
$
3,396.0

 
$
10,897.9

 
$
9,933.0

Costs and expenses:
 
 
 
 
 
 
 
Cost of goods sold
2,976.5

 
2,609.4

 
8,289.7

 
7,796.4

Selling, general and administrative expenses
614.0

 
356.7

 
1,564.6

 
1,202.2

Interest expense, net
70.6

 
49.7

 
173.3

 
153.2

Income from continuing operations before income taxes and equity method investment earnings
189.4

 
380.2

 
870.3

 
781.2

Income tax expense
78.0

 
112.1

 
310.6

 
253.7

Equity method investment earnings
12.0

 
12.6

 
32.4

 
30.3

Income from continuing operations
123.4

 
280.7

 
592.1

 
557.8

Income from discontinued operations, net of tax

 

 

 
0.1

Net income
$
123.4

 
$
280.7

 
$
592.1

 
$
557.9

Less: Net income attributable to noncontrolling interests
3.4

 
0.6

 
10.4

 
3.8

Net income attributable to ConAgra Foods, Inc.
$
120.0

 
$
280.1

 
$
581.7

 
$
554.1

Earnings per share — basic
 
 
 
 
 
 
 
Net income attributable to ConAgra Foods, Inc. common stockholders
$
0.29

 
$
0.68

 
$
1.42

 
$
1.34

Earnings per share — diluted
 
 
 
 
 
 
 
Net income attributable to ConAgra Foods, Inc. common stockholders
$
0.29

 
$
0.67

 
$
1.40

 
$
1.32

Cash dividends declared per common share
$
0.25

 
$
0.24

 
$
0.74

 
$
0.71

See notes to the condensed consolidated financial statements.


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Table of Contents

ConAgra Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(unaudited)
 
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
February 24,
2013
 
February 26,
2012
 
February 24,
2013
 
February 26,
2012
Net income
$
123.4

 
$
280.7

 
$
592.1

 
$
557.9

Other comprehensive income (loss):
 
 
 
 
 
 
 
Net derivative adjustment, net of tax
32.4

 
11.5

 
29.4

 
(68.7
)
Unrealized gains on available-for-sale securities, net of tax
0.1

 
0.2

 
0.1

 

Currency translation adjustment:
 
 
 
 
 
 
 
Unrealized translation gains (losses)
(4.6
)
 
32.4

 
14.0

 
(18.5
)
Reclassification adjustment for losses included in net income

 
6.0

 

 
6.0

Pension and postretirement healthcare liabilities, net of tax
(5.7
)
 
(0.6
)
 
(4.6
)
 
18.4

Comprehensive income
145.6

 
330.2

 
631.0

 
495.1

Comprehensive income attributable to noncontrolling interests
5.3

 
0.6

 
12.2

 
3.8

Comprehensive income attributable to ConAgra Foods, Inc.
$
140.3

 
$
329.6

 
$
618.8

 
$
491.3

See notes to the condensed consolidated financial statements.


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Table of Contents

ConAgra Foods, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions except share data)
(unaudited)
 
 
February 24,
2013
 
May 27,
2012
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
723.8

 
$
103.0

Receivables, less allowance for doubtful accounts of $7.6 and $5.9
1,219.3

 
924.8

Inventories
2,648.3

 
1,869.6

Prepaid expenses and other current assets
554.6

 
321.4

Total current assets
5,146.0

 
3,218.8

Property, plant and equipment
7,087.5

 
5,995.7

Less accumulated depreciation
(3,280.3
)
 
(3,253.8
)
Property, plant and equipment, net
3,807.2

 
2,741.9

Goodwill
8,369.3

 
4,015.4

Brands, trademarks and other intangibles, net
3,475.3

 
1,191.5

Other assets
309.7

 
274.3

 
$
21,107.5

 
$
11,441.9

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Notes payable
$
1.1

 
$
40.0

Current installments of long-term debt
719.7

 
38.1

Accounts payable
1,501.7

 
1,190.3

Accrued payroll
265.4

 
177.2

Other accrued liabilities
934.6

 
779.6

Total current liabilities
3,422.5

 
2,225.2

Senior long-term debt, excluding current installments
9,649.4

 
2,662.7

Subordinated debt
195.9

 
195.9

Other noncurrent liabilities
2,715.9

 
1,822.1

Total liabilities
15,983.7

 
6,905.9

Commitments and contingencies (Note 11)

 

Common stockholders' equity
 
 
 
Common stock of $5 par value, authorized 1,200,000,000 shares; issued 567,907,172
2,839.7

 
2,839.7

Additional paid-in capital
985.7

 
901.5

Retained earnings
5,042.1

 
4,765.1

Accumulated other comprehensive loss
(262.0
)
 
(299.1
)
Less treasury stock, at cost, 151,290,940 and 160,294,748 common shares
(3,582.3
)
 
(3,767.7
)
Total ConAgra Foods, Inc. common stockholders' equity
5,023.2

 
4,439.5

Noncontrolling interests
100.6

 
96.5

Total stockholders' equity
5,123.8

 
4,536.0

 
$
21,107.5

 
$
11,441.9

See notes to the condensed consolidated financial statements.


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Table of Contents

ConAgra Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
 
Thirty-nine weeks ended
 
February 24,
2013
 
February 26,
2012
Cash flows from operating activities:
 
 
 
Net income
$
592.1

 
$
557.9

Income from discontinued operations

 
0.1

Income from continuing operations
592.1

 
557.8

Adjustments to reconcile income from continuing operations to net cash flows from operating activities:
 
 
 
Depreciation and amortization
299.2

 
277.1

Asset impairment charges
19.8

 
7.9

Gain on acquisition of controlling interest in Agro Tech Foods Ltd.

 
(58.7
)
Earnings of affiliates in excess of distributions
(11.8
)
 
(11.0
)
Share-based payments expense
52.8

 
35.2

Contributions to pension plans
(14.7
)
 
(77.0
)
Pension expense
16.5

 
18.6

Other items
(37.6
)
 
(1.7
)
Change in operating assets and liabilities excluding effects of business acquisitions and dispositions:
 
 
 
Accounts receivable
(12.9
)
 
(54.6
)
Inventory
(234.9
)
 
(170.5
)
Deferred income taxes and income taxes payable, net
68.6

 
91.9

Prepaid expenses and other current assets
(32.7
)
 
(7.9
)
Accounts payable
43.9

 
98.0

Accrued payroll
88.1

 
46.9

Other accrued liabilities
(54.7
)
 
24.5

Net cash flows from operating activities — continuing operations
781.7

 
776.5

Net cash flows from operating activities — discontinued operations

 
2.9

Net cash flows from operating activities
781.7

 
779.4

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(289.1
)
 
(239.1
)
Sale of property, plant and equipment
7.6

 
7.5

Purchase of businesses, net of cash acquired
(5,017.7
)
 
(306.6
)
Purchase of intangible assets

 
(62.5
)
Other
(1.8
)
 

Net cash flows from investing activities
(5,301.0
)
 
(600.7
)
Cash flows from financing activities:
 
 
 
Net short-term borrowings
(38.9
)
 
3.0

Issuance of long-term debt
6,217.7

 

Debt issuance costs
(56.6
)
 

Repayment of long-term debt
(911.8
)
 
(355.6
)
Issuance of ConAgra Foods, Inc. common shares
269.3

 

Repurchase of ConAgra Foods, Inc. common shares
(245.0
)
 
(100.2
)
Cash dividends paid
(296.6
)
 
(288.8
)
Exercise of stock options and issuance of other stock awards
197.2

 
199.3

Other items
2.2

 
1.0

Net cash flows from financing activities
5,137.5

 
(541.3
)
Effect of exchange rate changes on cash and cash equivalents
2.6

 
(5.6
)
Net change in cash and cash equivalents
620.8

 
(368.2
)
Cash and cash equivalents at beginning of period
103.0

 
972.4

Cash and cash equivalents at end of period
$
723.8

 
$
604.2

See notes to the condensed consolidated financial statements.

4

Table of Contents

ConAgra Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Thirty-nine Weeks ended February 24, 2013 and February 26, 2012
(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 Foods, Inc. (the "Company," "we," "us," or "our") annual report on Form 10-K for the fiscal year ended May 27, 2012.
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 Foods, Inc. and all majority-owned subsidiaries. In addition, the accounts of all variable interest entities for which we have been determined to be the primary beneficiary are included in our condensed consolidated financial statements from the date such determination is made. All significant intercompany investments, accounts, and transactions have been eliminated.
Comprehensive Income — Comprehensive income includes net income, currency translation adjustments, certain derivative-related activity, changes in the value of available-for-sale investments, and changes in prior service cost and net actuarial gains (losses) from pension and postretirement health care plans. We generally deem our foreign investments to be essentially permanent in nature and we do not provide for taxes on currency translation adjustments arising from converting the investment denominated in a foreign currency to U.S. dollars. When we determine that a foreign investment, as well as undistributed earnings, are no longer permanent in nature, estimated taxes are provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments. We reclassified $6.0 million of foreign currency translation losses to net income in the third quarter and first three quarters of fiscal 2012 due to our acquisition of a majority interest in Agro Tech Foods Limited ("ATFL") in India and the related remeasurement of our previously held noncontrolling equity interest in ATFL to fair value (see Note 2).
The following details the income tax expense (benefit) on components of other comprehensive income:
 
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
February 24,
2013
 
February 26,
2012
 
February 24,
2013
 
February 26,
2012
Net derivative adjustment
$
19.1

 
$
6.7

 
$
17.4

 
$
(40.6
)
Unrealized gains on available-for-sale securities
0.1

 
0.1

 
0.1

 

Pension and postretirement healthcare liabilities
(1.8
)
 
(0.3
)
 
(1.2
)
 
10.5

 
$
17.4

 
$
6.5

 
$
16.3

 
$
(30.1
)
Reclassifications — Certain prior year amounts have been reclassified to conform with current year presentation.
Use of Estimates — Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect reported amounts of assets, liabilities, revenues, and expenses as reflected in the condensed consolidated financial statements. Actual results could differ from these estimates.
Change in Accounting Method — As described in our annual report on Form 10-K for the year ended May 27, 2012, we elected to change our method of accounting for pension benefits. The impact of these changes in our accounting method was reported through retrospective application of the method to all periods presented. Accordingly, all relevant information, as of, and for the quarter and thirty-nine week period ended February 26, 2012 has been adjusted to reflect the application of the new method.


