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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K  
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 26, 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 No. 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)
Registrant’s telephone number, including area code (402) 240-4000
___________________________________________________  
Securities registered pursuant to section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $5.00 par value
 
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   þ     No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   þ
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   þ     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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   þ     No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer   þ 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 Act).    Yes   ¨      No   þ
The aggregate market value of the voting common stock of ConAgra Foods, Inc. held by non-affiliates on November 23, 2012 (the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $11,467,654,396 based upon the closing sale price on the New York Stock Exchange on such date.
At June 23, 2013, 419,531,322 common shares were outstanding.
Documents Incorporated by Reference
Portions of the Registrant’s definitive Proxy Statement for the Registrant’s 2013 Annual Meeting of Stockholders (the “2013 Proxy Statement”) are incorporated into Part III.

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Table of Contents
 
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
 
 
 
 
Item 5
Item 6
Item 7
Item 7A
Item 8
 
 
 
 
 
 
Item 9
Item 9A
Item 9B
 
 
 
Item 10
Item 11
Item 12
Item 13
Item 14
 
 
 
Item 15

Table of Contents

PART I
ITEM 1. BUSINESS
General Development of Business
ConAgra Foods, Inc. (“ConAgra Foods”, “Company”, “we”, “us”, or “our”) is one of North America’s largest packaged food companies. Its balanced portfolio includes consumer brands found in 97% of America's households, the largest private brand packaged food business in North America, and a strong commercial and foodservice business. Consumers can find recognized brands such as Banquet ® , Chef Boyardee ® , Egg Beaters ® , Healthy Choice ® , Hebrew National ® , Hunt's ® , Marie Callender's ® , Odom's Tennessee Pride ® , Orville Redenbacher's ® , PAM ® , Peter Pan ® , Reddi-wip ® , Slim Jim ® , Snack Pack ® , and many other ConAgra Foods brands and products, along with food sold by ConAgra Foods under private brands, in grocery, convenience, mass merchandise, club stores, and drugstores. We also have a strong commercial foods presence, supplying frozen potato and sweet potato products, as well as other vegetable, spice, bakery, and grain products to a variety of well-known restaurants, foodservice operators, and commercial customers.
The Company began as a flour-milling company and entered other commodity-based businesses. Over time, through various acquisitions and divestitures, we significantly changed our portfolio of businesses, focusing on adding branded, value-added opportunities, while strategically divesting commodity-based businesses to become one of North America’s leading food companies. Executing this strategy involved the acquisition over time of a number of brands such as Banquet ® , Chef Boyardee ® , PAM ® , Marie Callender’s ® , and Alexia ® . Notable divestitures have included a dehydrated garlic, onion, capsicum, and fresh vegetable operation, a trading and merchandising business, packaged meat and cheese operations, a poultry business, beef and pork businesses, and various other businesses. Our development over time has also been aided by innovation and organic growth. We are also focused on sustainable sales and profit growth with strong and improving returns on invested capital.
In 2012, we announced a strategic roadmap focused on growing our core operations, expanding into adjacent categories, and increasing our presence in private label and international operations. Our core operations include the strategic product groups of convenient meals, potatoes, snacks, meal enhancers, and specialty items. In January 2013, we completed the acquisition of Ralcorp Holdings, Inc. ("Ralcorp"), a manufacturer of private brand products, thereby becoming the largest private brand packaged business in North America.
For more information about our more recent acquisitions, see “Acquisitions” below.
We are focused on growing our core operations, expanding into adjacent categories, and increasing our presence in private brand and international operations. Our core operations include the strategic product groups of convenient meals, potatoes, snacks, meal enhancers, and specialty items. We are also focused on sustainable sales and profit growth with strong and improving returns on invested capital. As part of continually strengthening our operating foundation, our major profit-enhancing initiatives have centered on and continue to include:
•
Enhancing our portfolio by developing through innovation;
•
Acquiring products that resonate with consumers, establish or further develop our desired operating platforms, or which expand our presence in desired geographies or market segments;
•
Implementing high-impact, insights-based marketing programs;
•
Partnering strategically with customers to improve linkage, strengthen relationships, and capitalize on growth opportunities;
•
Improving trade spending effectiveness and pricing analytics;
•
Achieving cost savings throughout the supply chain with continuous efficiency improvement programs; and
•
Implementing efficiency initiatives throughout the selling, general, and administrative functions.
The Company’s growth, efficiency, and portfolio improvement initiatives continue to be implemented with high standards of customer service, product safety, and product quality.
We were initially incorporated as a Nebraska corporation in 1919 and were reincorporated as a Delaware corporation in December 1975.

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Financial Information about Reporting Segments
We report our operations in four reporting segments: Consumer Foods, Commercial Foods, Ralcorp Food Group, and Ralcorp Frozen Bakery Products. The contributions of each reporting segment to net sales, operating profit, and identifiable assets are set forth in Note 22 “ Business Segments and Related Information ” to the consolidated financial statements.
Narrative Description of Business
We compete throughout the food industry and focus on adding value for customers who operate in the retail food, foodservice, and ingredients channels.
Our operations, including our reporting segments, are described below. Our locations, including distribution facilities, within each reporting segment, are described in Item 2, Properties.
Consumer Foods
The Consumer Foods reporting segment includes branded, private brand, and customized food products, which are sold in various retail and foodservice channels, principally in North America. The products include a variety of categories (meals, entrées, condiments, sides, snacks, and desserts) across frozen, refrigerated, and shelf-stable temperature classes.
Major brands include: Alexia ® , ACT II ® , Banquet ® , Blue Bonnet ® , Chef Boyardee ® , DAVID ® , Egg Beaters ® , Healthy Choice ® , Hebrew National ® , Hunt’s ® , Marie Callender’s ® , Odom’s Tennessee Pride ® , Orville Redenbacher’s ® , PAM ® , Peter Pan ® , Reddi-wip ® , Slim Jim ® , Snack Pack ® , Swiss Miss ® , Van Camp’s ® , and Wesson ® .
Commercial Foods
The Commercial Foods reporting segment includes commercially branded foods and ingredients, which are sold principally to foodservice, food manufacturing, and industrial customers. The segment’s primary products include: specialty potato products, milled grain ingredients, and a variety of vegetable products, seasonings, blends, and flavors, which are sold under brands such as ConAgra Mills ® , Lamb Weston ® , and Spicetec Flavors & Seasonings ® .
Ralcorp Food Group
The Ralcorp Food Group reporting segment principally includes private brand food products that are sold in various retail and foodservice channels, primarily in North America. The products include a variety of categories including cereal products; snacks, sauces, and spreads; and pasta.
Ralcorp Frozen Bakery Products
The Ralcorp Frozen Bakery Products reporting segment principally includes private brand frozen bakery products that are sold in various retail and foodservice channels, primarily in North America. The segment's primary products include: frozen griddle products, including pancakes, waffles, and French toast; frozen biscuits and other frozen pre-baked products such as breads and rolls; and frozen and refrigerated dough products.
Unconsolidated Equity Investments
We have a number of unconsolidated equity investments. Significant affiliates produce and market potato products for retail and foodservice customers.
Acquisitions
In January 2013, we acquired Ralcorp. Ralcorp manufactures private brand products including cereal products; snacks, sauces, and spreads; pasta; frozen griddle products, including pancakes, waffles, and French toast; frozen biscuits and other frozen pre-baked products such as breads and rolls; and frozen and refrigerated dough products. We present the results of operations of the acquired Ralcorp business in two segments: Ralcorp Food Group and Ralcorp Frozen Bakery Products.
In August 2012, we acquired the P.F. Chang's ® and Bertolli ® brands frozen meal business. This business is included in the Consumer Foods segment.
In May 2012, we acquired Kangaroo Brands’ pita chip operations. The business, which manufactures private label and Kangaroo ® brand pita chip snacks, is included in the Consumer Foods segment.

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In May 2012, we acquired Odom’s Tennessee Pride. The business manufactures Odom’s Tennessee Pride ® frozen breakfast products and other sausage products. This business is included in the Consumer Foods segment.
In March 2012, we acquired Del Monte Canada. The acquisition includes all Del Monte ® branded packaged fruit, fruit snacks, and vegetable products in Canada, as well as Aylmer ® brand tomato products. This business is included in the Consumer Foods segment.
In November 2011, we acquired National Pretzel Company. National Pretzel Company is a private label supplier and branded producer of pretzels and related products. This business is included in the Consumer Foods segment.
In November 2011, we acquired an additional equity interest in Agro Tech Foods Limited (“ATFL”). ATFL is a publicly traded company in India that markets food and food ingredients to consumers and institutional customers in India. As a result of this additional investment, we own a majority interest (approximately 52%) in ATFL. Consolidated financial results of ATFL are included in the Consumer Foods segment.
In June 2011, we purchased the Marie Callender’s ® brand trademark from Marie Callender Pie Shops, Inc.
General
The following comments pertain to all of our reporting segments.
ConAgra Foods is a food company that operates in many sectors of the food industry, with a significant focus on the sale of branded, private brand, and value-added consumer products, as well as foodservice products and ingredients. We use many different raw materials, the bulk of which are commodities. The prices paid for raw materials used in our products generally reflect factors such as weather, commodity market fluctuations, currency fluctuations, tariffs, and the effects of governmental agricultural programs. Although the prices of raw materials can be expected to fluctuate as a result of these factors, we believe such raw materials to be in adequate supply and generally available from numerous sources. From time to time, we have faced increased costs for many of our significant raw materials, packaging, and energy inputs. We seek to mitigate the higher input costs through productivity and pricing initiatives, and through the use of derivative instruments used to economically hedge a portion of forecasted future consumption.
We experience intense competition for sales of our principal products in our major markets. Our products compete with widely advertised, well-known, branded products, as well as private brand and customized products. Some of our competitors are larger and have greater resources than we have. We compete primarily on the basis of quality, value, customer service, brand recognition, and brand loyalty.
Demand for certain of our products may be influenced by holidays, changes in seasons, or other annual events.
We manufacture primarily for stock and fill customer orders from finished goods inventories. While at any given time there may be some backlog of orders, such backlog is not material in respect to annual net sales, and the changes of backlog orders from time to time are not significant.
Our trademarks are of material importance to our business and are protected by registration or other means in the United States and most other markets where the related products are sold. Some of our products are sold under brands that have been licensed from others. We also actively develop and maintain a portfolio of patents, although no single patent is considered material to the business as a whole. We have proprietary trade secrets, technology, know-how, processes, and other intellectual property rights that are not registered.
Many of our facilities and products are subject to various laws and regulations administered by the United States Department of Agriculture, the Federal Food and Drug Administration, the Occupational Safety and Health Administration, and other federal, state, local, and foreign governmental agencies relating to the quality and safety of products, sanitation, safety and health matters, and environmental control. We believe that we comply with such laws and regulations in all material respects, and that continued compliance with such regulations will not have a material effect upon capital expenditures, earnings, or our competitive position.
Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 17% , 17% , and 18% of consolidated net sales for fiscal 2013 , 2012 , and 2011 , respectively.
At May 26, 2013 , ConAgra Foods and its subsidiaries had approximately 34,840 employees, primarily in the United States. Approximately 40% of our employees are parties to collective bargaining agreements. Of the employees subject to collective bargaining agreements, approximately 31% are parties to collective bargaining agreements that are scheduled to expire during fiscal 2014 . We believe that our relationships with employees and their representative organizations are good.

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Research and Development
We employ processes at our principal manufacturing locations that emphasize applied research and technical services directed at product improvement and quality control. In addition, we conduct research activities related to the development of new products. Research and development expense was $ 93.1 million , $ 86.0 million , and $ 81.4 million in fiscal 2013 , 2012 , and 2011 , respectively.
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF JULY 19, 2013
Name
 
Title & Capacity
 
 
 
Year First
Appointed an
Executive
Officer
Gary M. Rodkin
 
President and Chief Executive Officer
 
61

 
2005
John F. Gehring
 
Executive Vice President, Chief Financial Officer
 
52

 
2004
Colleen R. Batcheler
 
Executive Vice President, General Counsel and Corporate Secretary
 
39

 
2008
Brian L. Keck
 
Executive Vice President and Chief Administrative Officer
 
60

 
2010
Paul T. Maass
 
President, Commercial Foods
 
47

 
2010
Thomas M. McGough
 
President, Consumer Foods
 
48

 
2013
Scott E. Messel
 
Senior Vice President, Treasurer and Assistant Corporate Secretary
 
54

 
2001
Andrew G. Ross
 
Executive Vice President and Chief Strategy Officer
 
45

 
2011
Nicole B. Theophilus
 
Executive Vice President, Chief Human Resources Officer
 
43

 
2013
Robert G. Wise
 
Senior Vice President, Corporate Controller
 
45

 
2012
Gary M. Rodkin has been our Chief Executive Officer and a member of our Board of Directors since October 1, 2005. Previously, he was Chairman and Chief Executive Officer of PepsiCo Beverages and Foods North America (consumer products and manufacturing company) from February 2003 to June 2005. He also served as President and Chief Executive Officer of PepsiCo Beverages and Foods North America in 2002, and President and Chief Executive Officer of Pepsi-Cola North America from 1999 to 2002. Mr. Rodkin has served as a director of Avon Products, Inc. (beauty and related products company) since 2007, and is also Chair of the Board of Boys Town (charitable organization) and the Omaha Chamber of Commerce's Prosper Omaha economic development campaign. He is past Chairman of the Grocery Manufacturers of America (consumer product company trade association).
John F. Gehring has served as Executive Vice President, Chief Financial Officer since January 2009. Mr. Gehring joined ConAgra Foods as Vice President of Internal Audit in 2002, became Senior Vice President in 2003, and most recently served as Senior Vice President and Corporate Controller from July 2004 to January 2009. He served as the ConAgra Foods' interim Chief Financial Officer from October 2006 to November 2006. Prior to joining ConAgra Foods, Mr. Gehring was a partner at Ernst & Young LLP (an accounting firm) from 1997 to 2001.
Colleen R. Batcheler has served as Executive Vice President, General Counsel and Corporate Secretary since September 2009. Ms. Batcheler joined ConAgra Foods as Vice President, Chief Securities Counsel and Assistant Corporate Secretary in June 2006, was named Corporate Secretary in September 2006, and most recently served as Senior Vice President, General Counsel and Corporate Secretary from February 2008 to September 2009. From 2003 until joining ConAgra Foods, Ms. Batcheler was Vice President and Corporate Secretary of Albertson's, Inc. (a retail food and drug chain). Previously, she was Associate Counsel with The Cleveland Clinic Foundation and an associate with Jones Day (a law firm).
Brian L. Keck joined ConAgra Foods as Executive Vice President and Chief Administrative Officer in September 2010. Prior to joining ConAgra Foods, Mr. Keck was President and Chief Operating Officer of Macy's Inc.'s Midwest Division (retail department stores) where he was responsible for sales, customer service, store operations, finance, distribution, human resources, IT, design and construction, and community affairs. Prior to that, Mr. Keck held multiple senior leadership responsibilities at the May Department Stores Company (acquired by Macy's) in both operating divisions and corporate-wide roles. From 2000 to 2005, he led May's HR function after having served as Chairman of Meier & Frank Department Stores, a division of May.
Paul T. Maass has served as President of the Commercial Foods segment since October 2010 and served as interim President of the Lamb Weston operations from 2010 until January 2013. In May 2013, when the organization was realigned after the acquisition of Ralcorp, he assumed responsibility for the Private Brands and Foodservice operations (that also includes the Consumer Foods segment) of ConAgra Foods. Since joining ConAgra Foods in 1988 as a commodity merchandiser in the trading business, Mr. Maass quickly progressed in several roles at ConAgra Foods, including being named President and General Manager of ConAgra Mills ® in 2003 and assuming responsibility for J.M. Swank ® in 2007 and for Spicetec Flavors & Seasonings ® in 2010.

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Thomas M. McGough has served as President of the Consumer Foods segment since May 2013.  Mr. McGough joined ConAgra Foods in 2007 as Vice President in the Consumer Foods organization and has provided leadership for many brand teams within ConAgra Foods, including Banquet ® , Hunt's ® , and Reddi-wip ® .  He most recently served as President, Grocery Products since 2011, leading the largest business within the Consumer Foods segment.  Mr. McGough has over twenty years of experience in the branded packaged foods industry, beginning his career at H.J. Heinz in 1990.
Scott E. Messel has served as Senior Vice President, Treasurer and Assistant Corporate Secretary since July 2004. Mr. Messel joined ConAgra Foods in August 2001 as Vice President and Treasurer. Prior to joining ConAgra Foods, Mr. Messel served in various treasury leadership roles at Lennox International (a provider of climate control solutions), Flowserve Corporation (a manufacturer of flow management products and services), and Ralston Purina Company (a former manufacturer of cereals, packaged foods, pet food, and livestock feed).
Andrew G. Ross joined ConAgra Foods as Executive Vice President and Chief Strategy Officer in November 2011. Prior to joining ConAgra Foods, he was a principal at McKinsey & Company, Inc. (consulting firm) from May 2002 until November 2011, where he led the firm's global consumer, retail, and marketing practices. Prior to that, he worked for William Grant & Sons, Ltd. and McKinsey & Company.
Nicole B. Theophilus has served as Executive Vice President, Chief Human Resources Officer since May 2013. Ms. Theophilus joined ConAgra Foods as Vice President, Chief Employment Counsel in April 2006. In addition to her legal duties, she assumed the role of Vice President, Human Resources for Commercial Foods in 2008, and most recently served as Senior Vice President, Human Resources from November 2009 until May 2013. Prior to joining ConAgra Foods, she was an attorney and partner with Blackwell Sanders Peper Martin LLP (a law firm).
Robert G. Wise has served as Senior Vice President, Corporate Controller since December 2012. Mr. Wise joined ConAgra Foods in March 2003 and has held various positions of increasing responsibility with ConAgra Foods, including Vice President, Assistant Corporate Controller from March 2006 until January 2012 and most recently served as Vice President, Corporate Controller from January 2012 until December 2012. Prior to joining ConAgra Foods, Mr. Wise served in various roles at KPMG LLP (an accounting firm) from October 1995 to March 2003.
OTHER SENIOR OFFICERS OF THE REGISTRANT AS OF JULY 19, 2013
Name
  
Title & Capacity
  
Age  

Albert D. Bolles
  
Executive Vice President, Research, Quality & Innovation
  
55

Joan K. Chow
  
Executive Vice President, Chief Marketing Officer
  
53

Allen J. Cooper
  
Vice President, Internal Audit
  
49

Douglas A. Knudsen
  
President, ConAgra Foods Sales
  
58

Albert D. Bolles joined ConAgra Foods in March 2006 as Executive Vice President, Research & Development, and Quality. He was named to his current position in June 2007. Prior to joining the Company, he was Senior Vice President, Worldwide Research and Development for PepsiCo Beverages and Foods from 2002 to 2006. From 1993 to 2002, he was Senior Vice President, Global Technology and Quality for Tropicana Products Incorporated.
Joan K. Chow joined ConAgra Foods in February 2007 as Executive Vice President, Chief Marketing Officer. Prior to joining ConAgra Foods, she served Sears Holding Corporation (retailing) as Senior Vice President and Chief Marketing Officer, Sears Retail from July 2005 until January 2007, and as Vice President, Marketing Services from April 2005 until July 2005. From 2002 until April 2005, Ms. Chow served Sears, Roebuck and Co. as Vice President, Home Services Marketing.
Allen J. Cooper joined ConAgra Foods in March 2003 and has held various finance and internal audit leadership positions with the Company, including Director, Internal Audit from 2003 until 2005; Vice President, Supply Chain Finance from 2005 until 2007; Senior Director, Finance; and most recently as Senior Director, Internal Audit. He was named to his current position in February 2009. Prior to joining the Company, he was with Ernst & Young LLP (an accounting firm).
Douglas A. Knudsen joined ConAgra Foods in 1977. He was named to his current position in May 2006. He previously served the Company as President, Retail Sales Development from 2003 to 2006, President, Retail Sales from 2001 to 2003, and President, Grocery Product Sales from 1995 to 2001.

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Foreign Operations
Foreign operations information is set forth in Note 22 “ Business Segments and Related Information” to the consolidated financial statements.
Available Information
We make available, free of charge through the “Investors—Financial Reports & Filings” link on our Internet website at http://www.conagrafoods.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. We use our Internet website, through the “Investors” link, as a channel for routine distribution of important information, including news releases, analyst presentations, and financial information.
We have also posted on our website our (1) Corporate Governance Principles, (2) Code of Conduct, (3) Code of Ethics for Senior Corporate Officers, and (4) Charters for the Audit/Finance Committee, Nominating, Governance and Public Affairs Committee, and Human Resources Committee. Shareholders may also obtain copies of these items at no charge by writing to: Corporate Secretary, ConAgra Foods, Inc., One ConAgra Drive, Omaha, NE, 68102-5001.


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ITEM 1A. RISK FACTORS
Our business is subject to various risks and uncertainties. Any of the risks and uncertainties described below could materially adversely affect our business, financial condition, and results of operations and should be considered in evaluating us. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, performance, or financial condition in the future.
Deterioration of general economic conditions could harm our business and results of operations.
Our business and results of operations may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs (including fuel surcharges), and the effects of governmental initiatives to manage economic conditions.
Volatility in financial markets and deterioration of national and global economic conditions could impact our business and operations in a variety of ways, including as follows:
•
consumers may shift purchases to more generic, lower-priced, or other value offerings, or may forego certain purchases altogether during economic downturns, which could result in a reduction in sales of higher margin products or a shift in our product mix to lower margin offerings adversely affecting the results of our Consumer Foods, Ralcorp Food Group or Ralcorp Frozen Bakery Products operations;
•
decreased demand in the restaurant business, particularly casual and fine dining, may adversely affect our Commercial Foods operations;
•
volatility in commodity and other input costs could substantially impact our result of operations;
•
volatility in the equity markets or interest rates could substantially impact our pension costs and required pension contributions; and
•
it may become more costly or difficult to obtain debt or equity financing to fund operations or investment opportunities, or to refinance our debt in the future, in each case on terms and within a time period acceptable to us.
We may not realize the growth opportunities and cost synergies that are anticipated from the acquisition of Ralcorp Holdings, Inc.
The benefits that are expected to result from the acquisition, which we refer to as the Acquisition, of Ralcorp Holdings, Inc., or Ralcorp, will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies as a result of the Acquisition.
Our success in realizing these growth opportunities and cost synergies, and the timing of this realization, depends on the successful integration of Ralcorp. There is a significant degree of difficulty and management distraction inherent in the process of integrating an acquisition as sizable as Ralcorp. The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of Ralcorp and ConAgra Foods. Members of our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage our company, service existing customers, attract new customers, and develop new products or strategies. If senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could suffer. There can be no assurance that we will successfully or cost-effectively integrate Ralcorp. The failure to do so could have a material adverse effect on our business, financial condition, and results of operations.
Even if we are able to integrate Ralcorp successfully, this integration may not result in the realization of the full benefits of the growth opportunities and cost synergies that we currently expect from this integration, and we cannot guarantee that these benefits will be achieved within anticipated time frames or at all. For example, we may not be able to eliminate duplicative costs. Moreover, we may incur substantial expenses in connection with the integration of Ralcorp. While it is anticipated that certain expenses will be incurred to achieve cost synergies, such expenses are difficult to estimate accurately, and may exceed current estimates. Accordingly, the benefits from the Acquisition may be offset by costs incurred to, or delays in, integrating the businesses.

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Our existing and future debt may limit cash flow available to invest in the ongoing needs of our business and could prevent us from fulfilling our debt obligations.
As of May 26, 2013, we had a substantial amount of debt, including $3.795 billion of senior notes that we issued, and a $900 million term loan that we entered into, in connection with the Acquisition. We have the ability under our existing revolving credit facility to incur substantial additional debt. Our level of debt could have important consequences. For example, it could:
•
make it more difficult for us to make payments on our debt;
•
require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, and other general corporate purposes;
•
increase our vulnerability to adverse economic or industry conditions;
•
limit our ability to obtain additional financing in the future to enable us to react to changes in our business; or
•
place us at a competitive disadvantage compared to businesses in our industry that have less debt.
Additionally, any failure to meet required payments on our debt, or failure to comply with any covenants in the instruments governing our debt, could result in an event of default under the terms of those instruments and a downgrade to our credit ratings. A downgrade in our credit ratings would increase our borrowing costs and could affect our ability to issue commercial paper. In the event of a default, the holders of our debt could elect to declare all the amounts outstanding under such instruments to be due and payable. Any default under the agreements governing our debt and the remedies sought by the holders of such debt could render us unable to pay principal and interest on our debt.
Increases in commodity costs may have a negative impact on profits.
We use many different commodities such as wheat, corn, oats, soybeans, beef, pork, poultry, and energy. Commodities are subject to price volatility caused by commodity market fluctuations, supply and demand, currency fluctuations, external conditions such as weather, and changes in governmental agricultural and energy policies and regulations. Commodity price increases will result in increases in raw material, packaging, and energy costs and operating costs. We may not be able to increase our product prices and achieve cost savings that fully offset these increased costs; and increasing prices may result in reduced sales volume, reduced margins, and profitability. We have experience in hedging against commodity price increases; however, these practices and experience reduce, but do not eliminate, the risk of negative profit impacts from commodity price increases. We do not fully hedge against changes in commodity prices, and the risk management procedures that we do use may not always work as we intend.
Volatility in the market value of derivatives we use to manage exposures to fluctuations in commodity prices will cause volatility in our gross margins and net earnings.
We utilize derivatives to manage price risk for some of our principal ingredients and energy costs, including grains (wheat, corn, and oats), oils, beef, pork, poultry, and energy. Changes in the values of these derivatives are recorded in earnings currently, resulting in volatility in both gross margin and net earnings. These gains and losses are reported in cost of sales in our Consolidated Statements of Earnings and in unallocated corporate items in our segment operating results until we utilize the underlying input in our manufacturing process, at which time the gains and losses are reclassified to segment operating profit. We also record our grain inventories at fair value. We may experience volatile earnings as a result of these accounting treatments.
Increased competition may result in reduced sales or profits.
The food industry is highly competitive. Our principal competitors have substantial financial, marketing, and other resources. Increased competition can reduce our sales due to loss of market share or the need to reduce prices to respond to competitive and customer pressures. Competitive pressures also may restrict our ability to increase prices, including in response to commodity and other cost increases. We sell branded, private brand, and customized food products, as well as commercially branded foods and ingredients. Our branded products have an advantage over private brand products primarily due to advertising and name recognition, although private brand products typically sell at a discount to those of branded competitors. In addition, when branded competitors focus on price and promotion, the environment for private brand producers becomes more challenging because the price difference between private brand products and branded products may become less significant. In most product categories, we compete not only with other widely advertised branded products, but also with other private label and store brand products that are generally sold at lower prices. A strong competitive response from one or more of our competitors to our marketplace efforts, or a consumer shift towards more generic, lower-priced, or other value offerings, could result in us reducing pricing, increasing marketing or

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other expenditures, or losing market share. Our profits could decrease if a reduction in prices or increased costs are not counterbalanced with increased sales volume.
Significant private brand competitive activity can lead to price declines.
Some private brand customer buying decisions are based on a periodic bidding process in which the successful bidder is assured the selling of its selected product to the retail customer until the next bidding process. Our sales volume may decrease significantly if our offer is too high and we lose the ability to sell private brand products through these channels, even temporarily. Alternatively, we risk reducing our margins if our offer is successful but below our desired price points. Either of these outcomes may adversely affect our results of operations.
Changes in our relationships with significant customers or suppliers could adversely affect us.
During fiscal 2013, our largest customer, Wal-Mart Stores, Inc., accounted for approximately 17% of our net revenues. There can be no assurance that Wal-Mart Stores, Inc. and other significant customers will continue to purchase our products in the same quantities or on the same terms as in the past, particularly as increasingly powerful retailers continue to demand lower pricing and develop their own brands. The loss of a significant customer or a material reduction in sales to a significant customer could materially and adversely affect our product sales, financial condition, and results of operations.
Disruption of our supply chain could have an adverse impact on our business, financial condition, and results of operations.
Our ability to make, move, and sell our products is critical to our success. Damage or disruption to our supply chain, including third-party manufacturing or transportation and distribution capabilities, due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics, strikes, government action, or other reasons beyond our control or the control of our suppliers and business partners, could impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, particularly when a product is sourced from a single supplier or location, could adversely affect our business or financial results. In addition, disputes with significant suppliers, including disputes regarding pricing or performance, could adversely affect our ability to supply products to our customers and could materially and adversely affect our product sales, financial condition, and results of operations.
The sophistication and buying power of our customers could have a negative impact on profits.
Our customers, such as supermarkets, warehouse clubs, and food distributors, have continued to consolidate, resulting in fewer customers on which we can rely for business. These consolidations and the growth of supercenters have produced large, sophisticated customers with increased buying power and negotiating strength who are more capable of resisting price increases and can demand lower pricing, increased promotional programs, or specialty tailored products. In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own retailer brands. These customers may also in the future use more of their shelf space, currently used for our products, for their store brand products. We continue to implement initiatives to counteract these pressures. However, if the larger size of these customers results in additional negotiating strength and/or increased private label or store brand competition, our profitability could decline.
Consolidation also increases the risk that adverse changes in our customers' business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases.
We must identify changing consumer preferences and develop and offer food products to meet their preferences.
Consumer preferences evolve over time and the success of our food products depends on our ability to identify the tastes and dietary habits of consumers and to offer products that appeal to their preferences, including concerns of consumers regarding health and wellness, obesity, product attributes, and ingredients. Introduction of new products and product extensions requires significant development and marketing investment. If our products fail to meet consumer preferences, or we fail to introduce new and improved products on a timely basis, then the return on that investment will be less than anticipated and our strategy to grow sales and profits with investments in marketing and innovation will be less successful. Similarly, demand for our products could be affected by consumer concerns or perceptions regarding the health effects of ingredients such as sodium, trans fats, sugar, processed wheat, or other product ingredients or attributes.

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If we do not achieve the appropriate cost structure in the highly competitive food industry, our profitability could decrease.
Our future success and earnings growth depend in part on our ability to achieve the appropriate cost structure and operate efficiently in the highly competitive food industry, particularly in an environment of volatile input costs. We continue to implement profit-enhancing initiatives that impact our supply chain and general and administrative functions. These initiatives are focused on cost-saving opportunities in procurement, manufacturing, logistics, and customer service, as well as general and administrative overhead levels. Gaining additional efficiencies may become more difficult over time. Our failure to reduce costs through productivity gains or by eliminating redundant costs resulting from acquisitions could adversely affect our profitability and weaken our competitive position. If we do not continue to effectively manage costs and achieve additional efficiencies, our competitiveness and our profitability could decrease.
We may be subject to product liability claims and product recalls, which could negatively impact our profitability.
We sell food products for human consumption, which involves risks such as product contamination or spoilage, product tampering, other adulteration of food products, mislabeling, and misbranding. We may be subject to liability if the consumption of any of our products causes injury, illness, or death. In addition, we will voluntarily recall products in the event of contamination or damage. We have issued recalls and have from time to time been and currently are involved in lawsuits relating to our food products. A significant product liability judgment or a widespread product recall may negatively impact our sales and profitability for a period of time depending on the costs of the recall, the destruction of product inventory, product availability, competitive reaction, and consumer attitudes. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image.
Any damage to our reputation could have a material adverse effect on our business, financial condition, and results of operations.
Maintaining a good reputation globally is critical to selling our products. Product contamination or tampering, the failure to maintain high standards for product quality, safety, and integrity, including with respect to raw materials and ingredients obtained from suppliers, or allegations of product quality issues, mislabeling or contamination, even if untrue, may reduce demand for our products or cause production and delivery disruptions. Our reputation could also be adversely impacted by any of the following, or by adverse publicity (whether or not valid) relating thereto: the failure to maintain high ethical, social, and environmental standards for all of our operations and activities; the failure to achieve our goals with respect to sodium or saturated fat; our research and development efforts; our environmental impact, including use of agricultural materials, packaging, energy use, and waste management; or our responses to any of the foregoing. Failure to comply with local laws and regulations, to maintain an effective system of internal controls or to provide accurate and timely financial information could also hurt our reputation. Damage to our reputation or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and could have a material adverse effect on our business, financial condition, and results of operations, as well as require additional resources to rebuild our reputation.
Our results could be adversely impacted as a result of increased pension, labor, and people-related expenses.
Inflationary pressures and any shortages in the labor market could increase labor costs, which could have a material adverse effect on our consolidated operating results or financial condition. Our labor costs include the cost of providing employee benefits in the U.S. and foreign jurisdictions, including pension, health and welfare, and severance benefits. Changes in interest rates, mortality rates, health care costs, early retirement rates, investment returns, and the market value of plan assets can affect the funded status of our defined benefit plans and cause volatility in the future funding requirements of the plans. A significant increase in our obligations or future funding requirements could have a negative impact on our results of operations and cash flows from operations. Additionally, the annual costs of benefits vary with increased costs of health care and the outcome of collectively-bargained wage and benefit agreements.
If we fail to comply with the many laws applicable to our business, we may face lawsuits or incur significant fines and penalties.
Our facilities and products are subject to many laws and regulations administered by the United States Department of Agriculture, the Federal Food and Drug Administration, the Occupational Safety and Health Administration, and other federal, state, local, and foreign governmental agencies relating to the processing, packaging, storage, distribution, advertising, labeling, quality, and safety of food products, the health and safety of our employees, and the protection of the environment. Our failure to comply with applicable laws and regulations could subject us to lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our products. Our operations are also subject to extensive and increasingly stringent regulations administered by the Environmental Protection Agency, which pertain to the discharge of materials into the environment and the handling and disposition of wastes. Failure to comply with these regulations can have serious consequences, including civil and

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administrative penalties and negative publicity. Changes in applicable laws or regulations or evolving interpretations thereof, including increased government regulations to limit carbon dioxide and other greenhouse gas emissions as a result of concern over climate change, may result in increased compliance costs, capital expenditures, and other financial obligations for us, which could affect our profitability or impede the production or distribution of our products, which could affect our net operating revenues.
Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business and operations.
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as corn, wheat, and potatoes. We may also be subjected to decreased availability or less favorable pricing for water as a result of such change, which could impact our manufacturing and distribution operations. In addition, natural disasters and extreme weather conditions may disrupt the productivity of our facilities or the operation of our supply chain. The increasing concern over climate change also may result in more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulation is enacted and is more aggressive than the sustainability measures that we are currently undertaking to monitor our emissions and improve our energy efficiency, we may experience significant increases in our costs of operation and delivery. In particular, increasing regulation of fuel emissions could substantially increase the distribution and supply chain costs associated with our products. As a result, climate change could negatively affect our business and operations.
We are increasingly dependent on information technology, and potential disruption, cyber attacks, security problems, and expanding social media vehicles present new risks.
We are increasingly dependent on information technology networks and systems, including the Internet, to process, transmit, and store electronic and financial information, to manage and support a variety of business processes and activities, and to comply with regulatory, legal, and tax requirements. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure and to maintain and protect the related automated and manual control processes, we could be subject to billing and collection errors, business disruptions, or damage resulting from security breaches. If any of our significant information technology systems suffer severe damage, disruption, or shutdown, and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition, and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results. In addition, there is a risk of business interruption, litigation risks, and reputational damage from leakage of confidential information.
The inappropriate use of certain media vehicles could cause brand damage or information leakage. Negative posts or comments about the Company on any social networking web site could seriously damage its reputation. In addition, the disclosure of non-public company sensitive information through external media channels could lead to information loss. Identifying new points of entry as social media continues to expand presents new challenges. Any business interruptions or damage to our reputation could negatively impact our financial condition, results of operations, and the market price of our common stock.
If existing anti-dumping measures imposed against certain foreign imports of dry pasta terminate, we will face increased competition from foreign companies and the profit margins or market share of our pasta products could be adversely affected.
Anti-dumping and countervailing duties on certain Italian and Turkish imports imposed by the United States Department of Commerce in 1996 enable our pasta business and its domestic competitors to compete more favorably against Italian and Turkish producers in the U.S. pasta market. In September 2007, the U.S. International Trade Commission extended the anti-dumping and countervailing duty orders for an additional five years, through 2012, and is in the process of conducting reviews to determine whether to revoke the orders. If the anti-dumping and countervailing duty orders are repealed or foreign producers sell competing pasta products in the United States at prices lower than ours or enter the U.S. market by establishing production facilities in the United States, the result would further increase competition in the U.S. pasta market and could have a material adverse effect on our business, financial condition, or results of operations.
In connection with Ralcorp's separation of its Post brand cereals business, Post agreed to indemnify Ralcorp for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to protect us against the full amount of such liabilities, or that Post's ability to satisfy its indemnification obligations will not be impaired in the future.
Pursuant to the separation and distribution agreement and the tax sharing agreement that Ralcorp entered into with Post in connection with the separation of Ralcorp's Post brand cereals business, Post agreed to indemnify Ralcorp for certain liabilities. Third parties may seek to hold us responsible for any of the liabilities that Post agreed to retain or assume, and there can be no

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assurance that the indemnification from Post will be sufficient to protect us against the full amount of such liabilities, or that Post will be able to fully satisfy its indemnification obligations. In addition, even if we ultimately succeed in recovering from Post any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves.
The separation of the Post brand cereals business could result in significant tax liability.
In February 2012, Ralcorp separated Post into a new, publicly traded company through a distribution of shares of Post common stock to Ralcorp shareholders. Ralcorp obtained a private letter ruling from the IRS substantially to the effect that the distribution of shares of Post common stock in the spin-off qualified as tax free to Post, Ralcorp, and Ralcorp's shareholders for U.S. federal income tax purposes. If the factual assumptions or representations made in the request for the private letter ruling prove to have been inaccurate or incomplete in any material respect, then we will not be able to rely on the ruling. Furthermore, the IRS does not rule on whether a distribution such as the spin-off satisfies certain requirements necessary to obtain tax-free treatment. Rather, the private letter ruling was based on representations by Ralcorp that those requirements were satisfied, and any inaccuracy in those representations could invalidate the ruling. In connection with the spin-off, Ralcorp also obtained an opinion of outside counsel substantially to the effect that the distribution of shares of Post common stock in the separation qualified as tax free to Post, Ralcorp, and Ralcorp's shareholders for U.S. federal income tax purposes. The opinion relied on, among other things, the continuing validity of the private letter ruling and various assumptions and representations as to factual matters made by Post and Ralcorp which, if inaccurate or incomplete in any material respect, would jeopardize the conclusions reached by such counsel in its opinion. The opinion is not binding on the IRS or the courts, and there can be no assurance that the IRS or the courts would not challenge the conclusions stated in the opinion or that any such challenge would not prevail.
If, notwithstanding receipt of the private letter ruling and opinion of counsel, the separation were determined not to qualify as tax free, each U.S. holder of Ralcorp common stock who received shares of Post common stock in the separation would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the shares of Post common stock received. In that case, we would be subject to tax as if Ralcorp had sold all the outstanding shares of Post common stock in a taxable sale for their fair market value and would recognize taxable gain in an amount equal to the excess of the fair market value of such shares at the time of the separation over Ralcorp's tax basis in such shares.
Under the terms of the tax sharing agreement Ralcorp entered into with Post in connection with the separation, Post is generally responsible for any taxes imposed on Post or Ralcorp and its subsidiaries in the event that the separation and certain related transactions were to fail to qualify for tax-free treatment as a result of actions taken, or breaches of representations and warranties made in the tax sharing agreement, by Post or any of its affiliates. However, if the separation or certain related transactions were to fail to qualify for tax-free treatment because of actions or failures to act by us or any of our affiliates, we would be responsible for all such taxes.
Impairment in the carrying value of goodwill or other intangibles could negatively impact our net worth.
The net carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date (or subsequent impairment date, if applicable). The net carrying value of other intangibles represents the fair value of trademarks, customer relationships, and other acquired intangibles as of the acquisition date (or subsequent impairment date, if applicable), net of accumulated amortization. Goodwill and other acquired intangibles expected to contribute indefinitely to our cash flows are not amortized, but must be evaluated by management at least annually for impairment. Amortized intangible assets are evaluated for impairment whenever events or changes in circumstance indicate that the carrying amounts of these assets may not be recoverable. Impairments to goodwill and other intangible assets may be caused by factors outside our control, such as the inability to quickly replace lost co-manufacturing business, increasing competitive pricing pressures, lower than expected revenue and profit growth rates, changes in industry EBITDA multiples, changes in discount rates based on changes in cost of capital (interest rates, etc.), or the bankruptcy of a significant customer and could negatively impact our net worth.
The termination or expiration of current co-manufacturing arrangements could reduce our sales volume and adversely affect our results of operations.
Our businesses periodically enter into co-manufacturing arrangements with manufacturers of branded products. The terms of these agreements vary but are generally for relatively short periods of time. Volumes produced under each of these agreements can fluctuate significantly based upon the product's life cycle, product promotions, alternative production capacity, and other factors, none of which are under our direct control. Our future ability to enter into co-manufacturing arrangements is not guaranteed, and a decrease in current co-manufacturing levels could have a significant negative impact on sales volume.

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Our pending Ardent Mills joint venture with Cargill and CHS may not be completed.
The closing of our pending Ardent Mills joint venture with Cargill, Incorporated and CHS Inc. is subject to various conditions to closing, including the receipt of certain financing, the receipt of certain governmental approvals related to antitrust in applicable foreign jurisdictions, the absence of any pending proceeding initiated by any governmental entity seeking to enjoin the closing, and other customary closing conditions, such as those relating to the accuracy of representations and warranties and compliance with covenants. These closing conditions may not be satisfied, and in that circumstance we may be unable or unwilling to complete this joint venture.
Ardent Mills may not achieve the benefits that are anticipated from the joint venture.
The benefits that are expected to result from the pending Ardent Mills joint venture will depend, in part, on our ability to realize the anticipated cost synergies in the transaction, Ardent Mills' ability to successfully integrate the ConAgra Mills and Horizon Milling businesses and its ability to successfully manage the joint venture on a going-forward basis. It is not certain that we will realize these benefits at all, and if we do, it is not certain how long it will take to achieve these benefits. If, for example, we are unable to achieve the anticipated cost savings, or if there are unforeseen integration costs, or if Ardent Mills is unable to operate the joint venture smoothly in the future, the financial performance of the joint venture may be negatively affected.
If we are unable to complete proposed acquisitions or divestitures or integrate acquired businesses, our financial results could be materially and adversely affected.
From time to time, we evaluate acquisition candidates that may strategically fit our business objectives. If we are unable to complete acquisitions or to successfully integrate and develop acquired businesses, our financial results could be materially and adversely affected. In addition, we may divest businesses that do not meet our strategic objectives, or do not meet our growth or profitability targets. We may not be able to complete desired or proposed divestitures on terms favorable to us. Gains or losses on the sales of, or lost operating income from, those businesses may affect our profitability. Moreover, we may incur asset impairment charges related to acquisitions or divestitures that reduce our profitability.
Our acquisition or divestiture activities may present financial, managerial, and operational risks. Those risks include diversion of management attention from existing businesses, difficulties integrating or separating personnel and financial and other systems, effective and immediate implementation of control environment processes across our employee population, adverse effects on existing business relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or key employees of acquired businesses, and indemnities and potential disputes with the buyers or sellers. Any of these factors could affect our product sales, financial condition, and results of operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters are located in Omaha, Nebraska. In addition, certain shared service centers are located in Omaha, Nebraska, including a product development facility, enterprise business services center, and an information technology center. The general offices and location of principal operations are set forth in the following summary of our locations. We also lease many sales offices mainly in the United States.
We maintain a number of stand-alone distribution facilities. In addition, there is warehouse space available at substantially all of our manufacturing facilities.
Utilization of manufacturing capacity varies by manufacturing plant based upon the type of products assigned and the level of demand for those products. Management believes that our manufacturing and processing plants are well maintained and are generally adequate to support the current operations of the business.
We own most of the manufacturing facilities. However, a limited number of plants and parcels of land with the related manufacturing equipment are leased. Substantially all of our transportation equipment and forward-positioned distribution centers containing finished goods are leased or operated by third parties. Information about the properties supporting our four business segments follows.
Consumer Foods Reporting Segment
Domestic general offices in Omaha, Nebraska, Naperville, Illinois, Miami, Florida, and Madison, Tennessee. International general offices in Canada, Mexico, Puerto Rico, China, Panama, and Colombia.
As of July 19, 2013, thirty-eight domestic manufacturing facilities in Arkansas, California, Georgia, Indiana, Iowa, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Ohio, Pennsylvania, Tennessee, and Wisconsin. Two international manufacturing facilities in Canada; one international manufacturing facility in Mexico; and one international manufacturing facility in Argentina. Interests in ownership of international manufacturing facilities in Mexico and India.
Commercial Foods Reporting Segment
Domestic general offices in Omaha, Nebraska, Eagle, Idaho, North Liberty, Iowa, and Tri-Cities, Washington. International general offices in China, Japan, Netherlands, and Singapore.
As of July 19, 2013, thirty-nine domestic production facilities in Alabama, California, Colorado, Florida, Georgia, Illinois, Louisiana, Minnesota, Nebraska, New Jersey, Ohio, Oregon, Pennsylvania, Texas, and Washington. One international production facility in Puerto Rico and one international manufacturing facility in Canada. Interests in ownership of manufacturing facilities in Colorado, Minnesota, Washington, United Kingdom, Puerto Rico, Austria, and the Netherlands.
Ralcorp Food Group Reporting Segment
General office in St. Louis, Missouri.
As of July 19, 2013, twenty-three domestic manufacturing facilities in Alabama, Arizona, Arkansas, California, Illinois, Iowa, Kentucky, Michigan, Minnesota, Missouri, Nevada, New York, Ohio, Pennsylvania, South Carolina, Texas, and Wisconsin. Three international manufacturing facilities in Italy and two international manufacturing facilities in Canada.
Ralcorp Frozen Bakery Products Reporting Segment
General office in Downers Grove, Illinois.
As of July 19, 2013, nine domestic manufacturing facilities in California, Georgia, Illinois, Kentucky, Michigan, Minnesota, Texas, Utah, and Washington. One international manufacturing facility in Canada.

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ITEM 3. LEGAL PROCEEDINGS
We are a party to various environmental proceedings and litigation, primarily related to our acquisition of Beatrice Company and its former subsidiaries (“Beatrice”) in fiscal 1991. As a result of the acquisition of Beatrice and the significant environmental pre-acquisition contingencies, our 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.
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 $63.3 million as of May 26, 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.
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 during fiscal 2013 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 and the Consumer Protection Branch of the Department of Justice. During the first quarter of fiscal 2013 and during fiscal 2012, we recognized charges of $7.5 million and $17.5 million, respectively, in connection with the U.S. Attorney's office investigation. These amounts are in addition to a charge of $24.8 million we recognized during fiscal 2009 in connection with the insurance coverage dispute. During fiscal 2011, we received a favorable opinion in the insurance matter related to our defense costs, pursuant to which we received a total of $13.2 million, $11.8 million of which was recognized in income in fiscal 2012, and $1.4 million 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, which was subject to appeal and not recognized in income in fiscal 2012. During the fourth quarter of fiscal 2013, we reached a settlement on the insurance dispute, pursuant to which we were paid $25.0 million, in addition to retaining the defense costs previously reimbursed to us. We recognized the $25.0 million in income during the fourth quarter of fiscal 2013. 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 government 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 and dismissed the suit without prejudice on the basis that the suit was filed prematurely. We will continue to defend this action vigorously.
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. We filed post-trial motions and the 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

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deductible that we accrued in a prior period), we filed an appeal with the Seventh Federal Circuit Court of Appeals on the verdict and the damages in the third quarter of fiscal 2013.
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 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 a defendant in several shareholder derivative 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 were 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 final Court approval.
Prior to our ownership 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, during the fourth quarter of fiscal 2013, jurors delivered a verdict in favor of Medallion and Ralcorp on all claims. Frito-Lay has filed a motion for a new trial. We will continue to defend this action vigorously.
The U.S. Environmental Protection Agency (the "EPA") sought civil penalties for alleged violations under the Clean Air Act arising out of a subsidiary of Ralcorp's Lodi, California facility. The EPA alleged that the facility exceeded permit limits and failed to conduct source testing in accordance with EPA regulations. The parties to the action have entered into a consent decree that requires Ralcorp to pay a fine of $0.6 million for the violations. The consent decree is currently pending before the Eastern District Court of California for approval. The South Coast Air Quality Management District in California has issued notices to Ralcorp's Azusa facility alleging historic air violations. The parties are negotiating a settlement which is expected to include a fine in excess of $0.1 million and an abatement program. With respect to both the Lodi and Azusa we have indemnity claims against the sellers of those facilities.
We have also negotiated a settlement with the EPA over the alleged failure to implement a Spill Prevention, Control and Countermeasures Plan, and a Facility Response Plan (the “Plans”) for our Memphis, Tennessee facility. The settlement, which has not been finalized, includes a civil penalty of $0.5 million and the implementation of the required Plans.
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange where it trades under the ticker symbol: CAG. At June 23, 2013, there were approximately 21,600 shareholders of record.
Quarterly sales price and dividend information is set forth in Note 23 “ Quarterly Financial Data (Unaudited) ” to the consolidated financial statements and incorporated herein by reference.

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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table presents the total number of shares of common stock purchased during the fourth quarter of fiscal 2013 , the average price paid per share, the number of shares that were purchased as part of a publicly announced repurchase program, and the approximate dollar value of the maximum number of shares that may yet be purchased under the share repurchase program:
Period
Total Number
of Shares (or
units)
Purchased
 
Average
Price Paid
per Share
(or unit)
 
Total Number of
Shares
Purchased as Part of
Publicly Announced
Plans or Programs (1)
 
Approximate Dollar
Value of Maximum
Number of Shares that
may yet be Purchased
under the Program (1)
February 25 through March 24, 2013
—

 
$
—

 
—

 
$
281,927,000

March 25 through April 21, 2013
—

 
$
—

 
—

 
$
281,927,000

April 22 through May 26, 2013
—

 
$
—

 
—

 
$
281,927,000

Total Fiscal 2013 Fourth Quarter Activity
—

 
$
—

 
—

 
$
281,927,000

 ________________
(1)
Pursuant to publicly announced share repurchase programs from December 2003, we have repurchased approximately 169.6 million shares at a cost of $4.0 billion through May 26, 2013 . The current program has no expiration date.
ITEM 6. SELECTED FINANCIAL DATA
For the Fiscal Years Ended May
 
2013
 
2012
 
2011
 
2010
 
2009
Dollars in millions, except per share amounts
 
 
 
 
 
 
 
 
 
 
Net sales (1)
 
$
15,491.4

 
$
13,367.9

 
$
12,386.1

 
$
12,096.8

 
$
12,439.1

Income from continuing operations (1)
 
$
786.1

 
$
474.3

 
$
830.9

 
$
630.3

 
$
530.3

Net income attributable to ConAgra Foods, Inc.
 
$
773.9

 
$
467.9

 
$
817.6

 
$
613.5

 
$
893.5

Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders (1)
 
$
1.88

 
$
1.13

 
$
1.92

 
$
1.43

 
$
1.17

Net income attributable to ConAgra Foods, Inc. common stockholders
 
$
1.88

 
$
1.13

 
$
1.90

 
$
1.38

 
$
1.97

Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders (1)
 
$
1.85

 
$
1.12

 
$
1.90

 
$
1.41

 
$
1.16

Net income attributable to ConAgra Foods, Inc. common stockholders
 
$
1.85

 
$
1.12

 
$
1.88

 
$
1.37

 
$
1.96

Cash dividends declared per share of common stock
 
$
0.99

 
$
0.95

 
$
0.89

 
$
0.79

 
$
0.76

At Year-End
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
20,405.3

 
$
11,441.9

 
$
11,408.7

 
$
11,738.0

 
$
11,073.3

Senior long-term debt (noncurrent)
 
$
8,691.0

 
$
2,662.7

 
$
2,674.4

 
$
3,030.5

 
$
3,259.5

Subordinated long-term debt (noncurrent)
 
$
195.9

 
$
195.9

 
$
195.9

 
$
195.9

 
$
195.9

 
(1)
Amounts exclude the impact of discontinued operations of the Knott’s Berry Farm ® operations, the trading and merchandising operations, the Fernando’s ® operations, the Gilroy Foods & Flavors ™ operations, and the frozen handhelds operations.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide a summary of significant factors relevant to our financial performance and condition. The discussion should be read together with our consolidated financial statements and related notes in Item 8, Financial Statements and Supplementary Data. Results for the fiscal year ended May 26, 2013 are not necessarily indicative of results that may be attained in the future.
Executive Overview
ConAgra Foods, Inc. (NYSE: CAG) is one of North America's largest packaged food companies. Its balanced portfolio includes consumer brands found in 97% of America's households, the largest private brand packaged food business in North America, and a strong commercial and foodservice business. Consumers can find recognized brands such as Banquet ® , Chef Boyardee ® , Egg Beaters ® , Healthy Choice ® , Hebrew National ® , Hunt's ® , Marie Callender's ® , Odom's Tennessee Pride ® , Orville Redenbacher's ® , PAM ® , Peter Pan ® , Reddi-wip ® , Slim Jim ® , Snack Pack ® , and many other ConAgra Foods brands and products, along with food sold by ConAgra Foods under private brands, in grocery, convenience, mass merchandise, club stores, and drugstores. We also have a strong commercial foods presence, supplying frozen potato and sweet potato products, as well as other vegetable, spice, bakery, and grain products to a variety of well-known restaurants, foodservice operators, and commercial customers.
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, we agreed to acquire Ralcorp for $90.00 in cash per share of Ralcorp common stock. The closing of the transaction followed the approval of the acquisition by Ralcorp's shareholders on January 29, 2013, and the receipt of all required regulatory approvals. The total amount of consideration paid in connection with the acquisition was approximately $5.07 billion ($4.75 billion, net of cash acquired) plus assumed liabilities. We funded the acquisition consideration with existing cash on hand, borrowings under a new $1.5 billion senior unsecured Term Loan Facility with Bank of America, N.A., as administrative agent and a lender JP Morgan Chase Bank, N.A. as syndication agent and a lender and the other financial institutions party thereto (the "Term Loan Facility"), and net proceeds from the issuance of new senior notes and common stock.
On March 4, 2013, we entered into an agreement with Cargill, Incorporated ("Cargill"), CHS Inc. ("CHS"), and HM Luxembourg, a Luxembourg Société à responsabilité limitée, pursuant to which ConAgra Foods, Cargill, and CHS (collectively, the “Owners”) agreed to form a joint venture (the "Joint Venture"). The Joint Venture (which at closing will be known as "Ardent Mills") will combine the North American flour milling operations and related businesses operated through our ConAgra Mills division and the Horizon Milling joint venture of Cargill and CHS. Immediately following the closing of the transaction, Ardent Mills will be operated by an independent management team. ConAgra Foods and Cargill will each own 44% of Ardent Mills, and CHS will own 12%.  Ardent Mills will be required to make cash distributions to the Owners on at least a semi-annual basis in proportion to each owner's ownership interest. The amount of these cash distributions will, in general, be at least equal to 50% of the cash generated by Ardent Mills and available for distribution, as reasonably determined by the boards of Ardent Mills and its operating subsidiaries, and taking into account working capital and other similar needs. The transaction is expected to close late in calendar year 2013, subject to the receipt of regulatory approval and the satisfaction of other closing conditions. Until the closing, the Owners will continue to operate their respective milling businesses as independent businesses.
Fiscal 2013 diluted earnings per share were $1.85 . Fiscal 2012 diluted earnings per share were $1.12 . Several significant items affect the comparability of year-over-year results of continuing operations (see “Items Impacting Comparability” below).
Items Impacting Comparability
Segment presentation of gains and losses from derivatives used for economic hedging of anticipated commodity input costs and economic hedging of foreign currency exchange rate risks of anticipated transactions is discussed in the segment review below.
Items of note impacting comparability for fiscal 2013 included the following:
•
charges of $114.2 million ($78.0 million after-tax) of acquisition-related costs,
•
charges totaling $45.5 million ($28.4 million after-tax) in connection with our restructuring plans,
•
a benefit of $25.0 million ($15.3 million after-tax) related to the favorable settlement of an insurance matter associated with the 2007 peanut butter recall,

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•
expenses of $21.6 million ($13.5 million after-tax) relating to the integration of Ralcorp,
•
incremental cost of goods of $16.7 million ($10.2 million after-tax) due to the fair value adjustment to inventory resulting from acquisition accounting for Ralcorp,
•
a charge of $10.2 million ($6.5 million after-tax) in connection with the impairment of certain assets received in connection with the bankruptcy of an onion supplier,
•
a charge of $7.5 million ($7.5 million after-tax) in connection with legal matters associated with the 2007 peanut butter recall,
•
charges of $6.2 million ($3.9 million after-tax) related to early extinguishment of debt as a result of early payments on our Term Loan Facility,
•
a charge of $5.7 million ($3.8 million after-tax) reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability, in accordance with our method of accounting for pension benefits adopted in fiscal 2012,
•
charges of $4.5 million ($2.8 million after-tax) related to environmental remediation matters related to Beatrice, Inc.,
•
charges of $3.0 million ($1.8 million after-tax) in connection with an accidental explosion that occurred at our manufacturing facility in Garner, North Carolina (the "Garner accident"), and
•
incremental income tax expense of $18.3 million, principally from the income tax consequences of certain costs incurred in association with the Ralcorp acquisition.
Items of note impacting comparability for fiscal 2012 included the following:
•
a charge of $396.9 million ($251.2 million after-tax) reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability,
•
charges totaling $65.5 million ($40.1 million after-tax) under our restructuring plans,
•
a gain of $58.6 million ($58.6 million after-tax), resulting from the remeasurement to fair value of our previously held noncontrolling equity interest in Agro Tech Foods Limited (“ATFL”), in connection with our acquisition of a majority interest in that company,
•
a charge of $17.5 million ($17.5 million after-tax) in connection with legal matters associated with the 2007 peanut butter recall,
•
a benefit of $11.8 million ($7.4 million after-tax) resulting from insurance settlements for matters associated with peanut butter,
•
charges of $2.0 million ($1.2 million after-tax) of acquisition-related costs, and
•
a charge of $4.6 million ($2.9 million after-tax) in connection with the write-off of an insurance claim receivable.
Acquisitions
In January 2013, we acquired Ralcorp. The total amount of consideration paid in connection with the acquisition was approximately $5.07 billion ($4.75 billion, net of cash acquired). We funded the acquisition consideration with existing cash on hand, borrowings under our new Term Loan Facility, and net proceeds from the issuance of new senior notes and common stock. Ralcorp manufactures private branded products including cereal products; snacks, sauces, and spreads; pasta; frozen griddle products, including pancakes, waffles, and French toast; frozen biscuits and other frozen pre-baked products such as breads and rolls; and frozen and refrigerated dough products. We present the results of operations of the acquired Ralcorp business in two segments: Ralcorp Food Group and Ralcorp Frozen Bakery Products.
In August 2012, we acquired the P.F. Chang's ® and Bertolli ® brands frozen meal business from Unilever for $266.9 million in cash. 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. The business, which manufactures private brand and Kangaroo ® brand pita chip snacks, is included in the Consumer Foods segment.

