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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended
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Nov. 25, 2018
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited financial information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented. The adjustments are of a normal recurring nature, except as otherwise noted. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in the Conagra Brands, Inc. (the "Company", "Conagra Brands", "we", "us", or "our") Annual Report on Form 10-K for the fiscal year ended May 27, 2018. The results of operations for any quarter or a partial fiscal year period are not necessarily indicative of the results to be expected for other periods or the full fiscal year. Basis of Consolidation — The Condensed Consolidated Financial Statements include the accounts of Conagra Brands and all majority-owned subsidiaries. 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. Revenue Recognition — Our revenues primarily consist of the sale of food products which are sold to retailers and foodservice customers through direct sales forces, broker, and distributor arrangements. These revenue contracts generally have single performance obligations. Revenue, which includes shipping and handling charges billed to the customer, is reported net of variable consideration and consideration payable to our customers, including applicable discounts, returns, allowances, trade promotion, consumer coupon redemption, unsaleable product, and other costs. Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis and, therefore, we do not have any significant financing components. We recognize revenue when (or as) performance obligations are satisfied by transferring control of the goods to customers. Control is transferred upon delivery of the goods to the customer. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. We assess the goods and services promised in our customers' purchase orders and identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. We offer various forms of trade promotions and the methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. Our promotional activities are conducted either through the retail trade or directly with consumers and include activities such as in-store displays and events, feature price discounts, consumer coupons, and loyalty programs. The costs of these activities are recognized at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by either the retail trade or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and actual redemptions are recognized as a change in management estimate in a subsequent period. Comprehensive Income — Comprehensive income includes net income, currency translation adjustments, certain derivative-related activity, changes in the value of available-for-sale investments (prior to the adoption of Accounting Standards Update ("ASU") 2016-01), and changes in prior service cost and net actuarial gains (losses) from pension (for amounts not in excess of the 10% corridor) and post-retirement health care plans. On foreign investments we deem to be essentially permanent in nature, we do not provide for taxes on currency translation adjustments arising from converting an investment denominated in a foreign currency to U.S. dollars. When we determine that a foreign investment, as well as undistributed earnings, are no longer permanent in nature, estimated taxes will be provided for the related deferred tax liability (asset), if any, resulting from currency translation adjustments. The following table details the accumulated balances for each component of other comprehensive income, net of tax:
| November 25, 2018 |  | May 27, 2018
Currency translation losses, net of reclassification adjustments | $ | (110.2 | ) |  | $ | (94.7 | )
Derivative adjustments, net of reclassification adjustments | 36.8 |  |  | 1.0 |
Unrealized gains on available-for-sale securities | — |  |  | 0.6 |
Pension and post-employment benefit obligations, net of reclassification adjustments | (18.1 | ) |  | (17.4 | )
Accumulated other comprehensive loss 1 | $ | (91.5 | ) |  | $ | (110.5 | )
1 Net of unrealized gains on available-for-sale securities of $0.6 million reclassified to retained earnings as a result of the adoption of ASU 2016-01. The following table summarizes the reclassifications from accumulated other comprehensive loss into income:
|  | Thirteen weeks ended |  | Affected Line Item in the Condensed Consolidated Statement of Earnings 1
|  | November 25, 2018 |  | November 26, 2017 |  |
Net derivative adjustment, net of tax: |  |  |  |  |  |
Cash flow hedges |  | $ | (0.2 | ) |  | $ | 0.1 |  |  | Interest expense, net
|  | (0.2 | ) |  | 0.1 |  |  | Total before tax