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Table of Contents

2. ACQUISITIONS
On January 29, 2013, we acquired Ralcorp Holdings, Inc. ("Ralcorp"), which is now a wholly-owned subsidiary of ConAgra Foods. Pursuant to the Agreement and Plan of Merger dated as of November 26, 2012 (the "Merger Agreement") among Ralcorp, ConAgra Foods, and Phoenix Acquisition Sub Inc., a wholly-owned subsidiary of ConAgra Foods, each outstanding share of Ralcorp common stock was converted into the right to receive $90.00 in cash, without interest. The total amount of consideration paid in connection with the acquisition was approximately $4.75 billion, net of cash acquired, plus assumed liabilities. We funded the merger consideration with existing cash on hand, borrowings under a new term loan facility, and proceeds from the issuance of new senior notes and common stock. The Ralcorp business is reflected in two new reporting segments: the Ralcorp Food Group and the Ralcorp Frozen Bakery Products segment.
The following table summarizes the initial estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The fair values of the assets and liabilities related to Ralcorp are subject to refinement as we complete our analyses relative to the fair values at the date of acquisition.
 
January 29,
2013
Assets acquired:
 
Cash and cash equivalents
$
321.8

Other current assets
899.0

Property, plant and equipment
1,028.2

Goodwill
4,264.5

Brands, trademarks and other intangibles
2,188.3

Other assets
27.7

Total assets acquired
$
8,729.5

Liabilities assumed:
 
Current liabilities
$
601.7

Noncurrent liabilities
3,056.9

Total liabilities assumed
$
3,658.6

Net assets acquired
$
5,070.9

As a result of the acquisition, we recognized a total of $4.26 billion of goodwill and $2.19 billion of brands, trademarks and other intangibles. Amortizable brands, trademarks, and other intangibles totaled $2.05 billion. Indefinite lived brands, trademarks and other intangibles totaled $134.1 million. Of the total goodwill, $373.5 million is deductible for tax purposes. The allocation of goodwill to the Ralcorp Foods Group and Ralcorp Frozen Bakery Products segments is pending further analysis.
The results of operations of Ralcorp are reported in the Company's condensed consolidated financial statements from the date of acquisition and include $291.8 million of total net sales, which are included in the Ralcorp Food Group and Ralcorp Frozen Bakery Products segments' financial results, and did not have a material impact on our profit for the quarter ended February 24, 2013.
In August 2012, we acquired the P.F. Chang's® and Bertolli® brands frozen meal business from Unilever for $266.9 million in cash. Products will continue to be produced by Unilever under transactions services and contract manufacturing agreements until the end of calendar year 2013. Approximately $100.1 million of the purchase price was allocated to goodwill and $91.8 million was allocated to brands, trademarks and other intangibles. The amount allocated to goodwill is deductible for tax purposes. This business is included in the Consumer Foods segment.
In May 2012, we acquired Kangaroo Brands' pita chip operations for $47.9 million in cash. Approximately $20.4 million of the purchase price was allocated to goodwill and $20.8 million was allocated to brands, trademarks and other intangibles. The amount allocated to goodwill is deductible for tax purposes. This business is included in the Consumer Foods segment.
In May 2012, we acquired Odom's Tennessee Pride for $96.6 million in cash, plus assumed liabilities. The business manufactures Odom's Tennessee Pride® branded frozen breakfast products and other sausage products. Approximately $32.6 million of the purchase price was allocated to goodwill and $32.8 million was allocated to brands, trademarks and other intangibles. The amount allocated to goodwill is not deductible for tax purposes. This business is included in the Consumer Foods segment.

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Table of Contents

In March 2012, we acquired Del Monte Canada for $185.6 million in cash, plus assumed liabilities. The acquisition includes all Del Monte® branded packaged fruit, fruit snacks, and vegetable products in Canada, as well as Aylmer® brand tomato products. Approximately $41.8 million of the purchase price was allocated to goodwill and $86.9 million was allocated to brands, trademarks and other intangibles. The amount allocated to goodwill is not deductible for tax purposes. This business is included in the Consumer Foods segment.
In November 2011, we acquired National Pretzel Company for $301.9 million in cash, net of cash acquired, plus assumed liabilities. National Pretzel Company is a private brand supplier and branded producer of pretzels and related products. Approximately $178.5 million of the purchase price was allocated to goodwill and $68.2 million was allocated to brands, trademarks and other intangibles. The amount allocated to goodwill is deductible for tax purposes. This business is included in the Consumer Foods segment.
In November 2011, we acquired an additional equity interest in ATFL for $4.9 million in cash, net of cash acquired, plus assumed liabilities. ATFL is a publicly traded company in India that markets food and food ingredients to consumers and institutional customers in India. Approximately $130.3 million of the acquisition value was allocated to goodwill and $42.2 million was allocated to trade names. The amount allocated to goodwill is not deductible for income tax purposes. As a result of this additional investment, we own a majority interest (approximately 52%) in ATFL, and we began consolidating the financial statements of ATFL in the third quarter of fiscal 2012. Prior to our acquisition of a majority interest in ATFL, we accounted for our noncontrolling interest (approximately 48% of the outstanding common shares) under the equity method. The fair value of ATFL was determined based upon the closing price of ATFL common shares as of the date of the acquisition of this additional investment. Consolidated financial results of ATFL are included in the Consumer Foods segment in periods subsequent to our acquisition of a majority interest.
For each of these acquisitions, the amounts allocated to goodwill were primarily attributable to anticipated synergies, product portfolios, and other intangibles that do not qualify for separate recognition.
Under the acquisition method of accounting, the assets acquired and liabilities assumed in these acquisitions were recorded at their respective estimated fair values at the date of acquisition.
The following unaudited pro forma financial information presents the combined results of operations as if the acquisitions of Ralcorp, National Pretzel Company, Del Monte Canada, Odom's Tennessee Pride, the Kangaroo Brands' pita chip operations, the P.F. Chang's and Bertolli brands' frozen meals business, and the majority interest in ATFL (collectively, the acquirees) had occurred at the beginning of each period presented. The acquirees' pre-acquisition results have been added to ConAgra Foods' historical results. The pro forma results contained in the table below include adjustments for amortization of acquired intangibles and depreciation expense, as well as related income taxes.
The pro forma results exclude selling, general, and administrative expenses for the transaction incurred by Ralcorp prior to the acquisition of $84.4 million, including items such as consultant fees, accelerated stock compensation, and other deal costs; selling, general, and administrative expenses for the transaction incurred by ConAgra Foods of $71.4 million, including consultant fees, financing costs and other deal costs; and cost of goods sold totaling $16.8 million in non-recurring expense related to the fair value of inventory adjustment at the date of acquisition.
These pro forma results may not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations.
 