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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. This business is included in the Consumer Foods segment.
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. 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. 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. As a result of this investment, we now own a majority interest (approximately 52%) in ATFL. Consolidated financial results of ATFL are included in the Consumer Foods segment.
In June 2011, we purchased various Marie Callender's ® brand trademarks from Marie Callender Pie Shops, Inc. for $57.5 million in cash.
Restructuring Plans
In May 2013, our Board of Directors authorized a restructuring and integration plan related to the ongoing integration of the recently acquired operations of Ralcorp (the "Ralcorp Related Restructuring Plan"). The plan is expected to include steps to, among other things, improve operational effectiveness and reduce costs, integrate headquarter functions across the organization, and optimize manufacturing assets and distribution networks, as a result of which we expect to incur material charges for exit and disposal activities under generally accepted accounting principles. At the time of the acquisition of Ralcorp, we anticipated that we would need to take restructuring actions in integrating Ralcorp and since that time have been evaluating, and continue to evaluate, such actions. We are currently unable, in good faith, to make a determination of an estimate of the total amount or range of amounts for each major type of cost expected to be incurred in connection with the Ralcorp Related Restructuring Plan, an estimate of the total amount or range of amounts expected to be incurred in connection with the Ralcorp Related Restructuring Plan, or an estimate of the amount or range of amounts of the charges that will result in future cash expenditures. We are also currently unable to determine the duration of the Ralcorp Related Restructuring Plan, but expect that the Ralcorp Related Restructuring Plan will be implemented over a multi-year period. In fiscal 2013, we recognized charges of $28.4 million in relation to the Ralcorp Related Restructuring Plan, all of which will be cash charges.
We are incurring costs in connection with actions we take 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. We expect to incur $14.3 million of charges associated with fiscal 2013 and 2012 acquisitions ($10.2 million of which are cash charges). In fiscal 2013 and 2012, we recognized charges of $9.5 million and $4.5 million, respectively, in relation to acquisition-related exit costs.
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 incurred $18.7 million of charges ($16.8 million of which are cash charges), primarily for severance and costs of employee relocation. In fiscal 2013 and 2012, we recognized charges of $2.0 million and $16.7 million, respectively, in relation to the Administrative Efficiency Plan. At the end of fiscal 2013, the Administrative Efficiency Plan was substantially complete.
In February 2011, our Board of Directors approved a plan designed to optimize our manufacturing and distribution networks (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. In connection with the Network Optimization Plan, we have incurred aggregate pre-tax costs of $76.7 million, including approximately $17.9 million of cash charges. In fiscal 2013, 2012, and 2011, we recognized charges of $4.3 million, $41.8 million and $30.6 million, respectively, in relation to the Network Optimization Plan. At the end of fiscal 2013, the Network Optimization Plan was substantially complete.
Prior to our acquisition of Ralcorp, the management of Ralcorp had initiated certain activities designed to optimize Ralcorp's manufacturing and distribution networks. We refer to these actions and the related costs as the "Ralcorp Pre-acquisition Restructuring Plans". These plans involve, among other things, the exit of certain manufacturing facilities, the disposal of underutilized

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manufacturing assets, and actions designed to optimize the Ralcorp distribution network. We expect to incur $3.2 million of charges that have resulted or will result in cash outflows associated with the Ralcorp Pre-acquistion Restructuring Plans. In fiscal 2013, we recognized charges of $1.3 million in relation to the Ralcorp Pre-acquisition Restructuring Plans. For activities initiated after our acquisition of Ralcorp, refer to the Ralcorp Related Restructuring Plan.
In March 2010, we announced a plan, authorized by our Board of Directors, 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. In May 2010, we made a decision to consolidate certain administrative functions from Edina, Minnesota to Naperville, Illinois. The transition of these functions was completed in fiscal 2011. This plan, together with the plan to move production of our meat snacks from Garner, North Carolina to Troy, Ohio, are collectively referred to as the 2010 restructuring plan (the “2010 plan”). We incurred pre-tax charges of $67.3 million, including $28.3 million in cash charges in relation to the 2010 plan. In fiscal 2012, we recognized charges of approximately $2.6 million in relation to the 2010 plan. By the end of fiscal 2012, the 2010 plan was complete.
SEGMENT REVIEW
We report our operations in four reporting segments: Consumer Foods, Commercial Foods, Ralcorp Food Group, and Ralcorp Frozen Bakery Products. In the first quarter of fiscal 2013, we revised the manner in which sales of grain within our Commercial Foods segment are recognized. As a result, segment results of the prior periods have been revised to reflect the changes.
Consumer Foods
The Consumer Foods reporting segment includes branded and private brand food products that are sold in various retail and foodservice channels, principally in North America. The products include a variety of categories (meals, entrees, condiments, sides, snacks, and desserts) across frozen, refrigerated, and shelf-stable temperature classes.
Commercial Foods
The Commercial Foods reporting segment principally includes commercially branded foods and ingredients, which are sold primarily to foodservice, food manufacturing, and industrial customers. The segment's primary products include: specialty potato products, milled grain ingredients, and a variety of vegetable products, seasonings, blends, and flavors, which are sold under brands such as ConAgra Mills ® , Lamb Weston ® , and Spicetec Flavors & Seasonings ® .
Ralcorp Food Group
The Ralcorp Food Group reporting segment principally includes private brand food products that are sold in various retail and foodservice channels, primarily in North America. The products include a variety of categories including cereal products; snacks, sauces, and spreads; and pasta.
Ralcorp Frozen Bakery Products
The Ralcorp Frozen Bakery Products reporting segment principally includes private brand frozen bakery products that are sold in various retail and foodservice channels, primarily in North America. The segment's primary products include: frozen griddle products, including pancakes, waffles, and French toast; frozen biscuits and other frozen pre-baked products such as breads and rolls; and frozen and refrigerated dough products.
Presentation of Derivative Gains (Losses) from Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives (except those related to our milling operations, see Note 19 to the consolidated financial statements) are recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings.

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The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:
 
Fiscal Years Ended
($ in millions)
May 26,
2013

 
May 27,
2012

Net derivative gains (losses) incurred
$
74.8

 
$
(66.8
)
Less: Net derivative gains allocated to reporting segments
25.0

 
24.4

Net derivative gains (losses) recognized in general corporate expenses
$
49.8

 
$
(91.2
)
Net derivative gains allocated to Consumer Foods
$
30.9

 
$
24.9

Net derivative losses allocated to Commercial Foods
(5.3
)
 
(0.5
)
Net derivative losses allocated to Ralcorp Food Group
(0.3
)
 
—

Net derivative losses allocated to Ralcorp Frozen Bakery Products
(0.3
)
 
—

Net derivative gains included in segment operating profit
$
25.0

 
$
24.4

As of May 26, 2013 , the cumulative amount of net derivative losses from economic hedges that had been recognized in Corporate and not yet allocated to reporting segments was $ 9.1 million . This amount reflected net gains of $ 74.8 million incurred during fiscal 2013, as well as net losses of $ 58.9 million incurred prior to fiscal 2013. Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify losses of $ 5.6 million and $ 3.5 million to segment operating results in fiscal 2014 and fiscal 2015 and thereafter, respectively.
Fiscal 2013 compared to Fiscal 2012
Net Sales
($ in millions)
Reporting Segment
Fiscal 2013 Net Sales
 
Fiscal 2012 Net Sales
 
% Inc
(Dec)
Consumer Foods
$
9,069.9

 
$
8,376.8

 
8
%
Commercial Foods
5,167.4

 
4,991.1

 
4
%
Ralcorp Food Group
924.2

 
—

 
 N/A

Ralcorp Frozen Bakery Products
329.9

 
—

 
 N/A

Total
$
15,491.4

 
$
13,367.9

 
16
%
Overall, our net sales increased $ 2.12 billion to $ 15.49 billion in fiscal 2013 , reflecting an 8% increase in our Consumer Foods segment and a 4% increase in our Commercial Foods segment relative to results in fiscal 2012, as well as increased sales due to the acquisition of Ralcorp during the third quarter of fiscal 2013.
Consumer Foods net sales for fiscal 2013 were $ 9.07 billion , an increase of $ 693.1 million , or 8% , compared to fiscal 2012 . Results reflected an 8% benefit from acquisitions and a 2% increase from net pricing/mix, offset by a 2% decrease in volume performance from our base businesses (those businesses owned for all of fiscal 2013 and 2012). Increase in pricing/mix was due to pricing initiatives taken toward the end of fiscal 2012. The decrease in volume performance from our base businesses is primarily attributable to volume elasticity or the dampening effect of price increases on sales volume in the marketplace for fiscal 2013.
Sales of products associated with some of our most significant brands, including Act II ® , Hebrew National ® , Hunt's ® , Marie Callender's ® , Orville Redenbacher's ® , Pam ® , Peter Pan ® , Reddi-wip ® , Ro*Tel ® , Slim Jim ® , Swiss Miss ® , and Wesson ® grew in fiscal 2013 , as compared to fiscal 2012 . Significant brands whose products experienced sales declines in fiscal 2013 include Banquet ® , Blue Bonnet ® , Chef Boyardee ® , David ® , Egg Beaters ® , Healthy Choice ® , Kid Cuisine ® , Manwich ® , and Snack Pack ® .
Commercial Foods net sales were $ 5.17 billion in fiscal 2013 , an increase of $ 176.3 million , or 4% , compared to fiscal 2012 . Net sales in our flour milling business were $47.1 million higher in fiscal 2013 than fiscal 2012, principally reflecting the pass-through of $19.5 million of higher wheat prices in the milling business. Results for fiscal 2013 also reflected improved net pricing/mix of 5% in the segment's Lamb Weston specialty potato products business, while sales volumes were flat.
Ralcorp Food Group and Ralcorp Frozen Bakery Products net sales for fiscal 2013 (approximately four months of ownership) were $ 924.2 million and $ 329.9 million , respectively. Sales for both Ralcorp Food Group and Ralcorp Frozen Bakery Products

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reflected competitive market conditions that have resulted in lower volumes than those achieved in recent periods prior to our ownership of Ralcorp.
Selling, General and Administrative ("SG&A") Expenses (Includes general corporate expenses)
SG&A expenses totaled $ 2.14 billion for fiscal 2013, an increase of $ 152.0 million compared to fiscal 2012.
SG&A expenses for fiscal 2013 reflected the following:
•
an increase in advertising and promotion expenses of $109.5 million,
•
charges of $108.2 million of acquisition-related costs,
•
an increase in salaries and wages of $67.1 million,
•
an increase in incentive compensation expense of $57.6 million,
•
an increase of $49.8 million related to Ralcorp SG&A expenses not included in other items noted herein,
•
expenses of $31.9 million related to the execution of our restructuring plans,
•
an increase in stock compensation expense of $25.7 million,
•
a benefit of $25.0 million related to the favorable settlement of an insurance matter associated with the 2007 peanut butter recall,
•
expenses of $21.6 million relating to the integration of Ralcorp,
•
a charge of $10.2 million in connection with the impairment of certain assets received in connection with the bankruptcy of an onion supplier,
•
a charge of $7.5 million in connection with legal matters associated with the 2007 peanut butter recall,
•
charges of $6.2 million related to early extinguishment of debt as a result of early payments on our Term Loan Facility,
•
a charge of $5.7 million reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability,
•
charges of $4.5 million related to environmental remediation matters related to Beatrice, Inc., and
•
charges of $3.0 million in connection with the Garner accident.
SG&A expenses for fiscal 2012 included:
•
a charge of $336.2 million reflecting the year-end write-off of actuarial losses in excess of 10% of our pension liability,
•
a gain of $58.6 million, resulting from the remeasurement to fair value of our previously held noncontrolling equity interest in ATFL, in connection with our acquisition of a majority interest in that company,
•
charges totaling $42.9 million in connection with our restructuring plans,
•
a charge of approximately $17.5 million in connection with legal matters associated with the 2007 peanut butter recall,
•
a benefit of $11.8 million resulting from insurance settlements for matters associated with peanut butter, and
•
a charge of $4.6 million in connection with the write-off of an insurance claim receivable.

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Operating Profit (Earnings before general corporate expenses, interest expense, net, income taxes, and equity method investment earnings)
($ in millions)
Reporting Segment
Fiscal 2013 Operating Profit
 
Fiscal 2012 Operating Profit
 
% Inc
(Dec)
Consumer Foods
$
1,096.5

 
$
1,053.3

 
4
%
Commercial Foods
631.4

 
546.3

 
16
%
Ralcorp Food Group
85.4

 
—

 
 N/A

Ralcorp Frozen Bakery Products
27.4

 
—

 
 N/A

Consumer Foods operating profit for fiscal 2013 was $ 1.10 billion , an increase of $ 43.2 million , or 4% , compared to fiscal 2012 . Gross profits in Consumer Foods were $ 270.2 million higher in fiscal 2013 than in fiscal 2012 , driven by the impact of higher net sales, discussed above, and the benefit of supply chain cost savings initiatives, partially offset by moderate inflation in product costs (particularly for proteins, packaging, peanuts, sweeteners, and beans). Businesses acquired in fiscal 2013 contributed $41.0 million of operating profit to fiscal 2013. Other items that significantly impacted Consumer Foods operating profit in fiscal 2013 included:
•
an increase in advertising and promotion expense of $97.5 million,
•
an increase in incentive compensation expense of $31.7 million,
•
charges totaling $12.1 million in connection with our restructuring plans,
•
charges of $10.9 million of acquisition-related costs, and
•
an increase in salaries and wages of $11.7 million.
Items that significantly impacted Consumer Foods operating profit in fiscal 2012 included:
•
a gain of $58.6 million, resulting from the remeasurement to fair value of our previously held noncontrolling equity interest in ATFL, in connection with our acquisition of a majority interest in that company, and
•
charges totaling $55.9 million in connection with our restructuring plans.
Operating profit for the Commercial Foods segment was $ 631.4 million in fiscal 2013 , an increase of $ 85.1 million , or 16% , compared to fiscal 2012 . Gross profits in the Commercial Foods segment were $ 117.4 million higher in fiscal 2013 than in fiscal 2012 , driven by higher gross profit in the Lamb Weston specialty potato operations due to increased net pricing/mix, as well as productivity improvements, partially offset by higher input costs. Results for fiscal 2013 also reflected a $10.2 million charge to reduce the carrying value of collateral received in connection with the bankruptcy of an onion products supplier to its estimated fair value based upon updated appraisals. Commercial Foods operating profit included $6.1 million of charges in fiscal 2012 related to the execution of our restructuring plans. In the third quarter of fiscal 2013, a significant foodservice customer did not renew a significant portion of its potato products purchase contracts with our Lamb Weston business, which we expect to have an unfavorable impact in fiscal 2014. We intend to enter into new potato products sales contracts with other customers that we expect will partially offset impacts to sales and margins.
Ralcorp Food Group and Ralcorp Frozen Bakery Products segments' operating profit for fiscal 2013 was $ 85.4 million and $ 27.4 million , respectively. Included in the results of the Ralcorp Food Group and Ralcorp Frozen Bakery Product segments' operating profit in fiscal 2013 was $13.6 million and $3.1 million, respectively, of incremental cost of goods sold due to the fair value adjustment to inventory resulting from acquisition accounting.
Interest Expense, Net
In fiscal 2013 , net interest expense was $ 275.6 million , an increase of $ 71.6 million , or 35% , from fiscal 2012. The increase reflects the issuance of $3.975 billion of senior debt, borrowings of $1.5 billion under a Term Loan Facility, and $716.0 million of senior debt that was exchanged in January 2013 in financing the Ralcorp acquisition, in addition to the issuance of $750.0 million of senior notes in September 2012. Interest expense in fiscal 2013 and 2012 reflected a net benefit of $8.6 million and $8.9 million, respectively, primarily resulting from interest rate swaps used to effectively convert the interest rates of certain outstanding debt instruments from fixed to variable (these hedges were terminated in fiscal 2011).

24
Table of Contents

Income Taxes
Our income tax expense was $ 400.2 million and $ 195.8 million in fiscal 2013 and 2012, 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) was 34% for fiscal 2013 and 29% in fiscal 2012. The effective tax rate for fiscal 2013 reflects the incurrence of various non-deductible transaction-related expenses, as well as a reduced domestic manufacturing deduction benefit, in connection with the acquisition of Ralcorp. The effective tax rate for fiscal 2012 is reflective of the benefit of normal, recurring, income tax credits and deductions combined with a lower pre-tax level of earnings (due in large part to the impact of the write-off of $396.9 million of actuarial losses under the method of accounting for pension benefits adopted in fiscal 2012), as well as a $58.6 million nontaxable gain on the remeasurement to fair value of our previously held noncontrolling equity interest in ATFL, in connection with our acquisition of a majority interest in that company. The fiscal 2013 effective tax rate also included favorable tax adjustments resulting from the implementation of the 2012 American Taxpayer Relief Act during fiscal 2013, while the fiscal 2012 effective tax rate was unfavorably impacted by the prior expiration of these tax benefits during fiscal 2012. In the third quarter of fiscal 2013, we received an adverse Mexican tax court ruling and recorded a reserve of $4.0 million.
We expect our effective tax rate in fiscal 2014, exclusive of any unusual transactions or tax events, to be approximately 34%.
Equity Method Investment Earnings
We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates. Significant affiliates produce and market potato products for retail and foodservice customers. Our share of earnings from our equity method investments was $ 37.5 million ($1.8 million in the Consumer Foods segment and $35.7 million in the Commercial Foods segment) and $ 44.9 million ($4.9 million in the Consumer Foods segment and $40.0 million in the Commercial Foods segment) in fiscal 2013 and 2012, respectively. The decrease in equity method investment earnings in the Commercial Foods segment were a result of higher input costs for a foreign potato processing venture, in addition to a charge of $2.1 million reflecting the year-end write-off of actuarial losses in excess of 10% of the pension liability.
Earnings Per Share
Our diluted earnings per share in fiscal 2013 were $1.85 . Our diluted earnings per share in fiscal 2012 were $1.12 . See “Items Impacting Comparability” above as several significant items affected the comparability of year-over-year results of operations.
Fiscal 2012 compared to Fiscal 2011
Net Sales
($ in millions)
Reporting Segment
Fiscal 2012 Net Sales
 
Fiscal 2011 Net Sales
 
% Inc
(Dec)
Consumer Foods
$
8,376.8

 
$
8,002.0

 
5
%
Commercial Foods
4,991.1

 
4,384.1

 
14
%
Total
$
13,367.9

 
$
12,386.1

 
8
%
Overall, our net sales increased $ 981.8 million to $ 13.37 billion in fiscal 2012, reflecting a 5% increase in our Consumer Foods segment and a 14% increase in our Commercial Foods segment relative to results in fiscal 2011.
Consumer Foods net sales for fiscal 2012 were $8.38 billion, an increase of 5% as compared to fiscal 2011. Results reflected a 3% benefit from acquisitions, a 5% benefit from favorable pricing and mix, and a 3% decrease in volume from our base businesses (those businesses owned for all of fiscal 2012 and 2011). The decrease in volume from existing businesses reflected difficult economic conditions that are impacting consumer purchasing behavior, as well as price increases taken earlier in fiscal 2012 for some products. Increased pricing was necessitated by increased commodity input costs.
Sales of products associated with some of our most significant brands, including ACT II ® , Blue Bonnet ® , Chef Boyardee ® , Healthy Choice ® , Manwich ® , Marie Callender’s ® , Peter Pan ® , Slim Jim ® , Van Camp’s ® , and Wesson ® , grew in fiscal 2012. Significant brands that experienced sales declines in fiscal 2012 included Banquet ® , Crunch ‘n Munch ® , Egg Beaters ® , Hebrew National ® , Hunt’s ® , Kid Cuisine ® , Orville Redenbacher’s ® , PAM ® , Reddi-wip ® , Snack Pack ® , and Swiss Miss ® .

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Commercial Foods net sales were $4.99 billion in fiscal 2012, an increase of $607.0 million, or 14% compared to fiscal 2011. Net sales in our flour milling business were approximately $306.7 million higher in fiscal 2012 than in fiscal 2011, principally reflecting the pass-through of higher wheat prices. Net sales also reflected a $255.7 million increase in results in our Lamb Weston specialty potato products business, reflecting improved net pricing of approximately 9% and higher volume of approximately 4%.
Selling, General and Administrative Expenses (includes General Corporate Expense) (“SG&A”)
SG&A expenses totaled $2.0 billion for fiscal 2012, an increase of $484.6 million, or 32%, compared to fiscal 2011.
SG&A expenses for fiscal 2012 reflected the following:
•
an increase in pension and retirement expense of $336.2 million, reflecting the immediate write-off of actuarial losses in excess of 10% of our pension liability,
•
a gain of $58.6 million, resulting from the remeasurement to fair value of our previously held noncontrolling equity interest in ATFL, in connection with our acquisition of a majority interest in that company,
•
an increase in incentive compensation expense of $44.8 million,
•
charges totaling $42.9 million in connection with our restructuring plans,
•
a decrease in self-insured medical expense of $20.6 million,
•
a decrease in advertising and promotion expense of $7.4 million,
•
a charge of approximately $17.5 million in connection with legal matters associated with the 2007 peanut butter recall,
•
a benefit of $11.8 million resulting from insurance settlements for matters associated with peanut butter, and
•
a charge of $4.6 million in connection with the write-off of an insurance claim receivable.
SG&A expenses for fiscal 2011 included the following:
•
a net benefit of $105.3 million in connection with the settlement of insurance claims, net of expenses incurred, related to the Garner accident,
•
charges totaling $34.5 million in connection with our restructuring plans,
•
a gain of $25.0 million from the receipt, as payment in full of all principal and interest due on the notes received in connection with the divestiture of the trading and merchandising operations in fiscal 2009, in advance of the scheduled maturity dates, and
•
a charge of $10.3 million reflecting the immediate write-off of actuarial losses in excess of 10% of our pension liability.
Operating Profit (Earnings before general corporate expenses, interest expense, net, income taxes, and equity method investment earnings)
($ in millions)
Reporting Segment
Fiscal 2012 Operating Profit
 
Fiscal 2011 Operating Profit
 
% Inc
(Dec)
Consumer Foods
$
1,053.3

 
$
1,126.4

 
(6
)%
Commercial Foods
546.3

 
509.5

 
7
 %
Consumer Foods operating profit decreased $ 73.1 million in fiscal 2012 versus the prior year to $1.05 billion. Gross profits in the Consumer Foods segment were $7.8 million higher in fiscal 2012 than in fiscal 2011 driven by the benefit of price increases and supply chain cost savings initiatives, offset by the impact of higher commodity input costs (particularly for proteins, vegetable oil, and packaging). Businesses acquired in fiscal 2012 contributed $12.8 million of operating profit to fiscal 2012. Other items that significantly impacted Consumer Foods operating profit in fiscal 2012 included:
•
a gain of $58.6 million, resulting from the remeasurement to fair value of our previously held noncontrolling equity interest in ATFL, in connection with our acquisition of a majority interest in that company,

26
Table of Contents

•
charges totaling $55.9 million in connection with our restructuring plans,
•
an increase in incentive compensation expense of $11.4 million, and
•
a decrease in advertising and promotion expense of $8.5 million.
Items that significantly impacted Consumer Foods operating profit in fiscal 2011 included:
•
a net benefit of $105.3 million in connection with the settlement of insurance claims, net of expenses incurred, related to the Garner accident, and
•
charges totaling $45.4 million in connection with our restructuring plans.
Commercial Foods operating profit increased $ 36.8 million in fiscal 2012 versus the prior year to $ 546.3 million . Gross profits in the Commercial Foods segment were $ 55.8 million higher in fiscal 2012 than fiscal 2011, driven by higher sales volume and improved pricing in the Lamb Weston specialty potato business, largely offset by lower profits in our flour milling business. The decline in margins in the flour milling business was due to less favorable market conditions in fiscal 2012. SG&A expenses were higher in the Commercial Foods segment in fiscal 2012 as compared to fiscal 2011, largely due to a $13.9 million increase in incentive compensation expense. The Commercial Foods segment also recognized charges of $6.1 million in fiscal 2012 related to the execution of our restructuring plans.
Interest Expense, Net
In fiscal 2012, net interest expense was $ 204.0 million , an increase of $ 26.5 million , or 15%, from fiscal 2011. Included in net interest expense was $4.0 million and $42.2 million of interest income in fiscal 2012 and 2011, respectively. In 2011, the income was principally from interest on the Notes received in connection with the divestiture of the trading and merchandising business in fiscal 2009. Interest expense in fiscal 2012 and 2011 also reflected a net benefit of $8.9 million and $12.8 million, respectively, primarily resulting from interest rate swaps used to effectively convert the interest rates of certain outstanding debt instruments from fixed to variable (these hedges were terminated in fiscal 2011) and the benefit of the repayment of $342.7 million of our 6.75% senior notes in September 2011.
Income Taxes
Our income tax expense was $ 195.8 million and $ 421.6 million in fiscal 2012 and 2011, 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) was 29% for fiscal 2012 and 34% in fiscal 2011. The lower effective tax rate in fiscal 2012 was reflective of the benefit of normal, recurring, income tax credits and deductions combined with a lower pre-tax level of earnings (due in large part to the impact of the write-off of $396.9 million of actuarial losses under the method of accounting for pension benefits adopted in fiscal 2012), as well as the non-taxable nature of the $58.6 million gain on the remeasurement to fair value of our previously held noncontrolling equity interest in ATFL, in connection with our acquisition of a majority interest in that company.
Equity Method Investment Earnings
We include our share of the earnings of certain affiliates based on our economic ownership interest in the affiliates. Significant affiliates produce and market potato products for retail and foodservice customers. Our share of earnings from our equity method investments was $44.9 million ($4.9 million in the Consumer Foods segment and $40.0 million in the Commercial Foods segment) and $26.4 million ($5.7 million in the Consumer Foods segment and $20.7 million in the Commercial Foods segment) in fiscal 2012 and 2011, respectively. Equity method investment earnings in the Commercial Foods segment were a result of more profitable operations of a foreign potato processing venture.
Results of Discontinued Operations
Our discontinued operations were immaterial in fiscal 2012 and generated after-tax losses of $11.5 million in fiscal 2011. In fiscal 2011, we completed the sale of the assets of a small frozen foods business for approximately $9.5 million. We recognized after-tax impairment charges totaling $14.2 million in connection with this sale. Operating results of discontinued operations in fiscal 2011 included the favorable resolution of a foreign tax matter relating to a divested business.
Earnings Per Share
Our diluted earnings per share in fiscal 2012 were $1.12. Our diluted earnings per share in fiscal 2011 were $1.88 (including earnings of $1.90 per diluted share from continuing operations and losses of $0.02 per diluted share from discontinued operations).

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Table of Contents

LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity and Capital
Our primary financing objective is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives. If necessary, we use short-term debt principally to finance ongoing operations, including our seasonal requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts payable, accrued payroll, and other accrued liabilities) and a combination of equity and long-term debt to finance both our base working capital needs and our non-current assets. We increased our indebtedness significantly during fiscal 2013 as a result of the Ralcorp acquisition. We are committed to maintain an investment grade rating.
At May 26, 2013 , we had a $1.5 billion revolving credit facility. The facility is scheduled to mature in September 2016. The facility has historically been used principally as a back-up facility for our commercial paper program. As of May 26, 2013 , there were no outstanding borrowings under the facility. The facility requires that our consolidated funded debt not exceed 75% of our consolidated capital base in the first four quarters commencing on January 29, 2013, 70% in the second four quarters, and 65% thereafter, and that our fixed charges coverage ratio be greater than 1.75 to 1.0. As of May 26, 2013 , we were in compliance with these financial covenants.
As of May 26, 2013 , we had $185.0 million outstanding under our commercial paper program. The highest level of borrowings during fiscal 2013 was $392.0 million, which occurred at the end of the first quarter of fiscal 2013 in association with the acquisition of the P.F. Chang's ® and Bertolli ® brands frozen meal business. This balance was repaid in the second quarter of fiscal 2013 upon the issuance of $750.0 million of senior unsecured notes.
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 in the fourth quarter of fiscal 2013, and (iv) borrowed $1.5 billion under our new Term Loan Facility. Details related to these transactions are noted below.
On January 25, 2013, we issued senior unsecured notes in the aggregate principal amount of $3.975 billion. These notes were issued in four tranches: $750.0 million, maturing in 3 years with a coupon rate of 1.3%, $1.0 billion, maturing in 5 years with a coupon rate of 1.9%, $1.225 billion, maturing in 10 years with a coupon rate of 3.2%, and $1.0 billion, maturing in 30 years with a coupon rate of 4.65%. Net proceeds were used for the acquisition of Ralcorp including associated repayment of Ralcorp notes tendered in connection with the acquisition.
On January 29, 2013, we borrowed $1.5 billion under our Term Loan Facility. We are required to repay borrowings under the Term Loan Facility in equal installments of 2.5% per quarter beginning June 1, 2013 with the remainder of the borrowings to be paid on the maturity date unless prepaid in accordance with the terms of the Term Loan Facility. We may prepay borrowings without premium or penalty. As of May 26, 2013 , we had $ 900.0 million outstanding under the Term Loan Facility. The Term Loan Facility matures on January 29, 2018. The Term Loan Facility interest rate is calculated based on LIBOR plus 1.75%. Net proceeds were used for the acquisition of Ralcorp. The Term Loan Facility requires that our consolidated funded debt not exceed 75% of our consolidated capital base in the first four quarters commencing on January 29, 2013, 70% in the second four quarters, and 65% thereafter, and that our fixed charges coverage ratio be greater than 1.75 to 1.0. As of May 26, 2013 , we were in compliance with these financial covenants.
In conjunction with the Ralcorp acquisition, we issued new senior unsecured notes in exchange for senior notes issued by Ralcorp in an aggregate principal amount of $716.0 million . The principal amounts of senior notes issued included $282.7 million of 4.95% senior debt due August 2020 and $433.3 million of 6.625% senior debt due August 2039. 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 .
We also assumed Ralcorp senior notes in the aggregate principal amounts of $460.7 million ("Ralcorp Callable Notes"). On February 28, 2013, we prepaid these notes, including interest and contractual obligations, for a total of $568.4 million, primarily from available cash.
On September 13, 2012, 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, with terms to maturity and coupon rates of 3 years at 1.35%, 5.5 years at 2.10%, and 10 years at 3.25%, respectively. Net proceeds were used for general corporate purposes, including repayment of outstanding commercial paper, working capital, and other business opportunities.

28

As of the end of fiscal 2013 , our senior long-term debt ratings were all investment grade. A significant downgrade in our credit ratings would not affect our ability to borrow amounts under the revolving credit facility, although borrowing costs would increase. A downgrade of our short-term credit ratings would impact our ability to borrow under our commercial paper program by negatively impacting borrowing costs and causing shorter durations, as well as making access to commercial paper more difficult.
On January 11, 2013, we issued approximately 9.2 million shares of our common stock from treasury shares for net proceeds of $269.3 million. Net proceeds were used as part of the overall financing of Ralcorp.
We repurchase our shares of common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board of Directors. In December 2011, the Company's Board of Directors approved a $750.0 million increase to our share repurchase authorization. Under the share repurchase authorization, we may repurchase our shares periodically over several years, depending on market conditions and other factors, and may do so in open market purchases or privately negotiated transactions. The authorization has no time limit and may be suspended or discontinued at any time.
We repurchased 9.1 million shares of our common stock for an aggregate of $245.0 million under this program in fiscal 2013. The Company's total remaining share repurchase authorization as of May 26, 2013 was $281.9 million.
On September 19, 2012, our Board of Directors approved an increase in our quarterly dividend to $0.25 per share from the previous level of $0.24 per share, an annualized increase of approximately 4%.
Cash Flows
In fiscal 2013 , we generated $ 80.9 million of cash, which was the net result of $1.41 billion generated from operating activities, $ 5.47 billion used in investing activities, $4.13 billion obtained in financing activities, and an increase of $ 1.5 million in cash due to the effect of changes in foreign currency exchange rates.
Cash generated from operating activities of continuing operations totaled $ 1.41 billion in the fiscal 2013 , as compared to $ 1.05 billion generated in fiscal 2012 . Net income was $311.7 million higher in fiscal 2013 than fiscal 2012, reflecting increases due to acquisitions and improved overall profitability. Operating cash outflows resulting from costs associated with the Ralcorp acquisition were $130.1 million, including $52.4 million accrued by Ralcorp prior to the acquisition. Additionally, $42.5 million in interest accrued by Ralcorp prior to the acquisition was subsequently paid. We contributed $19.8 million and $326.4 million to our pension plans in fiscal 2013 and 2012, respectively. Tax related cash flows in fiscal 2013 reflected benefits of approximately $180.1 million realized from lower current income tax payments as a result of paying off Ralcorp debt. Receivables increased $73.1 million due to increased pricing of flour sales in Commercial Foods and increased sales in Consumer Foods. In fiscal 2013 , decreases in Consumer Foods inventories (excluding impacts of acquisitions) due to more stable commodity prices and utilization of prior physical positions were offset by increases in our Commercial Foods segment resulting from higher wheat prices and increased potato harvest yields. Increases in trade payables were lower during fiscal 2013 , due to moderating inflation. We paid larger incentive compensation payments in the first quarter of fiscal 2013 (earned in fiscal 2012 ) than in the first quarter of fiscal 2012 (earned in fiscal 2011).
Cash used in investing activities totaled $ 5.47 billion in fiscal 2013 , versus cash used in investing activities of $ 1.06 billion in fiscal 2012 . Investing activities in fiscal 2013 consisted primarily of the purchase of Ralcorp for $ 4.75 billion , net of cash acquired, capital expenditures of $ 458.7 million , and the acquisition of the P.F. Chang's ® and Bertolli ® brands frozen meal business from Unilever for $266.9 million in cash. Investing activities in fiscal 2012 consisted primarily of acquisitions of businesses and intangibles totaling $697.7 million, capital expenditures of $ 336.7 million , and a $39.6 million purchase of a secured loan.
Cash generated from financing activities of continuing operations totaled $ 4.13 billion in fiscal 2013 compared with cash used of $ 849.6 million in fiscal 2012 . In fiscal 2013 , we issued long-term debt that generated $ 6.22 billion in cash and repaid $ 2.07 billion in debt, primarily $1.44 billion paid for principal and contractual amounts on Ralcorp notes tendered in connection with the Ralcorp acquisition and prepayment of $600.0 million of the Term Loan Facility; whereas during fiscal 2012 , we decreased our debt by $ 363.6 million , including the repayment of $342.7 million upon maturity of our 6.75% senior notes. In conjunction with the Ralcorp acquisition, we issued common stock for $269.2 million in cash. During fiscal 2013 and 2012 , we paid dividends of $ 400.7 million and $ 388.6 million , respectively. In fiscal 2013 and 2012 , we repurchased $ 245.0 million and $ 352.4 million , respectively, of our common stock as part of our share repurchase program. Amounts generated from employee stock option exercise proceeds and issuance of other stock awards were $ 274.4 million and $ 213.2 million in fiscal 2013 and 2012 , respectively.
The Company had cash and cash equivalents of $183.9 million at May 26, 2013 and $103.0 million at May 27, 2012 , of which $166.4 million at May 26, 2013 and $88.4 million at May 27, 2012 was held in foreign countries. The Company makes an assertion regarding the amount of foreign earnings intended for permanent reinvestment, with the balance available to be repatriated to the U.S. The foreign earnings are considered to be indefinitely reinvested and accordingly, no United States federal income taxes have

29

been provided thereon. We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that the Company considers to be reinvested indefinitely. However, in the unusual event that additional foreign funds are needed in the United States, the Company has the ability to repatriate additional funds. The repatriation could result in an adjustment to the deferred tax liability after considering available foreign tax credits and other tax attributes. It is not practicable to estimate the amount of U.S. income taxes that would be incurred in the event that we were to repatriate the cumulative earnings of non-U.S. affiliates and associated companies.
We estimate our capital expenditures in fiscal 2014 to be approximately $650 million. We intend to refinance the $500 million in senior debt due in April 2014.
Management believes that existing cash balances, cash flows from operations, existing credit facilities, and access to capital markets will provide sufficient liquidity to meet our working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months.
OFF-BALANCE SHEET ARRANGEMENTS
We use off-balance sheet arrangements (e.g., leases accounted for as operating leases) where sound business principles warrant their use. We also periodically enter into guarantees and other similar arrangements as part of transactions in the ordinary course of business. These are described further in “ Obligations and Commitments ,” below.
Variable Interest Entities Not Consolidated
We have variable interests in certain 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 50.0% 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 consolidated balance sheets, based upon the equity method of accounting. The balance of our investment was $15.2 million and $14.8 million at May 26, 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 $30.4 million and term borrowings from banks of $43.9 million as of May 26, 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 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.
OBLIGATIONS AND COMMITMENTS
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments under contracts such as lease agreements, debt agreements, and unconditional purchase obligations (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or minimum prices, such as "take-or-pay" contracts). The unconditional purchase obligation arrangements are entered into in our normal course of business in order to ensure adequate levels of sourced product are available. Of these items, debt and capital lease obligations, which totaled $9.30 billion as of May 26, 2013 , were recognized as liabilities in our consolidated balance sheet. Operating lease obligations and unconditional purchase obligations, which totaled $ 1.52 billion as of May 26, 2013 , were not recognized as liabilities in our consolidated balance sheet, in accordance with generally accepted accounting principles.

30

A summary of our contractual obligations as of May 26, 2013 was as follows:
 
Payments Due by Period
(in millions)
Contractual Obligations
Total
 
Less than
1 Year
 
1-3 Years
 
3-5 Years
 
After 5
Years
Long-term debt
$
9,223.9

 
$
500.6

 
$
1,078.4

 
$
2,660.2

 
$
4,984.7

Capital lease obligations
76.6

 
8.8

 
14.2

 
11.1

 
42.5

Operating lease obligations
477.8

 
93.0

 
150.2

 
103.0

 
131.6

Purchase obligations 1
1,042.0

 
844.6

 
166.0

 
7.1

 
24.3

Total
$
10,820.3

 
$
1,447.0

 
$
1,408.8

 
$
2,781.4

 
$
5,183.1

1 Amount includes open purchase orders of our recently acquired Ralcorp business, some of which may be cancellable.
We are also contractually obligated to pay interest on our long-term debt and capital lease obligations. The weighted average coupon interest rate of the long-term debt obligations outstanding as of May 26, 2013 was approximately 4.3%.
The purchase obligations noted in the table above do not reflect $832.0 million of open purchase orders or $493.5 million of agreements for goods and services, some of which are not legally binding. These amounts exclude the open purchase orders from Ralcorp that are included in the table above. These purchase orders and agreements are generally settleable in the ordinary course of business in less than one year.
The operating lease obligations noted in the table above have not been reduced by non-cancellable sublease rentals of $35.7 million.
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. 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 May 26, 2013 , the price at which Ochoa had the right to put its equity interest to us was $37.7 million . This amount, which is presented within other liabilities in our consolidated balance sheet, is not included in the "Contractual Obligations" table above as the payment is contingent upon the exercise of the put option by Ochoa, and the eventual occurrence and timing of such exercise is uncertain.
As part of our ongoing operations, we also enter into arrangements that obligate us to make future cash payments only upon the occurrence of a future event (e.g., guarantees of debt or lease payments of a third party should the third party be unable to perform). In accordance with generally accepted accounting principles, the following commercial commitments are not recognized as liabilities in our consolidated balance sheet. A summary of our commitments, including commitments associated with equity method investments, as of May 26, 2013 was as follows:
 
Amount of Commitment Expiration Per Period
(in millions)
Other Commercial Commitments
Total
 
Less than
1 Year
 
1-3 Years
 
3-5 Years
 
After 5
Years
Guarantees
$
69.4

 
$
45.5

 
$
10.9

 
$
6.5

 
$
6.5

Standby Repurchase Obligations
5.3

 
1.4

 
1.1

 
0.9

 
1.9

Other commitments
5.8

 
5.8

 
—

 
—

 
—

Total
$
80.5

 
$
52.7

 
$
12.0

 
$
7.4

 
$
8.4

In certain limited situations, we will guarantee an obligation of an unconsolidated entity. 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 three years and the maximum amount of future payments we have guaranteed was $8.1 million as of May 26, 2013 . We have not established a liability for the fresh beef and pork divestiture-related guarantees, as we have determined that the likelihood of our required performance under the guarantees is remote.

31

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 May 26, 2013 , the amount of supplier loans effectively guaranteed by us was $40.1 million, included in the table above. 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.  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 exercised our option to purchase the Secured Loan from the lender for $40.8 million, thereby assuming first-priority secured rights to the underlying collateral for the amount of the Secured Loan, and cancelling our guarantee. The onion supplier filed for bankruptcy on April 12, 2012 (during the fourth quarter of fiscal 2012). The Secured Loan was classified as other assets at the end of fiscal 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 the collateral to its 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 May 26, 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.
The obligations and commitments tables above do not include any reserves for uncertainties in income taxes, as we are unable to reasonably estimate the ultimate amount or timing of settlement of our reserves for income taxes. The liability for gross unrecognized tax benefits at May 26, 2013 was $100.0 million . The net amount of unrecognized tax benefits at May 26, 2013 , that, if recognized, would impact our effective tax rate was $61.8 million . Recognition of these tax benefits would have a favorable impact on our effective tax rate.
CRITICAL ACCOUNTING ESTIMATES
The process of preparing financial statements requires the use of estimates on the part of management. The estimates used by management are based on our historical experiences combined with management’s understanding of current facts and circumstances. Certain of our accounting estimates are considered critical as they are both important to the portrayal of our financial condition and results and require significant or complex judgment on the part of management. The following is a summary of certain accounting estimates considered critical by management.
Our Audit/Finance Committee has reviewed management’s development, selection, and disclosure of the critical accounting estimates.
Marketing Costs —We incur certain costs to promote our products through marketing programs, which include advertising, customer incentives, and consumer incentives. We recognize the cost of each of these types of marketing activities as incurred in accordance with generally accepted accounting principles. The judgment required in determining marketing costs can be significant. For volume-based incentives provided to customers, management must continually assess the likelihood of the customer achieving the specified targets. Similarly, for consumer coupons, management must estimate the level at which coupons will be redeemed by consumers in the future. Estimates made by management in accounting for marketing costs are based primarily on our historical experience with marketing programs with consideration given to current circumstances and industry trends. As these factors change, management’s estimates could change and we could recognize different amounts of marketing costs over different periods of time.
We have recognized reserves of approximately $ 213.4 million for these marketing costs as of May 26, 2013 . Changes in the assumptions used in estimating the cost of any individual customer marketing program would not result in a material change in our results of operations or cash flows.
Advertising and promotion expenses totaled $ 474.0 million , $ 364.5 million , and $ 371.9 million in fiscal 2013 , 2012 , and 2011 , respectively.
Income Taxes —Our income tax expense is based on our income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our income tax expense and in

32

evaluating our tax positions, including evaluating uncertainties. Management reviews tax positions at least quarterly and adjusts the balances as new information becomes available. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. Management evaluates the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These estimates of future taxable income inherently require significant judgment. Management uses historical experience and short and long-range business forecasts to develop such estimates. Further, we employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. To the extent management does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.
Further information on income taxes is provided in Note 16 “ Pre-tax Income and Income Taxes ” to the consolidated financial statements.
Environmental Liabilities —Environmental liabilities are accrued when it is probable that obligations have been incurred and the associated amounts can be reasonably estimated. Management works with independent third-party specialists in order to effectively assess our environmental liabilities. Management estimates our environmental liabilities based on evaluation of investigatory studies, extent of required clean-up, our known volumetric contribution, other potentially responsible parties, and our experience in remediating sites. Environmental liability estimates may be affected by changing governmental or other external determinations of what constitutes an environmental liability or an acceptable level of clean-up. Management’s estimate as to our potential liability is independent of any potential recovery of insurance proceeds or indemnification arrangements. Insurance companies and other indemnitors are notified of any potential claims and periodically updated as to the general status of known claims. We do not discount our environmental liabilities as the timing of the anticipated cash payments is not fixed or readily determinable. To the extent that there are changes in the evaluation factors identified above, management’s estimate of environmental liabilities may also change.
We have recognized a reserve of approximately $ 65.8 million for environmental liabilities as of May 26, 2013 . The reserve for each site is determined based on an assessment of the most likely required remedy and a related estimate of the costs required to effect such remedy. Historically, the underlying assumptions utilized in estimating this reserve have been appropriate as actual payments have neither differed materially from the previously estimated reserve balances, nor have significant adjustments to this reserve balance been necessary.
Employment-Related Benefits —We incur certain employment-related expenses associated with pensions, postretirement health care benefits, and workers’ compensation. In order to measure the annual expense associated with these employment-related benefits, management must make a variety of estimates including, but not limited to, discount rates used to measure the present value of certain liabilities, assumed rates of return on assets set aside to fund these expenses, compensation increases, employee turnover rates, anticipated mortality rates, anticipated health care costs, and employee accidents incurred but not yet reported to us. The estimates used by management are based on our historical experience as well as current facts and circumstances. We use third-party specialists to assist management in appropriately measuring the expense associated with these employment-related benefits. Different estimates used by management could result in us recognizing different amounts of expense over different periods of time. We had recognized a pension liability of $ 480.8 million and $ 565.6 million , a postretirement liability of $ 302.7 million and $ 282.6 million , and a workers’ compensation liability of $ 105.1 million and $ 76.3 million , as of the end of fiscal 2013 and 2012 , respectively. We also had recognized a pension asset of $ 6.6 million and $ 3.9 million as of the end of fiscal 2013 and 2012 , respectively, as certain individual plans of the Company had a positive funded status.
We recognize cumulative changes in the fair value of pension plan assets and net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plan’s projected benefit obligation (“the corridor”) in current period expense annually as of our measurement date, which is our fiscal year-end, or when measurement is required otherwise under generally accepted accounting principles.
We recognized pension expense from Company plans of $23.5 million, $421.8 million, and $54.0 million in fiscal years 2013 , 2012 , and 2011 , respectively. Such amounts reflect the year-end write-off of actuarial losses in excess of 10% of our pension liability. This also reflected expected returns on plan assets of $216.4 million, $196.0 million, and $168.0 million in fiscal years 2013 , 2012 , and 2011 , respectively. We contributed $19.8 million, $326.4 million, and $129.4 million to our pension plans in fiscal years 2013 , 2012 , and 2011 , respectively. We anticipate contributing approximately $19.1 million to our pension plans in fiscal 2014.
One significant assumption for pension plan accounting is the discount rate. We select a discount rate each year (as of our fiscal year-end measurement date) for our plans based upon a hypothetical bond portfolio for which the cash flows from coupons and maturities match the year-by-year projected benefit cash flows for our pension plans. The hypothetical bond portfolio is

33

comprised of high-quality fixed income debt instruments (usually Moody’s Aa) available at the measurement date. Based on this information, the discount rate selected by us for determination of pension expense was 4.5% for fiscal 2013 , 5.3% for fiscal 2012 , and 5.8% for fiscal 2011 . We selected a discount rate of 4.05% for determination of pension expense for fiscal 2014 . A 25 basis point increase in our discount rate assumption as of the end of fiscal 2013 would have resulted in a decrease of $3.6 million in our pension expense for fiscal 2013 . A 25 basis point decrease in our discount rate assumption as of the end of fiscal 2013 would have resulted in an increase of $26.2 million in our pension expense for fiscal 2013 . For our year-end pension obligation determination, we selected discount rates of 4.05% and 4.5% for fiscal years 2013 and 2012 , respectively.
Another significant assumption used to account for our pension plans is the expected long-term rate of return on plan assets. In developing the assumed long-term rate of return on plan assets for determining pension expense, we consider long-term historical returns (arithmetic average) of the plan’s investments, the asset allocation among types of investments, estimated long-term returns by investment type from external sources, and the current economic environment. Based on this information, we selected 7.75% for the long-term rate of return on plan assets for determining our fiscal 2013 pension expense. A 25 basis point increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2013 would decrease/increase annual pension expense for our pension plans by $6.7 million. We selected an expected rate of return on plan assets of 7.75% to be used to determine our pension expense for fiscal 2014 . A 25 basis point increase/decrease in our expected long-term rate of return assumption as of the beginning of fiscal 2014 would decrease/increase annual pension expense for our pension plans by $8.2 million.
The rate of compensation increase is another significant assumption used in the development of accounting information for pension plans. We determine this assumption based on our long-term plans for compensation increases and current economic conditions. Based on this information, we selected 4.25% for fiscal years 2013 and 2012 as the rate of compensation increase for determining our year-end pension obligation. We selected 4.25% for the rate of compensation increase for determination of pension expense for each of fiscal years 2013 , 2012 , and 2011 . A 25 basis point increase in our rate of compensation increase assumption as of the beginning of fiscal 2013 would increase pension expense for our pension plans by $0.9 million for the year. A 25 basis point decrease in our rate of compensation increase assumption as of the beginning of fiscal 2013 would decrease pension expense for our pension plans by $0.8 million for the year. We selected a rate of 4.25% for the rate of compensation increase to be used to determine our pension expense for fiscal 2014 . A 25 basis point increase/decrease in our rate of compensation increase assumption as of the beginning of fiscal 2014 would increase/decrease pension expense for our pension plans by $0.9 million for the year.
We also provide certain postretirement health care benefits. We recognized postretirement benefit expense of $8.8 million, $7.8 million, and $11.8 million in fiscal 2013 , 2012 , and 2011 , respectively. We reflected liabilities of $302.7 million and $282.6 million in our balance sheets as of May 26, 2013 and May 27, 2012 , respectively. We anticipate contributing approximately $26.0 million to our postretirement health care plans in fiscal 2014 .
The postretirement benefit expense and obligation are also dependent on our assumptions used for the actuarially determined amounts. These assumptions include discount rates (discussed above), health care cost trend rates, inflation rates, retirement rates, mortality rates, and other factors. The health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends. Assumed inflation rates are based on an evaluation of external market indicators. Retirement and mortality rates are based primarily on actual plan experience. The discount rate we selected for determination of postretirement expense was 3.9% for fiscal 2013 , 4.3% for fiscal 2012 , and 5.4% for fiscal 2011 . We have selected a weighted-average discount rate of 3.35% for determination of postretirement expense for fiscal 2014 . A 25 basis point increase/decrease in our discount rate assumption as of the beginning of fiscal 2013 would not have resulted in a material change to postretirement expense for our plans. We have assumed the initial year increase in cost of health care to be 9.0%, with the trend rate decreasing to 5.0% by 2022. A one percentage point change in the assumed health care cost trend rate would have the following effects:
($ in millions)
 
One  Percent
Increase
 
One  Percent
Decrease
Effect on total service and interest cost
 
$
0.7

 
$
(0.6
)
Effect on postretirement benefit obligation
 
20.2

 
(18.0
)
We provide workers’ compensation benefits to our employees. The measurement of the liability for our cost of providing these benefits is largely based upon actuarial analysis of costs. One significant assumption we make is the discount rate used to calculate the present value of our obligation. The weighted-average discount rate used at May 26, 2013 was 2.44%. A 25 basis point increase/decrease in the discount rate assumption would not have a material impact on workers’ compensation expense.
Business Combinations, Impairment of Long-Lived Assets (including property, plant and equipment), Identifiable Intangible Assets, and Goodwill —We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any

34

excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of significant acquisitions we normally obtain the assistance of third-party valuation specialists in estimating fair values of tangible and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants. While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.
Determining the useful lives of intangible assets also requires management judgment. Certain brand intangibles are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands, while other acquired intangible assets (e.g. customer relationships) are expected to have determinable useful lives. Our estimates of the useful lives of determinable-lived intangibles are primarily based upon historical experience, the competitive and macroeconomic environment, and our operating plans. The costs of determinable-lived intangibles are amortized to expense over their estimated life.
We reduce the carrying amounts of long-lived assets, identifiable intangible assets, and goodwill to their fair values when the fair value of such assets is determined to be less than their carrying amounts (i.e., assets are deemed to be impaired). Fair value is typically estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to be generated by the particular asset being tested for impairment as well as to select a discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. Estimating future cash flows requires significant judgment by management in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different impairment amounts (or none at all) for long-lived assets and identifiable intangible assets.
In the third quarter of fiscal 2013, in conjunction with management's annual review of intangible assets, we adopted new guidance for testing intangibles for impairment (see Note 1 " Summary of Significant Accounting Policies " to the consolidated financial statements). In assessing other intangible assets not subject to amortization for impairment, we have the option to perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of such an intangible asset is less than its carrying amount. If we determine that it is not more likely than not that the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform any additional tests for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment, then we are required to perform a quantitative impairment test that involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
If we determine to perform a quantitative impairment test, we utilize a “relief from royalty” methodology in evaluating impairment of our indefinite lived brands/trademarks. The methodology determines the fair value of each brand through use of a discounted cash flow model that incorporates an estimated “royalty rate” we would be able to charge a third party for the use of the particular brand. When determining the future cash flow estimates, we must estimate future net sales and a fair market royalty rate for each applicable brand and an appropriate discount rate to measure the present value of the anticipated cash flows. Estimating future net sales requires significant judgment by management in such areas as future economic conditions, product pricing, and consumer trends. In determining an appropriate discount rate to apply to the estimated future cash flows, we consider the current interest rate environment and our estimated cost of capital. Except in the case of recently acquired identifiable intangible assets, as the calculated fair value of our other identifiable intangible assets generally significantly exceeds the carrying value of these assets, a one percentage point increase in the discount rate assumptions used to estimate the fair values of our other identifiable intangible assets would not result in a material impairment charge.
In fiscal 2013, we elected to perform a quantitative impairment test for indefinite lived intangibles acquired prior to the third quarter of fiscal 2012. The results of the quantitative test did not result in any impairment of intangibles because the fair values exceeded their respective carrying values.
For indefinite lived intangible assets acquired subsequent to the second quarter of fiscal 2012, a qualitative impairment test was performed which included an assessment, in light of current events and circumstances, of the assumptions and inputs used in determining the initial intangible asset values. The results of the qualitative test did not result in any impairment.
Goodwill is tested annually for impairment of value and whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining

35

cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.
In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test
Under the qualitative assessment, various events and circumstances that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). Furthermore, management considers the results of the most recent two-step quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital between the current and prior years for each reporting unit.
Under the two-step quantitative impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. Fair value is typically estimated using a discounted cash flow analysis, which requires us to estimate the future cash flows anticipated to be generated by the particular asset being tested for impairment as well as to select a discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. Estimating future cash flows requires significant judgment by management in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows could produce different impairment amounts (or none at all) for goodwill.
In fiscal 2013, we elected to perform a quantitative impairment test for goodwill. The results of the quantitative test did not result in any impairment of goodwill because the fair values of each of our reporting units exceeded their respective carrying values.




36

FORWARD-LOOKING STATEMENTS
This report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current views and assumptions of future events and financial performance and are subject to uncertainty and changes in circumstances. We undertake no responsibility for updating these statements. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements, including those set forth in this report. These factors include, among other things: our ability to realize the synergies and benefits contemplated by the acquisition of Ralcorp and our ability to promptly and effectively integrate the business of Ralcorp; the timing to consummate the potential joint venture combining the flour milling businesses of ConAgra Foods, Cargill, and CHS and our ability to realize synergies and benefits contemplated by the potential joint venture; availability and prices of raw materials, including any negative effects caused by inflation or adverse weather conditions; the effectiveness of our product pricing, including any pricing actions and promotional changes; future economic circumstances; industry conditions; our ability to execute our operating and restructuring plans; the success of our innovation, marketing, including increased marketing investments, and cost-saving initiatives; the competitive environment and related market conditions; operating efficiencies; the ultimate impact of any product recalls; access to capital; actions of governments and regulatory factors affecting our businesses, including the Patient Protection and Affordable Care Act; the amount and timing of repurchases of our common stock and debt, if any; and other risks described in our reports filed with the Securities and Exchange Commission. We caution readers not to place undue reliance on any forward-looking statements included in this report, which speak only as of the date of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks affecting us during fiscal 2013 and 2012 were exposures to price fluctuations of commodity and energy inputs, interest rates, and foreign currencies. These fluctuations impacted all reporting segments.
Commodity Market Risk
We purchase commodity inputs such as wheat, corn, oats, soybean meal, soybean oil, meat, dairy products, sugar, natural gas, electricity, and packaging materials to be used in our operations. These commodities are subject to price fluctuations that may create price risk. We enter into commodity hedges to manage this price risk using physical forward contracts or derivative instruments. We have policies governing the hedging instruments our businesses may use. These policies include limiting the dollar risk exposure for each of our businesses. We also monitor the amount of associated counter-party credit risk for all non-exchange-traded transactions. To a lesser extent, we engage in wheat trading activities in the milling operations of our Commercial Foods segment. These trading activities are limited in terms of maximum dollar exposure, as measured by a dollars-at-risk methodology and monitored to ensure compliance.
Interest Rate Risk
From time to time, we use interest rate swaps to manage the effect of interest rate changes on the fair value of our existing debt as well as the forecasted interest payments for the anticipated issuance of debt. During fiscal 2010, we entered into interest rate swap contracts used to effectively convert the interest rates of certain outstanding debt instruments from fixed to variable. During fiscal 2011, we terminated these interest rate swap contracts. As a result of this termination, we received proceeds of $31.5 million. The cumulative adjustment to the fair value of the debt instruments that were hedged, $34.8 million, was 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 May 26, 2013 , the unamortized amount was $8.5 million.
During fiscal 2011, we 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). The net notional amount of these interest rate derivatives at May 26, 2013 was $500.0 million. The maximum potential loss associated with these interest rate swap contracts from a hypothetical decrease of 1% in interest rates is approximately $133.4 million. Any such gain or loss, to the extent the hedge was effective, would be deferred in accumulated other comprehensive income and recognized in earnings over the life of the forecasted interest payments associated with the anticipated debt refinancing. At May 26, 2013 , we had recognized an unrealized loss of $104.5 million in accumulated other comprehensive income for these derivative instruments.
As of May 26, 2013 and May 27, 2012, the fair value of our long term debt (including current installments) was estimated at $10.2 billion and $3.5 billion, respectively, based on current market rates provided primarily by outside investment advisors. As of May 26, 2013 and May 27, 2012, a one percentage point increase in interest rates would decrease the fair value of our long

37
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term debt by approximately $630.3 million and $210.8 million, respectively, while a 1% decrease in interest rates would increase the fair value of our long term debt by approximately $706.5 million and $234.6 million, respectively.
Foreign Currency Risk
In order to reduce exposures for our processing activities related to changes in foreign currency exchange rates, we may enter into forward exchange or option contracts for transactions denominated in a currency other than the functional currency for certain of our operations. This activity primarily relates to economically hedging against foreign currency risk in purchasing inventory and capital equipment, sales of finished goods, and future settlement of foreign denominated assets and liabilities.
Value-at-Risk (VaR)
We employ various tools to monitor our derivative risk, including value-at-risk ("VaR") models. We perform simulations using historical data to estimate potential losses in the fair value of current derivative positions. We use price and volatility information for the prior 90 days in the calculation of VaR that is used to monitor our daily risk. The purpose of this measurement is to provide a single view of the potential risk of loss associated with derivative positions at a given point in time based on recent changes in market prices. Our model uses a 95% confidence level. Accordingly, in any given one day time period, losses greater than the amounts included in the table below are expected to occur only 5% of the time. We include commodity swaps, futures, and options and foreign exchange forwards, swaps, and options in this calculation. The following table provides an overview of our average daily VaR for our energy, agriculture, and other commodities for fiscal years 2013 and 2012, as well as the average daily foreign exchange VaR. Other commodities below consist primarily of forward and option contracts for a commodities index, the market price of which is closely correlated with that of our commodity inputs. This index includes items such as agricultural commodities, energy commodities, and metals. The other commodities category below may also include items such as packaging and/or livestock.
 