|  | — |  |  | — |  |  | Income tax expense
|  | $ | (0.2 | ) |  | $ | 0.1 |  |  | Net of tax
Pension and postretirement liabilities: |  |  |  |  |  |
Net prior service cost (benefit) |  | $ | 0.2 |  |  | $ | (0.2 | ) |  | Pension and postretirement non-service income
Net actuarial gain |  | (0.4 | ) |  | — |  |  | Pension and postretirement non-service income
|  | (0.2 | ) |  | (0.2 | ) |  | Total before tax
|  | — |  |  | 0.1 |  |  | Income tax expense
|  | $ | (0.2 | ) |  | $ | (0.1 | ) |  | Net of tax
|  | Twenty-six weeks ended |  | Affected Line Item in the Condensed Consolidated Statement of Earnings 1
|  | November 25, 2018 |  | November 26, 2017 |  |
Net derivative adjustment, net of tax: |  |  |  |  |  |
Cash flow hedges |  | $ | (0.2 | ) |  | $ | 0.1 |  |  | Interest expense, net
|  | (0.2 | ) |  | 0.1 |  |  | Total before tax
|  | — |  |  | — |  |  | Income tax expense
|  | $ | (0.2 | ) |  | $ | 0.1 |  |  | Net of tax
Pension and postretirement liabilities: |  |  |  |  |  |
Net prior service cost (benefit) |  | $ | 0.4 |  |  | $ | (0.3 | ) |  | Pension and postretirement non-service income
Net actuarial gain |  | (0.8 | ) |  | — |  |  | Pension and postretirement non-service income
|  | (0.4 | ) |  | (0.3 | ) |  | Total before tax
|  | 0.1 |  |  | 0.1 |  |  | Income tax expense
|  | $ | (0.3 | ) |  | $ | (0.2 | ) |  | Net of tax
1 Amounts in parentheses indicate income recognized in the Condensed Consolidated Statements of Earnings. Cash and cash equivalents — Cash and all highly liquid investments with an original maturity of three months or less at the date of acquisition, including short-term time deposits and government agency and corporate obligations, are classified as cash and cash equivalents. Reclassifications and other changes — Certain prior year amounts have been reclassified to conform with current year presentation. Use of Estimates — Preparation of financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") 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. Accounting Changes — In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers ("Topic 606"), which replaces most existing revenue recognition guidance in U.S. GAAP, including industry-specific requirements. Topic 606 provides companies with a single revenue recognition model for recognizing revenue with customers; specifically requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. We utilized a comprehensive approach to evaluate and document the impact of the guidance on our current accounting policies and practices in order to identify material differences, if any, that would result from applying the new requirements to our revenue contracts. We did not identify any material differences resulting from applying the new requirements to our revenue contracts. In addition, we did not identify any significant changes to our business processes, systems, and controls to support recognition and disclosure requirements under the new guidance. We adopted the provisions of this ASU in fiscal 2019 utilizing the modified retrospective method. We recorded a $0.5 million cumulative effect adjustment, net of tax, to the opening balance of fiscal 2019 retained earnings, a decrease to receivables of $7.6 million, an increase to inventories of $2.8 million, an increase to prepaid expenses and other current assets of $6.9 million, an increase to other accrued liabilities of $1.4 million, and an increase to other noncurrent liabilities of $0.2 million. The adjustments primarily related to the timing of recognition of certain customer charges, trade promotional expenditures, and volume discounts. The effect of the changes made to our Condensed Consolidated Balance Sheet as of November 25, 2018 for the adoption of Topic 606 was as follows:
| As Reported |  | Adjustments |  | Balances without Adoption of Topic 606
Current assets |  |  |  |  |
Receivables, less allowance for doubtful accounts | $ | 958.1 |  |  | $ | 8.6 |  |  | $ | 966.7 |
Inventories | 1,729.7 |  |  | (3.8 | ) |  | 1,725.9 |
Prepaid expenses and other current assets | 108.7 |  |  | (14.8 | ) |  | 93.9 |
Current liabilities |  |  |  |  |
Other accrued liabilities | 793.3 |  |  | (0.9 | ) |  | 792.4 |
Other noncurrent liabilities | 1,923.6 |  |  | (2.3 | ) |  | 1,921.3 |
The effect of the changes made to our Condensed Consolidated Statement of Earnings for the adoption of Topic 606 was as follows:
| Thirteen weeks ended November 25, 2018
| As Reported |  | Adjustments |  | Balances without Adoption of Topic 606
Net sales | $ | 2,383.7 |  |  | $ | 16.6 |  |  | $ | 2,400.3 |
Cost of goods sold | 1,706.5 |  |  | 6.0 |  |  | 1,712.5 |
Income from continuing operations before income taxes and equity method investment earnings | 119.0 |  |  | 10.6 |  |  | 129.6 |