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
February 24,
2013
 
February 26,
2012
 
February 24,
2013
 
February 26,
2012
Pro forma net sales
$
4,538.8

 
$
4,641.0

 
$
13,812.5

 
$
13,776.4

Pro forma net income from continuing operations
$
178.9

 
$
322.0

 
$
649.8

 
$
676.7

Pro forma net income from continuing operations per share—basic
$
0.44

 
$
0.78

 
$
1.59

 
$
1.64

Pro forma net income from continuing operations per share—diluted
$
0.43

 
$
0.77

 
$
1.57

 
$
1.61







7

Table of Contents

3. VARIABLE INTEREST ENTITIES
Variable Interest Entities Consolidated
We own a 49.99% interest in Lamb Weston BSW, LLC ("Lamb Weston BSW"), a potato processing venture with Ochoa Ag Unlimited Foods, Inc. ("Ochoa"). We provide all sales and marketing services to Lamb Weston BSW. Under certain circumstances, we could be required to compensate Ochoa for lost profits resulting from significant production shortfalls ("production shortfalls"). Commencing on June 1, 2018, or on an earlier date under certain circumstances, we have a contractual right to purchase the remaining equity interest in Lamb Weston BSW from Ochoa (the "call option"). We are currently subject to a contractual obligation to purchase all of Ochoa's equity investment in Lamb Weston BSW at the option of Ochoa (the "put option"). The purchase prices under the call option and the put option (the "options") are based on the book value of Ochoa's equity interest at the date of exercise, as modified by an agreed-upon rate of return for the holding period of the investment balance. The agreed-upon rate of return varies depending on the circumstances under which any of the options are exercised. As of February 24, 2013, the price at which Ochoa had the right to put its equity interest to us was $38.5 million. This amount is presented within other noncurrent liabilities in our condensed consolidated balance sheets. We have determined that Lamb Weston BSW is a variable interest entity and that we are the primary beneficiary of the entity. Accordingly, we consolidate the financial statements of Lamb Weston BSW.
We hold a promissory note from Lamb Weston BSW, the balance of which was $36.1 million at February 24, 2013. The promissory note is due in December 2015. The promissory note is currently accruing interest at a rate of LIBOR plus 200 basis points with a floor of 3.25%. In addition, as of February 24, 2013, we provided lines of credit of up to $15.0 million to Lamb Weston BSW. Borrowings under the lines of credit bear interest at a rate of LIBOR plus 200 basis points with a floor of 3.25%. The amounts owed by Lamb Weston BSW to the Company are not reflected in our condensed consolidated balance sheets, as they are eliminated in consolidation.
Our variable interests in Lamb Weston BSW include an equity investment in the venture, the options, the promissory note, certain fees paid to us by Lamb Weston BSW for sales and marketing services, the contingent obligation related to production shortfalls, and the lines of credit advanced to Lamb Weston BSW. Our maximum exposure to loss as a result of our involvement with this venture is equal to our equity investment in the venture, the balance of the promissory note extended to the venture, the amount, if any, advanced under the lines of credit, and the amount, if any, by which the put option exercise price exceeds the fair value of the noncontrolling interest in Lamb Weston BSW upon exercise of the put option. Also, in the event of a production shortfall, we could be required to compensate Ochoa for lost profits. It is not possible to determine the maximum exposure to losses from the potential exercise of the put option or from potential production shortfalls. However, we do not expect to incur material losses resulting from these potential exposures.
At May 27, 2012, we also consolidated the assets and liabilities of several entities from which we leased corporate aircraft. Each of these entities had been determined to be a variable interest entity and we had been determined to be the primary beneficiary of each of these entities. Under the terms of the aircraft leases, we provided guarantees to the owners of these entities of a minimum residual value of the aircraft at the end of the lease term. We also had fixed price purchase options on the aircraft leased from these entities. All leases with such lessor entities have expired and the assets of these entities were purchased during the first six months of fiscal 2013.


8

Table of Contents

Due to the consolidation of these variable interest entities, we reflected in our condensed consolidated balance sheets:
 
 
February 24,
2013
 
May 27,
2012
Cash and cash equivalents
$
11.6

 
$
10.2

Receivables, less allowance for doubtful accounts
23.3

 
20.9

Inventories
1.5

 
1.6

Prepaid expenses and other current assets
0.2

 
0.2

Property, plant and equipment, net
52.0

 
82.9

Goodwill
18.8

 
18.8

Brands, trademarks and other intangibles, net
7.7

 
8.3

Total assets
$
115.1

 
$
142.9

Current installments of long-term debt
$

 
$
30.1

Accounts payable
13.4

 
17.9

Accrued payroll
0.7

 
0.5

Other accrued liabilities
0.9

 
1.0

Other noncurrent liabilities (minority interest)
31.9

 
28.9

Total liabilities
$
46.9

 
$
78.4

The liabilities recognized as a result of consolidating the Lamb Weston BSW entity do not represent additional claims on our general assets. The creditors of Lamb Weston BSW have claims only on the assets of Lamb Weston BSW. The assets recognized as a result of consolidating Lamb Weston BSW are the property of the venture and are not available to us for any other purpose, other than as a secured lender under the promissory note and lines of credit.
Variable Interest Entities Not Consolidated
We also have variable interests in certain other entities that we have determined to be variable interest entities, but for which we are not the primary beneficiary. We do not consolidate the financial statements of these entities.
We hold a 50% interest in Lamb Weston RDO, a potato processing venture. We provide all sales and marketing services to Lamb Weston RDO. We receive a fee for these services based on a percentage of the net sales of the venture. We reflect the value of our ownership interest in this venture in other assets in our condensed consolidated balance sheets, based upon the equity method of accounting. The balance of our investment was $14.6 million and $14.8 million at February 24, 2013 and May 27, 2012, respectively, representing our maximum exposure to loss as a result of our involvement with this venture. The capital structure of Lamb Weston RDO includes owners' equity of $29.1 million and term borrowings from banks of $44.5 million as of February 24, 2013. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of this venture.
We lease certain office buildings from entities that we have determined to be variable interest entities. The lease agreements with these entities include fixed-price purchase options for the assets being leased, representing our only variable interest in these lessor entities. These leases are accounted for as operating leases, and accordingly, there are no material assets or liabilities associated with these entities included in our condensed consolidated balance sheets. We have no material exposure to loss from our variable interests in these entities. We have determined that we do not have the power to direct the activities that most significantly impact the economic performance of these entities. In making this determination, we have considered, among other items, the terms of the lease agreements, the expected remaining useful lives of the assets leased, and the capital structure of the lessor entities.

4. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for the first three quarters of fiscal 2013 was as follows:
 

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Consumer
Foods
 
Commercial
Foods
 
Ralcorp
 
Total
Balance as of May 27, 2012
$
3,886.7

 
$
128.7

 
$

 
$
4,015.4

Acquisitions
100.1

 

 
4,264.5

 
4,364.6

Currency translation and purchase accounting adjustments
(11.9
)
 
0.4

 
0.8

 
(10.7
)
Balance as of February 24, 2013
$
3,974.9

 
$
129.1

 
$
4,265.3

 
$
8,369.3


Other identifiable intangible assets were as follows:
 
 
February 24, 2013
 
May 27, 2012
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Non-amortizing intangible assets
$
1,150.8

 
$

 
$
947.7

 
$

Amortizing intangible assets
2,421.4

 
96.9

 
313.8

 
70.0

 
$
3,572.2

 
$
96.9

 
$
1,261.5

 
$
70.0

Non-amortizing intangible assets are comprised of brands and trademarks.
Amortizing intangible assets, carrying a weighted average life of approximately 24 years, are principally composed of licensing arrangements, customer relationships, and intellectual property. Based on amortizing assets recognized in our condensed consolidated balance sheet as of February 24, 2013, amortization expense is estimated to average $108.6 million for each of the next five years.
In the first quarter of fiscal 2012, we acquired the Marie Callender's® brand trademarks for $57.5 million in cash. This intangible asset is presented in the Consumer Foods segment.

5. DERIVATIVE FINANCIAL INSTRUMENTS
Our operations are exposed to market risks from adverse changes in commodity prices affecting the cost of raw materials and energy, foreign currency exchange rates, and interest rates. In the normal course of business, these risks are managed through a variety of strategies, including the use of derivatives.
Commodity and commodity index futures and option contracts are used from time to time to economically hedge commodity input prices on items such as natural gas, vegetable oils, proteins, packaging materials, dairy, grains, and electricity. Generally, we economically hedge a portion of our anticipated consumption of commodity inputs for periods of up to 36 months. We may enter into longer-term economic hedges on particular commodities, if deemed appropriate. As of February 24, 2013, we had economically hedged certain portions of our anticipated consumption of commodity inputs using derivative instruments with expiration dates through June 2015.
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 February 24, 2013, we had economically hedged certain portions of our foreign currency risk in anticipated transactions using derivative instruments with expiration dates through July 2017.
From time to time, we may use derivative instruments, including interest rate swaps, to reduce risk related to changes in interest rates. This includes, but is not limited to, hedging against increasing interest rates prior to the issuance of long-term debt and hedging the fair value of our senior long-term debt.
Derivatives Designated as Cash Flow Hedges
We have entered into interest rate swap contracts to hedge the interest rate risk related to our forecasted issuance of long-term debt in 2014 (based on the anticipated refinancing of the senior long-term debt maturing at that time). We designated these interest rate swaps as cash flow hedges of the forecasted interest payments related to this debt issuance. The pre-tax unrealized loss associated with these derivatives, which is deferred in accumulated other comprehensive loss at February 24, 2013, was $109.6 million.

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The net notional amount of these interest rate derivatives at February 24, 2013 was $500.0 million. Hedge ineffectiveness for cash flow hedges may impact net earnings when a change in the value of a hedge does not entirely offset the change in the value of the underlying hedged item. Depending on the nature of the hedge, ineffectiveness is recognized within cost of goods sold or selling, general and administrative expenses. We do not exclude any component of the hedging instrument’s gain or loss when assessing ineffectiveness. The ineffectiveness associated with derivatives designated as cash flow hedges from continuing operations was not material to our results of operations in any period presented.
During the third quarter of fiscal 2013, we entered into 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 Ralcorp. We settled these contracts during the third quarter of fiscal 2013 and deferred a $2.2 million gain in other comprehensive income. This gain will be amortized against interest expense over the lives of the related debt instruments. The unamortized amount at February 24, 2013 was $2.2 million.
Derivatives Designated as Fair Value Hedges
During fiscal 2010, we entered into interest rate swap contracts to hedge the fair value of certain of our senior long-term debt instruments maturing in fiscal 2012 and 2014. We designated these interest rate swap contracts as fair value hedges of the debt instruments.