Fair Value Impact
In Millions
Average
During the Fiscal Year Ended May 26, 2013
 
Average
During the Fiscal Year Ended May 27, 2012
Processing Activities
 
 
 
 Energy commodities
$
2.1

 
$
2.3

Agriculture commodities
$
3.5

 
$
3.7

Other commodities
$
4.7

 
$
2.2

Foreign exchange
$
1.3

 
$
1.4

Trading Activities
 
 
 
         Agriculture commodities
$
0.3

 
$
0.2


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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ConAgra Foods, Inc. and Subsidiaries
Consolidated Statements of Earnings
(in millions, except per share amounts)

 
For the Fiscal Years Ended May
 
2013
 
2012
 
2011
Net sales
$
15,491.4

 
$
13,367.9

 
$
12,386.1

Costs and expenses:
 
 
 
 
 
Cost of goods sold
11,931.4

 
10,555.1

 
9,483.5

Selling, general and administrative expenses
2,135.6

 
1,983.6

 
1,499.0

Interest expense, net
275.6

 
204.0

 
177.5

Income from continuing operations before income taxes and equity method investment earnings
1,148.8

 
625.2

 
1,226.1

Income tax expense
400.2

 
195.8

 
421.6

Equity method investment earnings
37.5

 
44.9

 
26.4

Income from continuing operations
786.1

 
474.3

 
830.9

Income (loss) from discontinued operations, net of tax
—

 
0.1

 
(11.5
)
Net income
$
786.1

 
$
474.4

 
$
819.4

Less: Net income attributable to noncontrolling interests
12.2

 
6.5

 
1.8

Net income attributable to ConAgra Foods, Inc.
$
773.9

 
$
467.9

 
$
817.6

Earnings per share — basic
 
 
 
 
 
Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders
$
1.88

 
$
1.13

 
$
1.92

Loss from discontinued operations attributable to ConAgra Foods, Inc. common stockholders
—

 
—

 
(0.02
)
Net income attributable to ConAgra Foods, Inc. common stockholders
$
1.88

 
$
1.13

 
$
1.90

Earnings per share — diluted
 
 
 
 
 
Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders
$
1.85

 
$
1.12

 
$
1.90

Loss from discontinued operations attributable to ConAgra Foods, Inc. common stockholders
—

 
—

 
(0.02
)
Net income attributable to ConAgra Foods, Inc. common stockholders
$
1.85

 
$
1.12

 
$
1.88

The accompanying Notes are an integral part of the consolidated financial statements.


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ConAgra Foods, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in millions)

 
For the Fiscal Years Ended May
 
2013
 
2012
 
2011
Net income
$
786.1

 
$
474.4

 
$
819.4

Other comprehensive income (loss):
 
 
 
 
 
Net derivative adjustment, net of tax
32.8

 
(89.1
)
 
(7.2
)
Unrealized gains (losses) on available-for-sale securities, net of tax
0.2

 
(0.1
)
 
(0.1
)
Currency translation adjustment:
 
 
 
 
 
Unrealized translation gains (losses)
2.1

 
(62.4
)
 
47.3

Reclassification adjustment for losses (gains) included in net income
—

 
6.0

 
(1.6
)
Pension and postretirement healthcare liabilities, net of tax
67.2

 
(66.7
)
 
23.6

Comprehensive income
888.4

 
262.1

 
881.4

Comprehensive income attributable to noncontrolling interests
11.5

 
2.1

 
1.8

Comprehensive income attributable to ConAgra Foods, Inc.
$
876.9

 
$
260.0

 
$
879.6

The accompanying Notes are an integral part of the consolidated financial statements.



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ConAgra Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
(in millions, except share data)
 
May 26,
2013
 
May 27,
2012
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
183.9

 
$
103.0

Receivables, less allowance for doubtful accounts 0020331A1:C1A1C1of $7.6 and $5.9
1,286.2

 
924.8

Inventories
2,394.1

 
1,869.6

Prepaid expenses and other current assets
515.6

 
321.4

Total current assets
4,379.8

 
3,218.8

Property, plant and equipment
 
 
 
Land and land improvements
267.2

 
202.1

Buildings, machinery and equipment
5,722.9

 
4,729.2

Furniture, fixtures, office equipment and other
900.8

 
905.2

Construction in progress
335.6

 
159.2

 
7,226.5

 
5,995.7

Less accumulated depreciation
(3,367.3
)
 
(3,253.8
)
Property, plant and equipment, net
3,859.2

 
2,741.9

Goodwill
8,450.7

 
4,015.4

Brands, trademarks and other intangibles, net
3,422.1

 
1,191.5

Other assets
293.5

 
274.3

 
$
20,405.3

 
$
11,441.9

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Notes payable
$
185.0

 
$
40.0

Current installments of long-term debt
517.9

 
38.1

Accounts payable
1,501.6

 
1,190.3

Accrued payroll
287.2

 
177.2

Other accrued liabilities
909.6

 
779.6

Total current liabilities
3,401.3

 
2,225.2

Senior long-term debt, excluding current installments
8,691.0

 
2,662.7

Subordinated debt
195.9

 
195.9

Other noncurrent liabilities
2,754.1

 
1,822.1

Total liabilities
15,042.3

 
6,905.9

Commitments and contingencies (Note 18)

 

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
1,006.2

 
901.5

Retained earnings
5,129.5

 
4,765.1

Accumulated other comprehensive loss
(196.1
)
 
(299.1
)
Less treasury stock, at cost, 0020331A1:C1A1C1148,442,086 and 160,294,748 common shares
(3,514.9
)
 
(3,767.7
)
Total ConAgra Foods, Inc. common stockholders' equity
5,264.4

 
4,439.5

Noncontrolling interests
98.6

 
96.5

Total stockholders' equity
5,363.0

 
4,536.0

 
$
20,405.3

 
$
11,441.9

The accompanying Notes are an integral part of the consolidated financial statements.

41
Table of Contents

ConAgra Foods, Inc. and Subsidiaries
Consolidated Statements of Common Stockholders' Equity
(in millions, except share data)
 
 
ConAgra Foods, Inc. Stockholders’ Equity
 
 
 
 
Common
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Noncontrolling
Interests
 
Total
Equity
Balance at May 30, 2010
 
567.9

 
$
2,839.7

 
$
897.5

 
$
4,253.2

 
$
(153.2
)
 
$
(2,945.1
)
 
$
5.0

 
$
4,897.1

Stock option and incentive plans
 


 


 
3.5

 
(0.4
)
 
 
 
101.9

 
 
 
105.0

Currency translation adjustment, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
45.7

 
 
 
 
 
45.7

Repurchase of common shares
 
 
 
 
 
 
 
 
 
 
 
(825.0
)
 
 
 
(825.0
)
Unrealized loss on securities
 
 
 
 
 
 
 
 
 
(0.1
)
 
 
 
 
 
(0.1
)
Derivative adjustment, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
(7.2
)
 
 
 
 
 
(7.2
)
Activities of noncontrolling interests
 
 
 
 
 
(1.9
)
 
 
 
 
 
 
 
2.0

 
0.1

Pension and postretirement healthcare benefits
 
 
 
 
 
 
 
 
 
23.6

 
 
 
 
 
23.6

Dividends declared on common stock; $0.89 per share
 
 
 
 
 
 
 
(380.1
)
 
 
 
 
 
 
 
(380.1
)
Net income attributable to ConAgra Foods, Inc.
 
 
 
 
 
 
 
817.6

 
 
 
 
 
 
 
817.6

Balance at May 29, 2011
 
567.9

 
2,839.7

 
899.1

 
4,690.3

 
(91.2
)
 
(3,668.2
)
 
7.0

 
4,676.7

Stock option and incentive plans
 
 
 
 
 
3.9

 
(1.3
)
 
 
 
252.9

 
 
 
255.5

Currency translation adjustment, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
(52.0
)
 
 
 
(4.4
)
 
(56.4
)
Repurchase of common shares
 
 
 
 
 
 
 
 
 
 
 
(352.4
)
 
 
 
(352.4
)
Unrealized loss on securities
 
 
 
 
 
 
 
 
 
(0.1
)
 
 
 
 
 
(0.1
)
Derivative adjustment, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
(89.1
)
 
 
 
 
 
(89.1
)
Acquisition of majority interest in ATFL
 
 
 
 
 
 
 
 
 
 
 
 
 
92.6

 
92.6

Activities of noncontrolling interests
 
 
 
 
 
(1.5
)
 
 
 
 
 
 
 
1.3

 
(0.2
)
Pension and postretirement healthcare benefits
 
 
 
 
 
 
 
 
 
(66.7
)
 
 
 
 
 
(66.7
)
Dividends declared on common stock; $0.95 per share
 
 
 
 
 
 
 
(391.8
)
 
 
 
 
 
 
 
(391.8
)
Net income attributable to ConAgra Foods, Inc.
 
 
 
 
 
 
 
467.9

 
 
 
 
 
 
 
467.9

Balance at May 27, 2012
 
567.9

 
2,839.7

 
901.5

 
4,765.1

 
(299.1
)
 
(3,767.7
)
 
96.5

 
4,536.0

Stock option and incentive plans
 
 
 
 
 
56.2

 
(2.2
)
 
 
 
278.7

 
 
 
332.7

Currency translation adjustment
 
 
 
 
 
 
 
 
 
2.8

 
 
 
(0.7
)
 
2.1

Issuance of treasury shares
 
 
 
 
 
50.1

 
 
 
 
 
219.1

 
 
 
269.2

Repurchase of common shares
 
 
 
 
 
 
 
 
 
 
 
(245.0
)
 
 
 
(245.0
)
Unrealized gain on securities
 
 
 
 
 
 
 
 
 
0.2

 
 
 
 
 
0.2

Derivative adjustment, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
32.8

 
 
 
 
 
32.8

Activities of noncontrolling interests
 
 
 
 
 
(1.6
)
 
 
 
 
 
 
 
2.8

 
1.2

Pension and postretirement healthcare benefits
 
 
 
 
 
 
 
 
 
67.2

 
 
 
 
 
67.2

Dividends declared on common stock; $0.99 per share
 
 
 
 
 
 
 
(407.3
)
 
 
 
 
 
 
 
(407.3
)
Net income attributable to ConAgra Foods, Inc.
 
 
 
 
 
 
 
773.9

 
 
 
 
 
 
 
773.9

Balance at May 26, 2013
 
567.9

 
$
2,839.7

 
$
1,006.2

 
$
5,129.5

 
$
(196.1
)
 
$
(3,514.9
)
 
$
98.6

 
$
5,363.0

The accompanying Notes are an integral part of the consolidated financial statements.

42
Table of Contents

ConAgra Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in millions)
 
For the Fiscal Years Ended May
 
2013
 
2012
 
2011
Cash flows from operating activities:
 
 
 
 
 
Net income
$
786.1

 
$
474.4

 
$
819.4

Income (loss) from discontinued operations
—

 
0.1

 
(11.5
)
Income from continuing operations
786.1

 
474.3

 
830.9

Adjustments to reconcile income from continuing operations to net cash flows from operating activities:
 
 
 
 
 
Depreciation and amortization
445.2

 
371.8

 
360.9

Asset impairment charges
20.2

 
8.6

 
19.8

Insurance recoveries recognized related to Garner accident
—

 
—

 
(109.4
)
Receipts from insurance carriers related to Garner accident
—

 
—

 
64.5

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

 
(58.7
)
 
—

Earnings of affiliates in excess of distributions
(11.1
)
 
(17.6
)
 
(13.1
)
Proceeds from settlement of interest rate swaps
—

 
—

 
31.5

Share-based payments expense
67.4

 
41.8

 
44.8

Receipt of interest on payment-in-kind notes earned in prior years
—

 
—

 
102.8

Gain on collection of payment-in-kind notes
—

 
—

 
(25.0
)
Contributions to pension plans
(19.8
)
 
(326.4
)
 
(129.4
)
Pension expense
23.5

 
421.8

 
54.0

Other items
2.5

 
5.3

 
(36.3
)
Change in operating assets and liabilities excluding effects of business acquisitions and dispositions:
 
 
 
 
 
Accounts receivable
(73.1
)
 
(4.3
)
 
2.8

Inventory
21.1

 
14.9

 
(190.7
)
Deferred income taxes and income taxes payable, net
124.7

 
(6.8
)
 
263.8

Prepaid expenses and other current assets
(22.0
)
 
5.5

 
7.9

Accounts payable
6.9

 
82.1

 
185.0

Accrued payroll
109.9

 
48.4

 
(139.2
)
Other accrued liabilities
(69.3
)
 
(11.0
)
 
14.4

Net cash flows from operating activities — continuing operations
1,412.2

 
1,049.7

 
1,340.0

Net cash flows from operating activities — discontinued operations
—

 
2.3

 
12.3

Net cash flows from operating activities
1,412.2

 
1,052.0

 
1,352.3

Cash flows from investing activities:
 
 
 
 
 
Additions to property, plant and equipment
(458.7
)
 
(336.7
)
 
(466.2
)
Sale of property, plant and equipment
18.0

 
9.7

 
18.9

Receipts from insurance carriers related to Garner accident
—

 
—

 
18.0

Purchase of businesses, net of cash acquired
(5,018.8
)
 
(635.2
)
 
(131.1
)
Purchase of intangible assets
(4.8
)
 
(62.5
)
 
(18.0
)
Purchase of secured loan
—

 
(39.6
)
 
—

Proceeds from collection of payment-in-kind notes
—

 
—

 
412.5

Investment in equity method investee
(1.5
)
 
—

 
—

Net cash flows from investing activities - continuing operations
(5,465.8
)
 
(1,064.3
)
 
(165.9
)
Net cash flows from investing activities - discontinued operations
—

 
—

 
254.8

Net cash flows from investing activities
(5,465.8
)
 
(1,064.3
)
 
88.9

Cash flows from financing activities:
 
 
 
 
 
Net short-term borrowings
145.0

 
40.0

 
—

Issuance of long-term debt
6,217.7

 
—

 
—

Debt issuance costs
(56.6
)
 
—

 
—

Repayment of long-term debt
(2,074.0
)
 
(363.6
)
 
(294.3
)
Issuance of ConAgra Foods, Inc. common shares
269.2

 
—

 
—

Repurchase of ConAgra Foods, Inc. common shares
(245.0
)
 
(352.4
)
 
(825.0
)
Cash dividends paid
(400.7
)
 
(388.6
)
 
(374.5
)
Exercise of stock options and issuance of other stock awards
274.4

 
213.2

 
59.7

Other items
3.0

 
1.8

 
2.1

Net cash flows from financing activities - continuing operations
4,133.0

 
(849.6
)
 
(1,432.0
)
Net cash flows from financing activities - discontinued operations
—

 
—

 
(0.1
)
Net cash flows from financing activities
4,133.0

 
(849.6
)
 
(1,432.1
)
Effect of exchange rate changes on cash and cash equivalents
1.5

 
(7.5
)
 
10.1

Net change in cash and cash equivalents
80.9

 
(869.4
)
 
19.2

Cash and cash equivalents at beginning of year
103.0

 
972.4

 
953.2

Cash and cash equivalents at end of year
$
183.9

 
$
103.0

 
$
972.4

The accompanying Notes are an integral part of the consolidated financial statements.

43
Table of Contents

Notes to Consolidated Financial Statements
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year — The fiscal year of ConAgra Foods, Inc. (“ConAgra Foods”, “Company”, “we”, “us”, or “our”) ends the last Sunday in May. The fiscal years for the consolidated financial statements presented consist of 52 -week periods for fiscal years 2013, 2012, and 2011.
Basis of Consolidation — The 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 consolidated financial statements from the date such determination is made. All significant intercompany investments, accounts, and transactions have been eliminated.
Investments in Unconsolidated Affiliates — The investments in, and the operating results of, 50% -or-less-owned entities not required to be consolidated are included in the consolidated financial statements on the basis of the equity method of accounting or the cost method of accounting, depending on specific facts and circumstances.
We review our investments in unconsolidated affiliates for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investments may not be fully recoverable. Evidence of a loss in value that is other than temporary includes, but is not limited to, the absence of an ability to recover the carrying amount of the investment, the inability of the investee to sustain an earnings capacity which would justify the carrying amount of the investment, or, where applicable, estimated sales proceeds which are insufficient to recover the carrying amount of the investment. Management’s assessment as to whether any decline in value is other than temporary is based on our ability and intent to hold the investment and whether evidence indicating the carrying value of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Management generally considers our investments in equity method investees to be strategic long-term investments. Therefore, management completes its assessments with a long-term viewpoint. If the fair value of the investment is determined to be less than the carrying value and the decline in value is considered to be other than temporary, an appropriate write-down is recorded based on the excess of the carrying value over the best estimate of fair value of the investment.
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.
Inventories — We principally use the lower of cost (determined using the first-in, first-out method) or market for valuing inventories other than merchandisable agricultural commodities. Grain and flour inventories are principally stated at market value.
Property, Plant and Equipment — Property, plant and equipment are carried at cost. Depreciation has been calculated using the straight-line method over the estimated useful lives of the respective classes of assets as follows:
 
 
 
Land improvements
  
1 - 40 years 
Buildings
  
15 - 40 years
Machinery and equipment
  
3 - 20 years 
Furniture, fixtures, office equipment and other
  
5 - 15 years 
We review property, plant and equipment for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Recoverability of an asset considered “held-and-used” is determined by comparing the carrying amount of the asset to the undiscounted net cash flows expected to be generated from the use of the asset. If the carrying amount is greater than the undiscounted net cash flows expected to be generated by the asset, the asset’s carrying amount is reduced to its estimated fair value. An asset considered “held-for-sale” is reported at the lower of the asset’s carrying amount or fair value.
Goodwill and Other Identifiable Intangible Assets — Goodwill and other identifiable intangible assets with indefinite lives (e.g., brands or trademarks) are not amortized and are tested annually for impairment of value and whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, adverse changes in the markets in which an entity operates, increases in input costs that have negative effects on earnings and cash

44
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill and other intangible assets.
In testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50% ) that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform a quantitative impairment test, otherwise no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.
Under the goodwill qualitative assessment, various events and circumstances that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). Furthermore, management considers the results of the most recent two-step quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital between the current and prior years for each reporting unit.
Under the goodwill two-step quantitative impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. The first step of the test compares the carrying value of a reporting unit, including goodwill, with its fair value. We estimate the fair value using level 3 inputs as defined by the fair value hierarchy. Refer to Note 21 for the definition of the levels in the fair value hierarchy. The inputs used to calculate the fair value include a number of subjective factors, such as estimates of future cash flows, estimates of our future cost structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time horizon of cash flow forecasts. If the carrying value of a reporting unit exceeds its fair value, we complete the second step of the test to determine the amount of goodwill impairment loss to be recognized. In the second step, we estimate an implied fair value of the reporting unit’s goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The impairment loss is equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill.
In fiscal 2013, we elected to perform a quantitative impairment test. The results of the quantitative test did not result in any impairment of goodwill because the fair values of each of our reporting units exceeded their respective carrying values.
In fiscal 2013, new accounting guidance was issued for testing other intangibles for impairment. The guidance provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of such an intangible asset is less than its carrying amount. If we determine that it is not more likely than not that the fair value of such an intangible asset is less than its carrying amount, then we are not required to perform any additional tests for assessing intangible assets for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment, then we are required to perform a quantitative impairment test that involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
In fiscal 2013, we elected to perform a quantitative impairment test for other intangible assets not subject to amortization that were acquired prior to the third quarter of fiscal 2012. The estimates of fair value of intangible assets not subject to amortization are determined using a “relief from royalty” methodology, which is used in estimating the fair value of our brands/trademarks. Discount rate assumptions are based on an assessment of the risk inherent in the projected future cash flows generated by the respective intangible assets. Also subject to judgment are assumptions about royalty rates. The results of the quantitative test did not result in any impairment of intangible assets not subject to amortization because the fair values of each of our brands/trademarks exceeded their respective carrying values. For other intangible assets acquired subsequent to the second quarter of fiscal 2012, a qualitative impairment test was performed which included an assessment, in light of current events and circumstances, of the assumptions and inputs used in determining the initial intangible asset values. The results of the qualitative test did not result in any impairment.
Identifiable intangible assets with definite lives (e.g., licensing arrangements with contractual lives or customer relationships) are amortized over their estimated useful lives and tested for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may be impaired. Identifiable intangible assets with definite lives are evaluated for impairment using a process similar to that used in evaluating elements of property, plant and equipment. If impaired, the asset is written down to its fair value.
Fair Values of Financial Instruments — Unless otherwise specified, we believe the carrying value of financial instruments approximates their fair value.

45
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

Environmental Liabilities — Environmental liabilities are accrued when it is probable that obligations have been incurred and the associated amounts can be reasonably estimated. We use third-party specialists to assist management in appropriately measuring the obligations associated with environmental liabilities. Such liabilities are adjusted as new information develops or circumstances change. We do not discount our environmental liabilities as the timing of the anticipated cash payments is not fixed or readily determinable. Management’s estimate of our potential liability is independent of any potential recovery of insurance proceeds or indemnification arrangements. We do not reduce our environmental liabilities for potential insurance recoveries.
Employment-Related Benefits — Employment-related benefits associated with pensions, postretirement health care benefits, and workers’ compensation are expensed as such obligations are incurred. The recognition of expense is impacted by estimates made by management, such as discount rates used to value these liabilities, future health care costs, and employee accidents incurred but not yet reported. We use third-party specialists to assist management in appropriately measuring the obligations associated with employment-related benefits.
We recognize changes in the fair value of pension plan assets and net actuarial gains or losses in excess of 10% of the greater of the market-related value of plan assets or the plan’s projected benefit obligation (“the corridor”) in current period expense annually as of our measurement date, which is our fiscal year-end, or when measurement is required otherwise under generally accepted accounting principles.
Revenue Recognition — Revenue is recognized when title and risk of loss are transferred to customers upon delivery based on terms of sale and collectability is reasonably assured. Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts, trade allowances, and returns of damaged and out-of-date products. Changes in the market value of inventories of merchandisable agricultural commodities, the fair values of forward cash purchase and sales contracts, and exchange-traded futures and options contracts are recognized in earnings immediately.
Shipping and Handling — Amounts billed to customers related to shipping and handling are included in net sales. Shipping and handling costs are included in cost of goods sold.
Marketing Costs — We promote our products with advertising, consumer incentives, and trade promotions. Such programs include, but are not limited to, discounts, coupons, rebates, and volume-based incentives. Advertising costs are expensed as incurred. Consumer incentives and trade promotion activities are recorded as a reduction of revenue or as a component of cost of goods sold based on amounts estimated as being due to customers and consumers at the end of the period, based principally on historical utilization and redemption rates. Advertising and promotion expenses totaled $474.0 million , $364.5 million , and $371.9 million in fiscal 2013 , 2012 , and 2011 , respectively, and are included in selling, general and administrative expenses.
Research and Development — We incurred expenses of $93.1 million , $86.0 million , and $81.4 million for research and development activities in fiscal 2013 , 2012 , and 2011 , respectively.
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 (for amounts not in excess of the 10% “corridor”) 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 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). We reclassified $1.6 million of foreign currency translation net gains to net income due to the disposal or substantial liquidation of foreign subsidiaries in fiscal 2011.

46
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

The following is a rollforward of the balances in accumulated other comprehensive income (loss), net of tax (except for currency translation adjustment):
 
Currency
Translation
Adjustment,
Net of
Reclassification
Adjustments
 
Net
Derivative
Adjustment, Net
of  Reclassification
Adjustments
 
Unrealized
Gain (Loss) on
Available-
For-Sale
Securities, Net
of
Reclassification
Adjustments
 
Pension and
Postretirement
Adjustments
 
Accumulated
Other
Comprehensive
Income (Loss)
Balance at May 30, 2010
$
48.9

 
$
(1.0
)
 
$
(1.2
)
 
$
(199.9
)
 
$
(153.2
)
Current-period change
45.7

 
(7.2
)
 
(0.1
)
 
23.6

 
62.0

Balance at May 29, 2011
94.6

 
(8.2
)
 
(1.3
)
 
(176.3
)
 
(91.2
)
Current-period change
(52.0
)
 
(89.1
)
 
(0.1
)
 
(66.7
)
 
(207.9
)
Balance at May 27, 2012
42.6

 
(97.3
)
 
(1.4
)
 
(243.0
)
 
(299.1
)
Current-period change
2.8

 
32.8

 
0.2

 
67.2

 
103.0

Balance at May 26, 2013
$
45.4

 
$
(64.5
)
 
$
(1.2
)
 
$
(175.8
)
 
$
(196.1
)
The following details the income tax expense (benefit) on components of other comprehensive income (loss):
 
2013
 
2012
 
2011
Net derivative adjustment
$
19.3

 
$
(52.7
)
 
$
(4.2
)
Unrealized gains (losses) on available-for-sale securities
0.1

 
(0.1
)
 
(0.1
)
Pension and postretirement healthcare liabilities
42.0

 
(35.4
)
 
15.8

 
$
61.4

 
$
(88.2
)
 
$
11.5

Foreign Currency Transaction Gains and Losses — We recognized net foreign currency transaction gains (losses) from continuing operations of $(0.1) million , $(3.9) million , and $3.9 million in fiscal 2013, 2012, and 2011, respectively, in selling, general and administrative expenses.
Business Combinations — We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
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 consolidated financial statements. Actual results could differ from these estimates.
Recently Issued Accounting Standards — In February 2013, the FASB issued Accounting Standards Update 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which adds additional disclosure requirements for items reclassified out of accumulated other comprehensive income. This ASU will be effective for the first interim reporting period in fiscal 2014.



47
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

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 $1.5 billion senior unsecured Term Loan Facility with Bank of America, N.A., as administrative agent and a lender JP Morgan Chase Bank, N.A. as syndication agent and a lender and the other financial institutions party thereto (the "Term Loan Facility"), and net proceeds from the issuance of new senior notes and common stock. The Ralcorp business is reflected in two reporting segments: the Ralcorp Food Group segment 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. Changes that have occurred since initial allocation have not been retrospectively applied, as the impact on reported results would not have been material.
 
January 29,
2013
Assets acquired:
 
Cash and cash equivalents
$
320.7

Other current assets
917.4

Property, plant and equipment
1,009.0

Goodwill
4,350.5

Brands, trademarks and other intangibles
2,167.3

Other assets
27.8

Total assets acquired
$
8,792.7

Liabilities assumed:
 
Current liabilities
$
616.4

Noncurrent liabilities
3,103.5

Total liabilities assumed
$
3,719.9

Net assets acquired
$
5,072.8

As a result of the acquisition, we recognized a total of $ 4.35 billion of goodwill and $ 2.17 billion of brands, trademarks and other intangibles. Amortizable brands, trademarks and other intangibles totaled $2.03 billion . Indefinite lived brands, trademarks and other intangibles totaled $134.1 million . Of the total goodwill, $397.0 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 our consolidated financial statements from the date of acquisition and include $1.25 billion of net sales, of which $ 924.2 million are included in the Ralcorp Food Group and $ 329.9 million are included in the Ralcorp Frozen Bakery Products segments' financial results. Fiscal 2013 operating profit for Ralcorp Food Group and Ralcorp Frozen Bakery Products segments' was $ 85.4 million and $ 27.4 million , respectively.
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.

48
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

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 $32.4 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.
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 $44.7 million of the purchase price was allocated to goodwill and $80.9 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 the year acquired and the preceding year. 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.
 
For the Fiscal Years Ended May
 
2013
 
2012
 
2011
Pro forma net sales
$
18,406.0

 
$
18,364.3

 
$
12,979.1

Pro forma net income from continuing operations
$
841.9

 
$
610.9

 
$
873.6

Pro forma net income from continuing operations per share—basic
$
2.05

 
$
1.48

 
$
2.03

Pro forma net income from continuing operations per share—diluted
$
2.02

 
$
1.46

 
$
2.01


49
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

3. RESTRUCTURING ACTIVITIES
Ralcorp Related Restructuring Plan
We are incurring costs in connection with actions taken due to the ongoing integration and restructuring of the recently acquired operations of Ralcorp (the "Ralcorp Related Restructuring Plan"). The plan is expected to include steps to, among other things, improve operational effectiveness and reduce costs, integrate headquarter functions across the organization, and optimize manufacturing assets and distribution networks, as a result of which we expect to incur material charges for exit and disposal activities under generally accepted accounting principles. At the time of the acquisition of Ralcorp, we anticipated that we would need to take restructuring actions in integrating Ralcorp and since that time have been evaluating, and continue to evaluate, such actions. We are currently unable, in good faith, to make a determination of an estimate of the total amount or range of amounts for each major type of cost expected to be incurred in connection with the Ralcorp Related Restructuring Plan, an estimate of the total amount or range of amounts expected to be incurred in connection with the Ralcorp Related Restructuring Plan, or an estimate of the amount or range of amounts of the charges that will result in future cash expenditures. We are also currently unable to determine the duration of the Ralcorp Related Restructuring Plan, but expect that the Ralcorp Related Restructuring Plan will be implemented over a multi-year period.
During fiscal 2013, we recognized the following pre-tax expenses for the Ralcorp Related Restructuring Plan:
 
Corporate
 
Total
Multi-employer pension costs
$
11.2

 
$
11.2

Total cost of goods sold
11.2

 
11.2

Severance and related costs
17.2

 
17.2

Total selling, general and administrative expenses
17.2

 
17.2

Consolidated total
$
28.4

 
$
28.4

Included in the above results are $28.4 million of charges that have resulted or will result in cash outflows.
Liabilities recorded for the Ralcorp Related Restructuring Plan and changes therein for 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
May 26,
2013

Multi-employer pension costs
$
—

 
$
11.2

 
$
—

 
$
—

 
$
11.2

Severance and related costs
—

 
17.2

 
—

 
—

 
17.2

Total
$
—

 
$
28.4

 
$
—

 
$
—

 
$
28.4

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 $14.3 million . At the end of fiscal 2013, the acquisition-related restructuring costs were substantially complete.
Included in the estimates of $14.3 million of charges are $10.2 million of charges that have resulted or will result in cash outflows and $4.1 million of non-cash charges.

50
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

During fiscal 2013, we recognized the following pre-tax expenses for acquisition-related exit costs:
 
Consumer
Foods
 
Corporate
 
Total
Accelerated depreciation of fixed assets
$
(0.2
)
 
$
—

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

 
(0.2
)
Severance and related costs
4.7

 
—

 
4.7

Asset impairment
1.6

 
2.5

 
4.1

Other, net
0.9

 
—

 
0.9

Total selling, general and administrative expenses
7.2

 
2.5

 
9.7

Consolidated total
$
7.0

 
$
2.5

 
$
9.5

We recognized the following cumulative (plan inception to May 26, 2013 ) pre-tax acquisition-related exit costs in our consolidated statement of earnings:
 
Consumer
Foods
 
Corporate
 
Total
Severance and related costs
$
9.0

 
$
—

 
$
9.0

Asset impairment
1.6

 
2.5

 
4.1

Other, net
0.9

 
—

 
0.9

Total selling, general and administrative expenses
11.5

 
2.5

 
14.0

Consolidated total
$
11.5

 
$
2.5

 
$
14.0

Liabilities recorded for acquisition-related restructuring and changes therein for 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
May  26,
2013

Severance and related costs
$
4.3

 
$
6.1

 
$
(7.8
)
 
$
(1.4
)
 
$
1.2

Plan implementation costs
—

 
0.9

 
(0.6
)
 
—

 
0.3

Total
$
4.3

 
$
7.0

 
$
(8.4
)
 
$
(1.4
)
 
$
1.5

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 have incurred approximately $18.7 million of pre-tax cash and non-cash charges, primarily for severance and costs of employee relocation. At the end of fiscal 2013, the Administrative Efficiency Plan was substantially complete.
We recognized the following pre-tax expenses associated with the Administrative Efficiency Plan in the fiscal 2012 to 2013 timeframe:
 
Consumer
Foods
 
Commercial
Foods
 
Corporate
 
Total
Accelerated depreciation
$
—

 
$
—

 
$
1.5

 
$
1.5

Severance and related costs
7.1

 
—

 
2.2

 
9.3

Other, net
6.7

 
1.0

 
0.2

 
7.9

Total selling, general and administrative expenses
13.8

 
1.0

 
3.9

 
18.7

Consolidated total
$
13.8

 
$
1.0

 
$
3.9

 
$
18.7


51
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

Included in the above results are $16.8 million of charges that have resulted or will result in cash outflows and $1.9 million of non-cash charges.
During fiscal 2013, we recognized the following pre-tax expenses associated with the Administrative Efficiency Plan:
 
Consumer
Foods
 
Corporate
 
Total
Accelerated depreciation
$
—

 
$
0.4

 
$
0.4

Severance and related costs
0.9

 
—

 
0.9

Other, net
0.7

 
—

 
0.7

Total selling, general and administrative expenses
1.6

 
0.4

 
2.0

Consolidated total
$
1.6

 
$
0.4

 
$
2.0

Liabilities recorded for the various initiatives and changes therein for 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
May  26,
2013

Severance and related costs
$
2.1

 
$
1.3

 
$
(2.8
)
 
$
(0.2
)
 
$
0.4

Plan implementation costs
0.3

 
0.2

 
(0.5
)
 
—

 
—

Total
$
2.4

 
$
1.5

 
$
(3.3
)
 
$
(0.2
)
 
$
0.4

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 end of fiscal 2013, the Network Optimization Plan was substantially complete.
In connection with the Network Optimization Plan, we have incurred pre-tax cash and non-cash charges of $76.7 million . We have recognized 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 implementation costs (e.g., consulting and employee relocation). We recognized the following pre-tax expenses associated with the Network Optimization Plan in the fiscal 2011 to fiscal 2013 timeframe:
 
Consumer
Foods
 
Commercial
Foods
 
Corporate
 
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
15.3

 
14.0

 
—

 
29.3

Net gains on sale of property, plant and equipment
(1.6
)
 
—

 
—

 
(1.6
)
Severance and related costs
7.7

 
0.1

 
—

 
7.8

Other, net
8.5

 
1.5

 
0.8

 
10.8

Total selling, general and administrative expenses
29.9

 
15.6

 
0.8

 
46.3

Consolidated total
$
59.9

 
$
16.0

 
$
0.8

 
$
76.7

Included in the above results are $17.9 million of charges that have resulted or will result in cash outflows and $58.8 million of non-cash charges.

52
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

During fiscal 2013, we recognized the following pre-tax expenses associated with the Network Optimization Plan:
 
Consumer
Foods
 
Corporate
 
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

Net gains on sale of property, plant and equipment
(1.0
)
 
—

 
(1.0
)
Severance and related costs
(1.8
)
 
—

 
(1.8
)
Other, net
2.3

 
0.8

 
3.1

Total selling, general and administrative expenses
0.9

 
0.8

 
1.7

Consolidated total
$
3.5

 
$
0.8

 
$
4.3

Liabilities recorded for the various initiatives and changes therein for fiscal 2013 under the Network Optimization 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
May 26,
2013
Severance and related costs
$
7.0


$
1.0


$
(4.5
)

$
(3.3
)
 
$
0.2

Plan implementation costs
0.8


2.7


(3.5
)

—

 
—

Total
$
7.8

 
$
3.7

 
$
(8.0
)
 
$
(3.3
)
 
$
0.2

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, of which $2.6 million was recognized in fiscal 2012 and $25.7 million was recognized in fiscal 2011. By the end of fiscal 2012, the 2010 plan was complete.
Ralcorp Pre-acquisition Restructuring Plans
At the time of our acquisition of Ralcorp, management of Ralcorp had initiated certain activities designed to optimize Ralcorp's manufacturing and distribution networks. We refer to these actions and the related costs as "Ralcorp Pre-acquisition Restructuring Plans". The Ralcorp Pre-acquisition Restructuring Plans involve, among other things, the exit of certain manufacturing facilities, the disposal of underutilized manufacturing assets, and actions designed to optimize the Ralcorp distribution network. We expect to incur $3.2 million of charges that have resulted or will result in cash outflows associated with the Ralcorp Pre-acquisition Restructuring Plans. In fiscal 2013, we recognized charges of $1.3 million in relation to the Ralcorp Pre-acquisition Restructuring Plans. For activities initiated after our acquisition of Ralcorp, refer to the Ralcorp Related Restructuring Plan.

53
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

4. SENIOR LONG-TERM DEBT
 
May 26, 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
900.0

 
—

  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

  2.00% to 9.59% lease financing obligations due on various dates through 2029
77.4

 
106.0

  Other indebtedness
80.1

 
73.1

    Total face value of debt
9,292.2

 
2,938.8

    Unamortized fair value adjustment of senior debt in connection with Ralcorp
161.6

 
—

    Unamortized discounts/premiums
(57.5
)
 
(59.8
)
    Adjustment due to hedging activity
8.5

 
17.7

    Less current installments
(517.9
)
 
(38.1
)
      Total long-term debt
$
8,886.9

 
$
2,858.6

The aggregate minimum principal maturities of the long-term debt for each of the five fiscal years following May 26, 2013 , are as follows:
2014
$
509.4

2015
85.3

2016
1,007.3

2017
16.2

2018
2,655.1

Lease financing obligations and other indebtedness included $30.1 million of debt of consolidated variable interest entities at May 27, 2012 .
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

54
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

aggregate principal amount of $460.7 million , which were prepaid in the fourth 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 notes due August 2020 (2.92% effective interest rate)
$
282.7

6.625% senior notes due August 2039 (4.86% effective interest rate)
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 (with an effective interest rate of 2.83% ) and 6.625% senior notes issued by Ralcorp due August 15, 2039 in an aggregate principal amount of $16.7 million (with an effective interest rate of 4.82% ) (collectively, the "Ralcorp Notes"). The Ralcorp Notes are included in our consolidated balance sheet at May 26, 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 May 26, 2013, the Ralcorp Discharged Notes are not included in our consolidated balance sheet. We recognized a charge of $1.3 million as a cost of early retirement of debt.
Upon our acquisition of Ralcorp, we assumed senior notes issued by Ralcorp in an aggregate principal amount of $460.7 million (the "Ralcorp Callable Notes"), and gave notice of our intent to prepay them during the third quarter of fiscal 2013. During the fourth quarter of fiscal 2013, we prepaid the Ralcorp Callable Notes at the contractually determined value of $562.5 million. This did not result in a significant gain or loss.
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 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. During the fourth quarter of fiscal 2013, we prepaid $600.0 million of the $1.5 billion borrowings and recognized a charge of $6.2 million as a cost of early retirement of debt. 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 May 26, 2013 , the total interest rate on our borrowings was 1.945% . 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 $27.3 million in related fees during fiscal 2013.
During fiscal 2012, we repaid the entire principal balance of $342.7 million of our 6.75% senior notes, which were due September 15, 2011.
Our most restrictive debt agreements (the revolving credit facility and certain privately placed long-term debt) require that our consolidated funded debt not exceed 75% of our consolidated capital base, and that our fixed charges coverage ratio be greater than 1.75 to 1.0 on a four-quarter rolling basis. At May 26, 2013 , we were in compliance with our debt covenants.

55
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

Net interest expense consists of:
 
2013
 
2012
 
2011
Long-term debt
$
284.0

 
$
213.2

 
$
231.1

Short-term debt
0.7

 
0.3

 
0.2

Interest income
(3.0
)
 
(4.0
)
 
(42.2
)
Interest capitalized
(6.1
)
 
(5.5
)
 
(11.6
)
 
$
275.6

 
$
204.0

 
$
177.5

Interest paid from continuing operations was $215.6 million , $211.9 million , and $231.7  million in fiscal 2013 , 2012 , and 2011 , respectively.
Our net interest expense in fiscal 2013 , 2012 , and 2011 was reduced by $9.2 million , $9.9 million , and $14.5 million , respectively, due to the impact of the interest rate swap contracts entered into in fiscal 2010. The interest rate swaps effectively changed our interest rates on the senior long-term debt instruments maturing in fiscal 2012 and 2014 from fixed to variable. During the second quarter of 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 that were hedged (the effective portion of the hedge) is being amortized as a reduction of interest expense over the remaining lives of the debt instruments (through fiscal 2014). The reduction of interest expense in fiscal 2011 also includes the ineffectiveness portion of the interest rate swaps.
As a result of our acquisition of Ralcorp, the senior unsecured notes issued in exchange for senior notes issued by Ralcorp of $716.0 million and the senior notes issued by Ralcorp that remain outstanding of $33.9 million were recorded at fair value. The combined fair value adjustment on these notes was $163.8 million and is being amortized within interest expense over the life of the respective notes.
5. CREDIT FACILITIES AND BORROWINGS
At May 26, 2013 , we had a $1.50 billion multi-year revolving credit facility with a syndicate of financial institutions that matures in September 2016. The multi-year facility has historically been used principally as a back-up facility for our commercial paper program. As of May 26, 2013 , there were no outstanding borrowings under the credit facility. Borrowings under the multi-year facility, based on our fiscal year-end credit rating, bear interest at 1.3% over LIBOR and may be prepaid without penalty. The multi-year revolving credit facility requires us to repay borrowings if our consolidated funded debt exceeds 75% of our consolidated capital base during the first four quarters commencing on January 29, 2013, 70% during the subsequent four quarters, or 65% thereafter, or if our fixed charges coverage ratio, each as defined in the credit agreement, is less than 1.75 to 1.0 on a four-quarter rolling basis. As of May 26, 2013 , we were in compliance with the credit agreement’s financial covenants.
We finance our short-term liquidity needs with bank borrowings, commercial paper borrowings, and bankers’ acceptances. As of May 26, 2013 , we had $185.0 million outstanding under our commercial paper program at an average weighted interest rate of 0.42% . As of May 27, 2012, we had $40.0 million outstanding under our commercial paper program at an average weighted interest rate of 0.26% .

56
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

6. DISCONTINUED OPERATIONS
Frozen Handhelds Operations
During fiscal 2011, we completed the sale of substantially all of the assets of our frozen handhelds operations for $8.8 million in cash. We recognized impairment and related charges totaling $21.7 million ( $14.2 million after-tax) in fiscal 2011. We reflected the results of these operations as discontinued operations for all periods presented.
Gilroy Foods & Flavors ™ Operations
During fiscal 2011, we completed the sale of substantially all of the assets of Gilroy Foods & Flavors ™ dehydrated garlic, onion, capsicum and Controlled Moisture ™ , GardenFrost ® , Redi-Made ™ , and fresh vegetable operations for $245.7 million in cash. We reflected the results of these operations as discontinued operations for all periods presented.
In connection with the sale of this business, we entered into agreements to purchase certain ingredients, at prices approximating market rates, from the divested business for a period of five years. The continuing cash flows related to these agreements are not significant, and, accordingly, are not deemed to be direct cash flows of the divested business.
The results of the aforementioned businesses which have been divested are included within discontinued operations. The summary comparative financial results of discontinued operations were as follows:
 
2012
 
2011
Net sales
$
0.5

 
$
92.4

Long-lived asset impairment charge
—

 
(21.7
)
Income (loss) from operations of discontinued operations before income taxes
0.1

 
(18.6
)
Income (loss) before income taxes
0.1

 
(18.6
)
Income tax benefit
—

 
7.1

Income (loss) from discontinued operations, net of tax
$
0.1

 
$
(11.5
)
7. PAYMENT-IN-KIND NOTES RECEIVABLE
In connection with the divestiture of the trading and merchandising operations in fiscal 2009, we received $550.0 million (face value) of payment-in-kind debt securities (the “Notes”) issued by the purchaser of the divested business. The Notes were recorded at an initial estimated fair value of $479.4 million .
The Notes were issued in three tranches: $99,990,000 original principal amount of 10.5%  notes due June 19, 2010; $200,035,000 original principal amount of 10.75%  notes due June 19, 2011; and $249,975,000 original principal amount of 11.0%  notes due June 19, 2012. The Notes permitted payment of interest in cash or additional notes.
During fiscal 2010, we received $115.4 million as payment in full of all principal and interest due on the first tranche of the Notes, in advance of the scheduled maturity date. During fiscal 2011, we received $554.2 million as payment in full of all principal and interest due on the second and third tranches of the Notes, in advance of the scheduled maturity dates. As a result, we recognized a gain of $25.0 million in fiscal 2011.
8. GARNER, NORTH CAROLINA ACCIDENT
On June 9, 2009, an accidental explosion occurred at our manufacturing facility in Garner, North Carolina (the “Garner accident”). This facility was the primary production facility for our Slim Jim ® branded meat snacks.

57
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

The costs incurred and insurance recoveries recognized for fiscal 2011 were reflected in our consolidated financial statements as follows:
 
Fiscal Year Ended May 29, 2011
 
Consumer
Foods
 
Corporate
 
Total
Cost of goods sold:
 
 
 
 
 
Inventory write-downs and other costs
$
0.9

 
$
—

 
$
0.9

Selling, general and administrative expenses:
 
 
 
 
 
Fixed asset impairments, clean-up costs, etc.
2.6

 
0.6

 
3.2

Insurance recoveries recognized
(109.4
)
 
—

 
(109.4
)
Total selling, general and administrative expenses
(106.8
)
 
0.6

 
(106.2
)
Net loss (gain)
$
(105.9
)
 
$
0.6

 
$
(105.3
)
The amounts in the table above exclude actual lost profits due to the interruption of the meat snacks business in the periods presented, but do reflect the recovery of the related business interruption insurance claim in fiscal 2011.
During fiscal 2011, the Company settled its property and business interruption claims related to the Garner accident with our insurance providers. The total payments received from the insurers in fiscal 2011 were $167.5 million and all previously deferred balances were immediately recognized upon settlement of the insurance claim in fiscal 2011. The insurance recoveries recognized in fiscal 2011, included in selling, general and administrative expenses, totaled $109.4 million , representing $84.0 million of reimbursement for business interruption, a $21.3 million gain on involuntary conversion of property, plant and equipment, and recovery of other expenses incurred of $4.1 million .
9. 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 May 26, 2013 , the price at which Ochoa had the right to put its equity interest to us was $37.7 million . This amount is presented within other noncurrent liabilities in our 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 May 26, 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 May 26, 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 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.

58
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

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.
Due to the consolidation of these variable interest entities, we reflected the following in our consolidated balance sheets:
 
May 26, 2013
 
May 27, 2012
Cash and cash equivalents
$
8.9

 
$
10.2

Receivables, less allowance for doubtful accounts
16.4

 
20.9

Inventories
1.4

 
1.6

Prepaid expenses and other current assets
0.4

 
0.2

Property, plant and equipment, net
54.8

 
82.9

Goodwill
18.8

 
18.8

Brands, trademarks and other intangibles, net
7.5

 
8.3

Total assets
$
108.2

 
$
142.9

Current installments of long-term debt
$
—

 
$
30.1

Accounts payable
8.9

 
17.9

Accrued payroll
0.6

 
0.5

Other accrued liabilities
0.7

 
1.0

Other noncurrent liabilities (minority interest)
30.7

 
28.9

Total liabilities
$
40.9

 
$
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 consolidated balance sheets, based upon the equity method of accounting. The balance of our investment was $15.2 million and $14.8 million at May 26, 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 $30.4 million and term borrowings from banks of $43.9 million as of May 26, 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 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.

59
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

10. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
The change in the carrying amount of goodwill for fiscal 2013 and 2012 was as follows:
 
Consumer
Foods
 
Commercial
Foods
 
Ralcorp
 
Total
Balance as of Balance as of May 29, 2011
$
3,479.7

 
$
129.7

 
$
—

 
$
3,609.4

Acquisitions
418.8

 
—

 
—

 
418.8

Currency translation and purchase accounting adjustments
(11.8
)
 
(1.0
)
 
—

 
(12.8
)
Balance as of Balance as of May 27, 2012
$
3,886.7

 
$
128.7

 
$
—

 
$
4,015.4

Acquisitions
100.1

 
—

 
4,350.5

 
4,450.6

Currency translation and purchase accounting adjustments
(13.8
)
 
0.2

 
(1.7
)
 
(15.3
)
Balance as of Balance as of May 26, 2013
$
3,973.0

 
$
128.9

 
$
4,348.8

 
$
8,450.7

Other identifiable intangible assets were as follows:
 
2013
 
2012
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Non-amortizing intangible assets
$
1,143.4

 
$
—

 
$
947.7

 
$
—

Amortizing intangible assets
2,404.1

 
125.4

 
313.8

 
70.0

 
$
3,547.5

 
$
125.4

 
$
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 23 years , are principally composed of licensing arrangements, customer relationships, and intellectual property. For fiscal 2013, 2012, and 2011, we recognized amortization expense of $56.2 million , $21.1 million , and $17.8 million , respectively. Based on amortizing assets recognized in our consolidated balance sheet as of May 26, 2013 , amortization expense is estimated to average $111.4 million for each of the next five years, with a high expense of $113.1 million in fiscal year 2014 and decreasing to a low expense of $110.8 million in fiscal year 2018.
In 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.
11. 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.

60
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

The following table reconciles the income and average share amounts used to compute both basic and diluted earnings per share:
 
2013
 
2012
 
2011
Net income available to ConAgra Foods, Inc. common stockholders:
 
 
 
 
 
Income from continuing operations attributable to ConAgra Foods, Inc. common stockholders
$
773.9

 
$
467.8

 
$
829.1

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

 
0.1

 
(11.5
)
Net income attributable to ConAgra Foods, Inc. common stockholders
$
773.9

 
$
467.9

 
$
817.6

Less: Increase in redemption value of noncontrolling interests in excess of earnings allocated
1.6

 
1.5

 
1.9

Net income available to ConAgra Foods, Inc. common stockholders
$
772.3

 
$
466.4

 
$
815.7

Weighted average shares outstanding:
 
 
 
 
 
Basic weighted average shares outstanding
410.8

 
412.9

 
429.7

Add: Dilutive effect of stock options, restricted stock unit awards, and other dilutive securities
6.8

 
5.4

 
4.6

Diluted weighted average shares outstanding
417.6

 
418.3

 
434.3

At the end of fiscal 2013 , there were no stock options outstanding that were excluded from the computation of shares contingently issuable upon exercise of the stock options. At the end of fiscal 2012 and 2011, there were 11.3 million and 15.8 million stock options outstanding, respectively, that were excluded from the computation of shares contingently issuable upon exercise of the stock options because exercise prices exceeded the average market value of our common stock during the period.
12. INVENTORIES
The major classes of inventories were as follows:
 
May 26, 2013
 
May 27, 2012
Raw materials and packaging
$
734.2

 
$
563.8

Work in process
121.4

 
96.5

Finished goods
1,398.1

 
1,122.4

Supplies and other
140.4

 
86.9

Total
$
2,394.1

 
$
1,869.6

13. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consisted of:
 
May 26, 2013
 
May 27, 2012
Postretirement health care and pension obligations
$
783.5

 
$
846.5

Noncurrent income tax liabilities
1,632.3

 
693.5

Self-insurance liabilities
105.1

 
76.3

Environmental liabilities (see Note 18)
65.8

 
71.2

Other
237.7

 
207.2

 
2,824.4

 
1,894.7

Less current portion
(70.3
)
 
(72.6
)
 
$
2,754.1

 
$
1,822.1


61
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

14. CAPITAL STOCK
We have authorized shares of preferred stock as follows:
Class B— $50  par value; 150,000  shares
Class C— $100  par value; 250,000  shares
Class D—without par value; 1,100,000  shares
Class E—without par value; 16,550,000  shares
There were no preferred shares issued or outstanding as of May 26, 2013 .
We have repurchased our shares of common stock from time to time after considering market conditions and in accordance with repurchase limits authorized by our Board of Directors. In February 2010, our Board of Directors approved a $500.0 million share repurchase program with no expiration date. Upon receipt of payment for the final two outstanding tranches of the Notes from the purchaser of the trading and merchandising business, during fiscal 2011, our Board of Directors increased our share repurchase authorization by the amount of the payment, which was $554.2 million . In December 2011, our Board of Directors approved a $750.0 million increase to the share repurchase program. We repurchased approximately 9.1 million shares of our common stock for approximately $245.0 million , 13.8 million shares of our common stock for approximately $352.4 million , and approximately 36.2 million shares of our common stock for approximately $825.0 million in fiscal 2013 , 2012 , and 2011 , respectively, under this program.
15. SHARE-BASED PAYMENTS
In accordance with stockholder-approved plans, we issue share-based payments under various stock-based compensation arrangements, including stock options, restricted stock units, cash-settled restricted stock units, performance shares, and other share-based awards.
On September 25, 2009, the stockholders approved the ConAgra Foods 2009 Stock Plan, which authorized the issuance of up to 29.5  million shares of ConAgra Foods common stock. At May 26, 2013 , approximately 16.7  million shares were reserved for granting additional options, restricted stock units, performance shares, or other share-based awards.
Stock Option Plan
We have stockholder-approved stock option plans that provide for granting of options to employees for the purchase of common stock at prices equal to the fair value at the date of grant. Options become exercisable under various vesting schedules (typically three to five years) and generally expire seven to ten years after the date of grant.
The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions for stock options granted:
 
2013
 
2012
 
2011
Expected volatility (%)
22.95
 
22.89
 
22.83
Dividend yield (%)
3.77
 
3.97
 
3.51
Risk-free interest rates (%)
0.57
 
1.38
 
1.72
Expected life of stock option (years)
4.80
 
4.75
 
4.82
The expected volatility is based on the historical market volatility of our stock over the expected life of the stock options granted. The expected life represents the period of time that the awards are expected to be outstanding and is based on the contractual term of each instrument, taking into account employees’ historical exercise and termination behavior.

62
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

A summary of the option activity as of May 26, 2013 and changes during the fiscal year then ended is presented below:
Options
Number
of Options
(in Millions)
 
Weighted
Average
Exercise
Price
 
Average
Remaining
Contractual
Term
(Years)
 
Aggregate
Intrinsic
Value (in
Millions)
Outstanding at May 27, 2012
27.7

 
$
23.51

 
 
 
 
Granted
3.9

 
$
24.74

 
 
 
 
Exercised
(11.1
)
 
$
23.46

 
 
 
$
77.2

Forfeited
(0.3
)
 
$
24.79

 
 
 
 
Expired
(0.3
)
 
$
25.41

 
 
 
 
Outstanding at May 26, 2013
19.9

 
$
23.73

 
4.46
 
$
219.6

Exercisable at May 26, 2013
12.6

 
$
23.01

 
2.99
 
$
148.1

We recognize compensation expense using the straight-line method over the requisite service period. During fiscal 2013 , 2012 , and 2011 , the Company granted 3.9 million options, 4.1 million options, and 6.2 million options, respectively, with a weighted average grant date value of $2.93 , $3.26 , and $3.31 , respectively. The total intrinsic value of options exercised was $77.2 million , $41.5 million , and $9.3 million for fiscal 2013 , 2012 , and 2011 , respectively. The closing market price of our common stock on the last trading day of fiscal 2013 was $34.77 per share.
Compensation expense for stock option awards totaled $12.8 million , $15.4 million , and $19.9 million for fiscal 2013 , 2012 , and 2011 , respectively. The tax benefit related to the stock option expense for fiscal 2013 , 2012 , and 2011 was $4.8 million , $5.7 million , and $7.4 million , respectively.
At May 26, 2013 , we had $10.0 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock options that will be recognized over a weighted average period of 1.2 years .
Cash received from option exercises for the fiscal years ended May 26, 2013 ,  May 27, 2012 , and May 29, 2011 was $259.8 million , $217.8 million , and $71.6 million , respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $28.7 million , $15.4 million , and $3.4 million for fiscal 2013 , 2012 , and 2011 , respectively.
Share Unit Plans
In accordance with stockholder-approved plans, we issue stock under various stock-based compensation arrangements, including restricted stock units, cash-settled restricted stock units, and other share-based awards (“share units”). These awards generally have requisite service periods of three years. Under each arrangement, stock is issued without direct cost to the employee. We estimate the fair value of the share units based upon the market price of our stock at the date of grant. Certain share unit grants do not provide for the payment of dividend equivalents to the participant during the requisite service period (vesting period). For those grants, the value of the grants is reduced by the net present value of the foregone dividend equivalent payments. We recognize compensation expense for share unit awards on a straight-line basis over the requisite service period. All cash-settled restricted stock units are marked-to-market and presented within other noncurrent liabilities in our consolidated balance sheets. The compensation expense for our stock-settled share unit awards totaled $26.7 million , $25.5 million , and $21.2 million for fiscal 2013 , 2012 , and 2011 , respectively. The tax benefit related to the stock-settled share unit award compensation expense for fiscal 2013 , 2012 , and 2011 was $9.9 million , $9.5 million , and $7.9 million , respectively.   The compensation expense for our cash-settled share unit awards totaled $8.0 million for fiscal 2013 . The tax benefit related to the cash-settled share unit award compensation expense for fiscal 2013 was $3.0 million .

63
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

The following table summarizes the nonvested share units as of May 26, 2013 and changes during the fiscal year then ended:
 
Share-settled
 
Cash-settled
Share Units
Share Units
(in millions)
 
Weighted
Average
Grant-Date
Fair Value
 
Share Units
(in millions)
 
Weighted
Average
Grant-Date
Fair Value
Nonvested share units at May 27, 2012
3.83

 
$
21.43

 
—

 
$
—

Granted
1.00

 
$
25.59

 
0.92

 
$
24.74

Vested/Issued
(0.94
)
 
$
20.01

 
—

 
$
—

Forfeited
(0.24
)
 
$
24.80

 
(0.03
)
 
$
24.74

Nonvested share units at May 26, 2013
3.65

 
$
25.30

 
0.89

 
$
24.74

During fiscal 2013 , 2012 , and 2011 , we granted 1.0 million , 1.8 million , and 1.6 million stock-settled share units, respectively, with a weighted average grant date value of $25.59 , $26.11 , and $21.55 , respectively. During fiscal 2013 we granted 0.9 million cash-settled share units with a weighted average grant date value of $24.74 .
The total intrinsic value of stock-settled share units vested was $24.3 million , $23.2 million , and $14.5 million during fiscal 2013 , 2012 , and 2011 , respectively.
At May 26, 2013 , we had $45.0 million of total unrecognized compensation expense, net of estimated forfeitures, related to share unit awards that will be recognized over a weighted average period of 1.8 years .
Performance-Based Share Plan
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 were based upon our 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 percent 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.
A summary of the activity for performance share awards as of May 26, 2013 and changes during the fiscal year then ended is presented below:
Performance Shares
Shares
(in  Millions)
 
Weighted
Average
Grant-Date
Fair Value
Nonvested performance shares at May 27, 2012
1.27

 
$
22.44

Granted
0.51

 
$
24.88

Adjustments for performance results attained
(0.39
)
 
$
19.24

Forfeited
(0.14
)
 
$
24.18

Nonvested performance shares at May 26, 2013
1.25

 
$
24.24

The compensation expense for our performance share awards totaled $19.9 million , $0.8 million , and $4.0 million for fiscal 2013 , 2012 , and 2011 , respectively. The tax benefit related to the compensation expense for fiscal 2013 , 2012 , and 2011 was $7.4 million , $0.3 million , and $1.5 million , respectively.
The total intrinsic value of share units vested (including shares paid in lieu of dividends) during fiscal 2012 and 2011 was $16.0 million and $7.4 million , respectively.