| Twenty-six weeks ended November 25, 2018
| As Reported |  | Adjustments |  | Balances without Adoption of Topic 606
Net sales | $ | 4,218.1 |  |  | $ | 7.3 |  |  | $ | 4,225.4 |
Cost of goods sold | 3,025.4 |  |  | 12.8 |  |  | 3,038.2 |
Income from continuing operations before income taxes and equity method investment earnings | 338.4 |  |  | (5.5 | ) |  | 332.9 |
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The effective date for this standard is for fiscal years beginning after December 31, 2017. We adopted this ASU in fiscal 2019. The adoption of this guidance did not have a material impact to our consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. We adopted this ASU retrospectively in fiscal 2019. The adoption of this guidance did not have a material impact to our consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which provides amendments to current guidance to address the classifications and presentation of changes in restricted cash in the statement of cash flows. We adopted this ASU retrospectively in fiscal 2019. The adoption of this guidance did not have a material impact to our consolidated financial statements. In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We adopted this ASU prospectively in fiscal 2019. The adoption of this guidance did not have a material impact to our consolidated financial statements. In March 2017, the FASB issued ASU 2017-07, Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires companies to present the service cost component of net benefit cost in the same line items in which they report compensation cost. Companies are required to present all other components of net benefit cost outside operating income, if this subtotal is presented. In addition, the new standard requires that only the service cost component of net periodic benefit expense is eligible for capitalization. The new standard requires retrospective adoption of the presentation of net periodic benefit expense and prospective application of the capitalization of the service cost component. We adopted this ASU in fiscal 2019. As a result, the following amounts were reclassified in the second quarter and first half of fiscal 2018 to correspond to the current year presentation:
| Thirteen weeks ended |  | Twenty-six weeks ended
| November 26, 2017 |  | November 26, 2017
Reclassified from Selling, general and administrative expense | $ | 17.5 |  |  | $ | 38.1 |
Reclassified to Pension and postretirement non-service income | $ | 17.5 |  |  | $ | 38.1 |
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP. The amendments in this update better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The effective date for the standard is for fiscal years beginning after December 15, 2018. We elected to early adopt this ASU in fiscal 2019. The adoption of this guidance did not have a material impact to our consolidated financial statements. See Note 8 for a discussion of our derivatives. Recently Issued Accounting Standards — In February 2016, the FASB issued ASU 2016-02, Leases, Topic 842, which requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that this standard will have on our consolidated financial statements and related disclosures. We have identified an accounting system to support the future state lease accounting process and have begun to develop the future state process design as part of the overall system implementation. We are not able, at this time, to reasonably estimate the expected increase in assets and liabilities in our condensed consolidated balance sheet upon adoption. The standard must be applied using the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented. Entities may also elect the optional transition method provided under ASU 2018-11, Leases, Topic 842: Targeted Improvement, issued in July 2018, allowing for application of the standard at the adoption date, with recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We intend to elect this practical expedient upon adoption. We will adopt this ASU on the first day of our fiscal year 2020. In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other post-retirement plans. The effective date for this standard is for fiscal years beginning after December 15, 2020, with early adoption permitted. We do not expect ASU 2018-14 to have a material impact to our consolidated financial statements and related disclosures. In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The effective date for the standard is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the effect that ASU 2018-15 will have on our consolidated financial statements and related disclosures.

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