Changes in fair value of such derivative instruments are immediately recognized in earnings along with changes in the fair value of the items being hedged (based solely on the change in the benchmark interest rate). These gains and losses are classified within selling, general and administrative expenses.
During fiscal 2011, we terminated the interest rate swap contracts and received proceeds of $31.5 million. The cumulative adjustment to the fair value of the debt instruments being hedged is included in long-term debt and is being amortized as a reduction of interest expense over the remaining lives of the debt instruments (through fiscal 2014). At February 24, 2013, the unamortized amount was $10.8 million.
The entire change in fair value of the derivative instruments was included in our assessment of hedge effectiveness.
Economic Hedges of Forecasted Cash Flows
Many of our derivatives do not qualify for, and we do not currently designate certain commodity or foreign currency derivatives to achieve, hedge accounting treatment. We reflect realized and unrealized gains and losses from derivatives used to economically hedge anticipated commodity consumption and to mitigate foreign currency cash flow risk in earnings immediately within general corporate expense (within cost of goods sold). The gains and losses are reclassified to segment operating results in the period in which the underlying item being economically hedged is recognized in cost of goods sold.
Economic Hedges of Fair Values — Foreign Currency Exchange Rate Risk
We may use options and cross currency swaps to economically hedge the fair value of certain monetary assets and liabilities (including intercompany balances) denominated in a currency other than the functional currency. These derivatives are marked-to-market with gains and losses immediately recognized in selling, general and administrative expenses. These substantially offset the foreign currency transaction gains or losses recognized as values of the monetary assets or liabilities being economically hedged change.
Derivative Activity in Our Milling Operations
We also use derivative instruments within our milling operations, which are part of the Commercial Foods segment. Derivative instruments used to economically hedge commodity inventories and forward purchase and sales contracts within the milling operations are marked-to-market such that realized and unrealized gains and losses are immediately included in operating results. The underlying inventory and forward contracts being hedged are also marked-to-market with changes in market value recognized immediately in operating results.
For commodity derivative trading activities within our milling operations that are not intended to mitigate commodity input cost risk, the derivative instrument is marked-to-market each period with gains and losses included in net sales of the Commercial Foods segment. There were no material gains or losses from derivative trading activities in the periods being reported.
All derivative instruments are recognized on the balance sheets at fair value. The fair value of derivative assets is recognized within prepaid expenses and other current assets, while the fair value of derivative liabilities is recognized within other accrued liabilities. In accordance with generally accepted accounting principles, we offset certain derivative asset and liability balances, as well as certain amounts representing rights to reclaim cash collateral and obligations to return cash collateral, where legal

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right of setoff exists. At February 24, 2013 and May 27, 2012, amounts representing a right to reclaim cash collateral of $7.0 million and $13.2 million, respectively, were included in prepaid expenses and other current assets in our condensed consolidated balance sheets.
Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or obligation to return cash collateral were reflected in our condensed consolidated balance sheets as follows:
 
 
February 24,
2013
 
May 27,
2012

Prepaid expenses and other current assets
$
77.5

 
$
58.7

Other accrued liabilities
134.2

 
215.4


The following table presents our derivative assets and liabilities, on a gross basis, prior to the offsetting of amounts where legal right of setoff existed at February 24, 2013:
 
 
Derivative Assets
 
Derivative Liabilities
 
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Interest rate contracts
Prepaid expenses and other current assets
 
$

 
Other accrued liabilities
 
$
109.6

Total derivatives designated as hedging instruments
 
 
$

 
 
 
$
109.6

Commodity contracts
Prepaid expenses and other current assets
 
$
70.2

 
Other accrued liabilities
 
$
35.8

Foreign exchange contracts
Prepaid expenses and other current assets
 
13.6

 
Other accrued liabilities
 
2.9

Other
Prepaid expenses and other current assets
 
0.9

 
Other accrued liabilities
 
0.1

Total derivatives not designated as hedging instruments
 
 
$
84.7

 
 
 
$
38.8

Total derivatives
 
 
$
84.7

 
 
 
$
148.4

The following table presents our derivative assets and liabilities, on a gross basis, prior to the offsetting of amounts where legal right of setoff existed at May 27, 2012:
 
 
Derivative Assets
 
Derivative Liabilities
 
Balance Sheet
Location
 
Fair Value
 
Balance Sheet
Location
 
Fair Value
Interest rate contracts
Prepaid expenses and other current assets
 
$

 
Other accrued liabilities
 
$
153.9

Total derivatives designated as hedging instruments
 
 
$

 
 
 
$
153.9

Commodity contracts
Prepaid expenses and other current assets
 
$
60.3

 
Other accrued liabilities
 
$
75.6

Foreign exchange contracts
Prepaid expenses and other current assets
 
7.3

 
Other accrued liabilities
 
8.1

Other
Prepaid expenses and other current assets
 
0.6

 
Other accrued liabilities
 
0.5

Total derivatives not designated as hedging instruments
 
 
$
68.2

 
 
 
$
84.2

Total derivatives
 
 
$
68.2

 
 
 
$
238.1



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The location and amount of gains (losses) from derivatives not designated as hedging instruments in our condensed consolidated statements of earnings were as follows:
 
Derivatives Not Designated as Hedging Instruments
 
Location in Condensed Consolidated Statement of Earnings of
Gain (Loss) Recognized  on Derivatives
 
Amount of Gain (Loss)
Recognized on Derivatives
in Condensed Consolidated
Statement of Earnings for
the Thirteen Weeks Ended
February 24, 2013
 
February 26, 2012
Commodity contracts
 
Sales
 
$
(8.8
)
 
$

Commodity contracts
 
Cost of goods sold
 
22.1
 
29.5

Foreign exchange contracts
 
Cost of goods sold
 
12.7

 
4.2

Commodity contracts
 
Selling, general and administrative expense
 

 

Foreign exchange contracts
 
Selling, general and administrative expense
 
5.5

 
(5.3
)
Total gain from derivative instruments not designated as hedging instruments
 
 
 
$
31.5

 
$
28.4

Derivatives Not Designated as Hedging Instruments
 
Location in Condensed Consolidated Statement of Earnings of
Gain (Loss) Recognized on Derivatives
 
Amount of Gain (Loss)
Recognized on Derivatives
in Condensed Consolidated
Statement of Earnings for
the Thirty-nine Weeks Ended
February 24, 2013
 
February 26, 2012
Commodity contracts
 
Sales
 
$
(9.5
)
 
$

Commodity contracts
 
Cost of goods sold
 
148.4

 
102.6

Foreign exchange contracts
 
Cost of goods sold
 
14.0

 
3.2

Commodity contracts
 
Selling, general and administrative expense
 
0.1

 
(0.1
)
Foreign exchange contracts
 
Selling, general and administrative expense
 
(1.0
)
 
1.2

Total gain from derivative instruments not designated as hedging instruments
 
 
 
$
152.0

 
$
106.9


As of February 24, 2013, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $1.8 billion and $1.9 billion for purchase and sales contracts, respectively. As of May 27, 2012, our open commodity contracts had a notional value of $1.9 billion and $1.3 billion for purchase and sales contracts, respectively. The notional amount of our foreign currency forward and cross currency swap contracts as of February 24, 2013 and May 27, 2012 was $393.9 million and $455.7 million, respectively.
We enter into certain commodity, interest rate, and foreign exchange derivatives with a diversified group of counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit exposure to any one party. These transactions may expose us to potential losses due to the risk of nonperformance by these counterparties. We have not incurred a material loss due to nonperformance in any period presented and do not expect to incur any such material loss. We also enter into futures and options transactions through various regulated exchanges.
At February 24, 2013, the maximum amount of loss due to the credit risk of the counterparties, had the counterparties failed to perform according to the terms of the contracts, was $67.7 million.

6. SHARE-BASED PAYMENTS
For the third quarter and first three quarters of fiscal 2013, we recognized total stock-based compensation expense (including stock options, restricted stock units, cash-settled restricted stock units, and performance shares) of $25.0 million and $52.8 million, respectively. For the third quarter and first three quarters of fiscal 2012, we recognized total stock-based compensation expense of $10.9 million and $35.2 million, respectively. During the first three quarters of fiscal 2013, we granted 0.9 million restricted stock units at a weighted average grant date price of $24.83, 0.9 million cash-settled restricted stock units at a weighted average grant date price of $24.74, 3.9 million stock options at a weighted average exercise price of $24.74, and 0.5 million performance shares at a weighted average grant date price of $24.74.
Performance shares are granted to selected executives and other key employees with vesting contingent upon meeting various Company-wide performance goals. The performance goals for the performance period ending in fiscal 2013 are based upon our

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growth in earnings before interest and taxes and our return on average invested capital measured over the defined performance period. The performance goals for the performance periods ending in fiscal 2014 and fiscal 2015 are based upon our operating cash flow return on operations, a measure of operating cash flow as a percentage of invested capital measured over a defined performance period, and revenue growth. The awards actually earned will range from zero to two hundred percent of the targeted number of performance shares for the performance period ending in fiscal 2013; and from zero to two hundred twenty percent of the targeted number of performance shares for each of the performance periods ending in fiscal 2014 and fiscal 2015. For each of the performance periods ending in fiscal 2014 and fiscal 2015, a payout equal to 25% of approved target incentive is required to be paid out if we achieve a threshold level of cash flow return on operations. Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in the performance share plan, any shares earned will be distributed at the end of the performance period. The value of the performance shares is adjusted based upon the market price of our common stock at the end of each reporting period and amortized as compensation expense over the vesting period.
The weighted average Black-Scholes assumptions for stock options granted during the first three quarters of fiscal 2013 were as follows:
 
Expected volatility (%)
22.95
Dividend yield (%)
3.77
Risk-free interest rate (%)
0.57
Expected life of stock option (years)
4.8
The weighted average value of stock options granted during the first three quarters of fiscal 2013 was $2.93 per option, based upon a Black-Scholes methodology.

7. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average outstanding common shares. Diluted earnings per share is computed on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, restricted stock unit awards, and other dilutive securities.
The following table reconciles the income and average share amounts used to compute both basic and diluted earnings per share:
 
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
February 24,
2013
 
February 26,
2012
 
February 24,
2013
 
February 26,
2012
Net income available to ConAgra Foods, Inc. common stockholders:
 
 
 
 
 
 
 
Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders
$
120.0

 
$
280.1

 
$
581.7

 
$
554.0

Income from discontinued operations, net of tax, attributable to ConAgra Foods, Inc. common stockholders

 

 

 
0.1

Net income attributable to ConAgra Foods, Inc. common stockholders
$
120.0

 
$
280.1

 
$
581.7

 
$
554.1

Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated
0.4

 
0.1

 
1.2

 
1.1

Net income available to ConAgra Foods, Inc. common stockholders
$
119.6

 
$
280.0

 
$
580.5

 
$
553.0

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
410.7

 
414.3

 
408.4

 
413.6

Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities
7.1

 
5.7

 
6.1

 
5.5

Diluted weighted average shares outstanding
417.8

 
420.0

 
414.5

 
419.1

For the third quarter of fiscal 2013, there were no stock options outstanding excluded from the computation of shares contingently issuable upon exercise of the stock options. For the first three quarters of fiscal 2013, there were 1.9 million stock options outstanding that were excluded from the computation of shares contingently issuable upon exercise of the stock options

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because exercise prices exceeded the average market value of our common stock during the period. For the third quarter and first three quarters of fiscal 2012, there were 9.7 million and 13.7 million stock options, respectively, excluded from the calculation.

8. INVENTORIES
The major classes of inventories were as follows:
 
 
February 24,
2013
 
May 27,
2012
Raw materials and packaging
$
877.5

 
$
563.8

Work in process
151.1

 
96.5

Finished goods
1,475.6

 
1,122.4

Supplies and other
144.1

 
86.9

Total
$
2,648.3

 
$
1,869.6


9. RESTRUCTURING
Acquisition-related restructuring
We are incurring costs in connection with actions taken to attain synergies when integrating businesses acquired prior to the third quarter of fiscal 2013. These costs, collectively referred to as "acquisition-related exit costs", include severance and other costs associated with consolidating facilities and administrative functions. In connection with the acquisition-related exit costs, we expect to incur pre-tax cash and non-cash charges for severance, relocation, and other site closure costs of $13.2 million.
We anticipate that we will recognize the following acquisition-related exit costs in selling, general and administrative expenses during fiscal 2012 to 2014 (amounts include charges recognized in fiscal 2012 and the first three quarters of fiscal 2013):
 
 
Consumer
Corporate
Total
Severance and related costs
$
8.6

$

$
8.6

Asset impairment
1.5

2.5

4.0

Other, net
0.6


0.6

Total selling, general and administrative expenses
10.7

2.5

13.2

Consolidated total
$
10.7

$
2.5

$
13.2

Included in the above estimates are $9.2 million of charges that have resulted or will result in cash outflows and $4.0 million of non-cash charges.
During the third quarter of fiscal 2013, we recognized the following pre-tax expenses associated with acquisition-related exit costs:
 
Consumer
Corporate
Total
Severance and related costs
$
0.7

$

$
0.7

Asset impairment
1.2

2.5

3.7

Other, net



Total selling, general and administrative expenses
1.9

2.5

4.4

Consolidated total
$
1.9

$
2.5

$
4.4

During the first three quarters of fiscal 2013, we recognized the following pre-tax expenses for acquisition-related exit costs:

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Consumer
Corporate
Total
Accelerated depreciation of fixed assets
$
(0.2
)
$

$
(0.2
)
Total cost of goods sold
(0.2
)

(0.2
)
Severance and related costs
4.3


4.3

Asset impairment
1.5

2.5

4.0

Other, net
0.3


0.3

Total selling, general and administrative expenses
6.1

2.5

8.6

Consolidated total
$
5.9

$
2.5

$
8.4

We recognized the following cumulative (plan inception to February 24, 2013) pre-tax acquisition-related exit costs in our consolidated statement of earnings:
 
 
Consumer
Corporate
Total
Severance and related costs
$
8.6

$

$
8.6

Asset impairment
1.5

2.5

4.0

Other, net
0.3


0.3

Total selling, general and administrative expenses
10.4

2.5

12.9

Consolidated total
$
10.4

$
2.5

$
12.9


Liabilities recorded for acquisition-related exit costs and changes therein for the first three quarters of fiscal 2013 were as follows:
 
 
Balance at
May  27,
2012

 
Costs Incurred
and Charged
to Expense
 
Costs Paid
or  Otherwise Settled
 
Changes  in
Estimates
 
Balance at Balance at
February 24, 2013
Severance and related costs
$
4.3

 
$
4.6

 
$
(6.0
)
 
$
(1.0
)
 
$
1.9

Total
$
4.3

 
$
4.6

 
$
(6.0
)
 
$
(1.0
)
 
$
1.9

Administrative Efficiency Restructuring Plan
In August 2011, we made a decision to reorganize our Consumer Foods sales function and certain other administrative functions within our Commercial Foods and Corporate reporting segments. These actions, collectively referred to as the "Administrative Efficiency Plan", are intended to improve the efficiency and effectiveness of the affected sales and administrative functions. In connection with the Administrative Efficiency Plan, we expect to incur approximately $19.1 million of pre-tax cash and non-cash charges, primarily for severance and costs of employee relocation.
We anticipate that we will recognize the following pre-tax expenses associated with the Administrative Efficiency Plan in the fiscal 2012 to 2014 timeframe (amounts include charges recognized in fiscal 2012 and the first three quarters of fiscal 2013):
 
 
Consumer
Foods
 
Commercial
Foods
 
Corporate
 
Total
Accelerated depreciation
$

 
$

 
$
1.5

 
$
1.5

Severance and related costs
7.3

 

 
2.3

 
9.6

Other, net
6.7

 
1.1

 
0.2

 
8.0

Total selling, general and administrative expenses
14.0

 
1.1

 
4.0

 
19.1

Consolidated total
$
14.0

 
$
1.1

 
$
4.0

 
$
19.1

Included in the above estimates are $17.2 million of charges that have resulted or will result in cash outflows and $1.9 million of non-cash charges.
During the third quarter of fiscal 2013, we recognized the following pre-tax expenses associated with the Administrative Efficiency Plan:

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Consumer
Foods
 
Corporate
 
Total
Accelerated depreciation
$

 
$
0.1

 
$
0.1

Severance and related costs
0.2

 

 
0.2

Other, net

 

 

Total selling, general and administrative expenses
0.2

 
0.1

 
0.3

Consolidated total
$
0.2

 
$
0.1

 
$
0.3

During the first three quarters of fiscal 2013, we recognized the following pre-tax expenses associated with the Administrative Efficiency Plan:
 
Consumer
Foods
 
Corporate
 
Total
Accelerated depreciation
$

 
$
0.3

 
$
0.3

Severance and related costs
1.1

 

 
1.1

Other, net
0.4

 

 
0.4

Total selling, general and administrative expenses
1.5

 
0.3

 
1.8

Consolidated total
$
1.5

 
$
0.3

 
$
1.8


We recognized the following cumulative (plan inception to February 24, 2013) pre-tax charges related to the Administrative Efficiency Plan in our consolidated statement of earnings:
 
 
Consumer
Foods
 
Commercial
Foods
 
Corporate
 
Total
Accelerated depreciation
$

 
$

 
$
1.4

 
$
1.4

Severance and related costs
7.3

 

 
2.2

 
9.5

Other, net
6.3

 
1.0

 
0.3

 
7.6

Total selling, general and administrative expenses
13.6

 
1.0

 
3.9

 
18.5

Consolidated total
$
13.6

 
$
1.0

 
$
3.9

 
$
18.5

Liabilities recorded for the various initiatives and changes therein for the first three quarters of fiscal 2013 under the Administrative Efficiency Plan were as follows:
 
 
Balance at
May 27,
2012

 
Costs
Incurred
and
Charged
to
Expense
 
Costs
Paid
or
Otherwise
Settled
 
Changes
in
Estimates
 
Balance at February 24,
2013
Severance and related costs
$
2.1

 
$
1.2

 
$
(2.5
)
 
$
(0.2
)
 
$
0.6

Plan implementation costs
0.3

 
0.2

 
(0.5
)
 

 

Total
$
2.4

 
$
1.4

 
$
(3.0
)
 
$
(0.2
)
 
$
0.6

Network Optimization Plan
During the third quarter of fiscal 2011, our Board of Directors approved a plan designed to optimize our manufacturing and distribution networks. We refer to this plan as the "Network Optimization Plan". The Network Optimization Plan consists of projects that involve, among other things, the exit of certain manufacturing facilities, the disposal of underutilized manufacturing assets, and actions designed to optimize our distribution network. At the time of our acquisition, Ralcorp had certain initiatives underway with the same intent. Expenses incurred in connection with these Ralcorp restructuring activities are now included in the Network Optimization Plan. The Network Optimization Plan is expected to be implemented by the end of fiscal 2014 and is intended to improve the efficiency of our manufacturing operations and reduce costs.
In connection with the Network Optimization Plan, we expect to incur pre-tax cash and non-cash charges of $79.9 million. We have recognized, and/or expect to recognize, expenses associated with the Network Optimization Plan, including but not limited to, impairments of property, plant and equipment, accelerated depreciation, severance and related costs, and plan

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implementation costs (e.g., consulting and employee relocation). We anticipate that we will recognize the following pre-tax expenses associated with the Network Optimization Plan in the fiscal 2011 to fiscal 2014 timeframe (amounts include charges recognized in fiscal 2011, 2012, and the first three quarters of fiscal 2013):
 
 
Consumer
Foods
 
Commercial
Foods
 
Corporate
 
Ralcorp Food Group
 
Ralcorp Frozen Bakery Products
 
Total
Accelerated depreciation
$
22.5

 
$

 
$

 
$

 
$

 
$
22.5

Inventory write-offs and related costs
7.9

 
0.4

 

 

 

 
8.3

Total cost of goods sold
30.4

 
0.4

 

 

 

 
30.8

Asset impairment
14.7

 
14.0

 

 

 

 
28.7

Gain on sale of property, plant and equipment
(1.0
)
 

 

 

 

 
(1.0
)
Severance and related costs
7.6

 
0.1

 
0.2

 
2.5

 
(0.2
)
 
10.2

Other, net
8.5

 
1.5

 
0.8

 
0.1

 
0.3

 
11.2

Total selling, general and administrative expenses
29.8

 
15.6

 
1.0

 
2.6

 
0.1

 
49.1

Consolidated total
$
60.2

 
$
16.0

 
$
1.0

 
$
2.6

 
$
0.1

 
$
79.9

Included in the above estimates are $21.5 million of charges that have resulted or will result in cash outflows and $58.4 million of non-cash charges.