64
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

Based on estimates at May 26, 2013 , the Company had $15.0 million of total unrecognized compensation expense, net of estimated forfeitures, related to performance shares that will be recognized over a weighted average period of 1.6 years .
Accounting guidance requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow in our statements of cash flows. In fiscal 2013 and 2012 , our net operating cash flows decreased and our net financing cash flows increased by approximately $21.3 million and $8.7 million , respectively. There was no impact on our statement of cash flows for fiscal 2011.
16. PRE-TAX INCOME AND INCOME TAXES
 Pre-tax income from continuing operations (including equity method investment earnings) consisted of the following:
 
2013
 
2012
 
2011
United States
$
1,070.5

 
$
492.6

 
$
1,177.7

Foreign
115.8

 
177.5

 
74.8

 
$
1,186.3

 
$
670.1

 
$
1,252.5

The provision for income taxes included the following:
 
2013
 
2012
 
2011
Current
 
 
 
 
 
Federal
$
184.3

 
$
163.9

 
$
157.3

State
28.9

 
23.7

 
21.0

Foreign
24.4

 
27.5

 
11.9

 
237.6

 
215.1

 
190.2

Deferred
 
 
 
 
 
Federal
158.4

 
(13.4
)
 
219.2

State
3.9

 
(5.2
)
 
9.8

Foreign
0.3

 
(0.7
)
 
2.4

 
162.6

 
(19.3
)
 
231.4

 
$
400.2

 
$
195.8

 
$
421.6

Income taxes computed by applying the U.S. Federal statutory rates to income from continuing operations before income taxes are reconciled to the provision for income taxes set forth in the consolidated statements of earnings as follows:
 
2013
 
2012
 
2011
Computed U.S. Federal income taxes
$
415.2

 
$
234.5

 
$
438.3

State income taxes, net of U.S. Federal tax impact
20.1

 
12.0

 
20.0

Tax credits and domestic manufacturing deduction
(22.5
)
 
(20.5
)
 
(27.5
)
Foreign tax credits and related items, net
(1.4
)
 
(0.6
)
 
(0.2
)
IRS audit adjustments and settlement
0.5

 
0.8

 
0.5

Non-taxable gain from investment in ATFL
—

 
(20.5
)
 
—

Change in valuation allowance
1.1

 
(7.1
)
 
2.1

Other
(12.8
)
 
(2.8
)
 
(11.6
)
 
$
400.2

 
$
195.8

 
$
421.6

Income taxes paid, net of refunds, were $249.0 million , $191.5 million , and $172.3 million in fiscal 2013 , 2012 , and 2011 , respectively.

65
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

  The tax effect of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
 
2013
 
2012
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Property, plant and equipment
$
—

 
$
679.4

 
$
—

 
$
488.1

Goodwill, trademarks and other intangible assets
—

 
1,405.2

 
—

 
681.3

Accrued expenses
42.3

 
—

 
25.4

 
—

Compensation related liabilities
108.4

 
—

 
74.7

 
—

Pension and other postretirement benefits
291.4

 
—

 
310.7

 
—

Derivative cash flow hedge
38.0

 
—

 
57.2

 
—

Other liabilities that will give rise to future tax deductions
140.2

 
—

 
115.2

 
—

Net operating loss carryforwards
92.9

 
—

 
42.7

 
—

Other
72.8

 
27.5

 
67.4

 
31.4

 
786.0

 
2,112.1

 
693.3

 
1,200.8

Less: Valuation allowance
(44.8
)
 
—

 
(43.7
)
 
—

Net deferred taxes
$
741.2

 
$
2,112.1

 
$
649.6

 
$
1,200.8

At May 26, 2013 and May 27, 2012 , net deferred tax assets of $177.8 million and $106.3 million , respectively, were included in prepaid expenses and other current assets. At May 26, 2013 and May 27, 2012 , net deferred tax liabilities of $1.55 billion and $657.5 million , respectively, were included in other noncurrent liabilities.
The liability for gross unrecognized tax benefits at May 26, 2013 was $100.0 million , excluding a related liability of $30.4 million for gross interest and penalties. Included in the balance at May 26, 2013 are $8.0 million of 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. As of May 27, 2012, our gross liability for unrecognized tax benefits was $48.7 million , excluding a related liability of $14.0 million for gross interest and penalties.
The net amount of unrecognized tax benefits at May 26, 2013 and May 27, 2012 that, if recognized, would favorably impact our effective tax rate was $61.8 million and $30.3 million , respectively.
We accrue interest and penalties associated with uncertain tax positions as part of income tax expense.
We conduct business and file tax returns in numerous countries, states, and local jurisdictions. The U.S. Internal Revenue Service (“IRS”) has completed its audit for tax years through fiscal 2012 and all resulting significant items for fiscal 2012 and prior years have been settled with the IRS. Other major jurisdictions where we conduct business generally have statutes of limitations ranging from 3 to 5 years.
We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $9 million over the next twelve months due to various audit settlements and the expiration of statutes of limitations.

66
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

The change in the unrecognized tax benefits for the year ended May 26, 2013 was:
 
2013
Beginning balance on May 27, 2012
$
48.7

Purchase accounting adjustments related to acquisitions
54.9

Increases from positions established during prior periods
4.7

Decreases from positions established during prior periods
(0.3
)
Increases from positions established during the current period
4.9

Decreases relating to settlements with taxing authorities
(7.7
)
Reductions resulting from lapse of applicable statute of limitation
(5.4
)
Other adjustments to liability
0.2

Ending balance on May 26, 2013
$
100.0

We have approximately $60.7 million of foreign net operating loss carryforwards ( $37.9 million will expire between fiscal 2014 and 2034 and $22.8 million have no expiration dates). State tax credits of approximately $32.4 million will expire in various years ranging from fiscal 2014 to 2018.
We have recognized a valuation allowance for the portion of the net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets we believe are not more likely than not to be realized. The net impact on income tax expense related to changes in the valuation allowance for fiscal 2013 was a charge of $1.1 million . For fiscal 2012 and 2011 , changes in the valuation allowance were a benefit of $7.1 million and a charge of $2.1 million , respectively. The current year change principally relates to increases to the valuation allowances for state net operating losses and credits.
As of May 26, 2013 , undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $460 million . Those earnings are considered to be indefinitely reinvested and accordingly, no U.S. federal income taxes have been provided thereon. We have not provided U.S. deferred taxes on cumulative earnings of non-U.S. affiliates and associated companies that the Company considers to be reinvested indefinitely. It is not practicable to estimate the amount of U.S. income taxes that would be incurred in the event that we were to repatriate the cumulative earnings of non-U.S. affiliates and associated companies. Deferred taxes are provided for earnings of non-U.S. affiliates and associated companies when we determine that such earnings are no longer indefinitely reinvested.
17. OPERATING LEASES
We lease certain facilities, land, and transportation equipment under agreements that expire at various dates. Rent expense under all operating leases from continuing operations was $162.0 million , $133.8 million , and $126.1 million in fiscal 2013 , 2012 , and 2011 , respectively. Rent expense under operating leases from discontinued operations was $0.4 million in fiscal 2011.

A summary of non-cancellable operating lease commitments for fiscal years following May 26, 2013 , was as follows:
2014
$
93.0

2015
84.5

2016
65.7

2017
55.4

2018
47.6

Later years
131.6

 
$
477.8


67
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

18. 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.
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 $63.3 million as of May 26, 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 $8.1 million as of May 26, 2013 .
We also guaranteed the performance of the divested fresh beef and pork business with respect to a hog purchase contract that required the divested business to purchase a minimum of approximately 1.2 million hogs annually through June 1, 2013, and accordingly our guarantee of the hog purchase contract terminated during the first quarter of fiscal 2014. The contract stipulated minimum price commitments, based in part on market prices, and, in certain circumstances, also included price adjustments based on certain inputs. We did not establish 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.
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 May 26, 2013 , the amount of supplier loans we have effectively guaranteed was $40.1 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 . 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 exercised our option to purchase the Secured Loan from the lender for $40.8 million , thereby assuming first-priority secured rights to the underlying collateral for the amount of the Secured Loan, and cancelling our guarantee. The onion supplier filed for bankruptcy on April 12, 2012 (during the fourth quarter of fiscal 2012). The Secured Loan was classified as other assets at the end of fiscal 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 the collateral to its 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.

68
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

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 May 26, 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 during fiscal 2013 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 and the Consumer Protection Branch of the Department of Justice. During the first quarter of fiscal 2013 and during fiscal 2012, we recognized charges of $7.5 million and $17.5 million , respectively, in connection with the U.S. Attorney's office investigation. These amounts are in addition to a charge of $24.8 million we recognized during fiscal 2009 in connection with the insurance coverage dispute. During fiscal 2011, we received a favorable opinion in the insurance matter related to our defense costs, pursuant to which we received a total of $13.2 million , $11.8 million of which was recognized in income in fiscal 2012, and $1.4 million 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, which was subject to appeal and not recognized in income in fiscal 2012. During the fourth quarter of fiscal 2013, we reached a settlement on the insurance dispute, pursuant to which we were paid $25.0 million , in addition to retaining the defense costs previously reimbursed to us. We recognized the $25.0 million in income as a reduction to selling, general and administrative expenses during the fourth quarter of fiscal 2013. 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 and dismissed the suit without prejudice 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. We filed post-trial motions and the 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), we 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 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 a defendant in several shareholder derivative 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 were consolidated and made similar allegations against directors of Ralcorp to which we were not named a defendant. All of these cases

69
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

were settled during the third quarter of fiscal 2013 for immaterial amounts. The settlement of these lawsuits is subject to final Court approval.
Prior to our ownership 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 during the fourth quarter of fiscal 2013, jurors delivered a verdict in favor of Medallion and Ralcorp on all claims. Frito-Lay has filed a motion for a new trial. We will continue to defend this action vigorously.
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.
19. 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 May 26, 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 May 26, 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 May 26, 2013 , was $104.5 million .
The net notional amount of these interest rate derivatives at May 26, 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. 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 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 as a component of net interest expense over the lives of the related debt instruments. The unamortized amount at May 26, 2013 was $2.1 million .

70
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

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 May 26, 2013 , the unamortized amount was $8.5 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, derivative instruments are marked-to-market each period with gains and losses included in net sales of the Commercial Foods segment. Net derivative losses from trading activities of $11.5 million and $6.4 million and net derivative gains from trading activities of $3.8 million were included in the results of operations for the Commercial Foods segment for fiscal years 2013, 2012, and 2011, respectively.
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 right of setoff exists. At May 26, 2013 and May 27, 2012 , amounts representing a right to reclaim cash collateral of $10.2 million and $13.2 million , respectively, were included in prepaid expenses and other current assets in our consolidated balance sheets.

71
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

Derivative assets and liabilities and amounts representing a right to reclaim cash collateral or obligation to return cash collateral were reflected in our consolidated balance sheets as follows:
 
May 26, 2013
 
May 27, 2012
Prepaid expenses and other current assets
$
78.6

 
$
58.7

Other accrued liabilities
137.9

 
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 May 26, 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
 
$
104.5

Total derivatives designated as hedging instruments
 
 
$
—

 
 
 
$
104.5

Commodity contracts
Prepaid expenses and other current assets
 
$
70.7

 
Other accrued liabilities
 
$
53.7

Foreign exchange contracts
Prepaid expenses and other current assets
 
18.4

 
Other accrued liabilities
 
2.4

Other
Prepaid expenses and other current assets
 
2.0

 
Other accrued liabilities
 
—

Total derivatives not designated as hedging instruments
 
 
$
91.1

 
 
 
$
56.1

Total derivatives
 
 
$
91.1

 
 
 
$
160.6

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


72
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

The location and amount of gains (losses) from derivatives not designated as hedging instruments in our consolidated statements of earnings were as follows:
 
 
For the Fiscal Year Ended May 26, 2013
Derivatives Not Designated as Hedging Instruments
 
Location in Consolidated Statement of Earnings of
Gain (Loss) Recognized  on Derivatives
 
Amount of Gain (Loss)
Recognized on Derivatives
in Consolidated
Statement of Earnings
Commodity contracts
 
Net sales
 
$
(11.5
)
Commodity contracts
 
Cost of goods sold
 
142.2

Foreign exchange contracts
 
Cost of goods sold
 
20.3

Commodity contracts
 
Selling, general and administrative expense
 
0.1

Foreign exchange contracts
 
Selling, general and administrative expense
 
0.1

Total gain from derivative instruments not designated as hedging instruments
 
 
 
$
151.2

 
 
For the Fiscal Year Ended May 27, 2012
Derivatives Not Designated as Hedging Instruments
 
Location in Consolidated Statement of Earnings of
Gain (Loss) Recognized on Derivatives
 
Amount of Gain (Loss)
Recognized on Derivatives
in Consolidated
Statement of Earnings
Commodity contracts
 
Net sales
 
$
(6.4
)
Commodity contracts
 
Cost of goods sold
 
58.5

Foreign exchange contracts
 
Cost of goods sold
 
5.4

Commodity contracts
 
Selling, general and administrative expense
 
(0.1
)
Foreign exchange contracts
 
Selling, general and administrative expense
 
8.7

Total gain from derivative instruments not designated as hedging instruments
 
 
 
$
66.1

 
 
For the Fiscal Year Ended May 29, 2011
Derivatives Not Designated as Hedging Instruments
 
Location in Consolidated Statement of Earnings of
Gain (Loss) Recognized on Derivatives
 
Amount of Gain (Loss)
Recognized on Derivatives
in Consolidated
Statement of Earnings
Commodity contracts
 
Net sales
 
$
3.8

Commodity contracts
 
Cost of goods sold
 
54.3

Foreign exchange contracts
 
Cost of goods sold
 
(20.2
)
Commodity contracts
 
Selling, general and administrative expense
 
2.1

Foreign exchange contracts
 
Selling, general and administrative expense
 
(7.9
)
Total gain from derivative instruments not designated as hedging instruments
 
 
 
$
32.1

As of May 26, 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 $1.5 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 May 26, 2013 and May 27, 2012 was $359.0 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.

73
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

At May 26, 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 $64.7 million .

20. 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. Effective August 1, 2013, our defined benefit pension plan for eligible salaried employees will be closed to new hire salaried employees. New hire salaried employees will generally be eligible to participate in our defined contribution plan.
We recognize the funded status of our plans and other benefits in the consolidated balance sheets. For our plans, we also recognize as a component of accumulated other comprehensive loss, the net of tax results of the actuarial gains or losses within the corridor and prior service costs or credits that arise during the period but are not recognized in net periodic benefit cost. For our other benefits, we also recognize as a component of accumulated other comprehensive income (loss), the net of tax results of the gains or losses and prior service costs or credits that arise during the period but are not recognized in net periodic benefit cost. These amounts will be adjusted out of accumulated other comprehensive income (loss) as they are subsequently recognized as components of net periodic benefit cost.
During fiscal 2012, we amended certain of our postretirement benefit plans to incorporate design changes. As a result of the plan amendments, we remeasured our postretirement obligation at September 8, 2011. The discount rate used to measure the other postretirement benefits obligation at September 8, 2011 was 4.3% compared to the May 29, 2011 discount rate of 4.9% . All other significant assumptions remained unchanged from the May 29, 2011 measurement date. Calculated gains of $27.6 million as a result of the remeasurement, primarily due to favorable plan amendments, were recognized as a credit to other comprehensive loss. As a result of these plan amendments, our net expense related to these plans was reduced by approximately $5.2 million during fiscal 2012.
The changes in benefit obligations and plan assets at May 26, 2013 and May 27, 2012 are presented in the following table.
 
Pension Benefits
 
Other Benefits
 
2013
 
2012
 
2013
 
2012
Change in Benefit Obligation
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
3,328.3

 
$
2,881.4

 
$
282.7

 
$
322.6

Service cost
81.8

 
68.7

 
0.6

 
0.6

Interest cost
150.1

 
149.2

 
10.5

 
13.2

Plan participants’ contributions
—

 
—

 
5.3

 
6.7

Amendments
6.8

 
5.3

 
—

 
(40.6
)
Actuarial loss
114.3

 
337.5

 
(7.6
)
 
11.6

Curtailments
(0.4
)
 
—

 
—

 
—

Benefits paid
(147.8
)
 
(138.8
)
 
(27.2
)
 
(36.0
)
Business combinations
284.4

 
25.0

 
38.5

 
4.6

Benefit obligation at end of year
$
3,817.5

 
$
3,328.3

 
$
302.8

 
$
282.7

Change in Plan Assets
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
2,766.6

 
$
2,543.9

 
$
0.1

 
$
0.1

Actual return on plan assets
457.1

 
24.8

 
—

 
—

Employer contributions
19.8

 
326.4

 
21.9

 
29.3

Plan participants’ contributions
—

 
—

 
5.3

 
6.7

Investment and administrative expenses
(16.5
)
 
(14.2
)
 
—

 
—

Benefits paid
(147.8
)
 
(138.8
)
 
(27.2
)
 
(36.0
)
Business combinations
264.1

 
24.5

 
—

 
—

Fair value of plan assets at end of year
$
3,343.3

 
$
2,766.6

 
$
0.1

 
$
0.1


74
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

The funded status and amounts recognized in our consolidated balance sheets at May 26, 2013 and May 27, 2012 were:
 
 
Pension Benefits
 
Other Benefits
 
 
2013
 
2012
 
2013
 
2012
Funded status
 
$
(474.2
)
 
$
(561.7
)
 
$
(302.7
)
 
$
(282.6
)
Amounts Recognized in Consolidated Balance Sheets
 
 
 
 
 
 
 
 
Other assets
 
$
6.6

 
$
3.9

 
$
—

 
$
—

Other accrued liabilities
 
(9.6
)
 
(8.8
)
 
(25.6
)
 
(26.8
)
Other noncurrent liabilities
 
(471.2
)
 
(556.8
)
 
(277.1
)
 
(255.8
)
Net amount recognized
 
$
(474.2
)
 
$
(561.7
)
 
$
(302.7
)
 
$
(282.6
)
Amounts Recognized in Accumulated Other Comprehensive (Income) Loss (Pre-tax)
 
 
 
 
 
 
 
 
Actuarial net loss
 
$
218.2

 
$
332.0

 
$
66.9

 
$
80.5

Net prior service cost (benefit)
 
20.3

 
17.9

 
(31.1
)
 
(39.3
)
Total
 
$
238.5

 
$
349.9

 
$
35.8

 
$
41.2

Weighted-Average Actuarial Assumptions Used to Determine Benefit Obligations at May 26, 2013 and May 27, 2012
 
 
 
 
 
 
 
 
Discount rate
 
4.05
%
 
4.50
%
 
3.35
%
 
3.90
%
Long-term rate of compensation increase
 
4.25
%
 
4.25
%
 
N/A

 
N/A

The accumulated benefit obligation for all defined benefit pension plans was $3.7 billion and $3.2 billion at May 26, 2013 and May 27, 2012 , respectively.
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets at May 26, 2013 and May 27, 2012 were:
 
 
2013
 
2012
Projected benefit obligation
 
$
3,338.8

 
$
3,159.7

Accumulated benefit obligation
 
3,260.7

 
3,057.2

Fair value of plan assets
 
2,863.3

 
2,594.1

Components of pension benefit and other postretirement benefit costs included:
 
Pension Benefits
 
Other Benefits
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Service cost
$
81.8

 
$
68.7

 
$
59.7

 
$
0.6

 
$
0.6

 
$
0.6

Interest cost
150.1

 
149.2

 
147.5

 
10.5

 
13.2

 
16.3

Expected return on plan assets
(216.4
)
 
(196.0
)
 
(168.0
)
 
—

 
—

 
(0.1
)
Amortization of prior service cost (benefit)
3.6

 
3.0

 
3.2

 
(8.2
)
 
(13.6
)
 
(9.6
)
Special termination benefits
—

 
—

 
1.3

 
—

 
—

 
—

Recognized net actuarial loss
3.6

 
396.9

 
10.3

 
5.9

 
7.6

 
4.6

Curtailment loss
0.8

 
—

 
—

 
—

 
—

 
—

Benefit cost — Company plans
23.5

 
421.8

 
54.0

 
8.8

 
7.8

 
11.8

Pension benefit cost — multi-employer plans
23.6

 
8.5

 
9.2

 
—

 
—

 
—

Total benefit cost
$
47.1

 
$
430.3

 
$
63.2

 
$
8.8

 
$
7.8

 
$
11.8


75
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss were:
 
 
Pension Benefits
 
Other Benefits
 
 
2013
 
2012
 
2013
 
2012
Net actuarial (gain) loss
 
$
(110.2
)
 
$
521.4

 
$
(7.7
)
 
$
12.4

Prior service cost (benefit)
 
6.8

 
5.3

 
—

 
(40.6
)
Amortization of prior service (cost) benefit
 
(4.4
)
 
(3.0
)
 
8.2

 
13.6

Recognized net actuarial loss
 
(3.6
)
 
(396.9
)
 
(5.9
)
 
(7.6
)
Net amount recognized
 
$
(111.4
)
 
$
126.8

 
$
(5.4
)
 
$
(22.2
)
Weighted-Average Actuarial Assumptions Used to Determine Net Expense
 
 
Pension Benefits
 
Other Benefits
 
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Discount rate
 
4.50
%
 
5.30
%
 
5.80
%
 
3.90
%
 
4.30
%
 
5.40
%
Long-term rate of return on plan assets
 
7.75
%
 
7.75
%
 
7.75
%
 
N/A

 
N/A

 
3.50
%
Long-term rate of compensation increase
 
4.25
%
 
4.25
%
 
4.25
%
 
N/A

 
N/A

 
N/A

We amortize prior service cost for our pension plans and postretirement plans, as well as amortizable gains and losses for our postretirement plans, in equal annual amounts over the average expected future period of vested service. For plans with no active participants, average life expectancy is used instead of average expected useful service.
The amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net expense during the next year are as follows:
 
 
Pension Benefits
 
Other Benefits
Prior service cost (benefit)
 
$
3.8

 
$
(7.2
)
Net actuarial loss
 
NA

 
6.6

Plan Assets
The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 21, as of May 26, 2013 , were as follows:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents
 
$
1.0

 
$
194.8

 
$
—

 
$
195.8

Equity securities:
 
 
 
 
 
 
 
 
U.S. equity securities
 
766.9

 
90.0

 
—

 
856.9

International equity securities
 
513.3

 
213.4

 
—

 
726.7

Fixed income securities:
 
 
 
 
 
 
 
 
Government bonds
 
108.7

 
180.8

 
—

 
289.5

Corporate bonds
 
35.3

 
293.1

 
—

 
328.4

Mortgage-backed bonds
 
57.1

 
83.1

 
—

 
140.2

Real estate funds
 
8.9

 
13.7

 
91.5

 
114.1

Multi-strategy hedge funds
 
—

 
—

 
413.9

 
413.9

Private equity funds
 
—

 
—

 
79.1

 
79.1

Master limited partnerships
 
180.6

 
—

 
—

 
180.6

Private energy funds
 
—

 
—

 
7.8

 
7.8

Net receivables for unsettled transactions
 
10.3

 
—

 
—

 
10.3

Total assets
 
$
1,682.1

 
$
1,068.9

 
$
592.3

 
$
3,343.3


76
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

The fair value of plan assets, summarized by level within the fair value hierarchy described in Note 21, as of May 27, 2012 , were as follows:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents
 
$
1.8

 
$
319.8

 
$
—

 
$
321.6

Equity securities:
 
 
 
 
 
 
 
 
U.S. equity securities
 
616.2

 
7.3

 
—

 
623.5

International equity securities
 
395.1

 
126.7

 
—

 
521.8

Fixed income securities:
 
 
 
 
 
 
 
 
Government bonds
 
99.9

 
160.6

 
—

 
260.5

Corporate bonds
 
9.5

 
199.1

 
—

 
208.6

Mortgage-backed bonds
 
82.4

 
70.3

 
—

 
152.7

Real estate funds
 
5.7

 
—

 
83.2

 
88.9

Multi-strategy hedge funds
 
—

 
—

 
379.1

 
379.1

Private equity funds
 
—

 
—

 
64.2

 
64.2

Master limited partnerships
 
137.5

 
—

 
—

 
137.5

Private energy funds
 
—

 
—

 
1.6

 
1.6

Net receivables for unsettled transactions
 
6.6

 
—

 
—

 
6.6

Total assets
 
$
1,354.7

 
$
883.8

 
$
528.1

 
$
2,766.6

Level 1 assets are valued based on quoted prices in active markets for identical securities. The majority of the Level 1 assets listed above include the common stock of both U.S. and international companies, mutual funds, master limited partnership units, and real estate investment trusts, all of which are actively traded and priced in the market. Level 2 assets are valued based on other significant observable inputs including quoted prices for similar securities, yield curves, indices, etc. The Level 2 assets listed above consist primarily of commingled equity investments where values are based on the net asset value of the underlying investments held, individual fixed income securities where values are based on quoted prices of similar securities and observable market data, and commingled fixed income investments where values are based on the net asset value of the underlying investments held. Level 3 assets are those where the fair value is determined based on unobservable inputs. The Level 3 assets listed above consist of alternative investments where active market pricing is not readily available and, as such, we use net asset values as an estimate of fair value as a practical expedient. For real estate funds, the value is based on the net asset value provided by the investment manager who uses market data and independent third party appraisals to determine fair market value. For the multi-strategy hedge funds, the value is based on the net asset values provided by a third party administrator. For private equity and private energy funds, the investment manager provides the valuation using, among other things, comparable transactions, comparable public company data, discounted cash flow analysis, and market conditions.
Level 3 investments are generally considered long-term in nature with varying redemption availability. Certain of our Level 3 investments, with a fair value of approximately $506.8 million as of May 26, 2013 , have the ability to impose customary redemption gates which may further restrict or limit the redemption of invested funds therein. As of May 26, 2013 , Level 3 investments with a fair value of $3.1 million have imposed such gates.
As of May 26, 2013 , we have unfunded commitments for additional investments of $48.0 million in the private equity funds, $17.2 million in the private energy funds, and $4.5 million in real estate funds. We expect unfunded commitments to be funded from plan assets rather than the general assets of the Company.
To develop the expected long-term rate of return on plan assets assumption for the pension plans, we consider the current asset allocation strategy, the historical investment performance, and the expectations for future returns of each asset class.

77
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

Our pension plan weighted-average asset allocations and our target asset allocations at May 26, 2013 and May 27, 2012 , by asset category were as follows:
 
 
May 26, 2013
 
May 27, 2012
 
Target
Allocation
Equity securities
 
47
%
 
41
%
 
38
%
Debt securities
 
23
%
 
23
%
 
22
%
Real estate funds
 
3
%
 
3
%
 
6
%
Multi-strategy hedge funds
 
13
%
 
14
%
 
15
%
Private equity
 
2
%
 
2
%
 
7
%
Other
 
12
%
 
17
%
 
12
%
Total
 
100
%
 
100
%
 
100
%
The Company’s investment strategy reflects the expectation that equity securities and multi-strategy hedge funds will outperform debt securities over the long term. Assets are invested in a prudent manner to maintain the security of funds while maximizing returns within the Company’s Investment Policy guidelines. The strategy is implemented utilizing indexed and actively managed assets from the categories listed.
The investment goals are to provide a total return that, over the long term, increases the ratio of plan assets to liabilities subject to an acceptable level of risk. This is accomplished through diversification of assets in accordance with the Investment Policy guidelines. Investment risk is mitigated by periodic rebalancing between asset classes as necessitated by changes in market conditions within the Investment Policy guidelines.
  Other investments are primarily made up of cash and master limited partnerships.
Level 3 Gains and Losses
The change in the fair value of the plan’s Level 3 assets is summarized as follows:
 
 
Fair Value
May 27, 2012
 
Business Combination
 
Realized Gains (Losses)
 
Unrealized
Gains (Losses)
 
Net, Purchases and Sales
 
Fair Value
May  26, 2013
Real estate funds
 
$
83.3

 
$
—

 
$
(23.9
)
 
$
26.6

 
$
5.5

 
$
91.5

Multi-strategy hedge funds
 
379.1

 
—

 
0.4

 
36.6

 
(2.2
)
 
413.9

Private equity
 
64.2

 
5.8

 
1.6

 
8.2

 
(0.7
)
 
79.1

Private energy
 
1.5

 
—

 
—

 
0.5

 
5.8

 
7.8

Total
 
$
528.1

 
$
5.8

 
$
(21.9
)
 
$
71.9

 
$
8.4

 
$
592.3

 
 
Fair Value
May  29, 2011
 
Realized Gains (Losses)
 
Unrealized
Gains (Losses)
 
Net, Purchases
and Sales
 
Fair Value
May  27, 2012
Real estate funds
 
$
70.3

 
$
0.3

 
$
2.1

 
$
10.6

 
$
83.3

Multi-strategy hedge funds
 
346.0

 
0.6

 
37.6

 
(5.1
)
 
379.1

Private equity
 
56.0

 
(6.7
)
 
9.2

 
5.7

 
64.2

Contracts with insurance companies
 
—

 
—

 
(0.5
)
 
2.0

 
1.5

Total
 
$
472.3

 
$
(5.8
)
 
$
48.4

 
$
13.2

 
$
528.1

Assumed health care cost trend rates have a significant effect on the benefit obligation of the postretirement plans.
Assumed Health Care Cost Trend Rates at:
 
May 26, 2013
 
May 27, 2012
Initial health care cost trend rate
 
9.0
%
 
7.5
%
Ultimate health care cost trend rate
 
5.0
%
 
5.0
%
Year that the rate reaches the ultimate trend rate
 
2022

 
2016


78
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

A one percentage point change in assumed health care cost rates would have the following effect:
 
 
One  Percent
Increase
 
One  Percent
Decrease
Effect on total service and interest cost
 
$
0.7

 
$
(0.6
)
Effect on postretirement benefit obligation
 
20.2

 
(18.0
)
We currently anticipate making contributions of approximately $19.1 million to our pension plans in fiscal 2014 . We anticipate making contributions of $26.0 million to our other postretirement plans in fiscal 2014 . These estimates are based on current tax laws, plan asset performance, and liability assumptions, which are subject to change.
The following table presents estimated future gross benefit payments and Medicare Part D subsidy receipts for our plans:
 
 
Pension
Benefits
 
Health Care and Life Insurance
Benefit
Payments
 
Subsidy
Receipts
2014
 
$
173.6

 
$
26.2

 
$
(0.2
)
2015
 
177.9

 
25.8

 
(0.2
)
2016
 
182.9

 
25.3

 
(0.2
)
2017
 
188.6

 
24.6

 
(0.2
)
2018
 
196.1

 
23.9

 
(0.2
)
Succeeding 5 years
 
1,077.2

 
105.2

 
(1.2
)
Multiemployer Pension Plans
The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements that cover certain of its union-represented employees. The risks of participating in such plans are different from the risks of single-employer plans, in the following respects:
a.
Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
b.
If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
c.
If the Company ceases to have an obligation to contribute to a multiemployer plan in which it had been a contributing employer, it may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of the Company’s participation in the plan prior to the cessation of its obligation to contribute. The amount that an employer that has ceased to have an obligation to contribute to a multiemployer plan is required to pay to the plan is referred to as a withdrawal liability.
The Company’s participation in multiemployer plans for the fiscal year ended May 26, 2013 is outlined in the table below. For each plan that is individually significant to the Company the following information is provided:
•
The “EIN / PN” column provides the Employer Identification Number and the three-digit plan number assigned to a plan by the Internal Revenue Service.
•
The most recent Pension Protection Act Zone Status available for 2012 and 2011 is for plan years that ended in calendar years 2012 and 2011, respectively. The zone status is based on information provided to the Company by each plan. A plan in the “red” zone has been determined to be in “critical status”, based on criteria established under the Internal Revenue Code (“Code”), and is generally less than 65% funded. A plan in the “yellow” zone has been determined to be in “endangered status”, based on criteria established under the Code, and is generally less than 80% funded. A plan in the “green” zone has been determined to be neither in “critical status” nor in “endangered status”, and is generally at least 80% funded.
•
The “FIP/RP Status Pending/Implemented” column indicates whether a Funding Improvement Plan, as required under the Code to be adopted by plans in the “yellow” zone, or a Rehabilitation Plan, as required under the Code to be adopted

79
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

by plans in the “red” zone, is pending or has been implemented by the plan as of the end of the plan year that ended in calendar year 2012.
•
Contributions by the Company are the amounts contributed in the Company’s fiscal periods ending in the specified year.
•
The “Surcharge Imposed” column indicates whether the Company contribution rate for its fiscal year that ended on May 26, 2013 included an amount in addition to the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status”, in accordance with the requirements of the Code.
•
The last column lists the expiration dates of the collective bargaining agreements pursuant to which the Company contributes to the plans.
For plans that are not individually significant to ConAgra Foods the total amount of contributions is presented in the aggregate.
   
   
Pension Protection Act
Zone Status
FIP /
RP Status
Pending /
Implemented
Contributions by
the Company
(millions)
   
Expiration
Dates of
Collective
Bargaining
Agreements
Pension Fund
EIN / PN
2012
2011
FY13
FY12
FY11
Surcharge
Imposed
Bakery and Confectionary Union and Industry International Pension Plan
52-6118572
/ 001
Red
Green
RP Pending
$
2.1

$1.3
$1.1
No
12/08/2012 to 7/23/2016
Central States, Southeast and Southwest Areas Pension Fund
36-6044243
/ 001
Red
Red
RP Implemented
1.2

1.2
1.8
No
03/23/2013 to 06/01/2014
National Conference of Fireman & Oilers National Pension Fund
52-6085445 / 003
Yellow
Yellow
FIP Implemented
0.3

—
—
No
11/19/2015
Western Conference of Teamsters Pension Plan
91-6145047
/ 001
Green
Green
N/A
4.9

5.2
5.4
No
06/30/2015 to 03/31/2018
Other Plans
0.9

0.8
0.9
 
 
Total Contributions
$
9.4

$8.5
$9.2
 
 
The Company will be listed in its plans' Forms 5500 as providing more than 5% of the plan's total contributions for the National Conference of Firemen & Oilers National Pension Fund for the plan year ending in calendar year 2012.
The Company was not listed in the Forms 5500 filed by any of the other plans or for any of the other years as providing more than 5% of the plan’s total contributions. At the date our financial statements were issued, Forms 5500 were not available for plan years ending in calendar year 2012.
In addition to the contributions listed for fiscal 2013 in the table above, we recorded an additional expense of $14.2 million in fiscal 2013 related to our expected incurrence of certain withdrawal costs.
Certain of our employees are covered under defined contribution plans. The expense related to these plans was $30.7 million , $24.2 million , and $21.2 million in fiscal 2013 , 2012 , and 2011 , respectively.
21. FAIR VALUE MEASUREMENTS
FASB guidance establishes a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The three levels of inputs used to measure fair value are as follows:
Level 1  — Unadjusted quoted prices in active markets for identical assets or liabilities,
Level 2  — Observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, and
Level 3  — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.
The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of May 26, 2013 :

80
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Derivative assets
$
13.9

 
$
64.7

 
$
—

 
$
78.6

Available-for-sale securities
6.1

 
—

 
—

 
6.1

Deferred compensation assets
6.9

 
—

 
—

 
6.9

Total assets
$
26.9

 
$
64.7

 
$
—

 
$
91.6

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
—

 
$
137.9

 
$
—

 
$
137.9

Deferred compensation liabilities
35.9

 
—

 
—

 
35.9

Total liabilities
$
35.9

 
$
137.9

 
$
—

 
$
173.8

The following table presents our financial assets and liabilities measured at fair value on a recurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall, as of May 27, 2012 :
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Derivative assets
$
13.8

 
$
44.9

 
$
—

 
$
58.7

Available-for-sale securities
1.6

 
—

 
—

 
1.6

Deferred compensation assets
5.8

 
—

 
—

 
5.8

Total assets
$
21.2

 
$
44.9

 
$
—

 
$
66.1

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
—

 
$
215.4

 
$
—

 
$
215.4

Deferred compensation liabilities
27.1

 
—

 
—

 
27.1

Total liabilities
$
27.1

 
$
215.4

 
$
—

 
$
242.5

Certain assets and liabilities, including long-lived assets, goodwill, asset retirement obligations, and cost and equity investments are measured at fair value on a nonrecurring basis.
During fiscal 2013, the $40.8 million carrying amount of agricultural land and a processing facility (level 3 assets) acquired from an onion supplier was written-down to its fair value of $30.6 million , resulting in an impairment charge of $10.2 million , which is included in selling, general and administrative expenses in the Commercial Foods segment (see Note 18). The fair value measurement used to determine the impairment was based upon updated appraisals.
The carrying amount of long-term debt (including current installments) was $9.4 billion as of May 26, 2013 and $2.9 billion as of May 27, 2012 . Based on current market rates provided primarily by outside investment bankers, the fair value of this debt (level 2 liabilities) at May 26, 2013 and May 27, 2012 , was estimated at $10.2 billion and $3.5 billion , respectively.
22. BUSINESS SEGMENTS AND RELATED INFORMATION
We report our operations in four reporting segments: Consumer Foods, Commercial Foods, Ralcorp Food Group, and Ralcorp Frozen Bakery Products. The Consumer Foods reporting segment includes branded, private brand, and customized food products, which are sold in various retail and foodservice channels, principally in North America. The products include a variety of categories (meals, entrees, condiments, sides, snacks, and desserts) across frozen, refrigerated, and shelf-stable temperature classes. The Commercial Foods reporting segment includes commercially branded foods and ingredients, which are sold principally to foodservice, food manufacturing, and industrial customers. The Commercial Foods segment's primary products include: specialty potato products, milled grain ingredients, a variety of vegetable products, seasonings, blends, and flavors which are sold under brands such as Lamb Weston ® , ConAgra Mills ® , and Spicetec Flavors & Seasonings ® . The Ralcorp Food Group reporting segment principally includes private brand food products that are sold in various retail and foodservice channels, primarily in North America. The products include a variety of categories including cereal products; snacks, sauces, and spreads; and pasta. The Ralcorp Frozen Bakery Products reporting segment principally includes private brand frozen bakery products that are sold in various retail and foodservice channels, primarily in North America. The segment's primary products include: frozen griddle products, including pancakes, waffles, and French toast; frozen biscuits and other frozen pre-baked products such as breads and rolls; and frozen and refrigerated dough products. We do not aggregate operating segments when determining our reporting segments.

81
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

Intersegment sales have been recorded at amounts approximating market. Operating profit for each of the segments is based on net sales less all identifiable operating expenses. General corporate expense, net interest expense, and income taxes have been excluded from segment operations. In the first quarter of fiscal 2013, we revised the manner in which sales of grain within our Commercial Foods segment are recognized. As a result, net sales and cost of goods sold for fiscal 2012 and 2011 have each been increased by $105.3 million and $83.0 million , respectively.
 
2013
 
2012
 
2011
Net sales
 
 
 
 
 
Consumer Foods
$
9,069.9

 
$
8,376.8

 
$
8,002.0

Commercial Foods
5,167.4

 
4,991.1

 
4,384.1

Ralcorp Food Group
924.2

 
—

 
—

Ralcorp Frozen Bakery Products
329.9

 
—

 
—

Total net sales
$
15,491.4

 
$
13,367.9

 
$
12,386.1

Operating profit
 
 
 
 
 
Consumer Foods
$
1,096.5

 
$
1,053.3

 
$
1,126.4

Commercial Foods
631.4

 
546.3

 
509.5

Ralcorp Food Group
85.4

 
—

 
—

Ralcorp Frozen Bakery Products
27.4

 
—

 
—

Total operating profit
$
1,840.7

 
$
1,599.6

 
$
1,635.9

Equity method investment earnings
 
 
 
 
 
Consumer Foods
$
1.8

 
$
4.9

 
$
5.7

Commercial Foods
35.7

 
40.0

 
20.7

Total equity method investment earnings
$
37.5

 
$
44.9

 
$
26.4

Operating profit plus equity method investment earnings
 
 
 
 
 
Consumer Foods
$
1,098.3

 
$
1,058.2

 
$
1,132.1

Commercial Foods
667.1

 
586.3

 
530.2

Ralcorp Food Group
85.4

 
—

 
—

Ralcorp Frozen Bakery Products
27.4

 
—

 
—

Total operating profit plus equity method investment earnings
$
1,878.2

 
$
1,644.5

 
$
1,662.3

General corporate expenses
$
416.3

 
$
770.4

 
$
232.3

Interest expense, net
275.6

 
204.0

 
177.5

Income tax expense
400.2

 
195.8

 
421.6

Income from continuing operations
$
786.1

 
$
474.3

 
$
830.9

Less: Net income attributable to noncontrolling interests
12.2

 
6.5

 
1.8

Income from continuing operations attributable to ConAgra Foods, Inc.
$
773.9

 
$
467.8

 
$
829.1

Identifiable assets
 
 
 
 
 
Consumer Foods
$
8,483.9

 
$
8,220.9

 
$
7,277.3

Commercial Foods
2,600.1

 
2,384.9

 
2,466.8

Ralcorp Food Group
5,736.0

 
—

 
—

Ralcorp Frozen Bakery Products
2,446.7

 
—

 
—

Corporate
1,138.6

 
836.1

 
1,664.6

Total identifiable assets
$
20,405.3

 
$
11,441.9

 
$
11,408.7

Additions to property, plant and equipment
 
 
 
 
 
Consumer Foods
$
212.2

 
$
169.3

 
$
208.7

Commercial Foods
144.2

 
97.4

 
187.0

Ralcorp Food Group
34.3

 
—

 
—

Ralcorp Frozen Bakery Products
8.0

 
—

 
—


82
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

Corporate
60.0

 
70.0

 
70.5

Total additions to property, plant and equipment
$
458.7

 
$
336.7

 
$
466.2

Depreciation and amortization
 
 
 
 
 
Consumer Foods
$
205.5

 
$
193.6

 
$
180.3

Commercial Foods
99.6

 
94.6

 
87.6

Ralcorp Food Group
47.1

 
—

 
—

Ralcorp Frozen Bakery Products
19.5

 
—

 
—

Corporate
73.5

 
83.6

 
93.0

Total depreciation and amortization
$
445.2

 
$
371.8

 
$
360.9

Net sales by product type within each segment were:
 
 
2013
 
2012
 
2011
Net sales
 
 
 
 
 
 
Consumer Foods:
 
 
 
 
 
 
Grocery
 
$
3,367.0

 
$
3,358.0

 
$
3,258.7

Frozen
 
2,383.8

 
1,990.6

 
1,965.2

Snacks
 
1,243.8

 
1,237.6

 
1,209.8

International
 
1,059.4

 
841.5

 
714.2

Store Brands
 
697.3

 
631.9

 
528.8

Other Brands
 
318.6

 
317.2

 
325.3

Total Consumer Foods
 
$
9,069.9

 
$
8,376.8

 
$
8,002.0

Commercial Foods:
 
 
 
 
 
 
Specialty Potatoes
 
$
2,753.1

 
$
2,631.0

 
$
2,375.3

Milled Products
 
1,957.3

 
1,910.2

 
1,603.5

Seasonings, Blends, and Flavors
 
457.0

 
449.9

 
405.3

Total Commercial Foods
 
$
5,167.4

 
$
4,991.1

 
$
4,384.1

Ralcorp Food Group:
 
 
 
 
 
 
Snacks, Sauces & Spreads
 
$
516.6

 
$
—

 
$
—

Cereal Products
 
209.0

 
—

 
—

Pasta
 
198.6

 
—

 
—

Total Ralcorp Food Group
 
$
924.2

 
$
—

 
$
—

Ralcorp Frozen Bakery Products
 
$
329.9

 
$
—

 
$
—

Total net sales
 
$
15,491.4

 
$
13,367.9

 
$
12,386.1

Presentation of Derivative Gains (Losses) for Economic Hedges of Forecasted Cash Flows in Segment Results
Derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment. We believe these derivatives provide economic hedges of certain forecasted transactions. As such, these derivatives (except those related to our milling operations, see Note 19 to our consolidated financial statements) are recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses. The gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings.
The following table presents the net derivative gains (losses) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions, under this methodology:

83
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

 
2013
 
2012
 
2011
Net derivative gains (losses) incurred
$
74.8

 
$
(66.8
)
 
$
35.1

Less: Net derivative gains allocated to reporting segments
25.0

 
24.4

 
0.6

Net derivative gains (losses) recognized in general corporate expenses
$
49.8

 
$
(91.2
)
 
$
34.5

Net derivative gains allocated to Consumer Foods
$
30.9

 
$
24.9

 
$
3.6

Net derivative losses allocated to Commercial Foods
(5.3
)
 
(0.5
)
 
(3.0
)
Net derivative losses allocated to Ralcorp Food Group
(0.3
)
 
—

 
—

Net derivative losses allocated to Ralcorp Frozen Bakery Products
(0.3
)
 
—

 
—

Net derivative gains included in segment operating profit
$
25.0

 
$
24.4

 
$
0.6

As of May 26, 2013 , the cumulative amount of net derivative losses from economic hedges that had been recognized in Corporate and not yet allocated to reporting segments was $9.1 million . This amount reflected net gains of $74.8 million incurred during the fiscal year ended May 26, 2013 , as well as net losses of $58.9 million incurred prior to fiscal 2013 . Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify losses of $5.6 million and $3.5 million to segment operating results in fiscal 2014 and 2015 and thereafter, respectively.
Other Information
At May 26, 2013 , ConAgra Foods and its subsidiaries had approximately 34,840  employees, primarily in the United States. Approximately 40% of our employees are parties to collective bargaining agreements. Of the employees subject to collective bargaining agreements, approximately 31% are parties to collective bargaining agreements that are scheduled to expire during fiscal 2014 .
Our operations are principally in the United States. With respect to operations outside of the United States, no single foreign country or geographic region was significant with respect to consolidated operations for fiscal 2013 , 2012 , and 2011 . Foreign net sales, including sales by domestic segments to customers located outside of the United States, were approximately $1.9 billion , $1.6 billion , and $1.4 billion in fiscal 2013 , 2012 , and 2011 , respectively. Our long-lived assets located outside of the United States are not significant.
Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 17% , 17% , and 18% of consolidated net sales for fiscal 2013 , 2012 , and 2011 , respectively, significantly impacting the Consumer Foods, Ralcorp Food Group, and Ralcorp Frozen Bakery Products segments.
Wal-Mart Stores, Inc. and its affiliates accounted for approximately 15% of consolidated net receivables as of both May 26, 2013 and May 27, 2012 , significantly impacting the Consumer Foods, Ralcorp Food Group, and Ralcorp Frozen Bakery Products segments.
On March 4, 2013, we entered into an agreement with Cargill, Incorporated ("Cargill"), CHS Inc. ("CHS"), and HM Luxembourg, a Luxembourg Société à responsabilité limitée, pursuant to which ConAgra Foods, Cargill, and CHS (collectively, the “Owners”) agreed to form a joint venture (the "Joint Venture"). The Joint Venture (which at closing will be known as "Ardent Mills") will combine the North American flour milling operations and related businesses operated through our ConAgra Mills division and the Horizon Milling joint venture of Cargill and CHS. Immediately following the closing of the transaction, Ardent Mills will be operated by an independent management team. ConAgra Foods and Cargill will each own 44% of Ardent Mills, and CHS will own 12% .  Ardent Mills will be required to make cash distributions to the Owners on at least a semi-annual basis in proportion to each owner's ownership interest. The amount of these cash distributions will, in general, be at least equal to 50% of the cash generated by Ardent Mills and available for distribution, as reasonably determined by the boards of Ardent Mills and its operating subsidiaries, and taking into account working capital and other similar needs. The transaction is expected to close late in calendar year 2013, subject to the receipt of regulatory approval and the satisfaction of other closing conditions. Until the closing, the Owners will continue to operate their respective milling businesses as independent businesses.

84
Notes to Consolidated Financial Statements - (Continued)
Fiscal Years Ended May 26, 2013, May 27, 2012, and May 29, 2011
(columnar dollars in millions except per share amounts)

23. QUARTERLY FINANCIAL DATA (Unaudited)
 
2013
 
2012
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Net sales
$
3,311.9

 
$
3,735.5

 
$
3,850.5

 
$
4,593.5

 
$
3,105.3

 
$
3,431.7

 
$
3,396.0

 
$
3,434.9

Gross profit
871.3

 
862.9

 
874.0

 
951.8

 
596.0

 
754.0

 
786.6

 
676.2

Income from discontinued operations, net of tax
—

 
—

 
—

 
—

 
0.1

 
—

 
—

 
—

Net income (loss) attributable to ConAgra Foods, Inc.
250.1

 
211.6

 
120.0

 
192.2

 
93.8

 
180.2

 
280.1

 
(86.2
)
Earnings per share (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to ConAgra Foods, Inc. common stockholders
$
0.61

 
$
0.52

 
$
0.29

 
$
0.46

 
$
0.23

 
$
0.43

 
$
0.68

 
$
(0.21
)
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to ConAgra Foods, Inc. common stockholders
$
0.61

 
$
0.51

 
$
0.29

 
$
0.45

 
$
0.22

 
$
0.43

 
$
0.67

 
$
(0.21
)
Dividends declared per common share
$
0.24

 
$
0.25

 
$
0.25

 
$
0.25

 
$
0.23

 
$
0.24

 
$
0.24

 
$
0.24

Share price:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High
$
25.93

 
$
28.76

 
$
33.92

 
$
36.16

 
$
26.53

 
$
25.95

 
$
27.18

 
$
26.75

Low
23.81

 
24.99

 
28.29

 
33.52

 
22.72

 
22.99

 
24.31

 
25.11

(1)
Basic and diluted earnings per share are calculated independently for each of the quarters presented. Accordingly, the sum of the quarterly earnings per share amounts may not agree with the total year.


85

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
ConAgra Foods, Inc.:

We have audited the accompanying consolidated balance sheets of ConAgra Foods, Inc. and subsidiaries (the Company) as of May 26, 2013 and May 27, 2012, and the related consolidated statements of earnings, comprehensive income, common stockholders' equity, and cash flows for each of the years in the three-year period ended May 26, 2013. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ConAgra Foods, Inc. and subsidiaries as of May 26, 2013 and May 27, 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended May 26, 2013, in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of May 26, 2013, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 19, 2013 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/  KPMG LLP

Omaha, Nebraska
July 19, 2013



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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's management carried out an evaluation, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of May 26, 2013 . Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective. We acquired Ralcorp on January 29, 2013 and have not yet included Ralcorp in our assessment of the effectiveness of our internal control over financial reporting. Accordingly, pursuant to the SEC's general guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our disclosure controls and procedures does not include Ralcorp. For fiscal 2013, Ralcorp accounted for $1.25 billion of our total net sales and as of May 26, 2013 had total assets of $8.18 billion.
Internal Control Over Financial Reporting
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated any change in the Company's internal control over financial reporting that occurred during the quarter covered by this report and determined that there was no change in our internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Annual Report on Internal Control Over Financial Reporting

The management of ConAgra Foods is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. ConAgra Foods' internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. ConAgra Foods' internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of ConAgra Foods; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of ConAgra Foods are being made only in accordance with the authorization of management and directors of ConAgra Foods; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of ConAgra Foods' assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

With the participation of ConAgra Foods' Chief Executive Officer and Chief Financial Officer, management assessed the effectiveness of ConAgra Foods' internal control over financial reporting as of May 26, 2013. Management's assessment of internal control over financial reporting as of May 26, 2013 excludes internal control over financial reporting related to Ralcorp (acquired January 29, 2013), which accounted for approximately $8.18 billion of consolidated total assets and $1.25 billion of consolidated net sales as of and for the year ended May 26, 2013. In making this assessment, management used criteria established in Internal Control-Integrated Framework , issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, management concluded that, as of May 26, 2013, its internal control over financial reporting was effective.


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The effectiveness of ConAgra Foods' internal control over financial reporting as of May 26, 2013 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, a copy of which is included in this Annual Report on Form 10-K.

/s/ GARY M. RODKIN
Gary M. Rodkin
President and Chief Executive Officer
July 19, 2013
/s/ JOHN F. GEHRING
John F. Gehring
Executive Vice President and Chief Financial Officer
July 19, 2013

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
ConAgra Foods, Inc.:

We have audited the internal control over financial reporting of ConAgra Foods, Inc. and subsidiaries (the Company) as of May 26, 2013, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, ConAgra Foods, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of May 26, 2013, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

ConAgra Foods, Inc. acquired Ralcorp Holdings, Inc. (Ralcorp) during the year ended May 26, 2013, and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of May 26, 2013, Ralcorp's internal control over financial reporting associated with total assets of $8.18 billion and total net sales of $1.25 billion included in the consolidated financial statements of the Company as of and for the year ended May 26, 2013. Our audit of internal control over financial reporting also excluded an evaluation of the internal control over financial reporting of Ralcorp.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of May 26, 2013, and May 27, 2012, and the related consolidated statements of earnings, comprehensive income, common stockholders' equity, and cash flows for each of the years in the three-year period ended May 26, 2013, and our report dated July 19, 2013 expressed an unqualified opinion on those consolidated financial statements.

/s/  KPMG LLP

Omaha, Nebraska
July 19, 2013



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ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to our Directors will be set forth in the 2013 Proxy Statement under the heading “Voting Item #1: Election of Directors,” and the information is incorporated herein by reference.
Information regarding our executive officers is included in Part I of this Form 10-K under the heading “Executive Officers of the Registrant,” as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, by our Directors, executive officers, and holders of more than ten percent of our equity securities will be set forth in the 2013 Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance,” and the information is incorporated herein by reference.
Information with respect to the Audit / Finance Committee and the audit committee’s financial experts will be set forth in the 2013 Proxy Statement under the heading “Board Committees—Audit / Finance Committee,” and the information is incorporated herein by reference.
We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, and Controller. This code of ethics is available on our website at www.conagrafoods.com through the “Investors—Corporate Governance” link. If we make any amendments to this code other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of this code to our Chief Executive Officer, Chief Financial Officer, or Controller, we will disclose the nature of the amendment or waiver, its effective date, and to whom it applies on our website at www.conagrafoods.com through the “Investors—Corporate Governance” link.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to director and executive compensation and our Human Resources Committee will be set forth in the 2013 Proxy Statement under the headings “Non-Employee Director Compensation,” “Board Committees—Human Resources Committee,” and “Executive Compensation,” and the information is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners, directors and management will be set forth in the 2013 Proxy Statement under the heading “Information on Stock Ownership,” and the information is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information about shares of our common stock that may be issued upon the exercise of options, warrants, and rights under existing equity compensation plans as of our most recent fiscal year-end, May 26, 2013 .
Plan Category
 
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights
(a)
 
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants, and
Rights
(b)
 
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
Equity compensation plans approved by security holders (1)
 
25,584,691

 
$
23.73

 
16,660,890

Equity compensation plans not approved by security holders
 
—

 
—

 
—

Total
 
25,584,691

 
$
23.73

 
16,660,890

 
(1)
Column (a) includes 1,331,649 shares that could be issued under performance shares outstanding at May 26, 2013 . The performance shares are earned and common stock issued if pre-set financial objectives are met. Actual shares issued may be equal to, less than, or greater than the number of outstanding performance shares included in column (a), depending on actual performance. Column (b) does not take these awards into account because they do not have an exercise price. The number of shares reflected in column (a) with respect to these performance shares assumes the vesting criteria will be achieved at target levels. Column (b) also excludes 3,646,614 restricted stock units and 711,228 deferral interests in deferred compensation plans that are included in column (a) but do not have an exercise price. The units vest and are payable in common stock after expiration of the time periods set forth in the related agreements. The interests in the deferred compensation plans are settled in common stock on the schedules selected by the participants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to Director independence and certain relationships and related transactions will be set forth in the 2013 Proxy Statement under the headings “Corporate Governance—Director Independence” and “Board Committees—Audit / Finance Committee,” and "Board Committee - Human Resources Committee" and the information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to the principal accountant will be set forth in the 2013 Proxy Statement under the heading “Voting Item #2: Ratification of the Appointment of Independent Auditor,” and the information is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a)    List of documents filed as part of this report:
1.    Financial Statements
All financial statements of the Company as set forth under Item 8 of this Annual Report on Form 10-K.
2.    Financial Statement Schedules

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Schedule
Number
Description
Page
Number
S-II
Valuation and Qualifying Accounts
101

 
Report of Independent Registered Public Accounting Firm
102

All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements, notes thereto.
3.    Exhibits
All exhibits as set forth on the Exhibit Index, which is incorporated herein by reference.


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ConAgra Foods, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
CONAGRA FOODS, INC.
 
 
 
 
By:
/s/ GARY M. RODKIN
 
 
Gary M. Rodkin
 
 
President and Chief Executive Officer
 
 
July 19, 2013
 
 
 
 
By:
/s/ JOHN F. GEHRING
 
 
John F. Gehring
 
 
Executive Vice President and Chief Financial Officer
 
 
July 19, 2013
 
 
 
 
By:
/s/  ROBERT G. WISE
 
 
Robert G. Wise
 
 
Vice President and Corporate Controller
 
 
July 19, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 19th day of July, 2013.
Gary M. Rodkin*
Director
Mogens C. Bay*
Director
Stephen G. Butler*
Director
Steven F. Goldstone*
Director
Joie A. Gregor*
Director
Rajive Johri*
Director
W.G. Jurgensen*
Director
Richard H. Lenny*
Director
Ruth Ann Marshall*
Director
Andrew J. Schindler*
Director
Kenneth E. Stinson*
Director
*     John F. Gehring, by signing his name hereto, signs this annual report on behalf of each person indicated. Powers-of-Attorney authorizing John F. Gehring to sign this annual report on Form 10-K on behalf of each of the indicated Directors of ConAgra Foods, Inc. have been filed herein as Exhibit 24.

 
By:
/s/  JOHN F. GEHRING
 
 
John F. Gehring
 
 
Attorney-In-Fact



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Schedule II
CONAGRA FOODS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the Fiscal Years ended May 27, 2012, May 29, 2011, and May 30, 2010
(Dollars in millions)
Description
 
Balance at
Beginning
of Period
 
Additions
Charged
to Costs  and
Expenses
 
Other
 
Deductions
from
Reserves
 
Balance at
Close of
Period
Year ended May 26, 2013
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful receivables
 
$
5.9

 
0.6

 
2.3

(1)  
1.2

(2)  
$
7.6

Year ended May 27, 2012
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful receivables
 
$
7.8

 
1.0

 
2.2

(1)  
5.1

(2)  
$
5.9

Year ended May 29, 2011
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful receivables
 
$
8.5

 
0.2

 
—

  
0.9

(2)  
$
7.8

 
(1)  
Primarily allowances acquired through fiscal 2013 and 2012 business acquisitions.
(2)  
Bad debts charged off, less recoveries.


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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
ConAgra Foods, Inc.:
Under date of July 19, 2013, we reported on the consolidated balance sheets of ConAgra Foods, Inc. and subsidiaries (the Company) as of May 26, 2013 and May 27, 2012, and the related consolidated statements of earnings, comprehensive income, common stockholders’ equity, and cash flows for each of the years in the three-year period ended May 26, 2013, which are included in the Annual Report on Form 10-K of ConAgra Foods, Inc. for the fiscal year ended May 26, 2013. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule listed in the Index at Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/    KPMG LLP
Omaha, Nebraska
July 19, 2013


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EXHIBIT INDEX
All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by ConAgra Foods, Inc. (file number 001-07275), unless otherwise noted.
 