During the third quarter of fiscal 2013, we recognized the following pre-tax expenses associated with the Network Optimization Plan:
 
Consumer
Foods
 
Corporate
 
Ralcorp Food Group
 
Ralcorp Frozen Bakery Products
 
Total
Accelerated depreciation
$

 
$

 
$

 
$

 
$

Inventory write-offs and related costs
0.5

 

 

 

 
0.5

Total cost of goods sold
0.5

 

 

 

 
0.5

Asset impairment
1.1

 

 

 

 
1.1

Gain on sale of property, plant and equipment

 

 

 

 

Severance and related costs
(2.1
)
 
0.1

 
0.6

 
(0.2
)
 
(1.6
)
Other, net
0.2

 

 
0.1

 
0.1

 
0.4

Total selling, general and administrative expenses
(0.8
)
 
0.1

 
0.7

 
(0.1
)
 
(0.1
)
Consolidated total
$
(0.3
)
 
$
0.1

 
$
0.7

 
$
(0.1
)
 
$
0.4

During the first three quarters of fiscal 2013, we recognized the following pre-tax expenses associated with the Network Optimization Plan:
 
Consumer
Foods
 
Corporate
 
Ralcorp Food Group
 
Ralcorp Frozen Bakery Products
 
Total
Accelerated depreciation
$
2.0

 
$

 
$

 
$

 
$
2.0

Inventory write-offs and related costs
0.6

 

 

 

 
0.6

Total cost of goods sold
2.6

 

 

 

 
2.6

Asset impairment
1.4

 

 

 

 
1.4

Gain on sale of property, plant and equipment
(1.0
)
 

 

 

 
(1.0
)
Severance and related costs
(1.9
)
 
0.1

 
0.6

 
(0.2
)
 
(1.4
)
Other, net
2.3

 
0.8

 
0.1

 
0.1

 
3.3

Total selling, general and administrative expenses
0.8

 
0.9

 
0.7

 
(0.1
)
 
2.3

Consolidated total
$
3.4

 
$
0.9

 
$
0.7

 
$
(0.1
)
 
$
4.9


18

Table of Contents

We recognized the following cumulative (plan inception to February 24, 2013) pre-tax expenses related to the Network Optimization Plan:
 
 
Consumer
Foods
 
Commercial
Foods
 
Corporate
 
Ralcorp Food Group
 
Ralcorp Frozen Bakery Products
 
Total
Accelerated depreciation
$
22.5

 
$

 
$

 
$

 
$

 
$
22.5

Inventory write-offs and related costs
7.5

 
0.4

 

 

 

 
7.9

Total cost of goods sold
30.0

 
0.4

 

 

 

 
30.4

Asset impairment
14.7

 
14.0

 

 

 

 
28.7

Gain on sale of property, plant and equipment
(1.0
)
 

 

 

 

 
(1.0
)
Severance and related costs
7.6

 
0.1

 
0.1

 
0.6

 
(0.2
)
 
8.2

Other, net
8.5

 
1.5

 
0.8

 
0.1

 
0.1

 
11.0

Total selling, general and administrative expenses
29.8

 
15.6

 
0.9

 
0.7

 
(0.1
)
 
46.9

Consolidated total
$
59.8

 
$
16.0

 
$
0.9

 
$
0.7

 
$
(0.1
)
 
$
77.3

Liabilities recorded for the various initiatives and changes therein for the first three quarters of fiscal 2013 under the Network Optimization Plan were as follows:
 
 
Balance at
May 27,
2012

 
Ralcorp Liability Assumed
 
Costs
Incurred
and
Charged
to
Expense
 
Costs
Paid
or
Otherwise
Settled
 
Changes
in
Estimates
 
Balance at February 24,
2013
Severance and related costs
$
7.0


$
4.2


$
1.5


$
(4.2
)

$
(3.5
)
 
$
5.0

Plan implementation costs
0.8


1.4


2.7


(3.5
)


 
1.4

Total
$
7.8

 
$
5.6

 
$
4.2

 
$
(7.7
)
 
$
(3.5
)
 
$
6.4


2010 Restructuring Plan
During fiscal 2010, our Board of Directors approved a plan related to the long-term production of our meat snack products. The plan provided for the closure of our meat snacks production facility in Garner, North Carolina, and the movement of production to our existing facility in Troy, Ohio.
Also in fiscal 2010, we made a decision to consolidate certain administrative functions from Edina, Minnesota to Naperville, Illinois. We completed the transition of these functions in fiscal 2011. This plan, together with the plan to move production of our meat snacks from Garner, North Carolina to Troy, Ohio, is collectively referred to as the 2010 restructuring plan ("2010 plan").
In connection with the 2010 plan, we incurred pre-tax cash and non-cash charges of $67.3 million cumulatively since inception. By the end of fiscal 2012, the 2010 plan was complete.

10. INCOME TAXES
Our income tax expense from continuing operations for the third quarter of fiscal 2013 and 2012 was $78.0 million and $112.1 million, respectively. Income tax expense from continuing operations for the first three quarters of fiscal 2013 and 2012 was $310.6 million and $253.7 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment earnings) from continuing operations was 39% and 34% for the third quarter and first three quarters of fiscal 2013, respectively, and 29% and 31% for the third quarter and first three quarters of fiscal 2012, respectively. The higher tax rate for the third quarter and the first three quarters of fiscal 2013 is due to the recognition of a nontaxable gain from the acquisition of a majority interest in ATFL in fiscal 2012, as well as the impact of the Ralcorp acquisition in fiscal 2013, which resulted in the incurrence of various non-deductible transaction-related expenses, as well as a lower domestic manufacturing deduction. The effective tax rate also included the impact of certain favorable tax adjustments to both fiscal 2012 and fiscal 2013 resulting from the implementation of the 2012 American Taxpayer Relief Act. In the third quarter of fiscal 2013, we received an adverse Mexican tax court ruling and recorded a reserve of $4 million

19

Table of Contents

The amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $64.2 million as of February 24, 2013 and $48.7 million as of May 27, 2012. Included in the balance was $11.2 million as of February 24, 2013 and $3.1 million as of May 27, 2012 for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. Any associated interest and penalties imposed would affect the tax rate. The gross unrecognized tax benefits excluded related liabilities for gross interest and penalties of $13.8 million and $14.0 million as of February 24, 2013 and May 27, 2012, respectively.
The net amount of unrecognized tax benefits at February 24, 2013 and May 27, 2012 that, if recognized, would impact the Company's effective tax rate was $37.2 million and $30.3 million, respectively. Recognition of these tax benefits would have a favorable impact on the Company's effective tax rate.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $7 million over the next twelve months due to various federal, state, and foreign audit settlements and the expiration of statutes of limitations.

11. CONTINGENCIES
In fiscal 1991, we acquired Beatrice Company ("Beatrice"). As a result of the acquisition and the significant pre-acquisition contingencies of the Beatrice businesses and its former subsidiaries, our condensed consolidated post-acquisition financial statements reflect liabilities associated with the estimated resolution of these contingencies. These include various litigation and environmental proceedings related to businesses divested by Beatrice prior to its acquisition by us. The litigation includes suits against a number of lead paint and pigment manufacturers, including ConAgra Grocery Products and the Company as alleged successors to W. P. Fuller Co., a lead paint and pigment manufacturer owned and operated by Beatrice until 1967. Although decisions favorable to us have been rendered in Rhode Island, New Jersey, Wisconsin, and Ohio, we remain a defendant in active suits in Illinois and California. The Illinois suit seeks class-wide relief in the form of medical monitoring for elevated levels of lead in blood. In California, a number of cities and counties have joined in a consolidated action seeking abatement of the alleged public nuisance. We have had successful outcomes in every case decided to date and although exposure in the remaining cases is unlikely, it is reasonably possible. However, given the range of potential remedies, it is not possible to estimate this exposure.
The environmental proceedings include litigation and administrative proceedings involving Beatrice's status as a potentially responsible party at 36 Superfund, proposed Superfund, or state-equivalent sites; these sites involve locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides, fertilizers, dyes, inks, solvents, PCBs, acids, lead, sulfur, tannery wastes, and/or other contaminants. Beatrice has paid or is in the process of paying its liability share at 32 of these sites. Reserves for these matters have been established based on our best estimate of the undiscounted remediation liabilities, which estimates include evaluation of investigatory studies, extent of required clean-up, the known volumetric contribution of Beatrice and other potentially responsible parties, and its experience in remediating sites. The reserves for Beatrice-related environmental matters totaled $63.6 million as of February 24, 2013, a majority of which relates to the Superfund and state-equivalent sites referenced above. We expect expenditures for Beatrice-related environmental matters to continue for up to 18 years.
In limited situations, we will guarantee an obligation of an unconsolidated entity. At the time in which we initially provide such a guarantee, we assess the risk of financial exposure to us under these agreements. We consider the credit-worthiness of the guaranteed party, the value of any collateral pledged against the related obligation, and any other factors that may mitigate our risk. We actively monitor market and entity-specific conditions that may result in a change of our assessment of the risk of loss under these agreements.

We guarantee certain leases and other commercial obligations resulting from the 2002 divestiture of our fresh beef and pork operations. The remaining terms of these arrangements do not exceed 3 years and the maximum amount of future payments we have guaranteed was $8.8 million as of February 24, 2013.
We have also guaranteed the performance of the divested fresh beef and pork business with respect to a hog purchase contract. The hog purchase contract requires the divested fresh beef and pork business to purchase a minimum of approximately 1.2 million hogs annually through June 1, 2013. The contract stipulates minimum price commitments, based in part on market prices, and, in certain circumstances, also includes price adjustments based on certain inputs. We have not established a liability for any of the fresh beef and pork divestiture-related guarantees, as we have determined that the likelihood of our required performance under the guarantees is remote.

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Table of Contents

We are a party to various potato supply agreements. Under the terms of certain such potato supply agreements, we have guaranteed repayment of short-term bank loans of the potato suppliers, under certain conditions. At February 24, 2013, the amount of supplier loans we have effectively guaranteed was $7.2 million. We have not established a liability for these guarantees, as we have determined that the likelihood of our required performance under the guarantees is remote.
We were a party to a supply agreement with an onion processing company where we had guaranteed, under certain conditions, repayment of a secured loan (the "Secured Loan") of this onion supplier to the onion supplier's lender. The amount of our guarantee was $25.0 million. We had the option to purchase the Secured Loan, and thereby assume first-priority secured rights to the underlying collateral for the amount of the Secured Loan. During the fourth quarter of fiscal 2012, we received notice from the lender that the onion supplier had defaulted on the Secured Loan and we purchased the Secured Loan from the lender for $40.8 million, and cancelled our guarantee. The Secured Loan was classified as other assets at May 27, 2012. The onion supplier filed for bankruptcy on April 12, 2012. During the second quarter of fiscal 2013, we acquired ownership and all rights to the collateral, consisting of agricultural land and a processing facility, securing the Secured Loan through the bankruptcy proceeding. During the third quarter of fiscal 2013, we recognized an impairment charge of $10.2 million in our Commercial Foods segment to reduce the carrying amount of these assets to their estimated fair value based upon updated appraisals. Based on our estimate of the value of the land and processing facility, we expect to recover the remaining carrying value through our operation or sale of these assets.
Federal income tax credits were generated related to our sweet potato production facility in Delhi, Louisiana. Third parties invested in certain of these income tax credits. We have guaranteed these third parties the face value of these income tax credits over their statutory lives, through fiscal 2017, in the event that the income tax credits are recaptured or reduced. The face value of the income tax credits was $21.2 million as of February 24, 2013. We believe the likelihood of the recapture or reduction of the income tax credits is remote, and therefore we have not established a liability in connection with this guarantee.
We are a party to a number of lawsuits and claims arising out of the operation of our business. Among these, there are lawsuits, claims, and matters related to the February 2007 recall of our peanut butter products. Among the matters outstanding related to the peanut butter recall are litigation we initiated against an insurance carrier to recover our settlement expenditures and defense costs, and an ongoing investigation by the U.S. Attorney's office in Georgia. During the first quarter of fiscal 2013, we recognized a charge of $7.5 million in connection with peanut butter matters. This amount is in addition to charges totaling $17.5 million recognized in fiscal 2012 in connection with peanut butter matters, and a charge of $24.8 million we recognized during fiscal 2009 in connection with the insurance coverage dispute. With respect to the coverage dispute matter, during the fourth quarter of fiscal 2012, we received a favorable opinion related to our defense costs, pursuant to which we received $11.8 million, which was recognized in income in fiscal 2012, and $1.4 million, which was recognized in income in fiscal 2013. During the fourth quarter of fiscal 2012, a jury verdict was rendered in our favor in the amount of $25.0 million on the claim for disputed coverage. Judgment for the $25.0 million plus $4.7 million in pre-judgment interest was entered in the second quarter of fiscal 2013. The judgment is subject to appeal. These amounts have not been recognized in income. With respect to the U.S. Attorney matter, in fiscal 2011, we received formal requests from the U.S. Attorney's office in Georgia seeking a variety of records and information related to the operations of our peanut butter manufacturing facility in Sylvester, Georgia. These requests continue and are related to the previously disclosed June 2007 execution of a search warrant at our facility following the February 2007 recall. We continue to engage in discussions with officials in regard to the investigation.
In June 2009, an accidental explosion occurred at our manufacturing facility in Garner, North Carolina. This facility was the primary production facility for our Slim Jim® branded meat snacks. On June 13, 2009, the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives announced its determination that the explosion was the result of an accidental natural gas release, and not a deliberate act. During the fourth quarter of fiscal 2011, we settled our property and business interruption claims related to the Garner accident with our insurance providers. During the fourth quarter of fiscal 2011, Jacobs Engineering Group Inc., our engineer and project manager at the site, filed a declaratory judgment action against us seeking indemnity for personal injury claims brought against it as a result of the accident. In the first quarter of fiscal 2012, the Court granted our motion for summary judgment on the basis that the suit was filed prematurely. We will continue to defend this action vigorously. Any exposure in this case is expected to be limited to the applicable insurance deductible.

In April 2010, an accidental explosion occurred at our flour milling facility in Chester, Illinois. Two employees of a subcontractor and one employee of the primary contractor, Westside Salvage ("Westside"), on the site at the time of the accident suffered injuries in the accident. Suit was initiated against Westside and the Company for personal injury claims. During the first quarter of fiscal 2013, a jury in Federal Court sitting in East St. Louis, Illinois, returned a verdict against the Company and Westside and in favor of the three employees. The verdict was in the amount of $77.5 million in compensatory damages apportioned between the Company and Westside and $100.0 million in punitive damages against the Company. Post-trial motions were filed by the Company and the Trial Court reduced the punitive award against the Company to one employee by approximately $7 million. While we have insurance policies in place that we believe will cover the full amount of the compensatory and punitive damages apportioned to us (other than a $3 million deductible that we accrued in a prior period), the

21

Table of Contents

Company has filed an appeal with the Seventh Federal Circuit Court of Appeals on the verdict and the damages in the third quarter of fiscal 2013. Any exposure in this case is expected to be limited to the applicable insurance deductible.
During fiscal 2012, we were a party to several lawsuits concerning the use of diacetyl, a butter flavoring ingredient that was added to our microwave popcorn until late 2007. The cases were primarily consumer personal injury suits claiming respiratory illness allegedly due to exposures to vapors from microwaving popcorn. We received favorable outcomes in connection with some of these cases and settled the three remaining pending cases in the second quarter of fiscal 2013. As of the date of this report, we did not have any pending lawsuits related to the use of diacetyl.
During the third quarter of fiscal 2013, we were named an additional defendant in several shareholder class action lawsuits brought in the Circuit Court of the City of St. Louis against directors of Ralcorp alleging breaches of fiduciary obligations by them in connection with their approval of the Acquisition. We were alleged to be an aider and abettor of those breaches. The suits sought injunctive relief, damages, attorney's fees, and other relief. There were other cases pending in the same Court, which consolidated and made similar allegations against directors of Ralcorp to which we were not named a defendant. All of these cases were settled during the third quarter of fiscal 2013 for immaterial amounts. The settlement of these lawsuits is subject to Court approval.

Prior to our acquisition of Ralcorp, three lawsuits were brought by former employees of two of Ralcorp's subsidiaries in separate California state Courts alleging, among other things, that employees did not receive statutorily mandated meal breaks resulting in incorrect payment of wages, inaccurate wage statements, unpaid overtime, and incorrect payments to terminated employees. Each of these suits was filed as a class action and seeks to include in the class certain current and former employees of the respective subsidiary involved. In each case, the plaintiffs are seeking unpaid wages, interest, attorneys' fees, compensatory and other monetary damages, statutory penalties, and injunctive relief. No determination has been made by any Court regarding class certification. Ralcorp agreed with the plaintiffs and a third party staffing agency formerly used by Ralcorp to the terms of a proposed settlement with respect to these suits, and the parties entered into a global settlement with respect to these claims. On March 26, 2013, the Court granted final approval of the settlement.