EXHIBIT
 
DESCRIPTION
 
 
 
*2.1
 
Agreement and Plan of Merger among Ralcorp Holdings, Inc., ConAgra Foods, Inc. and Phoenix Acquisition Sub Inc. dated as of November 26, 2012, incorporated herein by reference to Exhibit 2.1 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 24, 2013
 
 
 
*2.2
 
Master Agreement by and among ConAgra Foods, Inc., Cargill, Incorporated, CHS Inc. and HM Luxembourg S.A R.L. dated as of March 4, 2013
 
 
 
*2.2.1
 
Amendment No. 1 dated April 30, 2013 to Master Agreement by and among ConAgra Foods, Inc., Cargill, Incorporated, CHS Inc. and HM Luxembourg S.A R.L.
 
 
 
*2.2.2
 
Acknowledgment and Amendment No. 2 dated May 31, 2013 to Master Agreement by and among ConAgra Foods, Inc., Cargill, Incorporated, CHS Inc. and HM Luxembourg S.A R.L.
 
 
 
3.1
 
ConAgra Foods' Certificate of Incorporation, as restated, incorporated herein by reference to Exhibit 3.1 of ConAgra Foods' current report on Form 8-K dated December 1, 2005
 
 
 
3.2
 
Amended and Restated By-Laws of ConAgra Foods, Inc., as Amended, incorporated herein by reference to Exhibit 3.1 of ConAgra Foods' current report on Form 8-K dated November 29, 2007
 
 
 
4.1
 
Indenture, dated as of October 8, 1990, between ConAgra Foods, Inc. and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A. and The Chase Manhattan Bank (National Association)), as trustee

 
 
 
**10.1
 
ConAgra Foods, Inc. Amended and Restated Non-Qualified CRISP Plan (January 1, 2009 Restatement), incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 23, 2008
 
 
 
**10.1.1
 
Amendment One dated November 29, 2010 to the ConAgra Foods, Inc. Amended and Restated Non-Qualified CRISP Plan (January 1, 2009 Restatement), incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 27, 2011
 
 
 
**10.2
 
ConAgra Foods, Inc. Non-Qualified Pension Plan (January 1, 2009 Restatement), incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 23, 2008
 
 
 
**10.2.1
 
Amendment One dated December 3, 2009 to ConAgra Foods, Inc. Nonqualified Pension Plan, incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 28, 2010
 
 
 
**10.2.2
 
Amendment Two dated November 29, 2010 to the ConAgra Foods, Inc. Non-Qualified Pension Plan (January 1, 2009 Restatement), incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 27, 2011
 
 
 
**10.3
 
ConAgra Foods, Inc. Directors' Deferred Compensation Plan (January 1, 2009 Restatement), incorporated herein by reference to Exhibit 10.4 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 23, 2008
 
 
 
**10.3.1
 
Amendment One dated December 10, 2010 to ConAgra Foods, Inc. Directors' Deferred Compensation Plan (September, 2009 Restatement), incorporated herein by reference to Exhibit 10.4 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 27, 2011
 
 
 
**10.4
 
ConAgra Foods, Inc. Amended and Restated Voluntary Deferred Compensation Plan (January 1, 2009 Restatement), incorporated herein by reference to Exhibit 10.3 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 23, 2008
 
 
 
**10.4.1
 
Amendment One dated December 3, 2009 to the ConAgra Foods, Inc. Amended and Restated Voluntary Deferred Compensation Plan (January 1, 2009 Restatement), incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 28, 2010
 
 
 

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**10.4.2
 
Amendment Two dated November 29, 2010 to ConAgra Foods, Inc. Amended and Restated Voluntary Deferred Compensation Plan (January 1, 2009 Restatement), incorporated herein by reference to Exhibit 10.3 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 27, 2011
 
 
 
**10.4.3
 
Amendment Three dated March 6, 2013 to ConAgra Foods, Inc. Amended and Restated Voluntary Deferred Compensation Plan (January 1, 2009 Restatement), incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 24, 2013
 
 
 
**10.4.4
 
Amendment Four dated May 21, 2013 to ConAgra Foods, Inc. Amended and Restated Voluntary Deferred Compensation Plan (January 1, 2009 Restatement)
 
 
 
**10.5
 
ConAgra Foods 1990 Stock Plan, incorporated herein by reference to Exhibit 10.6 of ConAgra Foods' annual report on Form 10-K for the fiscal year ended May 29, 2005
 
 
 
**10.6
 
ConAgra Foods 1995 Stock Plan, incorporated herein by reference to Exhibit 10.7 of ConAgra Foods' annual report on Form 10-K for the fiscal year ended May 29, 2005
 
 
 
**10.7
 
ConAgra Foods 2000 Stock Plan, incorporated herein by reference to Exhibit 10.8 of ConAgra Foods' annual report on Form 10-K for the fiscal year ended May 29, 2005
 
 
 
**10.8
 
Amendment dated May 2, 2002 to ConAgra Foods Stock Plans and other Plans, incorporated herein by reference to Exhibit 10.10 of ConAgra Foods' annual report on Form 10-K for the fiscal year ended May 26, 2002
 
 
 
**10.9
 
ConAgra Foods 2006 Stock Plan, incorporated herein by reference to Exhibit 10.10 of ConAgra Foods' annual report on Form 10-K for the fiscal year ended May 28, 2006
 
 
 
**10.9.1
 
Form of Stock Option Agreement for Non-Employee Directors (ConAgra Foods 2006 Stock Plan), incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' current report on Form 8-K dated October 3, 2006
 
 
 
**10.9.2
 
Form of Stock Option Agreement for Employees (ConAgra Foods 2006 Stock Plan), incorporated herein by reference to Exhibit 10.25 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 26, 2006
 
 
 
**10.9.3
 
Form of Restricted Stock Award Agreement (ConAgra Foods 2006 Stock Plan), incorporated herein by reference to Exhibit 10.26 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 26, 2006
 
 
 
**10.9.4
 
Form of Restricted Stock Unit Agreement (ConAgra Foods 2006 Stock Plan), incorporated herein by reference to Exhibit 10.27 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 26, 2006
 
 
 
**10.9.4.1
 
Amendment One to Restricted Stock Unit Agreement (ConAgra Foods 2006 Stock Plan), incorporated herein by reference to Exhibit 10.12 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 23, 2008
 
 
 
**10.9.5
 
Form of Restricted Stock Unit Agreement (ConAgra Foods 2006 Stock Plan) (Post-July 2007), incorporated herein by reference to Exhibit 10.13 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 23, 2008
 
 
 
**10.10
 
ConAgra Foods 2009 Stock Plan, incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' current report on Form 8-K dated September 28, 2009
 
 
 
**10.10.1
 
Form of Stock Option Agreement (ConAgra Foods 2009 Stock Plan) for Non-Employee Directors under the ConAgra Foods 2009 Stock Plan, incorporated herein by reference to Exhibit 10.5 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended August 30, 2009
 
 
 
**10.10.2
 
Form of Stock Option Agreement (ConAgra Foods 2009 Stock Plan), incorporated herein by reference to Exhibit 10.4 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended August 30, 2009
 
 
 
**10.10.3
 
Form of Stock Option Agreement for certain named executive officers (ConAgra Foods 2009 Stock Plan), incorporated herein by reference to Exhibit 10.6 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended August 30, 2009
 
 
 
**10.10.4
 
Form of Restricted Stock Unit Agreement (ConAgra Foods 2009 Stock Plan), incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended August 26, 2012
 
 
 

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**10.10.4.1
 
Form of Restricted Stock Unit Agreement (ConAgra Foods 2009 Stock Plan) (Choice Program), incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended August 29, 2010
 
 
 
**10.10.4.2
 
Form of Restricted Stock Unit Agreement (ConAgra Foods 2009 Stock Plan) (Choice Program-post November 2010), incorporated herein by reference to Exhibit 10.5 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 27, 2011
 
 
 
**10.10.5
 
Form of Restricted Stock Unit Agreement for stock settled RSUs (ConAgra Foods 2009 Stock Plan post July 2012), incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended August 26, 2012
 
 
 
**10.10.6
 
Form of Restricted Stock Unit Agreement (ConAgra Foods 2009 Stock Plan) (Ralcorp Transaction)
 
 
 
**10.10.7
 
Form of Restricted Stock Unit Agreement for Non-Employee Directors (ConAgra Foods 2009 Stock Plan), incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended August 26, 2012
 
 
 
**10.10.8
 
Form of Restricted Stock Unit Agreement for Non-Employee Directors (ConAgra Foods 2009 Stock Plan) (post July 2012), incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended August 26, 2012
 
 
 
**10.11
 
ConAgra Foods Executive Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' current report on Form 8-K dated September 28, 2009
 
 
 
**10.12
 
ConAgra Foods, Inc. 2008 Performance Share Plan, effective July 16, 2008, incorporated herein by reference to Exhibit 10.3 of ConAgra Foods' quarterly report on Form 10-Q for quarter ended August 24, 2008
 
 
 
**10.13
 
ConAgra Foods, Inc. Deferred Compensation Plan Requirements dated December 10, 2010, incorporated herein by reference to Exhibit 10.7 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 27, 2011
 
 
 
**10.14
 
Form of Amended and Restated Change of Control Agreement between ConAgra Foods and its executives (pre September 2011), incorporated herein by reference to Exhibit 10.14 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 23, 2008
 
 
 
**10.14.1
 
Form of Change of Control Agreement between ConAgra Foods and its executives (post September 2011), incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' quarterly report on Form 10-Q for the Quarter Ended November 27, 2011
 
 
 
**10.15
 
Form of Executive Time Sharing Agreement, incorporated herein by reference to Exhibit 10.5 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 25, 2007
 
 
 
**10.16
 
Amended and Restated Employment Agreement between ConAgra Foods and Gary M. Rodkin, incorporated herein by reference to Exhibit 10.15 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended November 23, 2008
 
 
 
**10.17
 
Stock Option Agreement between ConAgra Foods and Gary M. Rodkin incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' current report on Form 8-K dated August 31, 2005
 
 
 
**10.18
 
Consulting Agreement made by and between ConAgra Foods, Inc. and Robert F. Sharpe, Jr. effective May 30, 2011, incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' quarterly report on Form 10-Q for the Quarter Ended August 28, 2011
 
 
 
**10.19
 
Letter Agreement between ConAgra Foods and Andre Hawaux, dated October 9, 2006, incorporated herein by reference to Exhibit 10.24 of ConAgra Foods' annual report on Form 10-K for the fiscal year ended May 27, 2007
 
 
 
**10.20
 
Letter Agreement between ConAgra Foods, Inc. and Brian L. Keck dated September 7, 2010, as amended, incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' quarterly report on Form 10-Q for the Quarter Ended August 28, 2011
 
 
 
**10.21
 
Letter Agreement between ConAgra Foods, Inc. and Paul Maass dated May 16, 2013
 
 
 
**10.22
 
Transition and Severance Agreement between ConAgra Foods, Inc. and Pete Perez dated December 31, 2009, incorporated herein by reference to Exhibit 10.3 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 28, 2010

98
Table of Contents

 
 
 
**10.23
 
Amendment No. 1 to Stock Option Agreement between ConAgra Foods, Inc. and Peter M. Perez dated December 31, 2009 (2004 Options), incorporated herein by reference to Exhibit 10.4 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 28, 2010
 
 
 
**10.24
 
Amendment No. 1 to Stock Option Agreement between ConAgra Foods, Inc. and Peter M. Perez dated December 31, 2009 (2009 Options), incorporated herein by reference to Exhibit 10.5 of ConAgra Foods' quarterly report on Form 10-Q for the quarter ended February 28, 2010
 
 
 
**10.25
 
Summary of Non-Employee Director Compensation Program for the 2013 Plan Year,
 
 
 
10.26
 
Credit Agreement, dated as of September 14, 2011, by and among ConAgra Foods, Inc., JP Morgan Chase Bank, N.A., as administrative agent and a lender, Bank of America, N.A., as syndication agent and a lender, and the other financial institutions party thereto, incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' quarterly report on Form 10-Q for the Quarter Ended November 27, 2011
 
 
 
10.26.1
 
Amendment No. 1 to the Revolving Credit Agreement, entered into as of December 21, 1012, among ConAgra Foods, Inc., JPMorgan Chase Bank, N.A., as administrative agent and a lender and the other financial institutions party thereto, incorporated herein by reference to Exhibit 10.3 of ConAgra Foods' Current Report on Form 8-K filed December 27, 2012
 
 
 
10.27
 
Bridge Loan Agreement, entered into as of December 21, 2012, among ConAgra Foods, Inc. and Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, as sole lead arranger and sole bookrunner, and the other financial institutions party thereto, incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' Current Report on Form 8-K filed December 27, 2012
 
 
 
10.28
 
Term Loan Agreement, entered into as of December 21, 2012, among ConAgra Foods, Inc. and Bank of America, N.A., as administrative agent, JPMorgan Bank, N.A., as syndication agent and Merrill Lynch, Pierce, Fenner & Smith, Incorporated, as sole lead arranger and sole bookrunner, and the other financial institutions party thereto, incorporated herein by reference to Exhibit 10.2 of ConAgra Foods' Current Report on Form 8-K filed December 27, 2012
 
 
 
10.29
 
Registration Rights Agreement dated January 31, 2013 by and between ConAgra Foods, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' Current Report on Form 8-K filed February 4, 2013
 
 
 
10.30
 
Contribution and Equity Interest Purchase Agreement by and among ConAgra Foods, Inc., ConAgra Foods Food Ingredients Company, Inc., Freebird I LLC, Freebird II LLC, Freebird Holdings, LLC and Freebird Intermediate Holdings, LLC, dated as of March 27, 2008, incorporated herein by reference to Exhibit 10.1 of ConAgra Foods' current report on Form 8-K dated March 27, 2008
 
 
 
12
 
Statement regarding computation of ratio of earnings to fixed charges
 
 
 
21
 
Subsidiaries of ConAgra Foods, Inc.
 
 
 
23
 
Consent of KPMG LLP
 
 
 
24
 
Powers of Attorney
 
 
 
31.1
 
Section 302 Certificate
 
 
 
31.2
 
Section 302 Certificate
 
 
 
32.1
 
Section 906 Certificates
 
 
 
101.1
 
The following materials from ConAgra Foods' Annual Report on Form 10-K for the year ended May 27, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Common Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements, and (vii) document and entity information.
 
 
 
 
 
* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. ConAgra Foods agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request.
 
 
 
 
 
** Management contract or compensatory plan.


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Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with respect to ConAgra Foods' long-term debt are not filed with this Form 10-K. ConAgra Foods will furnish a copy of any such long-term debt agreement to the Securities and Exchange Commission upon request.


100
Exhibit 2.2
Execution Version.


MASTER AGREEMENT
Dated as of March 4, 2013
By and Among
CONAGRA FOODS, INC.,
CARGILL, INCORPORATED,
CHS INC.,
and
HM LUXEMBOURG S.À R.L.


TABLE OF CONTENTS

Page


I.
THE JOINT VENTURE    1    
1.01
Formation and Operation of the Joint Venture        1
1.02
Initial Ownership of Newco    3
1.03
Shared Assets    3
1.04
Balance Sheet Adjustment    5
II.
TRANSACTIONS AND CLOSING        9
2.01
Closing    9
2.02
Closing Deliveries    9
III.
CERTAIN REPRESENTATIONS AND WARRANTIES REGARDING THE PARENTS        12
3.01
Corporate Existence and Power    12
3.02
Corporate Authorization    12
3.03
Consents And Approvals; No Violations    13
3.04
Brokers    13
IV.
REPRESENTATIONS AND WARRANTIES RELATING TO THE CONTRIBUTED SUBSIDIARIES AND THE IN-SCOPE BUSINESSES    13
4.01
Corporate Existence and Power    14
4.02
Corporate Authorization    14
4.03
Consents And Approvals; No Violations    15
4.04
Intellectual Property    15
4.05
Litigation    16
4.06
Compliance with Laws    16
4.07
Governmental Approvals    16
4.08
Financial Statements; No Undisclosed Liabilities; Absence of Changes    17
4.09
Assets    17
4.10
Contracts    18
4.11
Real Property    21
4.12
Environmental Matters    22
4.13
Taxes    23
4.14
Employee Benefit Plans    25



i
 

TABLE OF CONTENTS
(continued)
Page



4.15
Food and Drug Regulatory Compliance    27
4.16
Capitalization of the Contributed Subsidiaries; Subsidiaries    29
4.17
Inventory    29
4.18
Accounts Receivable    29
4.19
Indebtedness    29
4.20
Brokers    29
4.21
Customers and Suppliers    29
4.22
Special Representations Regarding Newco    30
4.23
Special Representations Regarding Colorado JV    30
4.24
Approved and Planned Capital Improvements    31
4.25
No Other Representations or Warranties    31
V.
OTHER COVENANTS OF THE PARTIES    31
5.01
Interim Operating Covenants of the Parents    31
5.02
Independent Businesses    34
5.03
Further Assurances; Efforts to Close; Obtaining Consents    34
5.04
Public Announcements    37
5.05
Notification of Certain Matters    37
5.06
Access; Confidentiality    37
5.07
Real Property Reviews    38
5.08
Tax Matters    41
5.09
Schedule Updating    44
5.10
Limited Release by the Parents    45
5.11
Certain Releases by Newco and the Contributed Subsidiaries    45
5.12
Certain Financing Activities; Initial Distributions    46
5.13
Pre-Closing Activities of Newco    47
5.14
Activities of the Contributed Subsidiaries    47
5.15
Completion of Transaction Documents    47
5.16
Claims Against The Colorado JV And The Orchid JV    49
5.17
Colorado JV Consent/Oracle Rice Consents – Alternative
Arrangements    49



ii
 

TABLE OF CONTENTS
(continued)
Page



5.18
Software    49
VI.
CONDITIONS TO CLOSING    49
6.01
Conditions to Obligations of Each Parent’s Group    49
6.02
Additional Conditions to Obligations of the Oracle Group    50
6.03
Additional Conditions to Obligations of the Watson Group    51
6.04
Additional Conditions to Obligations of the Iris Group    51
6.05
No Ongoing Conditions Once Closing Commenced    52
VII.
SURVIVAL AND INDEMNIFICATION    52
7.01
Indemnification by the Parents    52
7.02
Indemnification by Newco    53
7.03
Calculation of Indemnity Payments    53
7.04
Procedures for Defense, Settlement and Indemnification of Direct or
Third-Party Claims    54
7.05
Additional Matters    56
7.06
Limitations    57
7.07
Exclusive Remedy    61
7.08
Manner of Payment    61
VIII.
TERMINATION    61
8.01
Termination    61
8.02
Effect of Termination    62
IX.
MISCELLANEOUS    63
9.01
Notices    63
9.02
Amendments; Waivers    64
9.03
Expenses    65
9.04
Successors and Assigns    65
9.05
Disclosure    66
9.06
Construction    66
9.07
Entire Agreement    66
9.08
Governing Law    67
9.09
Counterparts; Effectiveness    67



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TABLE OF CONTENTS
(continued)
Page



9.10
Severability    68
9.11
Disclaimer of Agency    68
9.12
Dispute Resolution    68
9.13
No Third-Party Beneficiaries    69
9.14
Specific Performance    69
X.
DEFINITIONS    69




iv
 



SCHEDULES

Schedule 1.01(a)(i)        Watson Reorganization
Schedule 1.01(a)(ii)        Iris Reorganization
Schedule 1.01(a)(iii)        Oracle Reorganization
Schedule 1.04.1        Oracle Working Capital Accounts
Schedule 1.04.2        Sky Working Capital Accounts
Schedule 5.07(a)(i)        Other Reviewed Properties
Schedule 6.01(a)        Antitrust Jurisdictions
Schedule 7.01(c)        Specified Indemnity Matters



i
 



PARENT DISCLOSURE LETTERS

Section 3.03        Consents and Approvals
Section 4.03        Contributed Subsidiary Consents and Approvals
Section 4.04(a)    Contributed Subsidiary Intellectual Property
Section 4.10        Contributed Subsidiary Material Contracts
Section 4.11(a)    Contributed Subsidiary Owned Real Property
Section 4.11(b)    Contributed Subsidiary Real Property Leases
Section 4.14(a)    Employee Benefit Plans
Section 4.16(a)    Contributed Subsidiary Capitalization
Section 5.01        Interim Operating Covenants
Section 10        Knowledge



ii
 



EXHIBITS

Exhibit A
Form of Transition Services Agreement - Oracle
Exhibit B
Form of Oracle Patent and Technology License-In Agreement (Oracle to Newco)
Exhibit C
Form of Oracle Patent and Technology License-Out Agreement (Newco to Oracle)
Exhibit D-1
Engineering Review Scope of Work
Exhibit D-2
Environmental Review Scope of Work
Exhibit E
Form of Sky Charter
Exhibit F-1
Form of Iris Wheat Supply Agreement
Exhibit F-2
Form of Watson Wheat Supply Agreement
Exhibit G-1
Form of Newco Articles
Exhibit G-2
Form of Alliance Agreement
Exhibit H
Form of Oracle Flour Supply Agreement
Exhibit I
Form of Watson “Go to Market” Agreement
Exhibit J
IP Matters Agreement Principles
Exhibit K
Form of Oracle Contribution Agreement
Exhibit L
Form of Confidentiality Agreement
Exhibit M
Watson Purchase and Sale Agreement Provisions





iii
 



MASTER AGREEMENT
This Master Agreement (together with the Exhibits, Schedules and Disclosure Letters hereto, this “ Agreement ”) is made as of the 4th day of March, 2013, by and among ConAgra Foods, Inc., a Delaware corporation (“ Oracle ”), Cargill, Incorporated, a Delaware corporation (“ Watson ”), CHS Inc., a Minnesota corporation (“ Iris ”), and HM Luxembourg S.à r.l., a Luxembourg S.à r.l. (“ Newco ”). Oracle, Watson and Iris are each referred to herein individually as a “ Parent ” and collectively as the “ Parents .” The Parents and Newco are each referred to herein individually as a “ Party ” and collectively as the “ Parties .” Capitalized terms not otherwise defined herein will have the respective meanings assigned to them in Article X .
RECITALS
1.    Each of the Parents and certain of their respective Affiliates are engaged in, among other things, the Business.
2.    The Parents desire to enter into, and to cause certain of their respective Affiliates to enter into, a series of arrangements regarding their respective Businesses, including the following, in each case as further provided herein and in the other Transaction Documents:
A.    forming a joint venture structure that combines their respective Businesses in Newco and the Contributed Subsidiaries; and
B.    providing various services to Newco and/or the Contributed Subsidiaries, including, risk management, origination, marketing and transition services.
3.    Contemporaneously with the execution of this Agreement, the Parties are entering into an Employee Matters Agreement.
Accordingly, the Parties, intending to be legally bound hereby, agree as follows:
I.
THE JOINT VENTURE
1.01     Formation and Operation of the Joint Venture .
(a)    Prior to the Closing, (i) Watson will complete or cause to be completed a reorganization of the Watson Group in the manner set forth on Schedule 1.01(a)(i) or in a manner that results in the same legal structure that would have otherwise resulted from the steps described in Schedule 1.01(a)(i) and that does not have any materially adverse Tax consequence on Newco or the other Parties relative to the consequences resulting from the steps on Schedule 1.01(a)(i) (the “ Watson Reorganization ”); (ii) Iris will complete or cause to be completed a reorganization of the Iris Group in the manner set forth on Schedule 1.01(a)(ii) or in a manner that results in the same legal structure that would have otherwise resulted from the steps described in Schedule 1.01(a)(ii) and that does not have any materially adverse Tax consequence on Newco or the other Parties relative to the consequences resulting from the steps on Schedule 1.01(a)(ii) (the “ Iris Reorganization ”); and (iii) Oracle will complete or cause to be completed a reorganization of the Oracle Group in the manner set forth on Schedule 1.01(a)(iii) or in a manner that results in the same legal structure that would have otherwise resulted from the steps described in Schedule 1.01(a)(iii) and that does not have any materially adverse Tax consequence on Newco or the other Parties relative to the consequences resulting from the steps on Schedule 1.01(a)(iii) (the “ Oracle Reorganization ” and, together with the Watson Reorganization and the Iris Reorganization, the “ Reorganizations ”). The Reorganizations will be conducted in compliance with all applicable Laws.
(b)    Upon the commencement of the Closing, the Parties will take or cause to be taken the following actions:




(i)    First, Watson and Iris will Convey to Newco all of the issued and outstanding equity interests in Sky.
(ii)    Next, on the following Business Day, (A) Oracle Lux will Convey to Newco all of the issued and outstanding equity interests in Oracle Netherlands, and (B) immediately following such Conveyance, Oracle Lux, Watson and Iris will adopt the Newco Articles.
(iii)    Next, (A) Oracle Lux, Watson Lux and Iris Lux will contribute all of the issued and outstanding equity interests in their respective Holdcos to Newco, and (B) Watson Lux and Iris Lux will Convey to Newco all of the issued and outstanding equity interests in Sky Canada. The Parties acknowledge and agree that the foregoing step in clause (A) will only take place after the contributions contemplated by the Contribution Agreements will have been consummated as provided therein.
(iv)    Next, Watson will Convey to Watson Lux and Iris will Convey to Iris Lux all of their respective Shares of Newco.
(v)    Next, (A) Newco will cause each Holdco to merge with and into Sky, and (B) Newco will contribute all of the issued and outstanding equity interests in Sky Canada to Oracle Netherlands.
(vi)    Next, Newco will adopt the Sky Charter, and the Oracle Netherlands Charter.
(vii)    Next, Oracle Netherlands will adopt the Sky Canada Charter and Oracle Puerto Rico Charter.
(viii)    Next, the financing and distributions contemplated by Section 5.12 will be completed.
(c)    The Parties will cause the above sequence of events to occur as close together in time as possible, taking into account the objectives of the Parties in planning the restructuring steps in the manner described, over consecutive Business Days, provided , however , that the events contemplated by paragraphs (b)(i) and (b)(ii) above will occur one Business Day apart, as specified therein.
1.02     Initial Ownership of Newco . Simultaneously with the Conveyances contemplated by (ii) and (iii) of Sections 1.01(b) and in further consideration of the transactions contemplated to occur in clauses (iv)-(viii) of Section 1.01(b) , Newco will issue Shares to Oracle Lux, Watson Lux and Iris Lux as may be necessary such that, after giving effect to such issuance and the transactions contemplated by Section 1.01(b)(viii) , (a) Oracle Lux will own all right, title and interest to a number of Shares (the “ Oracle Interests ”) constituting a 44% ownership interest in Newco (the “ Oracle Percentage Interest ”), (b) Watson Lux will own all right, title and interest to a number of Shares (the “ Watson Interests ”) constituting a 44% ownership interest in Newco (the “ Watson Percentage Interest ”), which Watson Percentage Interest shall be held solely by Watson Lux following the Conveyance contemplated by Section 1.01(b)(iv) , and (c) Iris Lux will own all right, title and interest to a number of Shares (the “ Iris Interests ”) constituting a 12% ownership interest in Newco (the “ Iris Percentage Interest ”), which Iris Percentage Interest shall be held solely by Iris Lux following the Conveyance contemplated by Section 1.01(b)(iv) .
1.03     Shared Assets .
(a)     Identification of Shared Assets .
(i)     Shared Assets Schedule . No later than 60 days after the date of this Agreement, each Parent will prepare and deliver to the other Parents a schedule of all of the Shared Assets of such Parent’s Group (the “ Shared Assets Schedules ”). Each Shared Assets Schedule will be current as of the date of this Agreement or such later date as may be specified thereon. Each Shared Assets Schedule will be prepared by the applicable Parent in good faith and using its reasonable best efforts, and will be as detailed

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as reasonably practicable (it being understood that in some cases, it may be necessary to describe certain types of Assets by means of a narrative description of the category of Asset rather than an Asset-by-Asset listing).
(ii)     Updates to Shared Assets Schedules . From and after the date all of the Shared Assets Schedules are delivered pursuant to clause (i) of this Section 1.03(a) and until the Closing, the Parents will work together in good faith and using their respective reasonable best efforts to revise and update the Shared Assets Schedules on a reasonably frequent periodic basis to reflect (A) the addition of any Shared Assets that were wrongly omitted from the previously delivered drafts of the Shared Assets Schedules or that were subsequently acquired, received or otherwise obtained by any member of the applicable Parent’s Group subsequent to the effective date of the previously delivered draft of the applicable Shared Assets Schedule, and (B) the deletion of any Shared Assets that were wrongly included in the previously delivered drafts of the Shared Assets Schedules or that expired or were sold, transferred or otherwise disposed of by any member of the applicable Parent’s Group subsequent to the effective date of the previously delivered draft of the applicable Shared Assets Schedule. The Shared Assets as of the Closing Date are referred to as the “ Closing Shared Assets .”
(b)     Treatment of Shared Assets . Except as otherwise expressly provided in, or contemplated by, any of the other Transaction Documents (it being understood that any Asset that will be made available by any Parent’s Group to Newco or any Contributed Subsidiary following the Closing pursuant to any other Transaction Document will not be considered a Shared Asset under this Agreement), each Parent will use its reasonable best efforts to make available, or cause to be made available, its respective Closing Shared Assets to the Contributed Subsidiaries from and after the Closing Date until the earlier of (i) the expiration or termination of the Transition Services Agreement to which such Parent is a party, or (ii) the date upon which such Parent no longer owns, holds, possesses or otherwise has rights to such Closing Shared Asset, in each case to the extent previously made available to the Business of such Parent’s Group, as applicable, prior to the Closing Date. As used in this Section 1.03 , “to the extent previously made available” means, with respect to any Shared Asset, the extent to which such Shared Asset was provided to, or was used in the conduct and operation of, a Parent’s Group’s Business, in the Ordinary Course of Business prior to the Closing Date (it being understood that “extent” will mean, in all material respects, the amount, level, frequency, responsiveness, functionality and quality). Each such Shared Asset will be made available to the Contributed Subsidiaries on the same economic terms (including with respect to any internal transfer pricing and cost allocations, or lack thereof, as reflected in each applicable Contributed Subsidiary’s Interim Financial Statements) as those on which such Shared Asset has been historically made available by the applicable Parent (or any member of such Parent’s Group).
(c)     Maintenance of Shared Assets .
(i)     In General . From and after the date hereof, each Parent will (A) use Commercially Reasonable Efforts to maintain its Shared Assets, including with respect to condition, functionality and fitness for intended use, and make such capital improvements with respect to such Assets as it would make in the Ordinary Course of Business in the absence of the Contemplated Transactions, (B) refrain from divesting or otherwise disposing of any material Closing Shared Asset to a third-party without making provision for such material Closing Shared Asset (or a reasonably equivalent substitute therefor) to continue to be made available to the applicable Contributed Subsidiary on the same terms provided in this Section 1.03 , (C) use its Commercially Reasonable Efforts to preserve intact, and maintain the effectiveness and validity of, in all material respects, all Intellectual Property and Governmental Approvals that are Shared Assets, (D) use its Commercially Reasonable Efforts to comply in all material respects with the terms of Contracts that are Shared Assets and preserve intact the effectiveness thereof, and (E) otherwise use its Commercially Reasonable Efforts to preserve intact in all material respects the Shared Assets.
(ii)     Renewals/Extensions/Continuations . From and after the date hereof until the third anniversary of the Closing, each Parent will use its Commercially Reasonable Efforts to renew, extend or otherwise continue any Shared Asset that would otherwise expire or terminate prior to the third

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anniversary of the Closing (it being understood that such renewal or extension may be only until the third anniversary of the Closing).
(iii)     Abandonment . Prior to the Closing, no Parent will dispose of a Shared Asset to an unaffiliated third-party in any non-bona fide transaction without the consent of the other Parents. From and after the Closing until the third anniversary of the Closing, if a Parent no longer wishes to maintain, or otherwise wishes to abandon, a Shared Asset, such Parent will notify Newco at least 20 Business Days prior to taking any action to abandon or otherwise give up its rights or ownership to such Shared Asset (or such shorter of period of advance notice to which Newco may consent, such consent not to be unreasonably withheld, conditioned or delayed). In such circumstance Newco may elect, by the delivery of written notice to such Parent, to take ownership, directly or indirectly through any Contributed Subsidiary, of such Shared Asset (in which case such Parent will tender such Shared Asset to such Person as promptly as reasonably practicable, and in which circumstance such Person will be promptly reimburse such Parent for any out-of-pocket expenses reasonably incurred by such Parent in connection with such transfer).
1.04     Balance Sheet Adjustment .
(a)     Estimate Statement . No less than 10 Business Days prior to the Closing Date, each of Oracle and Watson will provide to each other (each with a copy to Iris) of a statement (each individually, an “ Estimate Statement ”) with such Parent’s good faith estimate of the Closing Working Capital of Oracle and Closing Working Capital of Sky, respectively (the “ Estimated Oracle Closing Working Capital ” and the “ Estimated Sky Closing Working Capital ,” respectively). Each Estimate Statement will be prepared by such Parent on an unaudited basis, and all calculations thereon will utilize the same presentation format, apply the same accounting principles, practices, methodologies and policies as are utilized in the Financial Statements of Oracle or Sky, as the case may be (the “ Accounting Principles ”), and will be adjusted for any mutually agreed and commercially reasonable adjustments (with the Parties agreeing to negotiate in good faith) related to material differences between the Parents’ Accounting Principles (which may include changes to Schedule 1.04.1 and Schedule 1.04.2 ) . Following the delivery of the Estimate Statements, the Parties will work together, including making arrangements for the relevant Parent (or a Subsidiary thereof, including the applicable Shareholder) (such Person, the “ Retaining Person ”) to retain the benefits and burdens of ownership with respect to an identified dollar amount of receivables or payables (and this may include retaining ownership of such receivables or payables for Tax purposes or otherwise), to ensure that the working capital balances as estimated above that are to be contributed as part of the Contemplated Transactions equal relative contributions of 44% Oracle, 44% Watson, and 12% Sky. Any receivable or payable balance retained by a Parent (or a Subsidiary thereof, including the applicable Shareholder) pursuant to this Section 1.04(a) shall be treated as never having been transferred to Newco and, to the extent that Newco comes to hold nominal title to any such receivable or payable, Newco shall be deemed to have acted as the agent of the Retaining Person with respect to such receivable or payable and therefore shall not report the taxable income associated with such receivable or payable but instead shall provide to the Parent information to permit the Retaining Person to report such amount on its own tax return. Any amounts paid or received by Newco with respect to such receivables or payables shall be first allocated by Newco to the retained amounts until all amounts required to be paid have been paid by Newco or amounts to be received have been collected and transferred to the applicable Retaining Person.
(b)     Final Statement . No later than 60 days after the Closing Date, Oracle and Watson will cause to be prepared and delivered to each other Parent a statement of the Closing Working Capital of Oracle and Closing Working Capital of Sky, respectively (each, a “ Final Statement ,” and such Closing Working Capital amounts, as finally determined pursuant to this Section 1.04 , with respect to Oracle, the “ Final Oracle Closing Working Capital ”, with respect to Sky, the “ Final Sky Closing Working Capital ” and, each individually, a “ Final Closing Working Capital Amount ”). Each Final Statement will be prepared by such Parent on an unaudited basis and apply the applicable Accounting Principles and adjustments, if any, agreed under Section 1.04(a). If either Oracle, on the one hand, or Watson and Iris, on the other hand, disagree with the other side’s (it being understood that references to “side” in this Section 1.04 will be deemed to be to Oracle, on the one hand, or Watson and Iris, on the other hand) calculation of any of the items in such other side’s Final Statement as delivered, the disagreeing side may, within 60 days after delivery of such Final Statement by the other side, deliver a written notice to such other Parent(s) that specifies in reasonable detail the items or amounts disputed, the basis therefor and the value proposed

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to be assigned to such items or amounts (an “ Objection Notice ”). A side will be deemed to have agreed with all items and amounts for which no Objection Notice is delivered within such 60-day period. If an Objection Notice is delivered by either side, the Parents will, during the 60 days following delivery of the Objection Notice, promptly begin discussions in an attempt to agree on a calculation of the disputed Closing Working Capital amount. For purposes of complying with the terms set forth in this Section 1.04 , each Parent will cooperate with and make available to the other Parents and their representatives as promptly as practicable in consideration of the time requirements set forth in this Section 1.04 all information, records, data and working papers, and will permit access to its facilities and personnel, as may reasonably be requested in connection with the preparation and analysis of the calculations of a Closing Working Capital amount, including with respect to any valuations or calculations to be performed in connection therewith. The Parents will jointly prepare a statement as to those items or amounts in dispute that they have agreed to and the resolution thereof. If the Parents are unable to agree upon any calculation of a Closing Working Capital amount, then Section 1.04(c) will apply.
(c)     Dispute .
(i)    If the Parents are unable to agree upon the calculation of any Closing Working Capital amount within the 60-day period following the delivery of an Objection Notice by a Parent, then the Parents jointly will engage a mutually acceptable accounting firm of nationally recognized reputation (the “ Accounting Firm ”) to resolve those items or amounts that remain in dispute. Promptly, but in no event later than 60 days following its engagement, the Accounting Firm will determine, based solely on written submissions by Oracle, on the one hand, and Watson and Iris, on the other hand, only those issues in dispute and will render a written report as to the resolution of the dispute and the resulting computation of the disputed Closing Working Capital amount. In resolving any disputed item, the Accounting Firm will consider only those items or amounts in the applicable Final Statement as to which the Parents continue to disagree, and the Accounting Firm will be bound by the provisions of this Section 1.04 and must assign a value to each such item equal to the value for such item claimed by Oracle, on the one hand, or Watson and Iris, on the other hand. The Parents will bear the fees and expenses of the Accounting Firm in the following proportions: 44% for Oracle, 44% for Watson, and 12% for Iris.
(ii)    Each Parent will cooperate with the Accounting Firm in its valuation process and will share any relevant materials it has regarding valuation with the Accounting Firm and the other Parents, and each Parent will cooperate in good faith to cause the Accounting Firm to deliver to the Parents within 60 Business Day of its engagement the Accounting Firm’s determination of the value of each disputed item in the computation of Closing Working Capital. The values determined in accordance with this Section 1.04(c) will be final and binding for the purposes of this Agreement.
(d)     Adjustment Payments .
(i)    If the Final Oracle Closing Working Capital, as finally determined pursuant to this Section 1.04 , is greater than the Estimated Oracle Closing Working Capital, then Newco will, within 5 Business Days after such final determination, pay to Oracle the amount of such excess by the wire transfer of immediately available funds to the bank account designated in writing by Oracle. Any amounts paid pursuant to this Section 1.04(d)(i) shall deemed to have been paid from the collection of receivables that shall have been deemed to have been retained by the applicable Shareholder, and not from the proceeds of any borrowing by Newco or any Subsidiary of Newco.
(ii)    If the Final Oracle Closing Working Capital, as finally determined pursuant to this Section 1.04 , is less than the Estimated Oracle Closing Working Capital, then Oracle will, within 5 Business Days after such final determination, cause Oracle Lux to pay to Newco the amount of such shortfall by the wire transfer of immediately available funds to the bank account designated in writing by Newco.
(iii)    If the Final Sky Closing Working Capital, as finally determined pursuant to this Section 1.04 , is greater than the Estimated Sky Closing Working Capital, then Newco will, within 5

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Business Days after such final determination, pay to Watson and Iris the amount of such excess (split between Watson and Iris in proportion to their respective ownership in Newco) by the wire transfer of immediately available funds to the bank account designated in writing by Watson and Iris, respectively. Any amounts paid pursuant to this Section 1.04(d)(iii) shall deemed to have been paid from the collection of receivables that shall have been deemed to have been retained by the applicable Shareholder, and not from the proceeds of any borrowing by Newco or any Subsidiary of Newco.
(iv)    If the Final Sky Closing Working Capital, as finally determined pursuant to this Section 1.04 , is less than the Estimated Sky Closing Working Capital, then Watson and Iris will, within 5 Business Days after such final determination, cause Watson Lux and Iris Lux, as applicable, to pay to Newco the amount of such shortfall (split between Watson and Iris in proportion to their respective ownership in Newco) by the wire transfer of immediately available funds to the bank account designated in writing by Newco.
(v)     Tax Treatment of Adjustment Payments . The Parents agree to treat adjustments in Section 1.04(d) as additional contributions to Newco as of the Closing Date or returns of excess contributions as of the Closing Date, as applicable, and further agree that such contributions or returns of excess contribution will be treated as nontaxable by Newco, the Parents and the Shareholders. Consistent with the provisions of the preceding sentence and of Section 1.04(a) , if excess Closing Working Capital is returned to a Shareholder (because the Shareholder transferred excess Closing Working Capital to Newco), such excess amount shall be treated as having been erroneously transferred to Newco, and Newco shall be deemed to have acted as the agent of such Shareholder with respect to such excess amount and therefore shall not report the taxable income associated with such Closing Working Capital but instead shall provide to the Shareholder information to permit such Shareholder to report such amount on its own tax return. Further, notwithstanding anything to the contrary set forth in this Agreement, (i) the amount of any adjustment in Section 1.04(d) that is treated as an additional contribution to Newco shall be considered part of the Conveyances or contributions described in Section 5.08(ii) through 5.08(vi) and shall be included in the contributing Shareholder’s initial Capital Account, and (ii) the amount of any adjustment in Section 1.04(d) that is treated as a return of excess contributions shall be netted against the relevant Shareholder’s initial contribution of Closing Working Capital for purposes of determining that Shareholder’s initial Capital Account pursuant to the applicable sections of the Alliance Agreement.
II.     
TRANSACTIONS AND CLOSING
2.01     Closing . The closing of the Contemplated Transactions will commence at a location mutually determined by the Parents, at 10:00 a.m., local time on the last Business Day of the calendar month following the satisfaction or waiver of the conditions set forth in Article VI (other than those conditions that by their nature or pursuant to the terms of this Agreement are to be satisfied at the Closing, but subject to the satisfaction or, where permitted, the waiver of those conditions) or at such other time mutually determined by the Parties; provided , however that the Parties will not be required to proceed with a Closing that would take place prior to November 29, 2013 if there is a then-pending investigation by a Governmental Entity into the Contemplated Transactions as potentially violative of Antitrust Laws (for the avoidance of doubt, if such an investigation is commenced after the date hereof and then subsequently “resolved” as contemplated by Section 5.03 , then from and after the date of such resolution, the investigation will no longer be considered to be pending). Except as otherwise set forth in Section 1.01(b) or Section 1.01(c) , it is the intention of the Parties that the full sequence of steps set forth in Section 1.01(b) be completed on the Business Day on which the Closing is consummated to the greatest extent practicable. The Closing will not be deemed to have consummated until the full sequence of steps set forth in Section 1.01(b) has been completed. The date on which the Closing is consummated is referred to as the “ Closing Date ,” and the time at which the Closing is consummated is referred to as the “ Closing ”. For the purposes of determining the date an investigation is “resolved” in the proviso in the first sentence of this paragraph, if any divestitures are required by virtue of a settlement with the Governmental Entity, the date of such resolution shall be the date that any agreements for such divestitures have been executed and the divestitures are ready to take place.

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2.02     Closing Deliveries .
(d)     Items to be Delivered by Oracle . At the commencement of the Closing, Oracle will deliver, or will cause the appropriate member of the Oracle Group to deliver, to Watson, Iris, Newco and/or one or more specified Contributed Subsidiaries, as applicable, all of the following:
(iii)    The Alliance Agreement, duly executed by Oracle and Oracle Lux;
(iv)    A Transition Services Agreement – Oracle, in substantially the form attached hereto as Exhibit A (the “ Transition Services Agreement - Oracle ”), duly executed by the members of the Oracle Group party thereto;
(v)    (A) A Patent and Technology License-In Agreement (Oracle to Newco), in substantially the form attached hereto as Exhibit B (the “ Oracle License-In Agreement ”), and (B) a Patent and Technology License-Out Agreement (Newco to Oracle), in substantially the form attached hereto as Exhibit C (the “ Oracle License-Out Agreement ”), in each case duly executed by the members of the Oracle Group party thereto;
(vi)    Certificates or instruments of assignment representing all of the issued and outstanding equity interests of each of Oracle Holdco and Oracle Netherlands, duly endorsed (or accompanied by duly executed interest powers), for transfer to Newco;
(vii)    Evidence of the completion of the Oracle Reorganization, in a manner reasonably acceptable to Watson and Iris;
(viii)    The Oracle Flour Supply Agreement, duly executed by Oracle;
(ix)    The Confidentiality Agreement, duly executed by Oracle; and
(x)    A Closing Certificate (to be provided to Watson and Iris).
(e)     Items to be Delivered by Watson . On the Closing Date, Watson will deliver, or will cause the appropriate member of the Watson Group to deliver to Oracle, Iris, Newco and/or one or more specified Contributed Subsidiaries, as applicable, all of the following:
(vi)    The Alliance Agreement, duly executed by Watson and Watson Lux;
(vii)    The Transition Services Agreement – Watson, duly executed by the members of the Watson Group party thereto;
(viii)    (A) the Watson License-In Agreement, and (B) the Watson License-Out Agreement, in each case duly executed by the members of the Watson Group party thereto;
(ix)    The Watson “Go to Market” Agreement, duly executed Watson;
(x)    The Watson Wheat Supply Agreement, duly executed by Watson;
(xi)    Certificates or instruments of assignment representing all of the issued and outstanding equity interests of each of Sky and Watson Holdco owned by it, duly endorsed (or accompanied by duly executed interest powers), for transfer to Newco;
(xii)    A certificate or instrument of assignment representing all of the issued and outstanding equity interests of Sky Canada held by Watson Lux, duly endorsed (or accompanied by duly executed interest powers), for transfer to Newco;

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(xiii)    Evidence of the completion of the Watson Reorganization, in a manner reasonably acceptable to Oracle and Iris;
(xiv)    Evidence of termination of the Master Sky Agreements to which Watson or an Affiliate thereof is a party, as of or immediately after the Closing, in a manner reasonably acceptable to Oracle; provided, however , that with respect to the termination of the Watson Master Facility Lease, such agreement may be amended and extended in a manner reasonably acceptable to Oracle with respect to Assets currently subleased to Sky where the requisite consents necessary to transfer those assets to Sky cannot be obtained;
(xv)    Evidence of the Conveyance described in Section 1.01(b)(iv) (as applicable to Watson), in a manner reasonably acceptable to Oracle;
(xvi)    The Confidentiality Agreement, duly executed by Watson; and
(xvii)    A Closing Certificate (to be provided to Oracle and Iris).
(f)     Items to be Delivered by Iris . On the Closing Date, Iris will deliver, or will cause the appropriate member of the Iris Group to deliver to Oracle, Watson, Newco and/or one or more specified Contributed Subsidiaries, as applicable, all of the following:
(i)    The Alliance Agreement, duly executed by Iris and Iris Lux;
(ii)    The Iris Wheat Supply Agreement, duly executed by Iris;
(iii)    Certificates or instruments of assignment representing all of the issued and outstanding equity interests of each of Iris Holdco and Sky owned by it, duly endorsed (or accompanied by duly executed interest powers), for transfer to Newco;
(iv)    A certificate or instrument of assignment representing all of the issued and outstanding equity interests of Sky Canada held by Iris Lux, duly endorsed (or accompanied by duly executed interest powers), for transfer to Newco;
(v)    Evidence of the completion of the Iris Reorganization, in a manner reasonably acceptable to Watson and Oracle;
(vi)    Evidence of termination of the Master Sky Agreements to which Iris or an Affiliate thereof is a party, as of or immediately after the Closing, in a manner reasonably acceptable to Oracle; provided, however, that with respect to the termination of the Iris Master Facility Lease, such agreement may be amended and extended in a manner reasonably acceptable to Oracle with respect to Assets currently subleased to Sky where the requisite consents necessary to transfer those assets to Sky cannot be obtained;
(vii)    Evidence of the Conveyance described in Section 1.01(b)(iv) (as applicable to Iris), in a manner reasonably acceptable to Oracle;
(viii)    The Confidentiality Agreement, duly executed by Iris; and
(ix)    A Closing Certificate (to be provided to Oracle and Watson).
(g)     Items to be Delivered by Newco . On the Closing Date, Newco will deliver to Oracle, Watson, and/or Iris, as applicable:

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(i)    a counterpart to all of the other Transaction Documents to which Newco is a party (including certificates or instruments of assignment representing all of the issued and outstanding equity interests of Sky Canada for transfer to Oracle Netherlands) duly executed by Newco (it being understood and acknowledged by the Parties that solely for these purposes, any member of Watson Lux’s and Iris Lux’s respective board of managers will be deemed to be the authorized signatories for Newco); and
(ii)    stock certificates or other customary evidence of equity ownership under Luxembourg Law representing the Shares issued as contemplated by Section 1.02 .
(h)     Items to be Delivered by the Contributed Subsidiaries . On the Closing Date, each Parent, or, as applicable, Newco, will cause its Contributed Subsidiaries to deliver to Oracle, Watson, Iris, Newco or any other Contributed Subsidiary, as applicable, a counterpart to all Transaction Documents to which such Contributed Subsidiary is a party, duly executed by such Contributed Subsidiary.
III.     
CERTAIN REPRESENTATIONS AND WARRANTIES REGARDING THE PARENTS
Each Parent represents and warrants to each other Parent and to Newco, as of the date hereof and as of the Closing, that, except as set forth in the applicable section(s) of such Parent’s Disclosure Letter (including any supplements thereto provided pursuant to Section 5.09 ):
3.01     Corporate Existence and Power . Such Parent is an entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation or formation, as applicable.
3.02     Corporate Authorization . The execution, delivery and performance by such Parent of this Agreement and the other Transaction Documents to which it is a party and the consummation by such Parent of the Contemplated Transactions is within its corporate or similar powers and have been duly authorized by all necessary corporate or similar action on its part and no other corporate or similar or shareholder, partner, member or similar action on the part of such Parent is necessary to authorize the execution, delivery and performance of such Transaction Documents or the consummation of the Contemplated Transactions.  This Agreement and the other Transaction Documents to which such Parent is a party constitute or will constitute at Closing, as applicable, a legal, valid and binding agreement of it, enforceable against it in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Law affecting the enforcement of creditors’ rights generally and by general equitable principles (such exception, an “ Enforceability Exception ”).
3.03     Consents And Approvals; No Violations . Assuming the Consents from Governmental Entities and third parties set forth on Section 3.03 of such Parent’s Disclosure Letter have been obtained, the execution and delivery of this Agreement and the other Transaction Documents by such Parent to which it is a party, and the consummation of the Contemplated Transactions by such Parent do not and will not (i) violate or conflict with any provision of its articles of incorporation, bylaws, certificate of formation or limited liability company agreement, as applicable, or any other governing or organizational documents of such Parent, (ii) violate or conflict with any Law or Order of any Governmental Entity applicable to such Parent or by which any of its Assets may be bound, (iii) require any Governmental Approval, or (iv) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default under, or give rise to any right of termination, cancellation or acceleration, or result in the creation of any Lien upon any of its Assets or give rise to any obligation, right of termination, cancellation, acceleration or increase of any obligation or a loss of a benefit under, any of the terms, conditions or provisions of any Contract, excluding in the case of clauses (ii) through (iv) above, conflicts, violations, breaches, defaults, rights of payment and reimbursement, terminations, modifications, accelerations, increases in obligations, losses of benefits and creations and impositions of Liens which would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Parent’s Business.

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3.04     Brokers . No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Contemplated Transactions based upon any arrangements made by or on behalf of such Parent or any member of its Group.
IV.     
REPRESENTATIONS AND WARRANTIES RELATING TO THE
CONTRIBUTED SUBSIDIARIES AND THE IN-SCOPE BUSINESSES
Each Parent makes the representations and warranties set forth below (except for the representations and warranties set forth in Sections 4.14(c) and (d) , which are made only by Watson, the representations and warranties set forth in Section 4.14(e) , which are made only by Oracle, the representations and warranties set forth in Section 4.22 , which are made only by Watson and Iris, and the representations and warranties set forth in Section 4.23 , which are made only by Oracle, both as of the date hereof and as of the Closing, except as set forth in the applicable section(s) of such Parent’s Disclosure Letter (including any supplements thereto provided pursuant to Section 5.09 ), as follows:
(i)     Watson makes the representations and warranties set forth below (A) with respect to each Watson Contributed Subsidiary other than Sky, Sky GP (prior to the Sky GP Dissolution) and Sky Canada (from and after the Sky Canada Merger), to Oracle, Iris and Newco, and (B) with respect to Sky, Sky GP (prior to the Sky GP Dissolution) and Sky Canada (from and after the Sky Canada Merger), to Oracle and Newco on a Several basis with Iris;
(ii)    Iris makes the representations and warranties set forth below (A) with respect to each Iris Contributed Subsidiary other than Sky, Sky GP (prior to the Sky GP Dissolution)and Sky Canada (from and after the Sky Canada Merger), to Oracle, Watson and Newco, and (B) with respect to Sky, Sky GP (prior to the Sky GP Dissolution) and Sky Canada (from and after the Sky Canada Merger), to Oracle and Newco on a Several basis with Watson; and
(iii)    Oracle makes the representations and warranties set forth below with respect to each Oracle Contributed Subsidiary.
The Parties acknowledge and agree that references in this Article IV and in Article V to the “Business” or any “Assets” of a “Contributed Subsidiary,” and variants or components of the same, will be deemed to include both (A) the Business and Assets that are to be contributed to such Contributed Subsidiary pursuant to the Contribution Agreements, including as such Business has been operated by other members of such Parent’s Group prior to the time at which such Business was transferred to the Contributed Subsidiary pursuant to the applicable Contribution Agreement, and (B) the Business and Assets, if any, currently conducted or held by such Contributed Subsidiary.
4.01     Corporate Existence and Power . Such Contributed Subsidiary is an entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation or formation, as applicable. Such Contributed Subsidiary has all requisite corporate power and authority to own, lease and operate the Assets owned by it and to carry on such Contributed Subsidiary’s Business as now being conducted by it, except for such failures that have not been, and would not reasonably be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business. Such Contributed Subsidiary is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it in respect of such Contributed Subsidiary’s Business makes such qualification necessary, except in such jurisdictions where the failure to be so qualified or licensed and in good standing has not been and would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business.
4.02     Corporate Authorization . The execution, delivery and performance by such Contributed Subsidiary of any Transaction Documents to which it is a party and the consummation by it of the Contemplated Transactions are within its corporate or similar powers and have been duly authorized by all necessary corporate or similar action on its part and no other corporate or similar or shareholder, partner, member or similar action on the part of such Contributed Subsidiary is necessary to authorize the execution, delivery and performance of such

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Transaction Documents or the consummation of the Contemplated Transactions.  Any Transaction Documents to which such Contributed Subsidiary is a party constitute or will constitute at Closing, as applicable, a legal, valid and binding agreement of it, enforceable against it in accordance with its terms, except to the extent that its enforceability may be subject to an Enforceability Exception.
4.03     Consents And Approvals; No Violations . Assuming the Consents from Governmental Entities and third parties set forth on Section 4.03 of such Parent’s Disclosure Letter have been obtained, the execution and delivery of any Transaction Documents by such Contributed Subsidiary to which it is a party, and the consummation by such Contributed Subsidiary of the Contemplated Transactions, do not and will not (i) violate or conflict with any provision of its articles of incorporation, bylaws, certificate of formation or limited liability company agreement, as applicable, or any other governing or organizational documents of such Person, (ii) violate or conflict with any Law or Order of any Governmental Entity applicable to such Contributed Subsidiary or by which any of its Assets may be bound, (iii) require any Governmental Approval, or (iv) result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a default under, or give rise to any right of termination, cancellation or acceleration, or result in the creation of any Lien upon any of its respective Assets or gives rise to any obligation, right of termination, cancellation, acceleration or increase of any obligation or a loss of a benefit under, any of the terms, conditions or provisions of any Contract, excluding in the case of clauses (ii) through (iv) above, conflicts, violations, breaches, defaults, rights of payment and reimbursement, terminations, modifications, accelerations, increases in obligations, losses of benefits and creations and impositions of Liens which would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business.
4.04     Intellectual Property .
(a)     Section 4.04(a) of such Parent’s Disclosure Letter describes and sets forth, in reasonable detail, all material Intellectual Property of such Contributed Subsidiary.
(b)    To the Knowledge of the Parent, each of its Contributed Subsidiaries has good and marketable title to, or has the right to use and possess for the life thereof, all of its material Intellectual Property, free and clear of any Liens, other than Permitted Liens, and any requirement of any past royalty payments, license fees, charges or other payments or conditions or restrictions whatsoever.
(c)    To the Knowledge of the Parent, no member of such Parent’s Group has licensed any material Intellectual Property owned by such Contributed Subsidiary to any Person, or granted any other right that does or that will, subsequent to the Closing, permit or enable any other Person to use any of such Contributed Subsidiary’s material owned Intellectual Property which is used or held for use in the Business in the United States, Puerto Rico or Canada.
(d)    No member of such Parent’s Group has received any written notice of any Proceeding and, to the Knowledge of such Parent, there is no threatened Proceeding against any member of such Parent’s Group asserting that the operation of such Contributed Subsidiary’s Business as currently conducted infringes upon or otherwise infringes or conflicts with the Intellectual Property of any Person, except with respect to any Proceeding or threatened Proceeding therefor which would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business.
(e)    No member of such Parent’s Group has, since January 1, 2010, given any notice to any Person asserting infringement by such Person of any material Intellectual Property utilized by such Contributed Subsidiary and, to the Knowledge of such Parent, no Person is infringing any such material Intellectual Property, except with respect to any infringement which would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business.
4.05     Litigation . There are no Proceedings pending against any member of such Parent’s Group or, to the Knowledge of such Parent, threatened against any member of such Parent’s Group (or any of such Contributed Subsidiary’s Assets or operations), at Law or in equity, or before or by any Governmental Entity, that have been or

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would reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business. No member of such Parent’s Group is subject to any currently effective Order that has been or would reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business.
4.06     Compliance with Laws . The Business of such Contributed Subsidiary is being conducted in compliance with, and has, since January 1, 2010, been in compliance with, all applicable Laws, except for any non-compliance which has not been, and would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business. Since January 1, 2010, there has not been a Regulatory Event with respect to the Business of such Contributed Subsidiary.
4.07     Governmental Approvals . The Business of such Contributed Subsidiary has obtained, maintained and is in compliance with (and since January 1, 2010 has been in compliance with) all Governmental Approvals required to enable such Business to be operated, except for any non-compliance which has not been, and would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business. None of the Governmental Approvals necessary to operate such Contributed Subsidiary’s Business as currently conducted will lapse, terminate, expire or otherwise be impaired as a result of the consummation of the Contemplated Transactions, except as would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business. This Section 4.07 is not intended to include any Governmental Approvals needed to be obtained pursuant to any applicable Antitrust Laws to consummate the Contemplated Transactions, which are the subject of clause (iii) of Section 4.03 .
4.08     Financial Statements; No Undisclosed Liabilities; Absence of Changes .
(a)    Each Parent has provided to each other Parent (or has otherwise given each other Parent access to) consolidated unaudited financial statements of such Contributed Subsidiaries, including their consolidated balance sheets as of November 25, 2012 (in the case of Oracle) or as of November 30, 2012 (in the case of Watson and Iris) and the consolidated statements of income for the 6-month period then ended (the “ Interim Financial Statements ”).
(b)    Each Parent has provided to each other Parent (or has otherwise given each other Parent access to) consolidated unaudited financial statements of such Contributed Subsidiaries, including the combined balance sheets and the combined statements of income as of and for each of the three completed fiscal years ending in May 2010, May 2011 and May 2012 (the “ Annual Financial Statements ,” and together with the Interim Financial Statements, the “ Financial Statements ”).
(c)    Such Financial Statements were derived from the books and records of such Parent’s Group, have been prepared in accordance with GAAP and present fairly in all material respects the financial position and results of operations of the Business of the Contributed Subsidiaries as at the dates and for the periods presented (subject to normal and recurring adjustments, which are not material, individually or in the aggregate).
(d)    Since the end of the fiscal year ending in May 2012, except as and to the extent set forth in such Financial Statements, there have been no Liabilities incurred by the Business of such Contributed Subsidiaries that would be required to be reflected on a balance sheet or in the notes thereto prepared in accordance with GAAP, except for (i) Liabilities incurred since the end of the most recently completed fiscal year of such Parent in the Ordinary Course of Business, (ii) Liabilities that would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business, or (iii) employee related Liabilities addressed in the Employee Matters Agreement.
(e)    Except as required or expressly permitted by this Agreement, since the end of the fiscal year ending in May 2012, no event, occurrence or condition has occurred which has been or would reasonably be expected to be, individually or in the aggregate, materially adverse to the Business of such Contributed Subsidiaries.
4.09     Assets .