Also prior to our acquisition of Ralcorp, a lawsuit was brought in the U.S. District Court for the Eastern District of Texas by Frito-Lay North America, Inc. against Ralcorp and Medallion Foods, Inc., a subsidiary of Ralcorp, alleging that certain products manufactured by Medallion infringed Frito-Lays' patents and trademarks and misappropriated trade secrets. After a jury trial, on March 4, 2013, subsequent to the end of the third quarter of fiscal 2013, jurors delivered a verdict in favor of Medallion and Ralcorp on all claims.
After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution of such matters should not have a material adverse effect on our financial condition, results of operations, or liquidity. It is reasonably possible that a change in one of the estimates of the foregoing matters may occur in the future. 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 ("plans") for eligible salaried and hourly employees. Benefits are based on years of credited service and average compensation or stated amounts for each year of service. We also sponsor postretirement plans which provide certain medical and dental benefits ("other postretirement benefits") to qualifying U.S. employees.
Components of pension benefit and other postretirement benefit costs included:
 
 
Pension Benefits
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
February 24,
2013
 
February 26,
2012
 
February 24,
2013
 
February 26,
2012
Service cost
$
20.6

 
$
17.2

 
$
60.9

 
$
51.4

Interest cost
37.6

 
37.2

 
110.8

 
111.6

Expected return on plan assets
(54.1
)
 
(48.9
)
 
(158.6
)
 
(146.7
)
Amortization of prior service cost
1.0

 
0.8

 
2.6

 
2.3

Curtailment loss

 

 
0.8

 

Benefit cost — Company plans
5.1

 
6.3

 
16.5

 
18.6

Pension benefit cost — multi-employer plans
1.9

 
1.7

 
6.2

 
6.6

Total benefit cost
$
7.0

 
$
8.0

 
$
22.7

 
$
25.2


22

Table of Contents


 
Postretirement Benefits
 
Thirteen weeks ended
 
Thirty-nine weeks ended
 
February 24,
2013
 
February 26,
2012
 
February 24,
2013
 
February 26,
2012
Service cost
$
0.2

 
$
0.1

 
$
0.4

 
$
0.4

Interest cost
2.6

 
3.1

 
7.6

 
10.0

Amortization of prior service cost
(2.1
)
 
(3.9
)
 
(6.3
)
 
(9.7
)
Recognized net actuarial loss
1.5

 
2.1

 
4.5

 
5.6

Total cost
$
2.2

 
$
1.4

 
$
6.2

 
$
6.3

During the third quarter and first three quarters of fiscal 2013, we contributed $4.6 million and $14.7 million, respectively, to our pension plans and contributed $6.9 million and $20.0 million, respectively, to our other postretirement plans. Based upon the current funded status of the plans and the current interest rate environment, we anticipate making further contributions of approximately $4.2 million to our pension plans for the remainder of fiscal 2013. We anticipate making further contributions of $6.5 million to our other postretirement plans during the remainder of fiscal 2013. These estimates are based on current tax laws, plan asset performance, and liability assumptions, which are subject to change.

13. LONG-TERM DEBT
 
February 24, 2013
 
May 27, 2012
  4.65% senior debt due January 2043
$
1,000.0

 
$

  6.625% senior debt due August 2039 (including Ralcorp senior notes)
450.0

 

  8.25% senior debt due September 2030
300.0

 
300.0

  7.0% senior debt due October 2028
382.2

 
382.2

  6.7% senior debt due August 2027
9.2

 
9.2

  7.125% senior debt due October 2026
372.4

 
372.4

  3.2% senior debt due January 2023
1,225.0

 

  3.25% senior debt due September 2022
250.0

 

  9.75% subordinated debt due March 2021
195.9

 
195.9

  4.95% senior debt due August 2020 (including Ralcorp senior notes)
300.0

 

  7.0% senior debt due April 2019
500.0

 
500.0

  1.9% senior debt due January 2018
1,000.0

 

  LIBOR plus 1.75% term loans due January 2018
1,500.0

 

  2.1% senior debt due March 2018
250.0

 

  5.819% senior debt due June 2017
500.0

 
500.0

  1.3% senior debt due January 2016
750.0

 

  1.35% senior debt due September 2015
250.0

 

  5.875% senior debt due April 2014
500.0

 
500.0

  Ralcorp Callable Notes (prepaid subsequent to February 24, 2013)
460.7

 

  2.00% to 9.59% lease financing obligations due on various dates through 2029
77.3

 
106.0

  Other indebtedness
78.3

 
73.1

    Total debt face value
10,351.0

 
2,938.8

    Fair value adjustment of notes in connection with Ralcorp acquisition
263.2

 

    Unamortized discounts/premiums
(60.0
)
 
(59.8
)
    Adjustment due to hedging activity
10.8

 
17.7

    Less current installments
(719.7
)
 
(38.1
)
      Total long-term debt
$
9,845.3

 
$
2,858.6


23

Table of Contents

During the second quarter of fiscal 2013, we issued senior unsecured notes in an aggregate principal amount of $750.0 million. These notes were issued in three tranches of $250.0 million each; 1.35% senior notes due September 10, 2015, 2.10% senior notes due March 15, 2018, and 3.25% senior notes due September 15, 2022.
During the third quarter of fiscal 2013, in order to finance a portion of our acquisition of Ralcorp, we (i) issued new senior unsecured notes in an aggregate principal amount of $3.975 billion, (ii) issued new senior unsecured notes in an aggregate principal amount of $716.0 million in exchange for senior notes issued by Ralcorp, (iii) assumed senior notes issued by Ralcorp in an aggregate principal amount of $460.7 million, which were prepaid subsequent to the end of the third quarter of fiscal 2013, and (iv) borrowed $1.5 billion under our new term loan facility.
Our new senior unsecured notes in an aggregate principal amount of $3.975 billion were issued in four tranches: 1.3% senior notes due January 25, 2016 in an aggregate principal amount of $750.0 million; 1.9% senior notes due January 25, 2018 in an aggregate principal amount of $1.0 billion; 3.2% senior notes due January 25, 2023 in an aggregate principal amount of $1.225 billion; and 4.65% senior notes due January 25, 2043 in an aggregate principal amount of $1.0 billion.
Our new senior unsecured notes in an aggregate principal amount of $716.0 million were issued in exchange for senior notes issued by Ralcorp pursuant to our offer to exchange (i) any and all 4.95% senior notes due August 15, 2020 issued by Ralcorp for up to an aggregate principal amount of $300.0 million of new 4.95% senior notes due August 15, 2020 issued by ConAgra Foods and cash and (ii) any and all 6.625% senior notes due August 15, 2039 issued by Ralcorp for up to an aggregate principal amount of $450.0 million of new 6.625% senior notes due August 15, 2039 issued by ConAgra Foods and cash. Our new senior unsecured notes in an aggregate principal amount of $716.0 million consist of the following:

4.95% senior debt due August 2020
$
282.7

6.625% senior debt due August 2039
433.3


Senior notes issued by Ralcorp in an aggregate principal amount of $33.9 million were not exchanged and remain outstanding, consisting of 4.95% senior notes issued by Ralcorp due August 15, 2020 in an aggregate principal amount of $17.2 million and 6.625% senior notes issued by Ralcorp due August 15, 2039 in an aggregate principal amount of $16.7 million (collectively, the "Ralcorp Notes"). The Ralcorp Notes are included in our condensed consolidated balance sheet at February 24, 2013.
During the third quarter of fiscal 2013, we offered to purchase for cash any and all 7.29% senior notes due August 15, 2018 issued by Ralcorp, floating rate senior notes due August 15, 2018 issued by Ralcorp, and 7.39% senior notes due August 15, 2020 issued by Ralcorp, in a total aggregate principal amount of $664.5 million. Pursuant to this offer, we purchased senior notes issued by Ralcorp in a total aggregate principal amount of $631.5 million. Ralcorp's 7.29% senior notes due August 15, 2018 in an aggregate principal amount of $33.0 million were not tendered for purchase and remained outstanding (the "Ralcorp Discharged Notes"). During the third quarter of fiscal 2013, we paid $44.8 million, consisting of principal, interest, and contractual amounts payable, to the trustee of the Ralcorp Discharged Notes to satisfy and discharge the Ralcorp Discharged Notes. As of February 24, 2013, the Ralcorp Discharged Notes are not included in our condensed consolidated balance sheet. We recognized a charge of $1.3 million as a cost of extinguishment of debt.
Upon our acquisition of Ralcorp, we assumed senior notes issued by Ralcorp in an aggregate principal amount of $460.7 million, consisting of the senior notes listed below (the "Ralcorp Callable Notes"), and gave notice of our intent to prepay them during the third quarter of fiscal 2013. On February 28, 2013, subsequent to the third quarter of fiscal 2013, we prepaid the Ralcorp Callable Notes, in addition to the fair value adjustment of $101.8 million.
Ralcorp 5.93% senior notes (Series J) due May 2022
$
100.0

Ralcorp 7.6% senior notes (Series 2009B) due May 2021
50.0

Ralcorp 5.56% senior notes (Series I, Tranche A) due January 2019
75.0

Ralcorp 5.58% senior notes (Series I, Tranche B) due January 2019
25.0

Ralcorp 7.45% senior notes (Series 2009A) due May 2019
50.0

Ralcorp 5.57% senior notes (Series E) due December 2015
100.0

Ralcorp 5.43% senior notes (Series C) due December 2013
50.0

Ralcorp 4.76% senior notes (Series D) due December 2013
10.7

  Total Ralcorp Callable Notes
$
460.7


During the third quarter of fiscal 2013, we borrowed $1.5 billion under our unsecured Term Loan Facility with a syndicate of banks. We are required to repay borrowings under the Term Loan Facility during the term of the facility in equal quarterly

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installments of 2.5% per quarter commencing on June 1, 2013, with the remainder of the borrowings to be paid on the maturity date of the facility, unless prepaid prior to such date in accordance with the terms of the Term Loan Facility. The Term Loan Facility matures on January 29, 2018. We elected to base the interest rate of the borrowings on LIBOR plus 1.75%. As of the end of the third quarter of fiscal 2013, the total interest rate on our borrowings was 1.954%. Certain of our wholly-owned domestic subsidiaries may, under certain circumstances, be required to guarantee our obligations under the Term Loan Facility.
In connection with the aforementioned financing for the Ralcorp acquisition, we capitalized $52.1 million of debt issuance costs and recognized expense of $27.0 million in related fees during the third quarter of fiscal 2013.
Net interest expense consists of:
 
 
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February 24,
2013
 
February 26,
2012
 
February 24,
2013
 
February 26,
2012
Long-term debt
$
73.1

 
$