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(a)    Such Contributed Subsidiary owns (and in which case has good and marketable title, free and clear of all Liens, other than Permitted Liens, to), leases (and in which case has a valid leasehold interest, free and clear of all Liens, other than Permitted Liens, to) or has the legal and valid right to use all of its Assets.
(b)    Each Contributed Subsidiary’s Assets, together with any Shared Assets and the Assets and services to be made available to any such Contributed Subsidiary pursuant to the other Transaction Documents (including the applicable Transition Services Agreement and Intellectual Property to be licensed or to which access is otherwise provided under the applicable IP License Agreement), include:
(i)    all Manufacturing Assets, computers and other electronic data processing equipment, fixtures, furniture, motor vehicles and other transportation equipment and other tangible personal property that, in the aggregate, are sufficient and necessary for such Contributed Subsidiary to continue immediately after the Closing to operate such Contributed Subsidiary’s Business in a manner substantially similar to the manner in which it is currently operated in all material respects (except as otherwise contemplated by the Transaction Documents), which tangible personal property is, in all material respects (1) in good operating condition and repair, (2) adequate for the uses to which it is being put, and (3) not in need of maintenance or repairs except for ordinary, routine maintenance and repairs;
(ii)    assuming that any required Consents have been obtained, all Governmental Approvals, in the aggregate, that are sufficient and necessary for such Contributed Subsidiary to continue immediately after the Closing to operate such Contributed Subsidiary’s Business in a manner substantially similar to the manner in which it is currently operated in all material respects (except as otherwise contemplated by the Transaction Documents);
(iii)    Intellectual Property that is sufficient and necessary for such Contributed Subsidiary to continue immediately after the Closing to operate such Contributed Subsidiary’s Business in a manner substantially similar to the manner in which it is currently operated in all material respects (except as otherwise contemplated by the Transaction Documents or with respect to any non-transferred software contemplated by Section 5.18 ); and
(iv)    in the aggregate, all Assets sufficient and necessary for such Contributed Subsidiary to continue immediately after the Closing to conduct such Contributed Subsidiary’s Business in a manner substantially similar to the manner in which it was operated as of the date of this Agreement in all material respects (except as otherwise contemplated by the Transaction Documents).
(c)    As of the Closing, no Contributed Subsidiary will be involved, directly or indirectly, in any business other than the Business.
4.10     Contracts .
(a)     Section 4.10 of such Parent’s Disclosure Letter lists each Contract to which each Contributed Subsidiary is a party or by which its Assets are bound as of the date hereof or that another member of such Parent’s Group is a party or by which its Assets are bound as of the date hereof and that will be transferred to such Contributed Subsidiary pursuant to the applicable Contribution Agreement and, in each case, that relates to the Business and falls within one or more of the categories set forth below (collectively, the “ Contributed Subsidiary Material Contracts ”):
(v)    a collective bargaining agreement or other material Contract with any labor organization, union or works council;
(vi)    an employment agreement, severance agreement, retention agreement, change in control agreement or other Contract with any employee of such Parent Group’s Business;

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(vii)    a Contract containing covenants that would be binding upon such Contributed Subsidiary or Newco that would restrict the ability of such Contributed Subsidiary or Newco to compete or engage in any business or geographic area;
(viii)    a Contract that would be binding upon such Contributed Subsidiary or Newco and containing any “most favored nations,” exclusivity, sole source or similar right in favor of any party with respect to any material goods or services sold or provided by such Contributed Subsidiary or Newco (or that would be sold or provided by such Contributed Subsidiary or Newco);
(ix)    a lease, sublease or similar Contract with any Person under which (A) a member of such Parent Group is a lessee of, or holds or uses, any material Manufacturing Assets, machinery, equipment, vehicle or other tangible personal property owned by any Person or (B) a member of such Parent Group is a lessor or sublessor of, or makes available for use by any Person, any material tangible personal property owned or leased by a member of such Parent Group, in any such case which has an aggregate future Liability or receivable, as the case may be, in excess of $500,000;
(x)    (A) a Real Property Lease of such Contributed Subsidiary or (B) a Contract relating to any of its Leased Real Property or by which any of its Leased Real Property is bound, that has an aggregate future Liability of any Person in excess of $500,000 or that is not terminable at will by the relevant member of the Parent Group without penalty upon 90 days prior notice or less;
(xi)    a Contract (A) for the sale of any Asset of such Parent Group’s Business for consideration in excess of $250,000 or with respect to the Assets of such Parent Group’s Business that have a fair market value in excess of $500,000, other than Contracts for the sale of inventories (including any finished goods or work-in-process) entered into in the Ordinary Course of Business, or (B) a distribution agreement or similar Contract for the distribution or sale of products of such Parent Group’s Business in an amount that has in any past calendar year or fiscal year been in excess of $500,000 or that would reasonably be expected to be in an amount in excess of $500,000 in a future calendar year or fiscal year;
(xii)    a Contract for the sale of products of such Parent Group’s Business that is with any customer who has purchased in any past calendar year or fiscal year from such Parent Group’s Business more than $5,000,000 of such products or who would reasonably be expected to purchase such products in an amount in excess of $5,000,000 in the current or any future calendar year or fiscal year;
(xiii)    a Contract for the purchase of materials, supplies, goods, services, equipment or other Assets utilized in connection with such Parent Group’s Business that (A) is with any vendor from whom such Parent Group’s Business purchased more than $5,000,000, in the aggregate, in the mostly recently ended calendar year or fiscal year, or would reasonably be expected to provide for the purchase of more than $5,000,000, in the aggregate, in the current or any future calendar year or fiscal year, of such items, and (B) is not terminable at will by the relevant member of the Parent Group without penalty upon 90 days prior notice or less;
(xiv)    a Contract relating to the incurrence, assumption or guarantee of any Indebtedness or imposing a Lien (other than Permitted Liens) on any Assets of such Parent Group’s Business, including indentures, guarantees, loan or credit agreements, sale and leaseback agreements, purchase money obligations incurred in connection with the acquisition of property, mortgages, pledge agreements, security agreements, or conditional sale or title retention agreements;
(xv)    a Contract with any independent contractor or consultant (or similar arrangements) (A) for more than $500,000 in the aggregate, in the current or any future calendar year or fiscal year, and (B) that is not terminable at will by such Contributed Subsidiary without penalty upon 90 days prior notice or less;

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(xvi)    a material currency exchange, interest rate exchange or commodity exchange (or similar) Contract;
(xvii)    a Contract pursuant to which a member of the Parent Group provided or received goods or services to or from another member of the Parent Group or pursuant to which a member of the Parent Group owes any obligations or has any Liabilities to another member of the Parent Group;
(xviii)    a Contract establishing or providing for any material partnership, joint venture, strategic alliance or collaboration; or
(xix)    a Contract that is otherwise material to such Parent Group’s Business.
(b)    Each Contributed Subsidiary Material Contract is in full force and effect and is the legal, valid and binding obligation of the member of such Parent Group party thereto and, to the Knowledge of such Parent, the other parties thereto, and is enforceable by the member of such Parent Group party thereto in accordance with its terms, except as has not been and would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business. Except as has not been and would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business, the member of such Parent Group party thereto and, to the Knowledge of such Parent, the other parties thereto, has performed all obligations required to be performed by it to date under the Contributed Subsidiary Material Contracts to which it is a party and is not in breach or default thereunder, and no event has occurred that, with the lapse of time or the giving of notice or both would constitute a breach or default by the member of such Parent Group party thereto or such other party thereunder. Such Parent has made available to each other Parent a true and correct copy of each Contributed Subsidiary Material Contract, together with all amendments, modifications or supplements thereto.
4.11     Real Property .
(a)     Section 4.11(a) of such Parent’s Disclosure Letter sets forth a correct and complete list of all real property owned in fee by such Contributed Subsidiary (such real property, together with the right, title and interest in all buildings, improvements and fixtures thereon and all other appurtenances thereto, its “ Owned Real Property ”).
(b)     Section 4.11(b) of such Parent’s Disclosure Letter sets forth a correct and complete list of all leasehold, subleased and other interests in real property held by such Contributed Subsidiary (including all ground leased property whereby such Contributed Subsidiary leases real property but owns the improvements located thereon; in which case the ownership of such improvements will be noted in such Parent’s Disclosure Letter) (such real property, its “ Leased Real Property ” and, together with its Owned Real Property, its “ Real Property ”). Section 4.11(b) of such Parent’s Disclosure Letter sets forth a correct and complete list of all leases, subleases and occupancy agreements, together with any amendments thereto (“ Real Property Leases ”), with respect to all Leased Real Property.
(c)    No Real Property of such Contributed Subsidiary is a Shared Asset.
(d)    Such Contributed Subsidiary’s Real Property constitutes all interests in real property which are (i) currently used, occupied or held for use by such Contributed Subsidiary and (ii) sufficient and necessary for such Contributed Subsidiary to continue immediately after the Closing to conduct its Business in a manner substantially similar to the manner currently conducted by it in all material respects.
(e)    Such Contributed Subsidiary has good and marketable fee title to its Owned Real Property and a valid and enforceable leasehold interest in the Leased Real Property, in each case, free and clear of all Liens other than Permitted Liens.

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(f)    With respect to each Real Property Lease of such Contributed Subsidiary, (i) all rents, deposits and additional rents due pursuant to such Real Property Lease have been paid in full and no security deposit or portion thereof has been applied in respect of a breach or default under such Real Property Lease that has not been redeposited in full, and (ii) such Contributed Subsidiary has not received any notice that it is in default under such Real Property Lease or that the owner of such Leased Real Property has made any assignment, mortgage, pledge or hypothecation of such Real Property Lease or the rents or use fees due thereunder.
(g)    Such Contributed Subsidiary is not the owner or lessor of any Leased Real Property of any other Contributed Subsidiary. Such Contributed Subsidiary has not licensed or otherwise granted to any Person the right to use or occupy any of its Real Property.
(h)    Such Contributed Subsidiary’s Real Property is in good operating condition, suitable, sufficient and appropriate in all respects for its current use.
(i)    No member of such Parent’s Group has received a written notice of any pending condemnation proceedings or eminent domain proceedings of any kind that would have a material affect with respect to the use of any individual Real Property and, to the Knowledge of such Parent, none are threatened against any such Real Property.
4.12     Environmental Matters . Except as has not been and would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business:
(a)    The Business of such Contributed Subsidiary is, and since January 1, 2010, has been, in compliance with all applicable Environmental Laws and any Governmental Approvals required pursuant to Environmental Law.
(b)    There is no pending Environmental Claim, and since January 1, 2010, no member of such Parent’s Group has received any written notice of any threatened Environmental Claim, in either case regarding such Contributed Subsidiary’s Business or Real Property that has not been fully resolved with no further Liability of such Contributed Subsidiary or such Contributed Subsidiary’s Business, and to the Knowledge of such Parent, since January 1, 2010, there have been no threatened Environmental Claims regarding either such Contributed Subsidiary’s Business or Real Property, regardless of whether written notice was provided therefor.
(c)    No member of such Parent’s Group has entered into or is subject to any outstanding Order under any Environmental Law regarding either such Contributed Subsidiary’s Business or Real Property.
(d)    The Business of such Parent Group has not Released any Hazardous Materials at such Contributed Subsidiary’s Real Property that would be reasonably likely to result in such Contributed Subsidiary incurring any Liability pursuant to an Environmental Claim or any Environmental Law relating to such Release.
(e)    Such Parent has made available to each other Parent correct and complete copies of all material environmental, health or safety assessments, audits, studies, reports, analyses, results of investigations and all material correspondences related to any Liabilities for Releases or non-compliance with any Environmental Law associated with each Contributed Subsidiary’s Business or Real Property that have been prepared or issued since January 1, 2010.
4.13     Taxes .
(a)    All material Tax Returns required to be filed with respect to any Pre-Closing Tax Period by or on behalf of each Contributed Subsidiary of such Parent, to the extent required to be filed on or before the Closing Date, have been timely filed in accordance with all applicable Laws.
(b)    All Tax Returns with respect to Pre-Closing Tax Periods correctly and completely reflect the facts in all material respects regarding the income, Business, assets, operations, activities and status of each

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Contributed Subsidiary of such Parent. No Contributed Subsidiary of such Parent is currently a beneficiary of any extension of time within which to file any Tax Return.
(c)    All Taxes owed by each Contributed Subsidiary of such Parent (whether or not shown as due and payable on any Tax Return or resulting from an audit or inquiry from any Tax Authority) with respect to any Pre-Closing Tax Periods have been timely paid to the appropriate Tax Authority or properly accrued as part of Estimated Oracle Closing Working Capital, Estimated Sky Closing Working Capital, Final Oracle Closing Working Capital and/or Final Sky Closing Working Capital.
(d)    Each Contributed Subsidiary of such Parent has withheld and remitted to the appropriate Tax Authority all Taxes required to have been withheld and remitted in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other Person with respect to any Pre-Closing Tax Periods.
(e)    No Contributed Subsidiary of such Parent has granted, or has had granted on its behalf, any extension or waiver of the statute of limitations period applicable to any Tax Return or within which any Tax may be assessed or collected by any Tax Authority, which period (after giving effect to such extension or waiver) has not yet expired.
(f)    There is no Proceeding now pending or threatened against or with respect to any Contributed Subsidiary of such Parent in respect of any Tax. No Parent or Contributed Subsidiary has received any notice or inquiry from any Tax Authority related to any Contributed Subsidiary for any Pre-Closing Tax Period.
(g)    There are no Liens (other than Permitted Liens) for Taxes upon the assets or properties of any Contributed Subsidiary of such Parent.
(h)    No Contributed Subsidiary of such Parent has been a member of an affiliated, consolidated, combined or unitary group or participated in any other arrangement whereby any income, revenues, receipts, gain or loss was determined or taken into account for Tax purposes with reference to or in conjunction with any income, revenues, receipts, gain, loss, asset or liability of any other Person other than a group of which such member of such Parent’s Group was the parent. No Contributed Subsidiary of such Parent has any liability for the Taxes of any Person (other than such Oracle Contributed Subsidiary) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or successor, by contract, or otherwise.
(i)    No Contributed Subsidiary of such Parent has received notice of any claim by a Tax Authority in a jurisdiction where such Contributed Subsidiary does not file Tax Returns that it is or may be subject to taxation by that Tax Authority.
(j)    No Contributed Subsidiary of such Parent will be required to include any item of income in, accelerate the inclusion of, or exclude any item of deduction from, taxable income for any period or portion thereof ending after the Closing Date (i) under Section 481 of the Code (or any similar provision of state, local or foreign Law) as a result of change in method of accounting for a Pre-Closing Tax Period, (ii) pursuant to the provisions of any agreement entered into with any Tax Authority or pursuant to a “closing agreement” as defined in Section 7121 of the Code (or any similar provision of state, local or foreign Law) executed on or prior to the Closing Date, (iii) as a result of any intercompany transactions or any excess loss account described in Section 1.1502-19 of the Treasury Regulations (or any similar provision of state, local or foreign Law), (iv) as a result of the installment method of accounting, the completed contract method of accounting or the cash method of accounting with respect to a transaction that occurred prior to the Closing Date, (v) as a result of any prepaid amount received on or prior to the Closing Date or (vi) as a result of any election under Section 108(i) of the Code with respect to the discharge of any Indebtedness on or prior to the Closing Date.
(k)    No Contributed Subsidiary of such Parent is a party to any Tax sharing, allocation or indemnity agreement, arrangement or similar Contract.

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(l)    No Contributed Subsidiary of such Parent has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(m)    No Contributed Subsidiary of such Parent has participated in any “reportable transaction” as defined in Section 6707A of the Code or Treasury Regulation Section 1.6011-4 (or any predecessor provision).
(n)    The Contributed Assets and Contributed Obligations have been disclosed on the Financial Statements, the Shared Assets Schedules or otherwise, such that all of the Contributed Assets and Contributed Obligations that are owned or are treated as being owned for U.S. federal income tax purposes by each Party and each Contributed Subsidiary have been disclosed.
4.14     Employee Benefit Plans .
(a)     Section 4.14(a) of such Parent’s Disclosure Letter sets forth a correct and complete list of (i) all bonus, vacation, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock and stock option, incentive, severance or change-in-control plans or other similar plans, policies, arrangements or agreements, (ii) all employment, severance, retention, change-in-control or similar agreements, (iii) all medical, dental, disability, health, life and other welfare benefit plans, and (iv) all other employee benefit and fringe benefit plans, policies, arrangements or agreements, in the case of each of (i) through (iv), maintained or contributed to by any Parent or any member of its Group for the benefit of any employee, consultant or independent contractor of the Parent or its Group who provides services primarily to the Business or such individual’s beneficiaries (collectively, the “ Compensation and Benefit Plans ”), pursuant to which such Contributed Subsidiary may have any Liability following the Closing (collectively, the “ Contributed Subsidiary Compensation and Benefit Plans ”).
(b)    Since January 1, 2010 through the date of this Agreement, (i) there has not been any labor strike, work stoppage or lockout with respect to any Contributed Subsidiary’s Business, (ii) no member of such Parent’s Group has received written notice of any unfair labor practice charges against such Contributed Subsidiary’s Business that are pending before the National Labor Relations Board or any similar state, local or foreign Governmental Entity, and (iii) no member of such Parent’s Group has received written notice of any suits, actions or other proceedings in connection with such Contributed Subsidiary’s Business that are pending before the Equal Employment Opportunity Commission or any similar state, local or foreign Governmental Entity responsible for the prevention of unlawful employment practices, including under applicable employment standards and human rights Laws, except, in the case of each of clauses (i), (ii) and (iii) above, for any such matters that have not been and would not reasonably be expected to be, individually or in the aggregate, materially adverse to such Contributed Subsidiary’s Business.
(c)    Watson hereby represents and warrants to Oracle and Newco that, with respect to the Watson Hourly Pension Plan:
(i)    Watson shall cause to be provided to Oracle and Newco true, complete and up-to-date copies of the Watson Hourly Pension Plan text and the related participating trust agreement and master trust agreement and all amendments thereto, the most recent actuarial valuation report for the plan (whether or not filed with the applicable regulatory authorities), financial statements, employee booklets, brochures and manuals, the three most recent annual information returns, all investment management agreements, all material correspondence with applicable regulatory authorities and all other material documents and agreements related to the Watson Hourly Pension Plan;
(ii)    all of the employees currently accruing benefits under the Watson Hourly Pension Plan are unionized employees employed in the Business in Canada;  
(iii)    the Watson Hourly Pension Plan has been established, registered, funded, invested and administered in all material respects in accordance with all applicable Laws, the terms of the plan, all

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applicable collective bargaining agreements and all agreements between Watson or its Affiliates and the members and other beneficiaries of the plan;
(iv)    the most recent actuarial valuation for the Watson Hourly Pension Plan was prepared on June 28, 2012 and is effective as at January 1, 2012 and such report accurately reflects the funded status of the Watson Hourly Pension Plan as of that date;
(v)    no amendments or improvements to the Watson Hourly Pension Plan have been promised by Watson or any of its Affiliates and no amendments or improvements will be made to the Watson Hourly Pension Plan prior to the Closing Date;
(vi)    all data necessary to administer the Watson Hourly Pension Plan is in the possession of Watson, its Affiliates or their agents and is in a form which is sufficient for the proper administration of the plan in accordance with applicable Laws and such data is true and correct;
(vii)    all contributions (including all special payments required to amortize any funding deficiency) required to be made to the Watson Hourly Pension Plan under the terms of the plan, any applicable collective bargaining agreement or by applicable Laws have been made in a timely manner;
(viii)    neither the Watson Hourly Pension Plan nor its related trust fund is subject to any pending, threatened or anticipated investigation, examination, litigation, claim or other legal proceeding by any Governmental Entity or by any other Person (other than routine claims for benefits) and there exists no state of facts which, to the Knowledge of Watson, could reasonably be expected to give rise to any such investigation, examination, litigation, claim or other legal proceeding;
(ix)    none of Watson, its Affiliates or any of their agents or any fiduciary, has been in breach of any contractual or fiduciary obligation with respect to the administration of the Watson Hourly Pension Plan or the related trust fund;
(x)    there have been no asset transfers to or from the Watson Hourly Pension Plan or any other withdrawal of assets from the plan except in accordance with the terms of the Watson Hourly Pension Plan and applicable Laws; and
(xi)    all liabilities of Watson and its Affiliates, whether accrued, absolute, contingent or otherwise, related to the Canadian Pension Plan have been disclosed in accordance with GAAP in the Annual Financial Statements.
(d)    Watson hereby represents and warrants to Oracle and Newco that Watson and its Affiliates have complied with their obligations under all applicable collective bargaining agreements in Canada to provide medical benefits to employees and former employees covered by such collective bargaining agreements.
(e)    Oracle hereby represents and warrants to Watson, Iris and Newco that, with respect to the Puerto Rican Retirement Plans:
(i)    Each of the Puerto Rican Retirement Plans has been maintained and administered in accordance with its terms in all material respects, the administration thereof complies in all material respects with the requirements of all applicable Laws, including ERISA, the Code and the PR Code, and Oracle has not received any claim or notice that any Puerto Rican Retirement Plan is not in compliance with all applicable Laws.
(ii)    Each Puerto Rican Retirement Plan intended to qualify under Section 1081.01 of the PR Code has been determined by the Commonwealth of Puerto Rico’s Treasury Department to be so qualified, and each trust which forms a part of any such plan has been determined to be tax exempt under Section 1081.01 of the PR Code.

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(iii)    No litigation has been brought against or with respect to either of the Puerto Rican Retirement Plans.
(iv)    All contributions to the Puerto Rican Retirement Plans that were required to be made under such plans through the date hereof have been made.
(v)    The transactions contemplated by this Agreement will require no spin-off of assets and liabilities or other division or transfer or rights with respect to either of the Puerto Rican Retirement Plans.
(vi)    Complete and correct copies of such of the plan and trust documents with respect to the Puerto Rican Retirement Plans as have been requested by Watson or Iris have been made available prior to the execution of this Agreement.
4.15     Food and Drug Regulatory Compliance .
(a)    All products developed, manufactured, labeled, stored, tested, marketed, promoted, imported, exported, supplied or distributed by any member of such Parent’s Group in respect of the Business that are subject to the jurisdiction of the FDA, Health Canada, and all other relevant national health authorities or other similar Governmental Entities of any other material jurisdiction in which such products are developed, manufactured, labeled, stored, tested, marketed, promoted, imported, exported, supplied or distributed, are being, and at all times since January 1, 2010 have been, developed, manufactured, labeled, stored, tested, marketed, promoted, imported, exported, supplied or distributed, as applicable, in compliance in all material respects with the applicable requirements under all applicable Law, including the Federal Food, Drug and Cosmetic Act and the Public Health Service Act, and the regulations promulgated thereunder, and any other similar Law of Canada, and any other material jurisdiction in which such products are developed, manufactured, labeled, stored, tested, marketed, promoted or distributed.
(b)    Since January 1, 2010, all manufacturing, quality control or batch release operations relating to the products of such Contributed Subsidiary’s Business, and to the Knowledge of such Parent, all manufacturing operations relating to the products conducted by any Person pursuant to a development, manufacturing or other collaboration arrangement with such Contributed Subsidiary’s Business (any such Person, a “ Contributed Subsidiary Collaboration Member ”), have been and are being, to the extent required by Law, conducted in compliance in all material respects with the FDA’s current Food Good Manufacturing Practices and all applicable similar foreign regulatory requirements of any Governmental Entity, or any other applicable quality system for the manufacture, quality control or batch release of such products.
(c)    Since January 1, 2010, none of the products within such Contributed Subsidiary’s Business manufactured, labeled, stored, marketed, promoted, imported, exported, supplied or distributed by any member of such Parent’s Group has been recalled, suspended, or discontinued as a result of any action by the FDA, Health Canada or any national health authority or other similar Governmental Entity of any material jurisdiction in which such products are manufactured, labeled, stored, marketed, promoted, imported, exported, supplied or distributed. No Proceedings by the FDA, Health Canada, or any national health authority or other similar Governmental Entity of any material jurisdiction in which such products are manufactured, labeled, stored, marketed, promoted, imported, exported, supplied or distributed by any member of such Parent’s Group are seeking the recall of any such product are pending or, to the Knowledge of such Parent, threatened, against any member of such Parent’s Group or any Contributed Subsidiary Collaboration Members; provided , however , that the foregoing representation with respect to Contributed Subsidiary Collaboration Members is made solely to the Knowledge of such Parent.
(d)    No member of such Parent’s Group or, to the Knowledge of such Parent, the Contributed Subsidiary Collaboration Members, has committed any act, made any statement or failed to make any statement with respect to any product within such Contributed Subsidiary’s Business, that would reasonably be expected to provide a basis for the FDA to invoke its policy with respect to “Fraud, Untrue Statements of Material Facts,

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Bribery, and Illegal Gratuities” or for any other Governmental Entity to invoke any similar policy. No member of such Parent’s Group or, to the Knowledge of such Parent, no Contributed Subsidiary Collaboration Members, any of their respective officers, key employees or agents, has been convicted of any crime or engaged in any conduct that would reasonably be expected to result in (i) debarment under 21 U.S.C. Section 335a or similar Laws in other jurisdictions or (ii) exclusion under 42 U.S.C. Section 1320a-7 or similar Laws in other jurisdictions.
4.16     Capitalization of the Contributed Subsidiaries; Subsidiaries .
(a)     Section 4.16(a) of such Parent’s Disclosure Letter sets forth a true and complete statement of the capitalization of such Contributed Subsidiary. All issued and outstanding equity interests of such Contributed Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and were issued in compliance with all applicable federal and state securities laws and any preemptive rights or rights of first refusal of any Person. There are no outstanding options, warrants, rights, calls, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities or other commitments, contingent or otherwise, of any kind obligating such Contributed Subsidiary to issue, directly or indirectly, any additional equity interests or other equity securities. There are no agreements, commitments or contracts relating to the issuance, sale, transfer or voting of any equity interests or other securities of such Contributed Subsidiary. Such Parent, or a member of such Parent’s Group, has good and marketable title to all of the equity interests of such Contributed Subsidiary, free and clear of all Liens. Upon the consummation of the Contemplated Transactions, Newco will hold, directly or indirectly, all of the equity interests of such Contributed Subsidiary and will receive good and valid title to all of the issued and outstanding equity interests of such Contributed Subsidiary, free and clear of all Liens.
(b)    Such Contributed Subsidiary has no direct or indirect Subsidiaries and holds no equity interests in any other Person.
4.17     Inventory . The Inventory of such Contributed Subsidiary’s Business and included in the Contributed Assets is in good and marketable condition, and is usable and of a quantity and quality saleable in the Ordinary Course of Business, subject to any reserves included in the calculation of such Parent’s Closing Working Capital.
4.18     Accounts Receivable . All accounts and notes receivable of such Contributed Subsidiary’s Business have arisen from bona fide transactions in the Ordinary Course of Business and are payable on ordinary trade terms.
4.19     Indebtedness . As of the Closing, such Contributed Subsidiary will not have any Indebtedness not included in the Closing Working Capital of Oracle or the Closing Working Capital of Sky, as applicable, except as otherwise contemplated under the Employee Matters Agreement.
4.20     Brokers . No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Contemplated Transactions based upon any arrangements made by or on behalf of any Contributed Subsidiary.
4.21     Customers and Suppliers .
(a)    No Material Customer has terminated its relationship with any applicable Contributed Subsidiary, nor has such Parent’s Group received notice that any Material Customer intends to do so; and no member of such Parent’s Group is involved in any claim, dispute or controversy with any Material Customer that could reasonably be expected to be, individually or in the aggregate, materially adverse to the Business of any of its Contributed Subsidiaries.
(b)    No Material Supplier has terminated its relationship with any applicable Contributed Subsidiary, nor has such Parent’s Group received notice that any Material Supplier intends to do so; and no member of such Parent’s Group is involved in any claim, dispute or controversy with any Material Supplier that could

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reasonably be expected to be, individually or in the aggregate, materially adverse to the Business of any of its Contributed Subsidiaries.
4.22     Special Representations Regarding Newco. Watson and Iris hereby Severally represent and warrant to Oracle that no action has been taken by or in respect of Newco at any time prior to the date of this Agreement, and that as of the Closing Date, Newco will have no Liabilities other than its contractual obligations under this Agreement and the Transaction Documents.
4.23     Special Representations Regarding Colorado JV. Oracle hereby represents and warrants to Watson, Iris and Newco that:
(a)    To the Knowledge of Oracle, Colorado JV (i) is an entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of formation, (ii) has all requisite corporate power and authority to own, lease and operate the Assets owned by it and to carry on the business as now being conducted by it, except for such failures that have not been, and would not reasonably be, individually or in the aggregate, materially adverse to its business, and (iii) is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it in respect of its business makes such qualification necessary, except in such jurisdictions where the failure to be so qualified or licensed and in good standing has not been and would not reasonably be expected to be, individually or in the aggregate, materially adverse to its business.
(b)    No Consent of any joint venture partner of Oracle or any other Person with respect to Colorado JV is required to be obtained by Oracle in connection with the Contemplated Transactions.
(c)    All issued and outstanding equity interests of Colorado JV have been duly authorized and validly issued, are fully paid and non-assessable.
(d)    Oracle Mills, or another member of the Oracle Group, has good and marketable title to all of the equity interests of Colorado JV held by it, free and clear of all Liens, which represent 50% of the outstanding equity interests of the Colorado JV. Upon the consummation of the Contemplated Transactions, Newco will receive good and valid title to all of the issued and outstanding equity interests of Colorado JV held by Oracle or such member of Oracle’s Group, free and clear of all Liens. To the Knowledge of Oracle, the Colorado JV has no direct or indirect Subsidiaries and holds no equity interests in any other Person.
(e)    Oracle is not, and as a result of the Contemplated Transactions will not be, in material breach or default of any organizational or similar charter document of Colorado JV.
(f)    As of the date hereof, neither Oracle nor any of its Affiliates contemplates initiating any Proceeding (including asserting any claim) against the Colorado JV and is not a party to any Proceeding with the Colorado JV.
4.24     Approved and Planned Capital Improvements . Section 4.24 of such Parent’s Disclosure Letter includes a true and correct statement of all of the capital expenditure projects in respect of such Parent’s Reviewed Properties that have been approved by all of the necessary authorizing boards, committees and/or officers or employees of such Parent or are planned for future consideration and approval during the current or next fiscal year of such Parent. All such approvals were made in the Ordinary Course of Business.
4.25     No Other Representations or Warranties . Except for the representations and warranties of the Parents expressly set forth in this Agreement and the Transaction Documents, no such Parent or any other Person acting on Parent’s behalf makes any other express or implied representation or warranty on behalf of or with respect to the Contributed Subsidiaries, such Parent’s Business or the Contemplated Transactions. The representations and warranties made in this Agreement and the Transaction Documents with respect to the Contributed Subsidiaries, such Parent’s Business and the Contemplated Transactions are in lieu of all other representations and warranties such Parent might have given to each other Parent or Newco with respect to such matters, including implied

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warranties of merchantability and implied warranties of fitness for a particular purpose. Each other Parent and Newco acknowledges that, except for intentional misrepresentation or fraud or as provided herein or the other Transaction Documents, no such Parent or any other Person acting on its behalf will have or be subject to any Liability or indemnification obligation to any other Parent, any Contributed Subsidiary or Newco or any other Person acting on its behalf resulting from the distribution in written or oral communication to such Person of, any information, documents, projections, forecasts or other material made available to such Person, confidential information memoranda or management interviews and presentations in expectation of the Contemplated Transactions with respect to the Contributed Subsidiaries and such Parent’s Business.
V.     
OTHER COVENANTS OF THE PARTIES
5.01     Interim Operating Covenants of the Parents .
(a)    Except as otherwise expressly permitted or required by this Agreement or any Transaction Documents and except as set forth on Section 5.01 of the applicable Parent’s Disclosure Letter, between the date of this Agreement and the Closing, each Parent will, and will cause such Parent’s Group to, (i) conduct the Business of such Group in all material respects in the Ordinary Course of Business (including with respect to the collection of accounts receivable and notes receivable and the payment of accounts payable and trade payables) and in compliance in all material respects with applicable Laws, (ii) use Commercially Reasonable Efforts to preserve intact the Business of such Group, such Assets Primarily Used in the Business of such Group and the relationships between the Business of such Group and its customers, suppliers, distributors, other vendors and employees, (iii) pay or perform all of its material obligations with respect to the Business of such Group when due, and (iv) continue to make all approved and planned capital expenditures (as identified on Section 4.24 of the applicable Parent’s Disclosure Letter), and future capital expenditures, in each case to the extent that doing so is commercially reasonable, in the good faith discretion of such Parent. Without limiting the foregoing, between the date of this Agreement and the Closing, each Parent will make Commercial Reasonable Efforts to respond to events resulting, in whole or in part, from the announcement of this Agreement or to preserve the Business of such Group and existing employee, customer, supplier, distributor and other vendor relationships.
(b)    Without limiting the generality of the foregoing and except as otherwise expressly permitted or required by this Agreement or the Transaction Documents, required by applicable Law or set forth on Section 5.01 of the applicable Parent’s Disclosure Letter, between the date of this Agreement and the Closing, each Parent will not, nor will it permit such Group to, without the prior written consent of each other Parent (which consent will not be unreasonably withheld, conditioned or delayed):
(xi)    sell, pledge, issue, dispose of, grant, transfer, lease, license, guarantee, encumber or authorize the sale, pledge, disposition, grant, transfer, lease, guarantee or encumbrance of (A) any issued and outstanding equity interests of any Contributed Subsidiary owned by it, or (B) any Assets Primarily Used in the Business of such Group other than with respect to Assets (x) in the Ordinary Course of Business, (y) not in the Ordinary Course of Business but not in excess of $2,500,000 in the aggregate or (z) in connection with the Reorganization of the Iris Group, Reorganization of the Watson Group or Reorganization of the Oracle Group, as applicable;
(xii)    (A) acquire (including by merger, consolidation or acquisition of stock or Assets) any interest in any Person or any division thereof or any Assets that would be Primarily Used In The Business of such Group, other than (x) in the Ordinary Course of Business or (y) not in the Ordinary Course of Business but not in excess of $2,500,000 in the aggregate; or (B) other than Liabilities that would not be Contributed Obligations of such Group (or that would not otherwise be addressed by the adjustments contemplated under Section 1.04 ), incur any Indebtedness or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any Person for borrowed money;

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(xiii)    enter into any Contract that would be a Contributed Subsidiary Material Contract described in clauses (iii), (iv), (xii) or (xiv) of Section 4.10(a) if such Contract had been entered into on or prior to the date of this Agreement, or terminate any Contributed Subsidiary Material Contract unless such termination would not be likely to be, individually or in the aggregate, materially adverse to the Business of such Group;
(xiv)    fail to maintain or seek to obtain any Governmental Approval necessary for the conduct of the Business of such Group;
(xv)    in each case in connection with the Business of such Group, make any settlement of or compromise any material Tax Liability, change in any material respect any Tax election or Tax method of accounting, make any new material Tax election or adopt any material new Tax method of accounting or file or rescind any claim for refund of material Taxes, amend any material Tax Return, waive or extend the period of limitations for the assessment or payment of any material Tax (other than in the ordinary course with respect to the conduct of an audit) or agree to any assessment of a material amount of Tax, in each case as would affect the Tax treatment of any contribution made pursuant to this agreement or any Contribution Agreement or otherwise affect the Tax treatment accorded to any Contributed Subsidiary from and after the Closing;
(xvi)    settle any litigation or claim or waive any claims or rights of value in a manner that would be materially adverse to any Contributed Subsidiaries, Newco or any Group’s Business from and after the Closing;
(xvii)    unless required in connection with the Contemplated Transactions, effectuate a “plant closing” or “mass layoff” (as those terms are defined under the U.S. Worker Adjustment and Retraining Notification Act) affecting in whole or in part any site of employment, facility, operating unit or employees of the Business of such Group;
(xviii)    except (A) as required by applicable Law or the terms of a Compensation and Benefit Plan as in effect on the date hereof, (B) in the Ordinary Course of Business, or (C) with respect to payments made pursuant to or contemplated under the Employee Matters Agreement, (I) materially increase the compensation or benefits of any employee, consultant or independent contractor of the Parent or its Group who provides services primarily to the Business, (II) grant any material cash incentive award or equity-based award to any employee, consultant or independent contractor of the Parent or its Group who provides services primarily to the Business, or (III) amend any Compensation and Benefit Plan or enter into any plan, agreement or arrangement that would be a Compensation and Benefit Plan if in effect on the date hereof, in any case that would increase materially the compensation or benefits of any employee, consultant or independent contractor of the Parent or its Group who provides services primarily to the Business; or
(xix)    agree, in writing or otherwise, to take any of the foregoing actions.
5.02     Independent Businesses . Unless and until the Closing of the Contemplated Transactions is consummated, the Oracle Group’s Business, on the one hand, and the Businesses of the Watson Group and the Iris Group, on the other hand, will continue to be operated as independent businesses and will not collaborate in any manner or take any other action in violation of applicable Law.
5.03     Further Assurances; Efforts to Close; Obtaining Consents .
(f)     Further Assurances in General . Subject to the terms and conditions of the Transaction Documents, and except as may otherwise be provided herein and therein, each Party will cooperate with each other and use (and will cause their respective Subsidiaries and Affiliates to use) their reasonable best efforts, prior to, at and after the Closing Date, to take, or to cause to be taken, all actions and to do, or to cause to be done, all things reasonably necessary or desirable under applicable Law or contractual obligations to consummate and make

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effective the Contemplated Transactions as promptly as reasonably practicable, including the satisfaction of the conditions in Article VI and obtaining valuations that may be needed for accounting or other purposes. The Parties will use their respective reasonable best efforts to execute and deliver, and will cause their respective Subsidiaries, as appropriate or required, to execute and deliver such other documents, certificates, agreements and other writings (provided that no Party will be required to make any additional representations, warranties or covenants, express or implied, not contained in this Agreement in any such document, certificate, agreement or other writing) and to take such other actions as may be necessary or desirable to consummate or implement the Contemplated Transactions, including the satisfaction of the conditions in Article VI .
(g)     Antitrust Clearance .
(xx)    The obligations of the Parents (whether for themselves or on behalf of any members of their respective Groups) to obtain any Governmental Approvals needed pursuant to any applicable Antitrust Laws to consummate the Contemplated Transactions will be covered by this Section 5.03(b) . Each of the Parties will make the filings required to be made by it under any Antitrust Laws. Each of the Parties will also comply at the earliest reasonably practicable date with any valid request for additional information, documents or other materials received from any Governmental Entity.
(xxi)    Each of the Parents will use its reasonable best efforts to resolve objections, if any, that may be asserted by any Governmental Entity with respect to the Contemplated Transactions under any Antitrust Laws. If any Proceeding is initiated (or threatened to be initiated) by a Governmental Entity challenging the Contemplated Transactions as violative of any Antitrust Law or any other applicable Law, the Parties will each cooperate to contest and resist any such Proceeding, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction, ruling, decision, finding or other Order (whether temporary, preliminary, or permanent) until such time as a final, non-appealable Order has been entered. In furtherance and not limitation of the preceding two sentences, but subject to Section 5.03(b)(iv) below, each Parent will offer to take (and if such offer is accepted, commit to take) all necessary steps to avoid or eliminate impediments under any antitrust Law that may be asserted by any Governmental Entity with respect to the Contemplated Transactions that would result in the failure of the condition set forth in Section 6.01(a) or Section 6.01(b) to be satisfied, in each case to enable the Closing to occur by November 29, 2013 or as expeditiously thereafter as possible, including the sale, divestiture or disposition of Assets of its Business (or otherwise take any action that limits the freedom of action with respect to, or its ability to retain, any of its businesses, product lines, or assets or those of Newco or the Contributed Subsidiaries).
(xxii)    If, in order to obtain an Governmental Approval needed pursuant to any applicable Antitrust Laws to consummate the Contemplated Transactions or to avoid or eliminate impediments under any antitrust Law that may be asserted by any Governmental Entity with respect to the Contemplated Transactions, a Parent is required to divest or hold separate one of its businesses or certain of its Assets that will be Conveyed to the Contributed Subsidiaries pursuant to the Contemplated Transactions (a “ Disposition Order ,” and the Assets to be divested or held separate, the “ Divesting Assets ”):
(A)    The Parents will cooperate in good faith to prepare for sale and sell the Divesting Assets, either in a single transaction to one buyer or in multiple transactions to multiple buyers. Although the Parents will be permitted to enter into a divestiture agreement prior to the Closing, any sale of Divesting Assets will take place only after the Closing (in other words, the Divesting Assets will be Conveyed to the Contributed Subsidiaries pursuant to the Contemplated Transactions at the Closing and then will be subsequently sold by the relevant Contributed Subsidiary, not by the Parents). The relevant Contributed Subsidiary will be entitled to all of the proceeds of the sale. Until the sale is effected, the Contributed Subsidiary will hold the relevant Divesting Assets separate from its other businesses to the extent that doing so is necessary or desirable to obtain any Governmental Approval needed pursuant to any applicable Antitrust Laws to consummate the Contemplated Transactions or to avoid or eliminate impediments under any antitrust Law that may be asserted by any Governmental Entity with respect to the Contemplated Transactions.

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(B)    The Parents will negotiate in good faith to seek to maximize the sale price of the Divesting Assets, including with respect to the sale terms to be offered to prospective buyers of the Divesting Assets, such as representations, warranties and indemnity terms (which terms may be different than the corresponding terms contained in this Agreement). The terms of these divestiture agreements may include an assignment of Newco’s rights hereunder to indemnification in respect of the Divesting Assets to the buyer of the Divesting Assets. The Parent contributing the relevant Divesting Asset will not be required to assume liability or indemnification exposure that is greater in any material respect than the liability or indemnification exposure that the Parent would have if Newco had retained the Divesting Asset permanently.
(xxiii)    Notwithstanding anything in this Section 5.03(b) to the contrary, no Parent will be required, in order to obtain any approvals under Antitrust Laws or to avoid or eliminate impediments under any antitrust Law that may be asserted by any Governmental Entity with respect to the Contemplated Transactions, (A) to divest any material Assets that are not related to its Group’s Business or effect other material structural or behavioral changes that relate to businesses other than the Group’s Business, or (B) to divest any Assets if the aggregate divestures to collectively be made by the Parents pursuant to Section 5.03(b)(iii) , taken all together, would result in the disposition of assets that would reasonably be expected to generate, in the aggregate, annual EBITDA (calculated taking into account the synergies that the Parties anticipate) expected in year three following the Closing in excess of 10% of the Go-Forward EBITDA Amount.
(xxiv)    The Parents will, to the greatest extent reasonably practicable and permitted by applicable Law, prior to engaging in any substantive discussions with any representatives of a Governmental Entity concerning the Contemplated Transactions, agree upon the anticipated substance of the discussions and the content of any written materials they intend to provide to or review with such representatives, and will jointly participate in such discussions.  In the event it is impracticable for a Parent to comply with its obligations in the preceding sentence, as soon as practicable following any such discussions the Parent will advise the other Parents of the discussions, the identity of the parties participating in the discussions and the substance of the discussions, and will provide the other Parents with copies of any written materials provided to, reviewed with or received from representatives of the Governmental Entity.
(h)     Other Governmental Approvals and Third-Party Consents . Except with regard to Governmental Approvals relating to Antitrust Laws (which are addressed in Section 5.03(b) ), to the extent that the consummation of the Contemplated Transactions requires any third-party Consents or other Governmental Approvals, the Parties will, prior to the Closing and until 18 months after the Closing, use their respective reasonable best efforts to obtain such Consents or Governmental Approvals; provided , that (i) with respect to any Governmental Approval that is not identified in the Disclosure Letters (as they may be updated in accordance with Section 5.09 ), such 18 month period will run from the date on which the need for such Governmental Approval is determined by or notified to an officer of the applicable Contributed Subsidiary, and (ii) any such 18 month period for any particular Governmental Approval may be extended beyond 18 months at the request of the applicable Contributed Subsidiary if it agrees promptly to reimburse the relevant Parent for its reasonable out-of-pocket expenses.
5.04     Public Announcements . No Parent will issue or permit any member of their Group to issue any press release or other public announcement with respect to the Contemplated Transactions without the prior written consent of the other Parents (not to be unreasonably withheld, conditioned or delayed), except as a Parent determines in good faith may be required by applicable Law (in which case, to the extent possible, the Parent making the release or statement will allow the other Parents reasonable time to comment on such release or statement in advance of such issuance); provided, however , that each of the Parents may make any filings or notifications required by the Securities and Exchange Commission or stock exchanges, and internal announcements to their respective employees that are consistent with the Parents’ prior public disclosures regarding the Contemplated Transactions, without such consent or prior review.

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5.05     Notification of Certain Matters . Each of the Parents will give prompt written notice to the other of (a) receipt of any notice or other communication from any Person alleging that the Consent of such Person is or may be required in connection with the Contemplated Transactions, (b) any Proceeding commenced or threatened in writing against, relating to or involving or otherwise affecting it or any member of its Group that relate to the consummation of the Contemplated Transactions, and (c) to the Knowledge of such Parent, any change that is reasonably expected to be, individually or in the aggregate, materially adverse to its Group’s Business.
5.06     Access; Confidentiality .
(a)    From the date hereof to the Closing, each Parent will allow all designated Representatives of the other Parents access at reasonable times upon reasonable notice and in a manner as will not adversely impact the conduct of the respective businesses of such Parent to the personnel, records, files, correspondence, audits and properties, as well as to all information relating to commitments, contracts, titles and financial position, or otherwise pertaining to the Business of such Parent’s Group; provided , however , that no investigation pursuant to this Section 5.06(a) will affect any representation or warranty given by such Parent hereunder, and provided , further , that notwithstanding the provision of information by such Parent or its Affiliates or Representatives or investigation by the other Parties or their Representatives, such Parent will not be deemed to make any representation or warranty except as expressly set forth in this Agreement. Notwithstanding the foregoing, (i) no Parent will be required to provide any information which it reasonably believes it may not provide to another Parent by reason of applicable Law, which such Parent reasonably believes constitutes information protected by attorney/client privilege or which it is required to keep confidential by reason of Contracts with third parties, (ii) no Parent will be required to provide any records, writings or other materials of the Contributing Parties relating to or including (A) any personnel files, (B) performance review materials or any information that relates to an employee’s participation in bonus plans or similar incentive compensation arrangements, (C) medical records, hiring records, affirmative action plans or workers compensation files, or (D) that are otherwise subject to restrictions on transfer pursuant to applicable Laws regarding personally identifiable information or subject to privacy policies regarding personally identifiable information or with respect to which transfer would require any Governmental Approval under applicable Law, and (iii) no Parent will be required to provide access to any of its Group’s properties, without such Parent’s written consent, not to be unreasonably withheld, conditioned or delayed, except as otherwise contemplated by Section 5.07 of this Agreement. The applicable Parent will make reasonable and appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply. Each Parent agrees that it will not, and will cause its Representatives not to, use any information obtained pursuant to this Section 5.06 for any purpose unrelated to the consummation of the Contemplated Transactions.
(b)    With respect to the information disclosed pursuant to this Section 5.06 , the Parties will comply with, and cause their respective representatives to comply with, all of their obligations under the Confidentiality Agreement.
5.07     Real Property Reviews .
(f)     Real Estate Review .
(i)     Title Commitments . Within 20 Business Days after the date hereof, the Parents will jointly retain one or more title companies to prepare title commitments for all of the Contributed Subsidiaries’ Owned Real Property and each of the other properties set forth on Schedule 5.07(a)(i) (all such properties for which title commitments are received, the “ Title Reviewed Properties ”). The title companies will be jointly selected by the Parents in good faith and will be reputable and of a size commensurate for the nature of the properties being evaluated. The Parents will direct the title companies to prepare the title commitments as promptly as reasonably practicable, and in any case within 30 Business Days of their retention. The Parents will share the costs of the title commitments as follows: 44% for each of Oracle and Watson, and 12% for Iris.
(ii)     Surveys . Within 20 Business Days after the date hereof, the Parents will obtain price quotes from no less than two nationally recognized ALTA surveying coordinators to perform ALTA

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surveys and aerial surveys of the Title Reviewed Properties (or such survey equivalents that would allow the issuance of extended coverage title policies). The Parents will jointly select the ALTA surveying coordinators to provide price quotes in good faith, and will jointly engage the ALTA surveying coordinator that provides the lowest aggregate price quote, unless the Parents agree otherwise. The Parents will direct the engaged ALTA surveying coordinators to prepare the surveys of the Title Reviewed Properties as promptly as reasonably practicable, and in any case within 40 Business Days of the ALTA surveyors’ receipt of the title commitments. The surveys to be utilized will be aerial surveys to the extent that (i) the zoning reports contemplated by clause (iv) can be obtained utilizing aerial surveys and (ii) be used to obtain the same amount of title insurance coverage as non-aerial surveys. The Parents will share the costs of the ALTA surveying coordinator and surveys in the same proportions as those set forth for the title commitments.
(iii)     Resolution of Liens . Upon receipt of the title commitments and surveys referenced in clauses (i) and (ii) above and zoning reports referenced in clause (iv) below, the Parents will jointly retain coordinating legal counsel (“ Coordinating Counsel ”) to review and prepare a summary of any Liens on the Title Reviewed Properties other than Permitted Liens and to distribute such summary to the Parents. To the extent that any Liens (other than Permitted Liens) are identified, either Oracle (with respect to Title Reviewed Properties that are owned or contributed by the Oracle Group) or Watson and Iris (with respect to Title Reviewed Properties that are owned or contributed by the Watson Group or Iris Group) will be responsible for removing such Liens (or obtaining affirmative title insurance over such Liens) prior to the Closing Date, and will be 100% responsible for any costs associated with doing so. The Parents will direct Coordinating Counsel to monitor these efforts and to report back to each of the Parents on the progress made in removing any such Liens. The Parents will also direct Coordinating Counsel to prepare deeds and other necessary transfer documentation for the conveyance of real property in connection with the Contemplated Transactions. The Parents will share the costs of such Coordinating Counsel incurred in connection with the activities described in this Section 5.07(a) in the same proportions as those set forth for the title commitments.
(iv)     Zoning Reports . Within 20 Business Days after the date hereof, the Parents will jointly retain one or more zoning report service companies to prepare zoning reports for all of the Title Reviewed Properties. The zoning report service companies will be jointly selected by the Parents in good faith and will be reputable and of a size commensurate for the nature of the properties being evaluated. The Parents will direct the zoning report service companies to prepare the zoning reports as promptly as reasonably practicable, and in any case within 30 Business Days of the zoning report service companies’ receipt of the surveys. The Parents will share the costs of such reports in the same proportions as those set forth for the title commitments.
(v)     Engineering Reviews .
(A)    Either prior to or as of the date of this Agreement, or within 10 Business Days after the date of this Agreement, the Parents have jointly engaged or will jointly engage one or more mutually acceptable engineering and environmental consulting firms to perform the services specified in this Section 5.07(a)(v) and Section 5.07(b) (the “ Consulting Firm ”). The Parents will share the costs of the Consulting Firm in the same proportions as those set forth for the title commitments, and will each bear their other costs. During the period commencing on the date of this Agreement (or, if later, the date on which the Consulting Firm is retained) and ending 75 days thereafter (the “ Review Period ”), the Consulting Firm, along with up to two individuals designated by each Parent (such individuals, together with the Consulting Firm, the “ Joint Review Team ”) will conduct an engineering review of each Real Property that is a production facility (including bakeries) (collectively, the “ Reviewed Facilities ”), in accordance with the protocols and standards set forth on the scope of work attached as Exhibit D-1 (the “ Engineering Reviews ”). For the avoidance of doubt, the Joint Review will not conduct Engineering Reviews of any of the Reviewed Facilities that are warehouses or other ancillary, non-production sites.

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(B)    Pursuant to the Engineering Reviews, the Joint Review Team will identify whether the issues exist with respect to each Reviewed Facility that is reviewed pursuant to Section 5.07(a)(v) of a nature described in Exhibit D-1 (collectively, “ Engineering Issues ”).
(C)    To the extent that any Engineering Issues are identified by the Joint Review Team pursuant to the Engineering Reviews during the Review Period, either Oracle (with respect to Reviewed Facilities that are owned or contributed by the Oracle Group) or Watson and Iris (with respect to Reviewed Facilities that are owned or contributed by the Watson Group or Iris Group) will be responsible for correcting such Engineering Issues in a commercially reasonable manner, and will be 100% responsible for any costs associated with doing so, provided , however , that notwithstanding the foregoing, neither Oracle, on the one hand, nor Watson and Iris, collectively on the other hand, will be required to spend or incur direct costs (excluding any payments required to be made to the Consulting Firm) in excess of $100,000,000 in performing their respective obligations to correct such Engineering Issues (it being understood that such obligations of Watson and Sky will be undertaken by them Severally). In the event that the reasonably expected costs exceed $100,000,000, such excess may be taken into account in determining whether a Material Adverse Effect of the relevant Parent has taken place (in other words, such excess will be deemed a “Loss” of a nature that is not indemnifiable by the contributing Parent, and would be considered for purposes of determining whether the $100,000,000 threshold in the definition of Oracle Material Adverse Effect or Sky Material Adverse Effect, as the case may be, has been reached). Such corrections will be made as promptly as reasonably practicable, it being understood that such corrections may not be completed prior to the Closing.
(D)    Decisions of the Joint Review Team will be made by consensus to the extent reasonably practicable. If the members of the Joint Review Team are unable to decide, then decisions will be made by a majority vote, where Oracle will cast one vote, Watson and Iris will collectively cast one vote, and the Consulting Firm will act as the tiebreaking vote.
(g)     Environmental Site Reviews .
(i)     Preliminary Environmental Site Assessments and Limited Compliance Reviews . During the Review Period, the Joint Review Team will perform a preliminary environmental site assessment and limited compliance review of each Reviewed Facility in accordance with the protocols and standards set forth set forth in the scope of work attached as Exhibit D-2 (the “ Preliminary Environmental Site Reviews ”). For the avoidance of doubt, the Joint Review Team will not conduct preliminary environmental site assessments or limited compliance reviews of any of the Reviewed Facilities that are warehouses or other ancillary sites.
(ii)     Phase II Environmental Site Assess ments. Following the completion of a Preliminary Environmental Site Review of a Reviewed Facility, Phase II environmental site assessments or intrusive or subsurface investigations (including excavations, drilling, boring and sampling) of soil, surface water, or groundwater will be conducted on such Reviewed Facility only as (A) required by Environmental Laws based on facts or information obtained during the Environmental Site Review, or (B) the Joint Review Team identifies a "recognized environmental condition" (" REC ") as defined in ASTM E 1527-05 and estimates Response Action costs required by Environmental Law could reasonably be expected to exceed $250,000 for each REC if a Release were confirmed to exist under the most reasonably likely scenario (such Phase II reviews, together with the Preliminary Environmental Site Reviews, the “ Environmental Site Reviews ”).
(iii)     Remediation of Releases . Any Releases identified pursuant to the Environmental Site Reviews will be subject to any applicable indemnification provisions in Section 7.01 , Response Action limitations and procedures in Section 7.06(e) and other provisions in Article VII .

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(iv)     Noncompliance Obligations . Prior to Closing, each Parent will use Commercially Reasonable Efforts to bring the Real Property owned, leased or contributed by such Parent’s Group into compliance with Environmental Laws that the Joint Review Team estimates could reasonably be expected to exceed $50,000 to achieve compliance with respect to each noncompliance matter. Any noncompliance identified by the Joint Review Team that has not been corrected prior to Closing will be subject to any applicable indemnification provisions in Section 7.01 and other provisions in Article VII .
5.08     Tax Matters.
(d)    Each of the Parties will cooperate to complete and maintain the Contemplated Transactions, to the extent reasonably possible, in a manner that minimizes any Taxes of the Oracle Group, the Watson Group and the Iris Group.
(e)     U.S. Tax Treatment . For all U.S. tax purposes, the Parties acknowledge and agree that they intend:
(vi)    that Newco shall elect to be classified as a partnership effective as of the date of the formation of the Newco;
(vii)    that Sky and each of the Holdcos shall be treated as disregarded as an entity separate from its owner or Newco (as applicable);
(viii)    that Colorado JV shall be treated as a partnership;
(ix)    that each of Oracle Netherlands, Sky Canada, and Oracle Puerto Rico shall be treated as disregarded as an entity separate from its owner or Newco (as applicable);
(x)    that Oracle Rice shall be treated as a corporation.
(xi)    that the Conveyances of Sky to Newco by Watson and Iris shall be treated as a tax-free conversion of Sky into Newco under Revenue Ruling 84-52;
(xii)    that the Conveyance by Oracle Lux to Newco of all issued and outstanding equity interests in Oracle Netherlands described in Section 1.01(b)(ii) shall be treated as a transaction that qualifies for nonrecognition treatment pursuant to Section 721(a) of the Code;
(xiii)    that the Conveyances described in Section 1.01(b)(iii) shall be treated as transactions that qualify for nonrecognition treatment pursuant to Section 721(a) of the Code;
(xiv)    that the mergers of each the Holdcos with and into Sky described in Section 1.01(b)(v) shall be treated as disregarded transactions;
(xv)    that the contribution by Newco of all of the issued and outstanding equity interests in Sky Canada to Oracle Netherlands shall be treated as disregarded transactions;
(xvi)    that, to the maximum extent permitted by law, the Watson Lux Distribution shall be treated as a debt-financed distribution that does not exceed Watson Lux’s allocable share of the Financing under Treasury Regulations Section 1.707-5(b) and therefore is not taken into account as disguised sale proceeds pursuant to Treasury Regulations Section 1.707-5(b) and shall therefore be treated as a tax-free distribution pursuant to Section 731 of the Code;
(xvii)    that, to the maximum extent permitted by law, the Iris Lux Distribution shall be treated as a debt-financed distribution that does not exceed Iris Lux’s allocable share of the Financing under Treasury Regulations Section 1.707-5(b) and therefore is not taken into account as disguised sale proceeds

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pursuant to Treasury Regulations Section 1.707-5(b) and shall therefore be treated as a tax-free distribution pursuant to Section 731 of the Code;
(xviii)    that, to the maximum extent permitted by law, the Oracle Lux Distribution less Item F of Section 5.12(a)(ii) does not exceed Oracle Lux’s allocable share of the Financing under Treasury Regulations Section 1.707-5(b) and shall be treated as a debt-financed distribution that is not taken into account as disguised sale proceeds pursuant to Treasury Regulations Section 1.707-5(b) and shall therefore be treated as a tax-free distribution pursuant to Section 731 of the Code;
(xix)    to the extent that the Oracle Lux Distribution, the Watson Lux Distribution, or the Iris Lux Distribution described in Section 5.12(a)(ii) does exceed Oracle Lux's, Watson Lux's, or Iris Lux's respective allocable share of the Financing under Treasury Regulations Section 1.707-5(b), the distribution in excess of the Party’s allocable share of the Financing is intended to be and shall be treated, to the maximum extent possible, as a reimbursement of preformation capital expenditures that is not taken into account as disguised sale proceeds pursuant to Treasury Regulations Section 1.707-4(d) and Revenue Ruling 2000-44 and shall therefore be treated, to the maximum extent possible, as a tax-free distribution pursuant to Section 731 of the Code;
(xx)    that any amounts distributed under Section 5.12 of this agreement that are in excess of the distributee’s share of Newco’s net cash flow from operations within the meaning of Treasury Regulations Section 1.707-4(b) and/or are in excess of a Party’s allocable share of liability of Newco under Treasury Regulations Section 1.707-5(b), in each case as reasonably determined by the Newco’s board of managers, are intended to reimburse the distributee, to the maximum extent permitted under Treasury Regulations Section 1. 707-4(d), for capital expenditures incurred during the two-year period preceding the transfer by the distributee of assets to the partnership, as reasonably determined by Newco’s board of managers, and, to that extent, are intended to qualify and shall be treated by the Parties as qualifying as a reimbursement of capital expenditures under Treasury Regulations Section 1.707-4(d) and Revenue Ruling 2000-44 and shall therefore be treated as a tax-free distribution pursuant to Section 731 of the Code; and
(xxi)    that to the maximum extent permitted, any payments described in Section 7.08 shall be treated as tax-free transfers and appropriate adjustments will be made.
(f)    Except as provided in Section 5.08(e) , the Parties agree that any Tax Returns or any other information they may file or cause to be filed with any Governmental Entity by the Parties or their Affiliates shall be prepared and filed consistently with Section 5.08(b) , unless a change in filing position is otherwise required by Law, as reasonably determined by Newco’s board of managers. The Party that is alleging that a change in filing position is required by Law shall notify Newco’s board of managers in writing at least 30 days prior to the due date for any Tax Return, including extensions. Disagreements with respect to whether a change in filing position is required by Law will be subject to the dispute resolution procedures set forth in Section 9.12(b) .
(g)    The Parties shall furnish Newco with all information that it reasonably requests to allow Newco to comply with its Tax filing obligations, including, the tax basis, fair market value, depreciation class lives, and remaining useful lives of the Contributed Assets and Contributed Obligations, as applicable.
(h)    Each Parent acknowledges that reporting for financial accounting purposes may differ from U.S. federal income tax treatment, and this Section 5.08 will not prevent any Parent from appropriately reporting the Contemplated Transactions for financial accounting purposes as required under the applicable accounting standards.
(i)     Straddle Period . For purposes of this Agreement, the portion of Tax with respect to the income, property or operations of any Contributed Subsidiary that is attributable to any Tax period that begins on or before the Closing Date and ends after the Closing Date (a “ Straddle Period ”) will be apportioned between the period of the Straddle Period that extends before the Closing Date through the Closing Date (the “ Pre-Closing Straddle Period ”) and the period of the Straddle Period that extends from the day after the Closing Date to the end of

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the Straddle Period (the “ Post-Closing Straddle Period ”) in accordance with this Section 5.08 . The portion of such Tax attributable to the Pre-Closing Straddle Period will (a) in the case of any Taxes other than sales or use taxes, value-added taxes, employment taxes, withholding taxes, and any Tax based on or measured by income, receipts or profits earned during a Straddle Period, be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction, the numerator of which is the number of days in the Pre-Closing Straddle Period and denominator of which is the number of days in the Straddle Period, and (b) in the case of any sales or use taxes, value-added taxes, employment taxes, withholding taxes, and any Tax based on or measured by income, receipts or profits earned during a Straddle Period, be deemed equal to the amount that would be payable if the Straddle Period ended on and included the Closing Date. In the case of a Tax that is (1) paid for the privilege of doing business during a period (a “ Privilege Period ”) and (2) computed based on business activity occurring during an accounting period ending prior to such Privilege Period, any reference to a “Tax period,” a “tax period,” or a “taxable period” will mean such accounting period and not such Privilege Period.
5.09     Schedule Updating .
(c)     Initial Update . Up through and including the 120th day after the date of this Agreement, each Parent may update its Disclosure Letter by delivering such update to the other Parents, provided, however, that no updates to the sections of the Disclosure Letter pertaining to the Fundamental Reps or any sections other than those relating to representations and warranties will be permitted. These updates (“ Disclosure Letter Updates ”) may reflect matters that came to exist or occurred either before or after the date of this Agreement.
(d)     Effect Of Initial Update; Termination Right . If the new disclosures that are included in a Disclosure Letter Update would reasonably be expected to result in a Material Adverse Effect such that a closing condition set forth in Section 6.02(a) , Section 6.03(a) or Section 6.04(a) would not be satisfied in the absence of the Disclosure Letter Update, then any Parent, regardless of whether such Parent is the Party whose closing condition would not be satisfied, may elect to terminate this Agreement by delivering written notice of such election within 30 days of receiving such Disclosure Letter Update to the other Parents. Unless this Agreement is terminated as referenced in Section 5.09(b) , then the Disclosure Letters will be deemed to be updated by the Disclosure Letter Updates for all purposes hereunder, including in respect of the closing conditions set forth in Section 6.02(a) , Section 6.03(a) or Section 6.04(a) and in respect of indemnification claims made pursuant to Article VII in respect of breaches of representations and warranties.
5.10     Limited Release by the Parents . Except as provided in the last sentence of this Section 5.10 , effective upon the Closing, each Parent, for itself, its Affiliates and their respective successors and assigns, does hereby irrevocably, fully, finally, and forever settle, release and discharge each Contributed Subsidiary of such Parent’s Group and its successors and assigns, from and with respect to any and all claims, suits, demands, contracts, debts, obligations, Liabilities, agreements, controversies, promises, injuries, losses, costs, administrative fees and expenses, fees, including reasonable attorneys’ fees, wage claims, compensation claims, wrongful termination claims, public policy claims, harassment claims, retaliation claims, statutory claims, causes of action and damages whatsoever, and any rights of action of every kind, name, and nature, whether arising out of contract, tort, statute or otherwise, in law or in equity, of whatever nature, character, or description, whether known or unknown, suspected or unsuspected, that such Party ever had or now has against such Person which arise out of or relate to facts or circumstances arising prior to the Closing Date. The foregoing release will not in any manner whatsoever apply to any of the rights or remedies that (1) any Parent has or may have against another Parent, Newco, any Contributed Subsidiary or any other Person pursuant to the terms or provisions of this Agreement, any Transaction Document or any other agreement or written instrument executed in connection herewith, and including any right to bring claims or Proceedings hereunder or thereunder, in law or equity, or any right to enforce any of the terms or provisions hereunder or thereunder, and any rights to any payment, action, indemnification, specific performance or any other rights or remedies hereunder or thereunder, and (2) that any member of the Iris Group may have against any member of the Watson Group, or vice-versa (but in each case excluding Sky, Sky GP and Sky Canada), in respect of matters that arise prior to the Closing Date.
5.11     Certain Releases by Newco and the Contributed Subsidiaries . Immediately following each of the Second Termination Date and the Third Termination Date, Newco will, and will cause each Contributed Subsidiary

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to, execute and deliver a release in favor of the Parents, in each case in a form reasonably acceptable to the Parents, of any and all Pre-Closing Liabilities for which the obligation of any Parent to indemnify any JV Indemnitees has expired as of such Second Termination Date or Third Termination Date.
5.12     Certain Financing Activities; Initial Distributions .
(o)    The Parents will cause the following actions to take place:
(i)    Contemporaneously with the Closing, one or more of Newco’s Subsidiaries will borrow funds from third-party financing sources in an aggregate amount as determined by the following formula (the “ Financing ”):
A = B + C 1 +D 1 - E
Where:
A = the aggregate amount to be borrowed
B = the amount agreed by Oracle and Watson acting reasonably and taking into consideration among other things, financing terms and working capital needs, which the Parties acknowledge that as of the date hereof is contemplated to be $800 million
C 1 =the Estimated Oracle Closing Working Capital
D 1 =the Estimated Sky Closing Working Capital
E = the Aggregate Working Capital Target
The Parents acknowledge that a portion of this Financing may be effected utilizing a term loan of fixed maturity, and the remainder of the Financing will be effected utilized a revolving credit facility.
(ii)    Immediately after the completion of the Financing, all of the proceeds of the Financing will be distributed by the relevant Contributed Subsidiaries up to Newco. Newco will then immediately make a distribution of funds such that Oracle Lux, Watson Lux, and Iris Lux will receive amounts as follows:
Oracle Lux Distribution = (B * 0.44) + F + (C 1 – C 2 )
Watson Lux Distribution = (B * 0.44) + ((D 1 – D 2 ) * (0.44/0.56)) - F
Iris Lux Distribution = (B * 0.12) + ((D 1 – D 2 ) * (0.12/0.56))
Where:
B has the meaning set forth in Section 5.12(a)(i) , provided that such amount shall be reduced by the reimbursement payment contemplated by the last sentence of Section 5.12(b)
C 1 and D 1 have the meaning set forth in Section 5.12(a)(i)
C 2 = the Oracle Working Capital Target
D 2 = the Sky Working Capital Target

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F = $90 million
The Parents acknowledge and agree that this distribution is being made in connection with and consideration of the Contemplated Transactions, and that no other consideration will be payable by Oracle, Watson, Iris or any of their Affiliates in respect thereof (and no future adjustments to any distributions to be made to Oracle, Watson, Iris or any of their Affiliates will be made in respect of this initial distribution).
(p)    Each Parent will, and will cause its applicable Affiliates to, (i) provide direct contact between prospective lenders and the expected officers and directors of Newco and the Contributed Subsidiaries, (ii) cooperate with any necessary marketing efforts for such financing, including participation in management presentation sessions, “road shows” and sessions with rating agencies, (iii) cooperation with respect to matters relating to any pledges of collateral to take effect at the Closing in connection with such financing, (iv) obtain legal opinions to be delivered in connection with such financing, (v) secure the cooperation of the independent accountants of the relevant Businesses, including with respect to the delivery of accountants’ comfort letters, and (vi) provide such financial and other information that may be necessary or desirable in connection with such efforts. Each Parent will bear the expenses of its own personnel working on such matters, provided that any out-of-pocket expenses incurred in connection with the financing, including commitment fees and professional expenses, will be paid by the borrower from the proceeds of such Financing.
5.13     Pre-Closing Activities of Newco . Watson and Iris acknowledge and agree that neither of them nor any of their Affiliates will take any action of any type or manner in respect of Newco or cause Newco to, and Newco will not, take any action of any type or manner at any time during the period between the date of this Agreement and the Closing without the prior written consent of Oracle, except as expressly required by this Agreement or contemplated in connection with the Contemplated Transactions.
5.14     Activities of the Contributed Subsidiaries . Each Parent will, by the Closing Date, in respect of its Contributed Subsidiaries, cause such Contributed Subsidiaries to cease to engage in any business other than the Business. This will include causing the Contributed Subsidiaries to distribute, divest or otherwise transfer out any assets that are not at least Primarily Used In The Business (other than Shared Assets) and to cause the recipient of such distributed, divested or transferred assets to assume and indemnify such Contributed Subsidiaries for any Liability arising under or relating to such assets.
5.15     Completion of Transaction Documents . During the period commencing on the date of this Agreement and ending (i) on April 30, 2013, for Incomplete Transaction Documents which are not Incomplete Ancillary Exhibits, and (ii) prior to the Closing, for Incomplete Ancillary Exhibits, the Parties will complete the forms of each of the Incomplete Transaction Documents, negotiating in good faith, in accordance with the terms of this Section 5.15 . The Parties may also further amend other Transaction Documents as provided below.
(c)    The provisions of the operating agreements for the Holdcos and Oracle Netherlands Charter will not be drafted in any manner which would alter or change the rights or responsibilities of any Person (or the allocation of rights and responsibilities among all Persons) under the Newco Charter, the Oracle Puerto Rico Charter, the Sky Charter and the Sky Canada Charter.
(d)    The forms of the Oracle Puerto Rico Charter and Sky Canada Charter will each be completed to mirror the form of the Sky Charter, modified only to reflect the different applicable party names and any other changes that the Parents mutually determine in good faith are necessary to preserve tax treatment of the Contemplated Transaction as described in Section 5.08 or otherwise comply with applicable Law.
(e)    The forms of the Watson Contribution Agreement and the Iris Contribution Agreement will each be completed to the mirror the form of the Oracle Contribution Agreement, modified only to reflect the different applicable party names and other changes that the Parents mutually determine in good faith are necessary to reflect the Watson Reorganization or Iris Reorganization, as applicable, so long as such changes do not affect the substantive rights and obligations contemplated by Oracle Contribution Agreement (as they would apply to Watson in the Watson Contribution Agreement and Iris in the Iris Contribution Agreement). The Watson Purchase and Sale

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Agreement will be drafted in a form reasonably acceptable to Oracle and will contain the provisions described in Exhibit M . Annex I to each of the Contribution Agreements will be completed.
(f)    The IP Matters Agreement will be drafted to reflect and be consistent with the principles and terms set forth on Exhibit J .
(g)    The forms of the Watson License-In Agreement and Watson License-Out Agreement will each be completed to mirror the forms of the Oracle License-In Agreement and Oracle License-Out Agreement, modified only to reflect the different applicable party names.
(h)    Oracle and Watson may mutually elect to combine the forms of the IP License Agreements into a single agreement, so long as the substantive provisions of such combined agreement contain or are consistent with all of the substantive provisions of the uncombined IP License Agreements. Oracle and Watson may also mutually elect to combine the IP Matters Agreement with such combined IP License Agreement, so long as all of the substantive provisions of the IP Matters Agreement are contained in such combined agreement.
(i)    The form of the Watson Transition Services Agreement will be completed to mirror the form of the Oracle Transition Services Agreement, modified only to reflect the different applicable party names.
(j)    The forms of the Commercial Agreements will be modified by the Parents to the extent necessary to address any tax and customs concerns, as mutually determined in good faith by the Parties.
(k)    The Parents may modify the forms of the Transition Services Agreements as they mutually determine in good faith is necessary to incorporate Sky Canada or Oracle Puerto Rico.
5.16     Claims Against The Colorado JV And The Orchid JV . In the event that Oracle commences any Proceeding against the Colorado JV (or, if applicable, the Orchid JV), or asserts any claim or counterclaim against the Colorado JV (or, if applicable, the Orchid JV), in each case to the extent arising out of or relating to any facts or circumstances that take place prior to the Closing, the net proceeds from such claim or counterclaim will be promptly remitted to Newco.
5.17     Colorado JV Consent/Oracle Rice Consents – Alternative Arrangements . Without limiting the generality of Section 1.06 of the Contribution Agreement – Oracle, if Oracle is unable to obtain any requisite Consent to transfer the equity interests in the Colorado JV or Oracle Rice to Newco or the applicable Subsidiary of Newco, as contemplated in the Contemplated Transactions, Oracle shall enter into an alternative arrangement with Newco or such Subsidiary, which shall be mutually acceptable to the Parents, that shall convey all of the material benefits and obligations of ownership of the equity interests in the Colorado JV or Oracle Rice to Newco or such Subsidiary, as appropriate. This may include an agreement pursuant to which Oracle remits all of the profits and distributions that it receives as an equity owner in the Colorado JV or Oracle Rice to Newco or such Subsidiary, Newco or such Subsidiary agrees to perform Oracle’s obligations under the governing agreements and instruments relating to the Colorado JV or Oracle Rice, as the case may be, and Oracle enters into a voting arrangement whereby Oracle votes its equity interests in the Colorado JV or Oracle Rice as directed by Newco or such Subsidiary.
5.18     Software . In the event that any software used or held for use in the Business by any Parent’s Group is not transferred to such Parent’s Holdco under its respective Contribution Agreement or retained by Sky, such Parent will use its Commercially Reasonable Efforts from and after the Closing to assist Newco or any Contributed Subsidiary with finding and securing reasonably adequate alternative arrangements for such non-transferred software.
VI.     
CONDITIONS TO CLOSING

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6.01     Conditions to Obligations of Each Parent’s Group . The obligations of each Parent’s Group to commence the Closing as contemplated by Section 2.01 are subject to the satisfaction (or waiver by each Parent) at or prior to the Closing of the following conditions:
(a)    any Consents under the Antitrust Laws in each of the jurisdictions set forth on Schedule 6.01(a) shall have been obtained;
(b)    no Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated or enforced, and there shall be no Law or final, permanent, nonappealable injunction or Order which is in effect and which would reasonably be expected to prohibit the Closing or have, individually or in the aggregate, a Material Adverse Effect;
(c)    there shall be no then-pending lawsuit or administrative action initiated by any Governmental Entity asserting that the Contemplated Transactions violate Antitrust Laws and seeking to enjoin the Closing;
(d)    no Governmental Entity shall have threatened in a letter to the Parties to commence a lawsuit or administrative action that asserts that the Contemplated Transactions violate Antitrust Laws and seeking to enjoin the Closing (or unwind any material portion of the Contemplated Transactions should the Closing occur), or, if such threat was made, it shall have been retracted; and
(e)    the Contributed Subsidiaries shall have received as of the Closing proceeds from the Financing in an amount no less than $600 million from third-party lenders that are unaffiliated with any of the Parties, on terms that are commercially reasonable and that do not alter any of the terms of the Contemplated Transactions or require any credit support to be provided by the Parent or any of their Affiliates.
6.02     Additional Conditions to Obligations of the Oracle Group . The obligations of the Oracle Group to commence the Closing as contemplated by Section 2.01 are subject to the satisfaction (or waiver by Oracle) of each of the following further conditions:
(i)    (i) The Watson Group and the Iris Group shall have performed in all material respects all of the obligations under this Agreement and the other Transaction Documents required to be performed by it at or prior to the Closing, (ii) the representations and warranties of Watson and Iris contained in this Agreement shall be true and correct at and as of the Closing Date, as if made at and as of such date, except that those representations and warranties that by their express terms are made as of a specific date shall be required to be true and correct only as of such date, in each case except for such inaccuracies that would not, individually or in the aggregate, reasonably be expected to have a Sky Material Adverse Effect (and provided that to the extent that any such representation or warranty is qualified by materiality (other than specific dollar threshold amounts), such materiality qualification will be ignored for the purpose of this Section 6.02(a) ), and (iii) Oracle shall have received a certificate signed by an officer of Watson and an officer of Iris to the foregoing effect.
(j)    Each of the Transaction Documents that is required to be executed by any member of the Watson Group and the Iris Group on or before the Closing Date shall have been executed and delivered by the applicable member of such Group on or before the Closing Date.
6.03     Additional Conditions to Obligations of the Watson Group . The obligations of the Watson Group to commence the Closing as contemplated by Section 2.01 are subject to the satisfaction (or waiver by Watson) of each of the following further conditions:
(a)    (i) The Oracle Group shall have performed in all material respects all of the obligations under this Agreement and the other Transaction Documents required to be performed by it at or prior to the Closing, (ii) the representations and warranties of Oracle contained in this Agreement shall be true and correct at and as of the Closing Date, as if made at and as of such date, except that those representations and warranties that by their express terms are made as of a specific date shall be required to be true and correct only as of such date, in each case except

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for such inaccuracies that would not, individually or in the aggregate, reasonably be expected to have an Oracle Material Adverse Effect (and provided that to the extent that any such representation or warranty is qualified by materiality (other than specific dollar threshold amounts), such materiality qualification will be ignored for the purpose of this Section 6.03(a) ), and (iii) Watson shall have received a certificate signed by an officer of Oracle to the foregoing effect.
(b)    Each of the Transaction Documents that is required to be executed by any member of the Oracle Group on or before the Closing Date shall have been executed and delivered by the applicable member of such Group on or before the Closing Date.
6.04     Additional Conditions to Obligations of the Iris Group . The obligations of Iris to commence the Closing as contemplated by Section 2.01 are subject to the satisfaction (or waiver by Iris) of each of the following further conditions:
(a)    (i) The Oracle Group shall have performed in all material respects all of the obligations under this Agreement and the other Transaction Documents required to be performed by it at or prior to the Closing, (ii) the representations and warranties of Oracle contained in this Agreement shall be true and correct at and as of the Closing Date, as if made at and as of such date, except that those representations and warranties that by their express terms are made as of a specific date shall be required to be true and correct only as of such date, in each case except for such inaccuracies that would not, individually or in the aggregate, reasonably be expected to have an Oracle Material Adverse Effect (and provided that to the extent that any such representation or warranty is qualified by materiality (other than specific dollar threshold amounts), such materiality qualification will be ignored for the purpose of this Section 6.04(a) ), and (iii) Iris shall have received a certificate signed by an officer of Oracle to the foregoing effect.
(b)    Each of the Transaction Documents that is required to be executed by any member of the Oracle Group on or before the Closing Date shall have been executed and delivered by the applicable member of such Group on or before the Closing Date.
6.05     No Ongoing Conditions Once Closing Commenced . Once the Closing process has commenced as contemplated by Section 2.01 , there will be no further ongoing conditions to the obligations of the Parties hereunder to proceed with the Closing.
VII.     
SURVIVAL AND INDEMNIFICATION
7.01     Indemnification by the Parents . Subject to the limitations contained in Section 7.06 , from and after the Closing Date, each Parent, Severally and not jointly, will indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless each Contributed Subsidiary, Newco, any Person Controlled by the foregoing, and their respective successors and assigns (and their respective directors, officers, employees, agents and Representatives) (each a “ JV Indemnitee ” and collectively, the “ JV Indemnitees ”) from and against, and will reimburse, Severally and not jointly, the JV Indemnitees with respect to, any and all losses, Liabilities, claims, deficiencies, demands, judgments, damages, interest, fines, penalties, suits, actions, causes of action, assessments, awards, costs and expenses (including reasonable costs of investigation and defense and reasonable attorneys’ fees, but excluding (i) non-foreseeable consequential damages, including any damages that are remote or speculative in nature, or any damages attributable to any changes in the stock price of publicly traded securities of any member of such Parent’s Group, and (ii) exemplary and punitive damages, except, in the case of either clause (i) or clause (ii), to the extent payable in connection with a Third-Party Claim) (collectively, “ Losses ”) that result from, relate to or arise out of, whether prior to or following the Closing, any of the following items (without duplication, and it being understood that the indemnification being given in clause (iii) of sub-paragraph (c) is only being given by Oracle):
(k)    any breach of any agreement or covenant of such Parent contained in this Agreement;

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(l)    subject to the application of Section 5.09 , the inaccuracy or breach of any representation or warranty of such Parent contained in this Agreement, provided that to the extent that any such representation or warranty is qualified by materiality (other than a specific dollar threshold amount), such materiality qualification will be ignored for purposes of determining whether an inaccuracy or breach has occurred or the amount of the Loss, and for purposes of determining whether an inaccuracy or breach of Sections 4.23(a) or (d) has occurred or the amount of the Loss, the words “to the Knowledge of Oracle” will be ignored, and provided, further , for the avoidance of doubt, for purposes of calculating the amount of the Loss in respect of a breach of Section 4.08(a)-(c) , the diminishment in the value of the Business contributed to Newco shall be considered as a Loss to Newco; or
(m)    (i) all Excluded Liabilities under such Parent’s Contribution Agreement, (ii) all Liabilities of each Contributed Subsidiary included in such Parent’s Group, in each case to the extent that such Liabilities arose during or relate to any period prior to the Closing, except for any Liabilities expressly assumed by such Contributed Subsidiary from any member of Parent’s Group pursuant to a Contribution Agreement or as addressed by the Employee Matters Agreement (all such Liabilities for which indemnification is being given hereunder, “ Pre-Closing Liabilities ”), or (iii) solely with respect to Oracle, the “Specified Indemnity Matters” described on Schedule 7.01(c) .
In the event that any amount is due by a Parent in respect of Losses suffered or incurred by any JV Indemnitee, the Parties agree that such Parent will pay (and each other Parent will be entitled on behalf of such JV Indemnitee to pursue, at the expense of such JV Indemnitee, any claim in respect of) the amount due directly to such JV Indemnitee. In the event that Losses are suffered or incurred by an officer, director, employee or agent of any JV Indemnitee, such JV Indemnitee may reimburse such Person for its Losses and the amount of any payments by it in connection with such reimbursement will be deemed to be a Loss incurred by it for purposes of this Article VII .
7.02     Indemnification by Newco . Subject to the limitations contained in Section 7.06 , from and after the Closing Date, Newco will indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless each Parent and its successors, assigns and Affiliates (and its and their respective directors, officers, employees, agents and Representatives) (each a “ Parent Indemnitee ,” and collectively, the “ Parent Indemnitees ”) from and against, and will reimburse the Indemnitees with respect to, any and all Losses that result from, relate to or arise out of (i) any breach by Newco of any obligation to be performed by it under this Agreement from and after the Closing, (ii) all Liabilities of Newco and each Contributed Subsidiary, in each case to the extent that such Liabilities arose during or relate to any period (or portion thereof) that takes place on or after the Closing, and (iii) after the Third Termination Date (including any extension thereof with respect to any particular matter pursuant to Section 7.06(b)(ii) ), all Third Party Claims relating to any Liabilities arising out of any violations of Environmental Law or Releases at, on, under or migrating to or from any Contributed Subsidiary’s Real Property, regardless of whether such Liabilities arose during or relate to any period before, at or after the Closing.
7.03     Calculation of Indemnity Payments . The amount of any Loss for which indemnification is provided under this Article VII will be (a) net of any amounts actually recovered by the Indemnitee under insurance policies with respect to such Loss (less the cost to collect the proceeds of such insurance), (b) reduced by the actual amount by which the Taxes of the Indemnitee are reduced by such Loss in the tax period in which the indemnification payment is made, or the net present value (calculated using the applicable U.S. federal long-term rate compounded semi-annually) of the amount by which the Taxes of the Indemnitee would be reduced by such Loss if the reduction in Taxes would be realized in tax periods following the tax period in which the indemnification payment is made), treating any Tax attribute resulting from such Loss as the last such Tax attribute on any Tax Return, and (c) increased by the actual amount by which the Taxes of the Indemnitee are increased by such Loss in the tax period in which the indemnification payment is made, or the net present value (calculated using the applicable U.S. federal long-term rate compounded semi­annually) of the amount by which the Taxes of the Indemnitee would be increased by such Loss if the increase in Taxes would be realized in tax periods following the tax period in which the indemnification payment is made), treating any Tax attribute resulting from such Loss as the last such Tax attribute on any Tax Return. If any Loss related to a claim by an Indemnitee is covered by one or more third-party (non-captive) insurance policies held by the Indemnitee, the Indemnitee will use Commercially Reasonable Efforts to pursue claims against the applicable insurers for coverage of such Loss under such policies. If the Indemnitee actually receives a full or partial recovery under such insurance policies following payment of indemnification by the Indemnifying Party in respect of such Loss, then the Indemnitee will refund amounts

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received from the Indemnifying Party up to the amount of indemnification actually received from the Indemnifying Party with respect to such Loss.
7.04     Procedures for Defense, Settlement and Indemnification of Direct or Third-Party Claims .
(c)     Direct Claims . All claims made under this Article VII by any Indemnitee against any Party (“ Direct Claims ”), will be subject to the dispute resolution procedures set forth in Section 9.12(b) .
(d)     Third-Party Claims .
(xxv)     Notice of Claims . If an Indemnitee receives notice or otherwise learns of the assertion by a Person (including any Governmental Entity) that is not a Parent or any of their respective Affiliates of any claim or of the commencement by any such Person of any Proceeding with respect to which an Indemnifying Party may be obligated to provide indemnification (collectively, a “ Third-Party Claim ”), such Indemnitee will give such Indemnifying Party prompt written notice (a “ Claims Notice ”) thereof but in any event within 30 calendar days after becoming aware of such Third-Party Claim. Any such notice will describe the Third-Party Claim in reasonable detail, stating the nature, basis for indemnification and the amount thereof, to the extent known, along with copies of any relevant documents evidencing such Third-Party Claim. Notwithstanding the foregoing, the delay or failure of any Indemnitee or other Person to give notice as provided in this Section 7.04(b)(i) will not relieve the related Indemnifying Party of its obligations under this Article VII , except to the extent that such Indemnifying Party is actually prejudiced by such delay or failure to give notice.
(xxvi)     Opportunity to Defend . The Indemnifying Party has the right, exercisable by written notice to the Indemnitee within 90 days after receipt of a Claims Notice from the Indemnitee of the commencement of any Third-Party Claim in respect of which indemnity may be sought under this Article VII , to assume and conduct the defense of such Third-Party Claim in accordance with the limits set forth in this Agreement with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnitee; provided , however , that (A) the Third-Party Claim does not relate to or arise in connection with any criminal proceeding, action, indictment, allegation or investigation, (B) the Third-Party Claim solely seeks (and continues to seek) monetary damages and/or equitable relief (with or without monetary damages) which equitable relief would not reasonably be expected to affect in any material and adverse respect the operations of the Indemnitee, and (C) the Indemnifying Party expressly agrees with the Indemnitee in writing to be responsible for all of the Losses (which may be subject, however, to the limitations set forth in this Article VII , including the limitations set forth in Section 7.06(c) ) that arise from the Third-Party Claim within 180 days of assuming the defense of such Third-Party Claim (the conditions set forth in clauses (A) through (C), collectively, the “ Litigation Conditions ”). For purposes of clause (C) of the preceding sentence, if a Third-Party Claim consists of multiple claims by a plaintiff or group of plaintiffs, and it is reasonably practicable for an Indemnifying Party to control the defense of a subset of such claims, the Indemnifying Party may elect to agree to be responsible for only all of the Losses that arise from such subset of claims, and may elect to control the defense of only such subset of claims, provided that the other Litigation Conditions set forth in clauses (A) and (B) of the preceding sentence are satisfied. If the Indemnifying Party does not assume the defense of a Third-Party Claim in accordance with this Section 7.04(b) , the Indemnitee may continue to defend the Third-Party Claim. If the Indemnifying Party has assumed the defense of a Third-Party Claim as provided in this Section 7.04(b) , the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense of the Third-Party Claim; provided , however , that if (x) any of the Litigation Conditions ceases to be met or (y) the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third-Party Claim, the Indemnitee may assume its own defense, and the Indemnifying Party will be liable for all reasonable costs or expenses thereafter incurred in connection with such defense. The Indemnifying Party or the Indemnitee, as the case may be, has the right to participate in (but, subject to the prior sentence, not control), at its own expense, the defense of any Third-Party Claim that the other is defending as provided in this Agreement. The Indemnifying Party, if it has assumed the defense of any Third-Party Claim as provided in this Agreement, may not, without the prior written consent of the Indemnitee (which

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consent will not be unreasonably withheld, conditioned or delayed), consent to a settlement of, or the entry of any judgment arising from, any such Third-Party Claim that does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnitee of a complete release from all liability in respect of such Third-Party Claim. The Indemnitee has the right to settle any Third-Party Claim, the defense of which has not been assumed by the Indemnifying Party, with the prior written consent of the Indemnifying Party, not to be unreasonably withheld, conditioned or delayed.
(e)     Notice of Breach – Generally . Without limiting the other provisions of this Section 7.04 , with respect to any Dispute relating to a breach or violation of any representation, warranty, covenant or agreement on the part of a Party set forth in this Agreement, (i) the Party that is alleging such breach or violation (the “ Non-Breaching Party ”) will endeavor in good faith to give notice of such alleged breach or violation to the breaching Party (the “ Breaching Party ”) as promptly as reasonably practicable following the date on which the Non-Breaching Party has Knowledge of the alleged breach or violation, (ii) prior to commencing any process to resolve such Dispute pursuant to Section 9.12 , the Non-Breaching Party will, to the extent such breach or violation is capable of being cured, provide at least 30 calendar days prior written notice in reasonable detail to the alleged Breaching Party of such alleged breach or violation and, in the event such breach or violation is cured during such 30 calendar day period by the Breaching Party (including by compensating the Non-Breaching Party for any damages recoverable pursuant to this Agreement in respect of such alleged breach or violation), the Non-Breaching Party will not thereafter commence the process to resolve such Dispute pursuant to Section 9.12 , and (iii) to the extent that the alleged breach or violation of this Agreement by the Breaching Party is the breach or violation of an obligation set forth in this Agreement for such Breaching Party to take any action under or comply with the provisions of, or to cause another Person to take any action under or comply with the provisions of, another Transaction Document, then the damages recoverable in respect of such breach or violation pursuant to this Agreement will be subject to the limitations on damages set forth in such other applicable Transaction Document. Notwithstanding the foregoing, the delay or failure of any Non-Breaching Party to give notice as provided in this Section 7.04(c) will not relieve the Breaching Party of its obligations under this Article VII , except to the extent that such Breaching Party is actually prejudiced by such delay or failure to give notice.
7.05     Additional Matters .
(h)     Cooperation in Defense and Settlement . With respect to any Third-Party Claim for which a Party may have Liability under this Agreement or any of the Transaction Documents, the Parties agree to cooperate fully and maintain a joint defense (in a manner that will preserve the attorney-client privilege, joint defense or other privilege with respect thereto) so as to minimize such Liabilities and defense costs associated therewith. In connection therewith, the Parties agree to make available to the Party defending such Third-Party Claim their respective officers, employees and representatives with knowledge of such matter and any records or information that pertains to such claim. Any Party that is not responsible for managing the defense of such Third-Party Claims will, upon reasonable request, be consulted with respect to significant matters relating thereto and may retain counsel to monitor or assist in the defense of such claims at its own cost.
(i)     Substitution . In the event of a Proceeding that involves solely matters that are indemnifiable and in which the Indemnifying Party is not a named defendant, if either the Indemnitee or the Indemnifying Party so requests, the Parties will endeavor to substitute the Indemnifying Party for the named defendant. If such substitution or addition cannot be achieved for any reason or is not requested, the rights and obligations of the Parties regarding indemnification and the management of the defense of claims as set forth in this Article VII will not be affected.
(j)     Subrogation . In the event of payment by or on behalf of any Indemnifying Party to or on behalf of any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party will be subrogated to and will stand in the place of such Indemnitee, in whole or in part based upon whether the Indemnifying Party has paid all or only part of the Indemnitee’s Liability, as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim or against any other Person. Such Indemnitee will cooperate with such

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Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.
7.06     Limitations .
(j)     Recipient of Representations . From and after the Closing, the representations of each Parent to each other Parent or Newco in this Agreement will be deemed to have been made only to the JV Indemnitees, provided, however , that the non-breaching Parent or Parents will have sole authority to represent and act on behalf of any JV Indemnitee in asserting claims against the other Parent or Parents pursuant to this Article VII .
(k)     Survival .
(i)     Representations and Warranties . Notwithstanding anything to the contrary contained in this Agreement, and notwithstanding any statute of limitations that might otherwise apply, the obligation of any Parent to indemnify the JV Indemnitees from and against any Loss arising from the breach of a representation or warranty set forth in this Agreement will terminate on the date that is 18 months after the Closing Date (the “ Termination Date ”), except that claims in respect of breaches thereof pending on, or asserted prior to, the Termination Date will continue to survive until such claims have been resolved; provided , however , that (A) there will be no termination or expiration of the right to indemnification for the Fundamental Reps or in the case of intentional misrepresentation or fraud, and (B) the obligations of each Parent to indemnify the Indemnitees from and against any Loss arising from the breach of the representations and warranties set forth in Section 4.12 (Environmental Matters) and Section 4.13 (Taxes), will terminate on the Third Termination Date (as defined below), except that claims in respect of breaches thereof pending on, or asserted prior to, such date will continue to survive until such claims have been resolved.
(ii)     Pre-Closing Liabilities (Other than Environmental and Tax) . Notwithstanding anything to the contrary contained in this Agreement, and notwithstanding any statute of limitations that might otherwise apply, the obligation of any Parent to indemnify the JV Indemnitees from and against any Loss arising from any Pre-Closing Liability (other than any Pre-Closing Environmental or Tax Liability) will terminate on the third anniversary of the Closing Date (the “ Second Termination Date ”), except that claims in respect thereof pending on, or asserted prior to, the Second Termination Date will continue to survive until such claims have been resolved.
(iii)     Pre-Closing Environmental and Tax Liabilities . Notwithstanding anything to the contrary contained in this Agreement, and notwithstanding any statute of limitations that might otherwise apply, the obligation of any Parent to indemnify the JV Indemnitees from and against any Loss arising from any Pre-Closing Environmental or Tax Liability will terminate on the seventh anniversary of the Closing Date (the “ Third Termination Date ”), except that claims in respect thereof pending on, or asserted prior to, the Third Termination Date will continue to survive until such claims have been resolved.
(l)     Other Limitations .
(i)     Indemnification For Breaches of Representations and Warranties . Notwithstanding the foregoing, no claim for indemnification for breaches of representations and warranties made pursuant to Section 7.01(b) (other than in cases of intentional misrepresentation or fraud, which will have no such limitations) (A) will be indemnifiable by Oracle until the Losses indemnifiable by Oracle pursuant to Section 7.01(b) collectively exceed $1,000,000 in the aggregate (the “ Oracle Basket ”), in which event Oracle will reimburse the JV Indemnitee(s) for only those Losses in excess of Oracle Basket, (B) will be indemnifiable by Watson until the Losses indemnifiable by Watson pursuant to Section 7.01(b) collectively exceed $760,000 in the aggregate (the “ Watson Basket ”), in which event Watson will reimburse the JV Indemnitee(s) for only those Losses in excess of Watson Basket and (C) will be indemnifiable by Iris until the Losses indemnifiable by Iris pursuant to Section 7.01(b) collectively exceed $240,000 in the

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aggregate (the “ Iris Basket ”), in which event Iris will reimburse the JV Indemnitee(s) for only those Losses in excess of Iris Basket; provided that, notwithstanding any other provision of this Agreement, the maximum amount for which each Parent, Severally, may be liable with respect to claims made pursuant to Section 7.01(b) , respectively (other than claims made in cases of intentional misrepresentation or fraud, which will have no such limitation), will not exceed $100,000,000 in the case of Oracle (the “ Oracle Cap ”), $76,000,000 in the case of Watson (the “ Watson Cap ”) and $24,000,000 in the case of Iris (the “ Iris Cap ”); provided further that claims made with respect to the Fundamental Reps will not be subject to, and will not be considered in calculating whether claims have exceeded, the Oracle Basket, Watson Basket, Iris Basket, Oracle Cap, Watson Cap or Iris Cap.
(ii)     Newco Indemnification For Pre-Closing Environmental Matters . The maximum amount for which Newco may be liable with respect to claims for indemnification pursuant to clause (iii) of Section 7.02 will be (A) $100 million in respect of Liabilities arising out of any violations of Environmental Law or Releases at, on, under or migrating to or from any of the Oracle Contributed Subsidiaries’ Real Property, and (B) $100 million, in the aggregate, in respect of Liabilities arising out of any violations of Environmental Law or Releases at, on, under or migrating to or from any of the Watson Contributed Subsidiaries’ Real Property or Iris Contributed Subsidiaries’ Real Property (said indemnification to be paid by Newco to the applicable Parent Indemnitee, subject to an equitable Several adjustment to be agreed by Watson and Iris, if necessary).
(m)     Mitigation . In the event that an Indemnitee suffers a Loss in respect of which it has or makes a valid claim against the Indemnifying Party for indemnification, it must use Commercially Reasonable Efforts to mitigate the Loss.
(n)     Environmental Claim Procedures .
(i)    Notwithstanding anything in this Agreement to the contrary, with respect to any claim pursuant to Section 7.01 for Response Action costs incurred in relation to any Release that occurred prior to Closing on, under or migrating to or from the Real Property of a Contributed Subsidiary, no JV Indemnitee will be entitled to recover such Losses otherwise subject to indemnification under Section 7.01 unless such Response Action is required under applicable Environmental Laws or by Order of a Governmental Entity to attain compliance with minimum remedial standards applicable under Environmental Laws for continued industrial or commercial use (as the case may be) of the relevant property or facility, employing where applicable risk-based remedial standards, deed restrictions and institutional and engineering controls, where such restrictions, standards or controls would not unreasonably restrict, limit, or interfere with operations at the relevant property or facility and the JV Indemnitees will reasonably cooperate with the applicable Parent to execute and file such documents as may be necessary to implement the foregoing controls and restrictions in relation to any such Response Action performed by or on behalf of JV Indemnitees or by or on behalf of any Parent.
(ii)    Furthermore, no JV Indemnitee will be entitled to indemnification with respect to any Losses pursuant to Section 7.01 to the extent arising from (A) any Release identified through any post-Closing intrusive or subsurface investigations (including excavations, drilling, boring and sampling) of soil or groundwater performed by or on behalf of any JV Indemnitee (or by a Person that is not a Governmental Entity that the JV Indemnitee expressly allows to conduct such investigations) at any Real Property of a Contributed Subsidiary unless such investigation is (1) required to comply with Environmental Laws or is reasonably necessary to defend against a third-party claim, (2) required or ordered by a Governmental Entity, (3) required by any applicable lease, (4) undertaken in connection with any maintenance or repair activities conducted at any facility, or as part of expansion or modification of any facility, but only if conditions observed during such maintenance, repair, expansion or modification activities suggest, in the reasonable judgment of the JV Indemnitee, the actual presence of a greater than de minimis Release that would reasonably and customarily require sampling to protect construction and maintenance workers, or (5) reasonably determined by the JV Indemnitee in good faith to be necessary in connection with any closure or shutting down of, or material suspension or modification of the historical

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operations at, any facility or property, but only if conditions observed during such shutting down, material suspension or modification of operations suggests, in the reasonable opinion of the JV Indemnitee, the actual presence of a greater than de minimis Release that would reasonably and customarily require sampling to protect construction and maintenance workers, (B) the solicitation (not otherwise required under applicable Environmental Laws) by any JV Indemnitee of any Governmental Entity to seek or require any JV Indemnitee to perform a Response Action at any Real Property of a Contributed Subsidiary that is not otherwise required under applicable Environmental Laws, or (C) the incremental increase in Response Actions costs associated with a change of the current industrial or commercial use (as the case may be) of the relevant property or facility to a use (such as residential) that is subject to more stringent cleanup standards than such current use.
(iii)    No Parent will have any obligation to indemnify any JV Indemnitee with respect to Losses to the extent arising from any Releases first occurring or contributed to after the Closing Date. To the extent that on-site groundwater has not been withdrawn at any Real Property for consumption or for use in any process over the past two years, is not currently being withdrawn for such purposes, and there are no plans as of the date hereof by any Contributed Subsidiary to do so, in no event will it be deemed reasonable, for purposes of this Section 7.06(e) , for the “industrial” or "commercial" use or operation of the relevant property or facility to involve the withdrawal of on-site groundwater for consumption or for use in any process. The Parent will have the right, in its sole discretion, to control and conduct any such Response Action and any related communications with any Governmental Entities or third parties; provided that no such Response Action or related communications will unreasonably interfere with operations at (or impede any JV Indemnitee's ability to comply with Environmental Laws and Environmental Permits in respect of) the relevant facility or property or result in any Losses for which any JV Indemnitee has any liability not subject to indemnification hereunder; and provided further that the Parent utilizes environmental contractors reasonably acceptable to the JV Indemnitee and provides the JV Indemnitee with a reasonable opportunity to review and comment on any proposed Response Action prior to implementation and final drafts of documents prepared for submission to any Governmental Entity or other third party prior to submittal (and utilizes in good faith reasonable efforts to accommodate any reasonable comments provided by the JV Indemnitees), and the JV Indemnitees will provide all reasonable access during normal operating hours to all of the applicable Real Property, facilities, books and records as the Parent may reasonably request to the extent necessary to complete such Response Action consistent with applicable Environmental Laws, including use of any wastewater treatment systems and utilities located at such Real Property (subject to reimbursement by the Parent for the reasonable pro rata costs of the Parent’s usage of such systems and utilities, and provided that such use does not unreasonably interfere with operations at (or impede any JV Indemnitee’s ability to comply with Environmental Laws and Environmental Permits in respect of) the relevant facility or property).
(iv)    If any JV Indemnitee sells, leases or transfers any Real Property or assigns its rights to indemnification hereunder (to the extent permitted to do so under Section 9.04 ) with respect to any Response Action at the Real Property, no Parent will have any liability for any Losses to the extent arising from any activities of such subsequent purchasers, lessees, transferees or assignees which if performed by any JV Indemnitee would negate or reduce the Parent's indemnification obligations pursuant to this Section 7.06(e) .
7.07     Exclusive Remedy . From and after the Closing, the sole and exclusive remedy of any Party with respect to any and all claims relating to this Agreement (other than (a) any remedies that may be expressly provided pursuant to another Transaction Document, (b) disputes referred to in Section 1.02 and Section 7.04(a) , (c) claims of, or causes of action arising from, intentional misrepresentation or fraud, and (d) seeking specific performance or other equitable relief to require a Party to perform its obligations under this Agreement) will be pursuant to the indemnification provisions set forth in this Article VII, and the Parties expressly waive any and all rights and remedies under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et. seq.) and other Environmental Laws in connection with any Losses relating to this Agreement or the Contemplated Transactions.

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7.08     Manner of Payment . Any indemnification payment pursuant to this Article VII will be effected by wire transfer of immediately available funds from the applicable Indemnifying Party to an account designated by each applicable Indemnitee within ten Business Days after the determination thereof.
VIII.     
TERMINATION
8.01     Termination . This Agreement may be terminated at any time prior to the Closing:
(c)    by mutual written agreement of Oracle and Watson;
(d)    by any Parent if the Closing will not have been consummated by March 31, 2014 (the “ Outside Date ”); provided, however, that if the only reason that such Closing has not taken place by such date is a failure of the condition set forth in Section 6.01(e) to be satisfied or waived, then Oracle or Watson shall have the right by providing written notice to the other Parties on or before March 31, 2014 to extend the Outside Date to June 30, 2014; provided , further , that a Parent may not terminate this Agreement pursuant to this Section 8.01(b) if the Closing will not have been consummated by such date by reason of the failure of such Parent to perform, or to cause its Affiliates to perform, in all material respects any of its or their respective covenants or agreements contained in this Agreement;
(e)    by any Parent if there will be any applicable Law that makes consummation of any material Contemplated Transactions illegal or otherwise prohibited or if consummation of any material Contemplated Transaction would violate any nonappealable final Order of any Governmental Entity having competent jurisdiction over such Parent;
(f)    by the affected Parent upon the occurrence of the circumstances contemplated by Section 5.03(b)(iv)(A) or by any Parent upon the occurrence of the circumstances contemplated by Section 5.03(b)(iv)(B) .
(g)    by a Parent as provided in Section 5.09(b) ;
(h)    by Oracle, in the event of a breach by Watson or Iris of any material covenant or agreement under this Agreement or in the event that any representation or warranty contained in this Agreement, if then made (provided that any representation or warranty that speaks as of a particular date or time would continue to speak as of that date and time, without change), would not be true and correct, and the effect of such breach or inaccuracy would be to cause the conditions to the obligation of Oracle to consummate the Closing not to be satisfied, and such breach or inaccuracy is not cured by the breaching Parent within 20 Business Days of receiving written notice from Oracle of the breach or inaccuracy or alleged breach or inaccuracy, which written notice will state that unless such breach or inaccuracy is cured in accordance with this Section 8.01(f) Oracle intends to terminate this Agreement (it being understood that such 20 Business Day cure period will not under any circumstances extend the Outside Date); or
(i)    by Watson or Iris, in the event of a breach by Oracle of any material covenant or agreement under this Agreement or in the event that any representation or warranty contained in this Agreement, if then made (provided that any representation or warranty that speaks as of a particular date or time would continue to speak as of that date and time, without change), would not be true and correct, and the effect of such breach or inaccuracy would be to cause the conditions to the obligation of Watson or Iris, as applicable, to consummate the Closing not to be satisfied, and such breach or inaccuracy is not cured by Oracle within 20 Business Days of receiving written notice from Watson or Iris, as applicable, of the breach or inaccuracy or alleged breach or inaccuracy, which written notice will state that unless such breach or inaccuracy is cured in accordance with this Section 8.01(g) Watson or Iris, as applicable, intends to terminate this Agreement (it being understood that such 20 Business Day cure period will not under any circumstances extend the Outside Date).
8.02     Effect of Termination . If this Agreement is terminated as permitted by Section 8.01 :

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(c)    this Agreement and the Employee Matters Agreement will forthwith become void and of no further force or effect, except for the following provisions: (i)  Section 5.04 (Public Announcements), (ii) Section 5.06 (Access; Confidentiality), (iii) this Section 8.02 , and (iv)  Article IX (Miscellaneous), which will remain in full force and effect;
(d)    such terminations will be without liability of any Party (or any Affiliate, stockholder, consultant or Representative of such Party) to the other Parties to this Agreement or Contribution Agreements; provided, however, that if the termination is the result of intentional misrepresentation or fraud or of an Intentional Breach by a Parent of a covenant or agreement under this Agreement, then such Parent will be liable to the other Parents for any Losses incurred by such other Parents as a result of such fraud or Intentional Breach; and
(e)    the Parties will cause the termination and dissolution of Newco.
IX.     
MISCELLANEOUS
9.01     Notices . All notices, requests, permissions, waivers and other communications hereunder must be in writing and will be deemed to have been duly given (a) when sent, if sent by facsimile or email, provided that the facsimile or email transmission is promptly confirmed by telephone and a copy is also sent by one of the other methods specified in this Section 9.01 , (b) when delivered, if delivered personally to the intended recipient, and (c) three Business Days following delivery to an international courier service for expedited delivery and, in each case, addressed to a Party at the following address for such Party, or to such address(es) as will be furnished in writing by any such Party to the other Party in accordance with the provisions of this Section 9.01 ; provided that any such notice delivered after 5:00 p.m. (local time) in the place of receipt or on a day that is not a Business Day in the place of receipt will not be deemed given or received until the next succeeding Business Day in the place of receipt:
(i)
if to Oracle:

ConAgra Foods, Inc.
1 ConAgra Dr.
Omaha, NE 68102
Attention: Colleen Batcheler, General Counsel
Facsimile: (402) 517-9267
Email: Colleen.Batcheler@conagrafoods.com
with a copy to (which will not constitute notice):
Jones Day
901 Lakeside Avenue
Cleveland, OH 44114-1190
Attention: Peter E. Izanec, Esq.
Facsimile: (216) 579-0212
Email: peizanec@jonesday.com
(ii)
If to Watson:
Cargill, Incorporated
15615 McGinty Road West
Wayzata, MN 55391
Attention: Laura Witte, General Counsel
Facsimile: 952-404-6349
Email: laura_witte@cargill.com
with a copy to (which will not constitute notice):

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Cargill, Incorporated
15407 McGinty Road West
Wayzata, MN 55391
Attention: Phillip Fantle
Facsimile: (952) 404-6378
Email: phillip_fantle@cargill.com
(iii)
If to Iris:
CHS Inc.
5500 Cenex Drive
Inver Grove Heights, MN 55077
Attention: Lisa Zell, General Counsel
Email: lisa.zell@chsinc.com
with a copy to (which will not constitute notice):
CHS Inc.
5500 Cenex Drive
Inver Grove Heights, MN 55077
Attention: Malcolm McDonald
Facsimile: (651) 355-4554
Email: malcom.mcdonald@chsinc.com
(iv)
If to Newco:
Notice address that will be delivered in writing to the Parties at a date no later than the Business Day after Closing.
A copy of any notices, requests, permissions, waivers and other communications to be sent to Newco by a Party hereto will also be sent to the other Parties.
9.02     Amendments; Waivers .
(f)    This Agreement may be amended and any provision of this Agreement may be waived; provided , however , that any such amendment or waiver will be binding upon each Parent only if such amendment or waiver is set forth in a writing executed by such Parent and any such amendment or waiver will be binding upon Newco only if such amendment or waiver is set forth in a writing executed by all Parents. No course of dealing between or among any Persons having any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any Party under or by reason of this Agreement.
(g)    No delay or failure in exercising any right, power or remedy hereunder will affect or operate as a waiver thereof; nor will any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any further exercise thereof or of any other right, power or remedy. The rights and remedies hereunder are cumulative and not exclusive of any rights or remedies that any Party would otherwise have. Any waiver, permit, consent or approval of any kind or character of any breach or default under this Agreement or any such waiver of any provision of this Agreement must satisfy the conditions set forth in Section 9.02(a) and will be effective only to the extent in such writing specifically set forth.
9.03     Expenses . Except as otherwise provided in this Agreement or the other Transaction Documents (a) all costs and expenses incurred in connection with the preparation and negotiation of this Agreement and the Contemplated Transactions (including retention payments to employees and legal and financial advisor fees and expenses) will be borne by the Party incurring such cost or expense, (b) all transfer taxes and similar fees and governmental charges and all sales, use and similar taxes and governmental charges resulting from or relating to the

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Contemplated Transactions (the “ Transfer Taxes ”) will be paid by the Party contributing the applicable Asset or real property, and (c) all costs resulting from or relating to the transfer of Assets or real property to Newco or any Contributed Subsidiary including restructuring costs, transfer fees, expenses incurred in obtaining third-party consents, governmental fees and charges, and any similar cost, expense, fee, or payment will be borne by the Party contributing the applicable Asset or real property.
9.04     Successors and Assigns . The provisions of this Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. No Party may assign its rights or delegate its duties under this Agreement without the written consent of the other Parties, except that a Party may assign its rights or delegate its duties under this Agreement to a member of its Group, provided that such member agrees in writing to be bound by the terms and conditions contained in this Agreement, and provided further that the assignment or delegation will not relieve any Party of its indemnification or other obligations hereunder. Notwithstanding the foregoing, Newco may assign or delegate any of its rights or obligations under this Agreement without the consent of any Parent to any purchaser of all or substantially all of Newco’s assets or Shares or other equity interests, or to one or more of its Subsidiaries (provided that such Person remains a Subsidiary of Newco for the duration of the relevant right or obligation and provided further that the assignment or delegation will not relieve any Party of its indemnification or other obligations hereunder). Except as provided in the preceding sentence, any attempted assignment or delegation will be void.
9.05     Disclosure . There may be included in the Disclosure Schedules or the Disclosure Letters items and information that are not “material,” and such inclusion will not be deemed to be an acknowledgment or agreement that any such item or information (or any non-disclosed item or information of comparable or greater significance) is “material,” or to affect the interpretation of such term for purposes of this Agreement. Matters reflected in the Disclosure Schedules or the Disclosure Letters are not necessarily limited to matters required by this Agreement to be disclosed therein. The Disclosure Schedules and the Disclosure Letters each set forth items of disclosure with specific reference to the particular section or subsection of this Agreement to which the information in the applicable disclosure document relates; provided , however , that any information set forth in one section of a Disclosure Schedule or a Disclosure Letter will be deemed to apply to each other section or subsection thereof to which its relevance is reasonably apparent on its face.
9.06     Construction . The descriptive headings herein are inserted for convenience of reference only and are not intended to be a substantive part of or to affect the meaning or interpretation of this Agreement. Whenever required by the context, any pronoun used in this Agreement, the Disclosure Schedules or the Disclosure Letters will include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns, pronouns, and verbs will include the plural and vice versa. Reference to any agreement, document, or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof. The use of the words “include” or “including” in this Agreement, the Disclosure Schedules or the Disclosure Letters will be by way of example rather than by limitation. The use of the words “or,” “either” or “any” will not be exclusive. The Parties have participated jointly in the negotiation and drafting of this Agreement and the Transaction Documents. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties, and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Except as otherwise expressly provided elsewhere in this Agreement or any Transaction Document, any provision herein which contemplates the agreement, approval or consent of, or exercise of any right of, a Party, such Party may give or withhold such agreement, approval or consent, or exercise such right, in its sole and absolute discretion, the Parties hereby expressly disclaiming any implied duty of good faith and fair dealing or similar concept.
9.07     Entire Agreement . This Agreement, including any related annexes, schedules and exhibits, as well as any other agreements and documents referred to herein and therein, will together constitute the entire agreement between the Parties with respect to the subject matter hereof and thereof and will supersede all prior negotiations, agreements and understandings of the Parties of any nature, whether oral or written, with respect to such subject matter, including any term sheets relating to the Contemplated Transactions exchanged between the Parties prior to the date hereof.

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9.08     Governing Law .
(q)    The validity, interpretation and enforcement of this Agreement will be governed by the Laws of the State of Delaware, other than any choice of Law provisions thereof that would cause the Laws of another state to apply.
(r)    Except with respect to disputes referenced in Sections 1.02 and 7.04(a) , and subject to Section 9.12 , by execution and delivery of this Agreement, each Party irrevocably (i) submits and consents to the personal jurisdiction of the state and federal courts of the State of Delaware for itself and in respect of its property in the event that any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (iii) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any other court, other than to enforce a judgment of said courts. Subject to compliance with the provisions of Section 9.12 , if applicable, each of the Parties irrevocably and unconditionally waives (and agrees not to plead or claim) any objection to the laying of venue of any dispute arising out of this Agreement or any of the transactions contemplated hereby in the state and federal courts of the State of Delaware, or that any such dispute brought in any such court has been brought in an inconvenient or improper forum. The Parties further agree that the mailing by certified or registered mail, return receipt requested, of any process required by any such court will constitute valid and lawful service of process against them, without necessity for service by any other means provided by statute or rule of court.
(s)    EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (III) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.08 .
9.09     Counterparts; Effectiveness . This Agreement may be executed in multiple counterparts (any one of which need not contain the signatures of more than one Party), each of which will be deemed to be an original but all of which taken together will constitute one and the same agreement. This Agreement, and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or other electronic transmission, will be treated in all manners and respects as an original agreement and will be considered to have the same binding legal effects as if it were the original signed version thereof delivered in person. At the request of any Party, the other Parties will re-execute original forms thereof and deliver them to the requesting Party. No Party will raise the use of a facsimile machine or other electronic means to deliver a signature or the fact that any signature was transmitted or communicated through the use of facsimile machine or other electronic means as a defense to the formation of a Contract and each such Party forever waives any such defense.
9.10     Severability . The Parties agree that (a) the provisions of this Agreement will be severable in the event that for any reason whatsoever any of the provisions hereof are invalid, void or otherwise unenforceable, (b) any such invalid, void or otherwise unenforceable provisions will be replaced by other provisions which are as similar as possible in terms to such invalid, void or otherwise unenforceable provisions but are valid and enforceable, and (c) the remaining provisions will remain valid and enforceable to the fullest extent permitted by applicable Law.

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9.11     Disclaimer of Agency . This Agreement will not constitute any Party as a legal representative or agent of any other Party, nor will a Party have the right or authority to assume, create or incur any liability or any obligation of any kind, expressed or implied, against or in the name or on behalf of any other Party, unless otherwise expressly permitted under the Alliance Agreement or the Newco Articles or pursuant to an agreement in writing between or among any of the Parties.
9.12     Dispute Resolution .
(a)     Disputes Prior To Closing . With respect to disputes prior to the Closing, each Parent will have the right to commence litigation in accordance with Section 9.08.
(b)     Disputes From and After Closing. Except as otherwise specifically provided in this Agreement or in any Transaction Document, if a dispute between the Parties relating to a Direct Claim arises after Closing under Article VII (a “ Dispute ”), then each Party shall elevate the dispute to the chief executive officer of such Party, and such chief executive officers shall meet or communicate by telephone at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, and shall negotiate in good faith to attempt to resolve the Dispute. If such Dispute has not been resolved within 30 days after the commencement of the chief executive officer discussions, then a Party may, within 30 days thereafter, by written notice to the other Parties, call for private mediation of the Dispute before a mediator to be agreed upon by the Parties. The Parties agree to conclude such private mediation within 45 days of the initiating Party’s request for such mediation, and each Party involved in the mediation shall be responsible for its share of the mediator’s fees and expenses based on its respective ownership interest as contemplated by Section 1.02 . Any Dispute that is not resolved by the foregoing provisions shall be resolved by arbitration in accordance with Section 15.09 of the Alliance Agreement.
9.13     No Third-Party Beneficiaries . Except as expressly otherwise provided in Article VII with respect to the specific indemnification rights of Indemnitees, this Agreement is solely for the benefit of the Parties and does not confer on third parties (including any employees of each Party or Newco or any of their respective Affiliates, except with respect to indemnity under Article VII ) any remedy, claim, reimbursement, claim of action or other right in addition to those existing without reference to this Agreement.
9.14     Specific Performance . The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement to be performed at or prior to the Closing were not performed in accordance with their specific terms or were otherwise breached, that monetary damages may be inadequate and that a Party may have no adequate remedy at Law. The Parties accordingly agree that, without the necessity of posting bond or other undertaking, the Parties will be entitled to an injunction or injunctions to prevent breaches of this Agreement at or prior to the Closing and to enforce specifically the terms and provisions of this Agreement to be performed at or prior to the Closing in accordance with this Agreement, this being in addition to any other remedy to which such Party is entitled at Law or in equity. In the event that any action is brought in equity to enforce the provisions of this Agreement to be performed at or prior to the Closing, no Party will allege, and each Party hereby waives the defense or counterclaim that, there is an adequate remedy at Law.
X.     
DEFINITIONS
For purposes of this Agreement, the following terms, when utilized in a capital form, will have the following meanings:
“ Accounting Firm ” has the meaning set forth in Section 1.04(c)(i) .
“ Accounting Principles ” has the meaning set forth in Section 1.04(a) .
“ Affiliate ” means a Person that directly, or indirectly through one or more intermediaries, Controls, or is Controlled by, or is under common Control with, the Person specified; provided , however , that Newco will not be considered an Affiliate of Oracle, Watson or Iris for purposes of any (i) representation or warranty herein of such Person or (ii)

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covenant herein of such Person which by its terms is required to be performed prior to or at the Closing; provided , further , that notwithstanding the foregoing, each of Sky, Sky GP and Sky Canada (when formed) will also be considered an Affiliate of Iris for purposes of all pre-Closing periods.
“ Aggregate Working Capital Target ” means $675 million.
“ Agreement ” has the meaning set forth in the Preamble .
“ Alliance Agreement ” means the Alliance Agreement, in substantially the form attached hereto as Exhibit G-2 .
“ Annual Financial Statements ” has the meaning set forth in Section 4.08(b) .
“ Antitrust Laws ” means all United States federal and state, and any foreign, statutes, rules, regulations, orders, decrees, administrative and judicial doctrines and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade, including the HSR Act.
“ Assets ” means assets, properties and rights, wherever located (including in the possession of vendors or other third-parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including (i) all accounting and other books, records and files whether in paper, computer tape or disc, magnetic tape or any other forms, (ii) all computers and other electronic data processing equipment, fixtures, machinery, equipment, furniture, office equipment, motor vehicles and other transportation equipment, special and general tools, prototypes and models and other tangible personal property, (iii) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products, (iv) all real property and interests in real property, (v) all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person, all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person, and all other investments in securities of any Person, (vi) all license agreements (without duplication of the licenses referenced in clause (viii)), leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other Contracts, (vii) all deposits, letters of credit and performance and surety bonds, (viii) all Intellectual Property and licenses from third Persons granting the right to use any Intellectual Property, (ix) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product literature, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents, (x) all formula cards, product dossiers, clinical data, pre-clinical data, stability data, laboratory data, quality assurance data and other similar data, (xi) all prepaid expenses, trade accounts and other accounts and notes receivables, (xii) all rights under Contracts, all claims or rights against any Person arising from the ownership of any Asset, all rights in connection with any bids or offers and all claims, causes of action or similar rights, whether accrued or contingent, and (xiii) all Regulatory Approvals and other Governmental Approvals.
“ Bakery Mix Products ” means and includes wheat flour and durum flour dry bakery mixes.
“ Breaching Party ” has the meaning set forth in Section 7.04(c) .
“ Business ” means, collectively, each of the following businesses that are conducted as of the date of this Agreement by (i) Oracle Mills, in the United States and Puerto Rico, or (ii) Sky and Sky GP, in the United States and Canada, in each case whether conducted by such Person directly or indirectly through such Person’s Affiliates:
(1)     Flour Products . Sourcing, procuring, logistics and dry milling of wheat, durum, and Cereal Grains into Flour Products, and the marketing, distribution and sale of Flour Products.
(2)     Bakery Mix Products . The design, development, production, marketing, distribution, sale and logistics of Bakery Mix Products and New Bakery Mix Products in non-retail channels in the U.S. and retail channels in Canada.

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(3)     Specialty Breads and Non-Retail Bread Mixes . The design, development, production, marketing, sale, distribution and logistics of (i) specialty finished breads (fresh or frozen), including without limitation those sold as private label products, and (ii) bread mixes solely into non-retail channels; to the extent such activities are consistent with the scope of products commercialized and/or in commercial development through what is commonly known as Sky’s “Integrated Bakery Resources” business as of the date of this Agreement.
(4)     Puerto Rico Business . Sourcing, procuring, logistics and dry milling of corn and rice and related co-products into flour, flour ingredients, rice and related co-products, and the marketing, distribution and sale thereof, consistent with and limited to the scope of Oracle Puerto Rico’s and Oracle Rice’s respective businesses and markets as of the date of this Agreement. This also includes the merchandising of feed ingredients for the marketing, distribution and sale thereof for the intended use with feed manufacturers, solely within the Puerto Rico market, consistent with and limited to the scope of Oracle Puerto Rico’s business as of the date of this Agreement.
(5)     Vital Wheat Gluten . Sourcing, procuring, logistics, marketing, distribution and sale of vital wheat gluten.
(6)     Pasta and Cereal Business . The design, development, production, marketing, sale, distribution and logistics of pasta and hot cereal finished products, strictly to the extent conducted by Oracle Mills as of date of this Agreement.
“ Business Day ” means a day that is not a Saturday, Sunday or any other day on which commercial banks are not open for business in the State of New York.
“ Cereal Grains ” means and includes barley, oats, rye, buckwheat, amaranth, millet, quinoa, sorghum, teff, and gluten-free blends of any of these specific grains, as produced by Oracle and its Affiliates and Sky and Sky GP as of the date of this Agreement.
“ Claims Notice ” has the meaning set forth in Section 7.04(b)(i) .
“ Closing ” has the meaning set forth in Section 2.01 .
“ Closing Certificate ” means, when required to be delivered by a Party, a certificate signed by an officer of such Party, certifying that (i) each member of such Party’s Group has performed in all material respects all of the obligations under this Agreement and the other Transaction Documents required to be performed by it at or prior to the Closing, and (ii) the representations and warranties of such Party contained in this Agreement are true and correct at and as of the Closing Date, as if made at and as of such date, except that those representations and warranties that by their express terms are made as of a specific date are true and correct only as of such date, in each case except for such inaccuracies that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (as applicable to such Party).
“ Closing Date ” has the meaning set forth in Section 2.01 .
“ Closing Shared Assets ” has the meaning set forth in Section 1.03(a)(ii) .
“ Closing Working Capital ” means, as required by the context, the Closing Working Capital of Oracle or the Closing Working Capital of Sky.
“ Closing Working Capital of Oracle ” means, in each case as of the Closing Date in respect of the Contributed Assets and Contributed Obligations of the Oracle Contributed Subsidiaries, the value of the asset line items minus the liability line items set forth on Schedule 1.04.1 , plus any other cash and cash equivalents and minus any other Indebtedness not already included in such schedule.
“ Closing Working Capital of Sky ” means, in each case as of the Closing Date in respect of the Contributed Assets and Contributed Obligations of the Watson Contributed Subsidiaries and Iris Contributed Subsidiaries, the value of

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the asset line items minus the liability line items set forth on Schedule 1.04.2 , plus any other cash and cash equivalents and minus any other Indebtedness not already included in such schedule.
“ Code ” means the United States Internal Revenue Code of 1986, as amended.
“ Colorado JV ” means Commerce City Grain LLC, a Colorado limited liability company.
“ Commercial Agreements ” means the Iris Wheat Supply Agreement, Oracle Flour Supply Agreement, Watson “Go to Market” Agreement and Watson Wheat Supply Agreement.
“ Commercially Reasonable Efforts ” means, with respect to the efforts to be expended by a Person with respect to any objective under this Agreement, reasonable, diligent, good faith efforts to accomplish such objective as such Person would normally use to accomplish a similar objective as expeditiously as reasonably possible under similar circumstances exercising reasonable business judgment, it being understood and agreed that such efforts will include the exertion of efforts and utilization of resources that would be used by such Person in support of one of its own wholly-owned businesses.
“ Compensation and Benefit Plans ” has the meaning set forth in Section 4.14(a) .
“ Confidentiality Agreement ” means a Master Confidentiality Agreement, by and among each of the Parents and Newco, in substantially the form of Exhibit L .
“ Consents ” means any consents, waivers or approvals from, or notification requirements to, or authorizations by, any third parties, including Governmental Approvals.
“ Consulting Firm ” has the meaning set forth in Section 5.07(a)(v) .
“ Contemplated Transactions ” means the transactions contemplated by the Transaction Documents.
“ Contracts ” means, with respect to any Person, any contracts, agreements, understandings, arrangements, leases and subleases (including leases and subleases of real property), licenses, commitments, instruments, bids, proposals, sales and purchase orders and other undertakings of any kind, whether written or oral, to which such Person is a party, under which such Person is otherwise entitled to benefits or by which such Person or any of its Assets is otherwise bound.
“ Contributed Assets ” means, as applicable, (a) the Contributed Assets (as such term is defined in the Contribution Agreement between Oracle and Oracle Holdco) of Oracle Mills, or (b) (i) the Contributed Assets (as such term is defined in the Contribution Agreement between Iris and Iris Holdco) of Iris, (ii) the Contributed Assets (as such term is defined in the Contribution Agreement between Watson and Watson Holdco) of Watson, and (iii) all assets of Sky, immediately prior to the Closing.
“ Contributed Obligations ” means, as applicable, (a) the Contributed Obligations (as such term is defined in the Contribution Agreement between Oracle and Oracle Holdco) of Oracle Mills, or (b) (i) the Contributed Obligations (as such term is defined in the Contribution Agreement between Iris and Iris Holdco) of Iris, (ii) the Contributed Obligations (as such term is defined in the Contribution Agreement between Watson and Watson Holdco) of Watson, and (iii) all obligations and liabilities of Sky, immediately prior to the Closing.
“ Contributed Subsidiary ” means each Iris Contributed Subsidiary, Oracle Contributed Subsidiary and Watson Contributed Subsidiary.
“ Contributed Subsidiary Collaboration Member ” has the meaning set forth in Section 4.15(b) .
“ Contributed Subsidiary Compensation and Benefit Plans ” has the meaning set forth in Section 4.14(a) .

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“ Contributed Subsidiary Material Contracts ” has the meaning set forth in Section 4.10(a) .
“ Contribution Agreements ” means the Oracle Contribution Agreement, Iris Contribution Agreement and Watson Contribution Agreement.
“ Control ” means ownership of or control of more than fifty percent (50%) of the voting membership interests or equity securities of the controlled Person, and “Controlled” and “Controlling” have meanings correlative thereto.
“ Convey ” or “ Conveyance ” means to assign, transfer, deliver and convey.
“ Coordinating Counsel ” has the meaning as set forth in Section 5.07(a)(iii) .
“ Co-Products ” means the co-products and by-products that are produced or derived from dry wheat milling activities, such as (but not limited to) wheat bran, wheat germ, wheat endosperm, red dog, aleurone, second clear, durum second clear, wheat midds, and wheat midds pellets. For the avoidance of doubt, “Co-Products” does not include the production of a “complete feed” (as such term is defined in the 2013 Official Publication of the Association of American Feed Control Officials Incorporated).
“ Covered Products ” has the meaning set forth in the definition of “Regulatory Event”.
“ Direct Claims ” has the meaning set forth in Section 7.04(a) .
“ Disclosure Letters ” means, the disclosure letter delivered by a Parent to such other Parents, as applicable, immediately prior to the execution of this Agreement.
“ Disclosure Letter Updates ” has the meaning set forth in Section 5.09(a) .
“ Disclosure Schedules ” means the disclosure schedules attached to this Agreement.
“ Disposition Order ” has the meaning set forth in Section 5.03(b)(iii) .
“ Dispute ” has the meaning set forth in Section 9.12(b) .
“ Divesting Assets ” has the meaning set forth in Section 5.03(b)(iii) .
“ EBITDA ” means with respect to any Business, the net income of such Business as reflected in its financial statements for the relevant period, excluding any extraordinary gains or losses, and increased by the amount reflected in such financial statements as expenses incurred for interest, income taxes, depreciation, amortization of any intangible assets, but only to the extent that such items were deducted in computing the net income of the Business.
“ Employee Matters Agreement ” means the Employee Matters Agreement dated of even date herewith among Oracle, Iris, Watson and Newco.
“ Enforceability Exception ” has the meaning set forth in Section 3.02 .
“ Engineering Issues ” has the meaning set forth in Section 5.07(a)(v) .
“ Engineering Reviews ” has the meaning set forth in Section 5.07(a)(v) .
“ Environment ” means ambient air, surface water, groundwater, stream sediments, soil and subsurface strata.

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“ Environmental Claim ” means any Proceeding by any Person alleging Liability (including Liability for investigatory costs, cleanup costs, governmental response costs, natural resource damages, fines, penalties or corrective action costs) arising from any violation of Environmental Law or any Release.
“ Environmental Laws ” means all Laws of any Governmental Entity that relate to the protection of the Environment or protection of human health and safety with respect to Hazardous Materials including Laws or any other binding legal obligation in effect now or in the future relating to Releases, or otherwise relating to the treatment, storage, disposal, transport or handling of Hazardous Materials, or to the exposure of any individual to a Release of Hazardous Materials.
" Environmental Permits " means any permit, license, approval, consent or authorization issued by a Governmental Entity and required under any Environmental Law for the operation of the Business or ownership or use of the Real Property.
“ Environmental Site Review ” has the meaning set forth in Section 5.07(b)(ii) .
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.
“ Estimate Statement ” has the meaning set forth in Section 1.04(a) .
“ Estimated Oracle Closing Working Capital ” has the meaning set forth in Section 1.04(a) .
” Estimated Sky Closing Working Capital ” has the meaning set forth in Section 1.04(a) .
“ FD&C Act ” means the Federal Food, Drug and Cosmetic Act, U.S.C. Title 21, Chapter 9.
“ FDA ” means the U.S. Food and Drug Administration.
“ Final Closing Working Capital Amount ” has the meaning set forth in Section 1.04(b) .
“ Final Oracle Closing Working Capital ” has the meaning set forth in Section 1.04(b) .
“ Final Sky Closing Working Capital ” has the meaning set forth in Section 1.04(b) .
“ Final Statement ” the meaning set forth in Section 1.04(b) .
“ Financial Statements ” has the meaning set forth in Section 4.08(b) .
“ Flour Products ” means and includes flour, flour ingredients, related Co-Products, and New Flour Products that are dry milled from wheat, durum and Cereal Grains.
“ Financing ” has the meaning set forth in Section 5.12(a)(i) .
“ Fundamental Reps ” means those representations and warranties set forth in each of Section 3.01  (Corporate Existence and Power), Section 3.02 (Corporate Authorization), Section 3.04 (Brokers), Section 4.01  (Corporate Existence and Power), Section 4.02 (Corporate Authorization), Section 4.09(a) (Assets), Section 4.16(a) (Capitalization), Section 4.19 (Indebtedness), Section 4.20 (Brokers), Section 4.22 (Special Representations Regarding Newco) and Section 4.23 (Special Representations Regarding Colorado JV).
“ GAAP ” means United States generally accepted accounting principles, consistently applied across all relevant periods.
“ Go-Forward EBITDA Amount ” means the reasonably expected annual EBITDA of Newco and the Contributed Subsidiaries on a consolidated basis for the third year following the Closing, as shall be determined by the Parents in

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good faith. This calculation shall take into account the reasonably expected synergies arising from the Contemplated Transactions.
“ Governing Documents ” means the Alliance Agreement, the Newco Articles, Oracle Puerto Rico Charter, Sky Charter, Sky Canada Charter, Oracle Netherlands Charter, and the operating agreements of the Holdcos.
“ Governmental Approvals ” means any notices to, reports or other filings to be made with, or any Consents, registrations, permits or authorizations to be obtained from, any Governmental Entity.
“ Governmental Entity ” means any governmental authority or entity, whether federal, state, local or foreign, including any agency, board, bureau, commission, court, department, stock exchange or self-regulatory authority, subdivision or instrumentality thereof, or any arbitrator or arbitration panel.
“ Group ” means, (i) in the case of Oracle, the Oracle Group, (ii) in the case of Watson, the Watson Group or (iii) in the case of Iris, the Iris Group.
“ Hazardous Materials ” means pollutants, contaminants, hazardous wastes, toxic substances, hazardous materials, hazardous substances and other materials subject to regulation under Environmental Laws, including petroleum and petroleum products or any fraction thereof, asbestos and asbestos-containing materials, and radiation and radioactive materials.
“ Holdco ” means Iris Holdco, Oracle Holdco, or Watson Holdco, as applicable.
“ HSR Act ” means the Hart–Scott–Rodino Antitrust Improvements Act of 1976.
“ Income Taxes ” means any Taxes imposed on or measured by reference to gross or net income or receipts or overall net or gross profits, including franchise taxes imposed in lieu of taxes in respect of, and based upon or measured by, overall income or profits. For the avoidance of doubt, Income Taxes will not include any sales, use, ad valorem, value added, transfer, payroll, employment, excise, severance, stamp, physical improvements and infrastructure, occupation or property taxes, any tariffs or customs duties.
“ Incomplete Ancillary Exhibits ” means those items set forth in clauses (v) through (ix) of the definition of Incomplete Transaction Documents.
“ Incomplete Transaction Documents ” means (i) operating agreements for the Holdcos, (ii) the Oracle Netherlands Charter, (iii) the Sky Canada Charter, (iv) the Oracle Puerto Rico Charter, (v) Schedules A and B to the Oracle Transition Services Agreement and the Watson Transition Services Agreement, (vi) Exhibits A and B of the Oracle Flour Supply Agreement, (vii) Recital E, Section 2(d) and Exhibit A of the Watson “Go To Market” Agreement, (viii) Sections 2.1(b)(10) and 3.2 and Exhibits A and B of the Iris Wheat Supply Agreement, (ix) Section 3.2 and Exhibits A, B-1 and B-2 of the Watson Wheat Supply Agreement, (x) the IP Matters Agreement, (xi) the Watson Contribution Agreement and Iris Contribution Agreement, (xii) the Watson License-In Agreement and Watson License-Out Agreement, (xiii) the Watson Transition Services Agreement and (xiv) the Watson Purchase and Sale Agreement.
“ Indebtedness ” means, for any Person, either (a) any liability of any Person (i) for borrowed money (including the current portion thereof), (ii) under any reimbursement obligation relating to a letter of credit, bankers' acceptance or note purchase facility, (iii) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation), (iv) for the payment of money relating to leases that are required to be classified as a capitalized lease obligations in accordance with the Accounting Principles for all or any part of the deferred purchase price of property or services (other than trade payables), or (v) for all or any part of the deferred purchase price of property or services (other than trade payables), including any non-compete and earnout payments, or (b) any liability of others described in the preceding clause (a) that such Person has guaranteed, that is recourse to such Person or any of its assets or that is otherwise its legal liability or that is secured in whole or in part by the assets of such Person.

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“ Indemnifying Party ” means any Person responsible for indemnifying an Indemnitee pursuant to Article VII .
“ Indemnitee ” means any JV Indemnitee or Parent Indemnitee.
“ Intellectual Property ” means all intellectual property, whether owned or held for use under license, whether statutory or non-statutory, registered or unregistered, including such rights in and to: (i) issued patents and all provisional and pending patent applications, any and all divisions, continuations, continuations-in-part, reissues, continuing patent applications, reexaminations and extensions thereof, any counterparts claiming priority therefrom, utility models, patents of importation/ confirmation, certificates of invention, certificates of registration and like rights, and any patent disclosures, invention disclosures, discoveries and improvements, whether or not patentable, (ii) copyrights and copyrightable works, including databases (or other collections of information, data, works or other materials), packaging artwork and design rights, (iii) technology, know-how, recipes, processes, trade secrets, inventions (including inventions conceived prior to the Closing Date but not documented as of the Closing Date), business information, technical information, methods, marketing information and materials, business plans, proprietary data, formulae, techniques, specifications, research and development data, non-public information and confidential information and rights to limit the use or disclosure of any of the foregoing by any Person, (iv) computer software (including source code and object code, data files, application programming interfaces, computerized databases and other software-related specifications, (v) Trademarks, (vi) internet domain names, (vii) rights of publicity and other rights to use the names and likeness of individuals, and (viii) claims, causes of action and defenses relating to any of the foregoing; in each case, including registrations, applications, recordings, and extensions and common-law rights relating to any of the foregoing.
“ Intentional Breach ” means a breach of this Agreement that is the consequence of an act undertaken by the breaching Party with the actual Knowledge that the taking of such act would, or would be reasonably expected to, cause a breach of this Agreement.
“ Interests ” means, in the case of Oracle, the Oracle Interests, in the case of Watson, the Watson Interests, or in the case of Iris, the Iris Interests.
“ Interim Financial Statements ” has the meaning set forth in Section 4.08(a) .
“ Inventory ” means inventories of materials, parts, raw materials, packaging materials, supplies, work-in-process, goods in transit and finished goods and products.
“ IP License Agreements ” means, collectively, the Oracle License-In Agreement, the Oracle License-Out Agreement, the Watson License-In Agreement, and the Watson License-Out Agreement.
“ IP Matters Agreement ” means an IP Matters Agreement among the Parents and Newco, to be completed in compliance with Section 5.15(d) .
“ Iris ” has the meaning set forth in the Preamble .
“ Iris Basket ” has the meaning set forth in Section 7.06(c) .
“ Iris Canada ” means CHS Canada, Inc., which will be merged with Watson Canada pursuant to the Sky Canada Merger.
“ Iris Cap ” has the meaning set forth in Section 7.06(c) .
“ Iris Contributed Subsidiary ” means each of Iris Canada (until the Sky Canada Merger), Iris Holdco, Sky, Sky GP (prior to the SKY GP Dissolution) and Sky Canada (from and after the Sky Canada Merger).

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“ Iris Contribution Agreement ” means a contribution agreement between Iris and Iris Holdco, to be entered into, and the transactions contemplated thereby consummated, as part of and pursuant to the Iris Reorganization, and to be completed in compliance with Section 5.15 .
“ Iris Group " means Iris and its Affiliates (including each Iris Contributed Subsidiary), and any one of them, as the case may be; provided , that Newco will not be considered a member of the Iris Group for purposes of this definition.
“ Iris Holdco ” means a to-be-formed Delaware limited liability company, as contemplated by the Iris Reorganization.
“ Iris Interests ” has the meaning set forth in Section 1.02 .
“ Iris Lux ” means a to-be-formed Luxembourg S.a.r.l., as contemplated by the Iris Reorganization.
“ Iris Percentage Interest ” has the meaning set forth in Section 1.02 .
“ Iris Reorganization ” has the meaning set forth in Section 1.01(a) .
“ Iris Wheat Supply Agreement ” means a wheat and durum supply agreement among Iris, Iris Canada, Sky, Sky Canada and Oracle Puerto Rico, in a form reasonably acceptable to the Parents and substantially based on the terms set forth on Exhibit F-1 .
“ Joint Review Team ” has the meaning set forth in Section 5.07(a)(v) .
“ JV Indemnitees ” has the meaning set forth in Section 7.01 .
“ Knowledge ” means for each Parent, the actual knowledge after reasonable inquiry of the individuals identified on Section 10 of such Parent’s Disclosure Letter.
“ Law ” means any law, statute, rule, regulation, ordinance, order, code, arbitration award, judgment, decree or other legal requirement of, or Order issued by, any Governmental Entity.
“ Leased Real Property ” has the meaning set forth in Section 4.11(b) .
“ Liabilities ” means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including whether arising out of any Contract or tort based on negligence or strict liability) and whether or not the same would be required by GAAP.
“ Lien ” means with respect to any Asset, any lien (statutory or other), claim, pledge, hypothecation, preference, priority, charge, license, security interest, mortgage, deed of trust, title defect, option, encumbrance, easement, lis pendens or other encumbrance or restriction affecting such Asset or any interest therein (including any conditional sale or other title retention agreement, any sale-leaseback, any financing lease or similar transaction having substantially the same economic effect as any of the foregoing, the filing of any financing statement or similar instrument under the Uniform Commercial Code of the State of Delaware or comparable law of any other jurisdiction, domestic or foreign, and mechanics’, materialmen’s and other similar liens and encumbrances, as well as any option to purchase, right of first refusal, right of first offer or other right in each case to acquire such Asset).
“ Litigation Conditions ” has the meaning set forth in Section 7.04(b)(ii) .
“ Losses ” has the meaning set forth in Section 7.01 .
“ Manufacturing Assets ” means, with respect to each Parent’s Group, all of those facilities, Assets and support services that are Primarily Used In The Business in connection with the manufacturing of products for sale by such

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Group, including those capabilities associated with the delivery of manufacturing output from such facilities, such as supporting distribution centers.
“ Manufacturing Facilities ” means, with respect to any Parent’s Group, all facilities included in the Manufacturing Assets of such Group.
“ Master Sky Agreements ” means (i) Iris Master Facility Lease Agreement between Cenex Harvest States Cooperatives and Sky, dated January 11, 2002, as amended, (ii) Watson Master Facility Lease Agreement between Watson and Sky, dated January 11, 2002, as amended, (iii) Grain Origination Agreement between Sky and Cenex Harvest States Cooperatives, dated January 11, 2002, as amended, (iv) Administrative Services Agreement between Sky and Watson, dated January 11, 2002, (v) Master Intellectual Property Agreement among Cenex Harvest States Cooperatives, Watson and Sky, dated January 11, 2002, (vi) Cash and DDL Settlement Agreement between Watson and Sky, dated February 11, 2008, as amended, (vii) Security Agreement between Sky and Watson, dated January 11, 2002, (viii) Master Confidentiality Agreement between Cenex Harvest States Cooperatives, Watson and Sky dated, January 11, 2002, (ix) Agency Agreement between Horizon GP and Cargill Canada Holdings III (2006) Inc. dated September 13, 2006, (x) Agency Agreement between Horizon GP and Cargill Canada Holdings III (2006) Inc. dated September 13, 2006, (xi) Agency Agreement between Horizon GP and Cargill Canada Holdings III (2006) Inc. dated September 22, 2006, (xii) Agency Agreement between Horizon GP and Cargill Canada Holdings III (2006) Inc. dated October 31, 2011, (xiii) Letter Agreement Regarding Legal Services among Watson, Watson Limited, Iris Canada and Horizon GP dated September 23, 2006, (xiv) Cash and In-House Banking Settlement Agreement between Sky GP and Watson Limited dated September 23, 2006, (xv) Agreement for Services among Horizon, Horizon GP, Horizon Milling L.P., Watson and Watson Limited dated September 23, 2006, as amended, (xvi) Security Agreement between Horizon GP and Watson Limited dated September 23, 2006, (xvii) Master Intellectual Property Agreement among Iris Canada, Watson Limited and Horizon GP dated July 19, 2006, and (xviii) Master Confidentiality Agreement among Iris Canada, Cargill Canada Holdings III (2006) Inc. and Horizon GP dated July 19, 2006.
“ Material Adverse Effect ” means either an Oracle Material Adverse Effect or a Sky Material Adverse Effect.
“ Material Customers ” means, with respect to each Parent, the top ten customers of its Contributed Subsidiaries in the aggregate (based on the dollar amount of sales to such customers) for each of the two most recently completed fiscal years of such Contributed Subsidiaries.
“ Material Suppliers ” means, with respect to Oracle, on the one hand, and Watson and Iris, collectively, on the other hand, the top ten suppliers of their respective Contributed Subsidiaries in the aggregate (based on the dollar amount of purchases from such suppliers) for each of the two most recently completed fiscal years of such Contributed Subsidiaries.
“ New Bakery Mix Products ” means and includes products that are the result of research and development of new and/or improved Bakery Mix Products.
“ New Flour Products ” means and includes products that are the result of development of and/or modification to any dry milling processes, wheat and durum varieties, wheat and durum flour, wheat and durum flour ingredients, or wheat and durum related co-products.
“ Newco ” has the meaning set forth in the Preamble.
“ Newco Articles ” means the amended and restated Articles of Association of Newco, in substantially the form attached hereto as Exhibit G-1 .
“ Non-Breaching Party ” has the meaning set forth in Section 7.04(c) .
“ Non-Income Taxes ” means any Taxes other than Income Taxes.

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“ Objection Notice ” has the meaning set forth in Section 1.04(b) .
“ Oracle ” has the meaning set forth in the Preamble .
“ Oracle Basket ” has the meaning set forth in Section 7.06(c) .
“ Oracle Cap ” has the meaning set forth in Section 7.06(c) .
“ Oracle Contributed Subsidiary ” means each of Oracle Holdco, Oracle Netherlands, Oracle Puerto Rico, Oracle Rice and, if and when formed, Orchid JV.
“ Oracle Contribution Agreement ” means a contribution agreement between Oracle and Oracle Holdco, in substantially the form attached hereto as Exhibit K , to be entered into, and the transactions contemplated thereby consummated, as part of and pursuant to the Oracle Reorganization.
“ Oracle Flour Supply Agreement ” means a flour supply agreement among Oracle and Sky, in a form reasonably acceptable to the Parents and substantially based on the terms set forth on Exhibit H .
“ Oracle Group ” means Oracle and its Affiliates (including each Oracle Contributed Subsidiary), and any one of them, as the case may be; provided , that Newco will not be considered a member of the Oracle Group for purposes of this definition.
“ Oracle Holdco ” means a to-be-formed Delaware limited liability company, as contemplated by the Oracle Reorganization.
“ Oracle Interests ” has the meaning set forth in Section 1.02 .
“ Oracle License-In Agreement ” has the meaning set forth in Section 2.02(a)(iii) .
“ Oracle License-Out Agreement ” has the meaning set forth in Section 2.02(a)(iii) .
“ Oracle Lux ” means a to-be-formed Luxembourg S.a.r.l., as contemplated by the Oracle Reorganization.
“ Oracle Material Adverse Effect ” means a material adverse change, effect, circumstance or event that (a) is material and adverse to the business, financial condition or results of operations of the Oracle Group Business or (b) would have a material and adverse effect on the contemplated benefits to be received by Newco, the Iris Group or the Watson Group after the Closing under the Transaction Documents other than this Agreement; provided , however , that, with respect to Section 6.03(a) and Section 6.04(a) only, no change, whether actual or prospective, arising from or relating to any of the following will be deemed to constitute a Oracle Material Adverse Effect, or will be taken into account in determining whether a Oracle Material Adverse Effect has occurred: (i) any change in business, economic, social, political or legal conditions generally, (ii) any change or condition generally affecting the flour milling industry, (iii) changes in GAAP or in the official interpretations thereof, (iv) changes in Laws, including applicable Laws or regulations or interpretations thereof by courts or any other Governmental Entity, (v) any change in the general political conditions in the United States, any region or worldwide (including the outbreak of war or acts of terrorism), (vi) any failure of the Oracle Group to meet earnings or other projections, but not including any underlying causes thereof or (vii) the announcement of, or the taking of any action required by, this Agreement and the Transaction Documents, except, in the case of any change described in (i) – (v), where such change has a disproportionate adverse effect on the business, financial condition or results of operations of the Oracle Group Business or Newco, as applicable, relative to other Persons carrying on a similar business. For purposes of this definition, changes, effects, circumstances or events will be deemed to be “material and adverse” if, and only if, such changes, effect, circumstances or events result, individually in the aggregate, in either (i) Losses equal to or more than $250,000,000, or (ii) Losses that are of a nature that would not reasonably be expected to be indemnifiable by Oracle under Section 7.01 (or otherwise paid for by Oracle hereunder, such as in connection with Oracle’s obligations under Section 5.07 ) of this Agreement and that are equal to or more than $100,000,000. For

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purposes of calculating the amount of “Losses” in the preceding sentence, the amount of “Losses” will be deemed to be equal to the amount of the cash payment to be made (or, in the event of lost profits, the amount of lost profit), calculated on a net present value basis and applying a market discount rate appropriate for Newco (as such discount rate would be determined by a reasonable financial expert, and using the midpoint of a range if there is a range of reasonable discount rates).
“ Oracle Mills ” means ConAgra Foods Food Ingredients Company, Inc., a Delaware corporation.
“ Oracle Netherlands ” means ConAgra Netherlands Holdings B.V., a private company with limited liability ( besloten vennootschap met beperkte aansprakelijkheid ) under the laws of the Netherlands.
“ Oracle Netherlands Charter ” means amended and restated charter documents of Oracle Netherlands, to be completed in compliance with Section 5.15 .
“ Oracle Percentage Interest ” has the meaning set forth in Section 1.02 .
“ Oracle Puerto Rico ” means Molinos de Puerto Rico, Inc., a Puerto Rico corporation which, pursuant to the Oracle Reorganization, will be converted to a Puerto Rico limited liability company prior to the Closing.
“ Oracle Puerto Rico Charter ” means a limited liability company agreement of Oracle Puerto Rico, to be completed in compliance with Section 5.15 .
“ Oracle Reorganization ” has the meaning set forth in Section 1.01(a) .
“ Oracle Rice ” means Molinos Premium Rice, LLC, a Puerto Rico limited liability company.
“ Oracle Working Capital Target ” means $675 million multiplied by 0.44 (i.e., $297 million).
“ Orchid JV ” means a to-be-formed Delaware limited liability company (as further described in Section 5.01 of Oracle’s Disclosure Letter).
“ Order ” means any orders, judgments, injunctions, awards, decrees, writs or other legally enforceable requirement handed down, adopted or imposed by, including any consent decree, settlement agreement or similar written agreement with, any Governmental Entity.
“ Ordinary Course of Business ” means, with respect to any business, the ordinary and usual course of day-to-day operations of such business through the Closing Date consistent with past custom and practice (including with respect to quantity and frequency).
“ Outside Date ” has the meaning set forth in Section 8.01(b) .
“ Owned Real Property ” has the meaning set forth in Section 4.11(a) .
“ Parent ” or “ Parents ” has the meaning set forth in the Preamble .
“ Parent Indemnitee ” or “ Parent Indemnitees ” has the meaning set forth in Section 7.02 .
“ Party ” or “ Parties ” has the meaning set forth in the Preamble .
“ Permitted Liens ” means (i) Liens for Taxes not yet due and payable, (ii) inchoate mechanics’ and materialmen’s Liens for construction in progress which are not yet due and payable, (iii) inchoate workmen’s, repairmen’s, warehousemen’s, landlord’s and carriers’ liens arising in the Ordinary Course of Business which are not yet due and payable, (iv) Liens that do not have and are not reasonably likely to result in a material and adverse impact on the use or operation of the property subject thereto, (v) non-exclusive licenses of Intellectual Property granted in the

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Ordinary Course of Business, (vi) rights of existing and future tenants as tenants only pursuant to written leases, and/or (vii) Liens for amounts due and payable that are being contested in good faith in the Ordinary Course of Business, provided , however , such amounts being contested will be deemed an Oracle Excluded Liability, Watson Excluded Liability or Iris Excluded Liability, as applicable.
“ Person ” or “ Persons ” means any natural person and any corporation, firm, partnership, trust, estate, limited liability company, or other entity resulting from any form of association.
“ Post-Closing Straddle Period ” has the meaning set forth in Section 5.08(f) .
“ PR Code ” means the Puerto Rico Internal Revenue Code, as amended.
“ Pre-Closing Contributed Subsidiary Environmental Liability ” means, with respect to each Contributed Subsidiary, all Pre-Closing Liabilities arising out of any violations of Environmental Law or Releases at, on, under or migrating from such Contributed Subsidiary’s Real Property.
“ Pre-Closing Contributed Subsidiary Tax Liability ” means, with respect to each Contributed Subsidiary, (i) any Taxes that Newco or any Contributed Subsidiary may incur or may otherwise be liable for in relation to the transfer of all of the issued and outstanding equity interests of such Contributed Subsidiary to such Person, (ii) all Taxes (or the nonpayment thereof) of such Contributed Subsidiary for any Pre-Closing Tax Period and any Pre-Closing Straddle Period; (iii) all Taxes of any member of an affiliated, combined or unitary group of which such Contributed Subsidiary is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation Section 1.1502-6 or any analogous or similar state, local or foreign Law; or (iv) any and all Taxes of any Person imposed on such Contributed Subsidiary as a transferee or successor, by contract or pursuant to any Law, which Taxes relate to an event or transaction occurring on or before the Closing Date.
“ Pre-Closing Environmental or Tax Liability ” means, with respect to each Contributed Subsidiary, all Pre-Closing Contributed Subsidiary Environmental Liabilities or Pre-Closing Contributed Subsidiary Tax Liabilities of such Contributed Subsidiary.
“ Pre-Closing Liabilities ” has the meaning set forth in Section 7.01(c) .
“ Pre-Closing Straddle Period ” has the meaning set forth in Section 5.08(f) .
“ Pre-Closing Tax Period ” means any taxable period ending on or before the Closing Date, and with respect to any taxable period that includes but does not end on the Closing Date, the portion of such taxable period ending on and including the Closing Date.
“ Preliminary Environmental Site Review ” has the meaning set forth in Section 5.07(b)(i) .
“ Primarily Used In The Business ” means, with respect to any Asset, that such Asset is primarily used, or held for use, in the Business of the relevant Parent’s Group.
“ Privilege Period ” has the meaning set forth in Section 5.08(f) .
“ Proceeding ” means any demand, charge, complaint, action, suit, proceeding, arbitration, hearing, audit, investigation or claim of any kind (whether civil, criminal, administrative, investigative, informal or other, at law or in equity) commenced, filed, brought, conducted or heard by, against, to, of or before or otherwise involving, any Governmental Entity.
“ Puerto Rican Retirement Plans ” means the Molinos De Puerto Rico Inc. Administrative Employees Retirement Plan & Trust and the Molinos De Puerto Rico Inc. Union Employees Retirement Plan & Trust.
“ Real Property ” has the meaning set forth in Section 4.11(b) .

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“ Real Property Leases ” has the meaning set forth in Section 4.11(b) .
“ REC ” has the meaning set forth in Section 5.07(b)(ii) .
“ Regulatory Approval ” means, with respect to any product in a country, (i) any and all approvals, licenses, registrations or authorizations of any Governmental Entity necessary to commercially distribute, sell or market such Product in such country, including, where applicable, (a) pricing or reimbursement approval in such country, (b) pre- and post-approval marketing authorizations, (c) labeling approval and (d) technical and scientific licenses, and (ii) applications, correspondence and reports submitted to or received from Governmental Entities (including minutes and official contact reports relating to any communications with any Governmental Entity) and all supporting documents with respect thereto, including all regulatory and promotion documents, adverse event files and complaint files.
“ Regulatory Event ” means the occurrence of any of the following:
(A) the filing by the Department of Justice or any Governmental Entity in any material jurisdiction of a criminal indictment or information against any Contributed Subsidiary or any Affiliate thereof relating to the manufacture, marketing, distribution, supply or sale of any products manufactured by Person’s Manufacturing Facilities (collectively, “ Covered Products ”);
(B) the receipt by such Person or any of its employees of a grand jury subpoena or similar Order relating to the manufacture or sale of Covered Products;
(C) the agreement by any Contributed Subsidiary or Affiliate thereof to a consent decree or similar Order under the FD&C Act or similar Law in another jurisdiction relating to the manufacture or sale of any Covered Products;
(D) the commencement of a seizure action or similar action under the FD&C Act or a similar Law in another jurisdiction of any Covered Products;
(E) any action by the U.S. Department of Justice or another Governmental Entity to intervene in any qui tam action or similar action filed by a Governmental Entity against any Contributed Subsidiary or Affiliate thereof with respect to any Covered Products;
(F) the receipt by any Contributed Subsidiary or Affiliate thereof of any subpoena or document request issued on behalf of the U.S. Department of Justice or the Office of Inspector General of the Department of Health and Human Services or similar Governmental Entities in other jurisdictions under the False Claims Act or similar Laws with respect to any Iris Covered Product;
(G) the commencement by any Governmental Entity of any administrative action against any Contributed Subsidiary or Affiliate thereof relating to the manufacture, marketing, distribution, supply or sale of any Covered Products;
(H) the commencement by any Governmental Entity of any action that may result in the suspension, restriction, revocation or withdrawal of any Government Approval with respect to any Covered Products; or
(I) the commencement by any Governmental Entity of any criminal or administrative action against any Contributed Subsidiary or Affiliate that may result in the removal or restriction of the reimbursement status of any Iris Covered Products or that may restrict the ability of any Contributed Subsidiary or Affiliate thereof to participate in government contracting or procurement activities.
“ Release ” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of a Hazardous Material into the Environment (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Materials).

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“ Reorganizations ” has the meaning set forth in Section 1.01(a) .
“ Representatives ” means, with respect to any Person, any of its legal and internal and independent accounting advisors and representatives, Affiliates and employees.
“ Response Action ” means an environmental investigation, assessment, sampling, monitoring, clean-up, containment, restoration, removal, remediation, closure actions, post-closure operation and maintenance or other corrective or response action.
“ Review Period ” has the meaning set forth in Section 5.07(a)(v) .
“ Reviewed Facility ” has the meaning set forth in Section 5.07(a)(v) .
“ Second Termination Date ” has the meaning set forth in Section 7.06(b)(ii) .
“ Several ” or “ Severally ” means, when characterizing any obligation of certain Parents under this Agreement, such obligation will be undertaken severally, not jointly; provided , that with respect to any obligation relating to Sky or Sky GP, such obligation will be performed by Watson and Iris in the following proportions: Watson – 76% and Iris – 24%.
“ Shared Asset ” means, as of any particular date, any Asset that is used or related to or held for use in an area of a Parent’s Group’s Business in a non-de minimis respect, but is not Primarily Used In The Business. For purposes of this definition, an Asset will be deemed to be used in a Parent Group’s Business in a “non-de minimis respect” if the cost of the Business replacing the Asset, including any losses or damages that may arise from any interruption in the availability of the asset, exceeds $100,000 or if at least 10% of the utilization of the asset is in connection with the Business.
“ Shared Assets Schedule ” has the meaning set forth in Section 1.03(a)(i) .
“ Shareholder ” means Oracle Lux, Watson Lux or Iris Lux, as applicable.
“ Shares ” has the meaning ascribed to such term in the Newco Articles.
“ Sky ” means Horizon Milling, LLC, a Delaware limited liability company.
“ Sky Canada ” means a to-be-formed Nova Scotia unlimited liability company which will be the surviving and successor entity resulting from the merger of Iris Canada with and into Watson Canada pursuant to in the Watson Reorganization and Iris Reorganization (the “ Sky Canada Merger ”).
“ Sky Canada Charter ” means charter documents of Sky Canada, including a shareholders agreement, to be completed in compliance with Section 5.15 .
“ Sky Canada Merger ” has the meaning set forth in the definition of Sky Canada.
“ Sky Charter ” means an amended and restated limited liability company agreement of Sky, in substantially the form attached hereto as Exhibit E .
“ Sky GP ” means Horizon Milling G.P., an Ontario general partnership, which will be dissolved and liquidated pursuant to the Watson Reorganization and Iris Reorganization (the “ Sky GP Dissolution ”).
“ Sky GP Dissolution ” has the meaning set forth in the definition of Sky GP.
“ Sky Material Adverse Effect ” means a material adverse change, effect, circumstance or event that (a) is material and adverse to the business, financial condition or results of operations of the Business of the Watson Group and the

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Iris Group, or (b) would have a material and adverse effect on the contemplated benefits to be received by Newco or the Oracle Group after the Closing under the Transaction Documents other than this Agreement; provided , however , that, with respect to Section 6.02(a) only, no change, whether actual or prospective, arising from or relating to any of the following will be deemed to constitute a Sky Material Adverse Effect, or will be taken into account in determining whether a Sky Material Adverse Effect has occurred: (i) any change in business, economic, social, political or legal conditions generally, (ii) any change or condition generally affecting the flour milling industry, (iii) changes in GAAP or in the official interpretations thereof, (iv) changes in Laws, including applicable Laws or regulations or interpretations thereof by courts or any other Governmental Entity, (v) any change in the general political conditions in the United States, any region or worldwide (including the outbreak of war or acts of terrorism), (vi) any failure of the Watson Group or Iris Group to meet earnings or other projections, but not including any underlying causes thereof or (vii) the announcement of, or the taking of any action required by, this Agreement and the Transaction Documents, except, in the case of any change described in (i) – (v), where such change has a disproportionate adverse effect on the business, financial condition or results of operations of the Business of any Iris Contributed Subsidiary, Watson Contributed Subsidiary or Newco, as applicable, relative to other Persons carrying on a similar business. For purposes of this definition, changes, effects, circumstances or events will be deemed to be “material and adverse” if, and only if, such changes, effect, circumstances or events result, individually in the aggregate, in either (i) Losses equal to or more than $250,000,000, or (ii) Losses that are of a nature that would not reasonably be expected to be indemnifiable by Watson and Iris under Section 7.01 (or otherwise paid for by Watson and Iris hereunder, such as in connection with Watson’s and Iris’s obligations under Section 5.07 ) of this Agreement and that are equal to or more than $100,000,000. For purposes of calculating the amount of “Losses” in the preceding sentence, the amount of “Losses” will be deemed to be equal to the amount of the cash payment to be made (or, in the event of lost profits, the amount of lost profit), calculated on a net present value basis and applying a market discount rate appropriate for Newco (as such discount rate would be determined by a reasonable financial expert, and using the midpoint of a range if there is a range of reasonable discount rates).
“ Sky Working Capital Target ” means $675 million multiplied by 0.56 (i.e., $378 million).
“ Straddle Period ” has the meaning set forth in Section 5.08(f) .
“ Subsidiary ” means as to any Person, a corporation, partnership, limited liability company or other entity of which more than 50% of the equity, voting or profit interests are owned, or of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. For the avoidance of doubt, Newco will not be considered a “Subsidiary” of the Parents or any of their Affiliates for the purposes of this Agreement.
“ Tax Authority ” means a Governmental Entity having jurisdiction over the assessment, administration, determination, collection or imposition of any Tax.
“ Tax Liabilities ” means (i) with respect to each Parent, (A) any Income Taxes with respect to any Pre-Closing Tax Period that relate to revenues generated by a Parent’s Group’s Business, and (B) any Non-Income Taxes with respect to any Pre-Closing Tax Period generated by a Parent’s Group’s Business, or (ii) with respect to each Parent’s Contributed Subsidiary, (A) any Taxes that any Contributed Subsidiaries may incur or may otherwise be liable for in relation to the transfer of the issued and outstanding equity interests of such Contributed Subsidiary held by the applicable member of such Parent’s Group, (B) all Taxes (or the nonpayment thereof) of such Contributed Subsidiary for any Pre-Closing Tax Period and any Pre-Closing Straddle Period; (C) all Taxes of any member of an affiliated, combined or unitary group of which such Contributed Subsidiary is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation Section 1.1502-6 or any analogous or similar state, local or foreign Law; or (D) any and all Taxes of any Person (other than any member of such Parent’s Group) imposed on such Contributed Subsidiary as a transferee or successor, by contract or pursuant to any Law, which Taxes relate to an event or transaction occurring on or before the Closing Date.

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“ Tax Returns ” means all returns (including information returns), declarations, reports, estimates, elections, schedules, claims for refund, forms and statements regarding Taxes required to be filed with any Tax Authority, including any supplement or attachment thereto and any amendment thereof.
“ Taxes ” means (i) all taxes and assessments (general or special), and any charges, fees, imposts or other demands with respect thereto, including all gross receipts, net income, sales, use, ad valorem, value added, transfer, franchise, license, withholding, payroll, employment, excise, estimated, severance, stamp, physical improvements and infrastructure, occupation and property taxes, capital gains, capital stock, escheat, unclaimed property, goods and services, alternative or add-on minimum tax, or any other tax, tariff, custom, duty or governmental fee or other tax, together with any interest and any penalties, additions to tax or additional amounts imposed by any Tax Authority or Law, whether disputed or not, (b) any liability for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability for payment of such amounts was determined or taken into account with reference to the liability of any other Person, (c) any liability for the payment of any amounts as a result of being a party to any tax sharing or allocation agreements or arrangements (whether or not written) or with respect to the payment of any amounts of any of the foregoing types as a result of any express or implied obligation to indemnify any other Person, and (d) any liability for the payment of any of the foregoing types as a successor, transferee or otherwise.
“ Termination Date ” has the meaning set forth in Section 7.06(b)(i) .
“ Third-Party Claim ” has the meaning set forth in Section 7.04(b)(i) .
“ Third Termination Date ” has the meaning set forth in Section 7.06(b)(iii) .
“ Title Reviewed Properties ” has the meaning set forth in Section 5.07(a)(i) .
“ Trademarks ” means registered and unregistered trademarks, trade names, service marks and service names, brand names, trade dress, logos and certification marks, in each case including all registrations, applications, recordings, renewals and extensions and common law rights relating to any of the foregoing and the goodwill associated with any of the foregoing (it being understood that the term “Trademarks” will not include any Internet domain names).
“ Transaction Documents ” means this Agreement, the Contribution Agreements, the Governing Documents, the Transition Services Agreements, the IP License Agreements, the Commercial Agreements, the Employee Matters Agreement, the Confidentiality Agreement, IP Matters Agreement, the documents contemplated in Section 2.02 , and any other written agreement signed by the Parties that is expressly identified as a “Transaction Document” hereunder and any exhibits or attachments to any of the foregoing, as the same may be amended from time to time.
“ Transfer Taxes ” has the meaning set forth in Section 9.03 .
“ Transition Services Agreement – Oracle ” has the meaning set forth in Section 2.02(a)(ii) .
“ Transition Services Agreement – Watson ” means a Transition Services Agreement between Watson and Sky, to be completed in compliance with Section 5.15 .
“ Transition Services Agreements ” means, collectively, the Transition Services Agreement - Oracle and the Transition Services Agreement - Watson (each, a “ Transition Services Agreement ”).
“ Treasury Regulations ” means the regulations promulgated under the Code.
“ Watson ” has the meaning set forth in the Preamble .
“ Watson Basket ” has the meaning set forth in Section 7.06(c) .

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“ Watson Canada ” means Cargill Canada Holdings III (2006) Inc., which will be merged with Iris Canada pursuant to the Sky Canada Merger, as contemplated by the Watson Reorganization.
“ Watson Cap ” has the meaning set forth in Section 7.06(c) .
“ Watson Contributed Subsidiary ” means each of Sky, Sky GP (prior to the Sky Dissolution), Sky Canada (from and after the Sky Canada Merger), Watson Holdco and Watson Canada (prior to the Sky Canada Merger).
“ Watson Contribution Agreement ” means a contribution agreement between Watson and Watson Holdco, to be entered into, and the transactions contemplated thereby consummated, as part of and pursuant to the Watson Reorganization, and to be completed in compliance with Section 5.15 .
“ Watson “Go to Market” Agreement ” means a “go to market” agreement among Watson, Watson Limited, Sky, Sky GP and Oracle Rice, in a form reasonably acceptable to the Parents and substantially based on the terms set forth on Exhibit I .
“ Watson Group ” means Watson and its Affiliates (including each Watson Contributed Subsidiary), and any one of them, as the case may be; provided , that Newco will not be considered a member of the Watson Group for purposes of this definition.
“ Watson Holdco ” means a to-be-formed Delaware limited liability company, as contemplated by the Watson Reorganization.
“ Watson Hourly Pension Plan ” means the Cargill Limited – Horizon Hourly Employees’ Pension Plan, Canada Revenue Agency registration number 1170893.
“ Watson Interests ” has the meaning set forth in Section 1.02 .
“ Watson License-In Agreement ” a Watson Patent and Technology License-In Agreement (Watson to Newco), between Watson and Newco, to be completed in compliance with Section 5.15 .
“ Watson License-Out Agreement ” means a Watson Patent and Technology License-Out Agreement (Newco to Watson), between Watson and Newco, to be completed in compliance with Section 5.15 .
“ Watson Limited ” means Cargill Limited, a Canadian corporation.
“ Watson Lux ” means a to-be-formed Luxembourg S.a.r.l., as contemplated by the Watson Reorganization.
“ Watson Percentage Interest ” has the meaning set forth in Section 1.02 .
“ Watson Reorganization ” has the meaning set forth in Section 1.01(a) .
“ Watson Purchase and Sale Agreement ” means one or more agreements to be entered into between Watson Limited and Sky Canada pursuant to the Watson Reorganization.
“ Watson Wheat Supply Agreement ” means a wheat supply agreement among Watson, Watson Limited, Sky, Sky Canada and Oracle Puerto Rico, in a form reasonably acceptable to the Parents and substantially based on the terms set forth on Exhibit F-2 .

[Signature Page Follows]


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IN WITNESS WHEREOF, the Parties have caused this Master Agreement to be duly executed and sealed by their respective authorized officers on the day and year first above written.

CONAGRA FOODS, INC.

/s/ Paul Maass                
Name: Paul Maass
Title: President, Commercial Foods


CARGILL, INCORPORATED

/s/ Kim Scott Portnoy            
Name: Kim Scott Portnoy
Title: Corporate Vice President


CHS INC.

/s/ Mark L. Palmquist            
Name: Mark L. Palmquist
Title: Executive Vice President


HM LUXEMBOURG S.À R.L.

/s/ Johan Runderkamp            
Name: Johan Runderkamp
Title: Manager





Exhibit 2.2.1
AMENDMENT NO. 1 to MASTER AGREEMENT
This Amendment No. 1 to Master Agreement (together with the Exhibits hereto, this “ Amendment No. 1 ”) is made as of the 30 th day of April 2013, by and among ConAgra Foods, Inc., a Delaware corporation (“ Oracle ”), Cargill, Incorporated, a Delaware corporation (“ Watson ”) and CHS Inc., a Minnesota corporation (“ Iris ”), in connection with that certain Master Agreement, made as of the 4th day of March, 2013 (the “ Master Agreement ”), by and among Oracle, Watson, Iris and HM Luxembourg S.à r.l., a Luxembourg S.à r.l. (“ Newco ”). Oracle, Watson and Iris are each referred to herein individually as a “ Parent ” and collectively as the “ Parents .” Capitalized terms not otherwise defined herein will have the respective meanings assigned to them in the Master Agreement.
RECITALS
1.    In accordance with Section 9.02(a) of the Master Agreement, the Parents may amend the Master Agreement, and any such amendment will be binding upon each Parent if such amendment is set forth in a writing executed by any such Parent and such amendment will be binding upon Newco if such amendment or waiver is set forth in a writing executed by all Parents.
2.    The Parents desire to amend the Master Agreement to provide for certain changes to the terms and Schedules thereof, as further provided herein, and by their execution of this Amendment No. 1 the Parents intend for this Amendment No. 1 to be an amendment to the Master Agreement that is binding on all Parents and Newco.
Accordingly, the Parents, intending to be legally bound hereby, agree as follows:
I. Identification of Shared Assets . The first sentence of Section 1.03(a)(i) of the Master Agreement is deleted in its entirety and replaced with the following: “No later than May 31, 2013, each Parent will prepare and deliver to the other Parents a schedule of all of the Shared Assets of such Parent’s Group (the “ Shared Assets Schedules ”).”
II. Real Property Reviews .
(a) The third sentence of Section 5.07(a)(i) of the Master Agreement is deleted in its entirety and replaced with the following: “The Parents will direct the title companies to prepare the title commitments as promptly as reasonably practicable, and in any case by June 30, 2013.”
(b) The third sentence of Section 5.07(a)(ii) of the Master Agreement is deleted in its entirety and replaced with the following: “The Parents will direct the engaged ALTA surveying coordinators to prepare the surveys of the Title Reviewed Properties as promptly as reasonably practicable, and in any case by June 30, 2013.”
(c) The third sentence of Section 5.07(a)(iv) of the Master Agreement is deleted in its entirety and replaced with the following: “The Parents will direct the zoning report service companies to prepare the zoning reports as promptly as reasonably practicable, and in any case by June 30, 2013.”
(d) The first sentence of Section 5.07(a)(v)(A) of the Master Agreement is deleted in its entirety and replaced with the following: “Either prior to or as of the date of this Agreement, or within 25 Business Days after the date of this Agreement, the Parents have jointly engaged or will jointly engage one or more mutually acceptable engineering and environmental consulting firms to perform the services specified in this Section 5.07(a)(v) and Section 5.07(b) (the “ Consulting Firm ”).”
(e) The third sentence of Section 5.07(a)(v)(A) of the Master Agreement is deleted in its entirety and replaced with the following: “During the period commencing on the date of this Agreement (or, if later, the date on which the Consulting Firm is retained) and ending on June 30, 2013 (the “ Review Period ”), the Consulting Firm, along with up to two individuals designated by each Parent (such individuals, together with the

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Consulting Firm, the “ Joint Review Team ”) will conduct an engineering review of each Real Property that is a production facility (including bakeries) (collectively, the “ Reviewed Facilities ”), in accordance with the protocols and standards set forth on the scope of work attached as Exhibit D-1 (the “ Engineering Reviews ”).”
III. Initial Updating . Section 5.09(a) of the Master Agreement is deleted in its entirety and replaced with the following: “Each Parent may update its Disclosure Letter by (i) delivering a substantially complete draft of such update (the “ Draft Updates ”) to the other Parents no later than July 17, 2013 and (ii) delivering a final version of such update (the “ Disclosure Letter Updates ”) to the other Parents no later than July 31, 2013, provided, however, that no updates to the sections of the Disclosure Letter pertaining to Fundamental Reps or any sections other than those relating to the representations and warranties will be permitted. These updates may reflect matters that came to exist or occurred either before or after the date of this Agreement. Upon the delivery of any Draft Update pursuant to this Section 5.09(a), the Parent delivering such Draft Update will, prior to delivering a Disclosure Letter Update in respect of such Draft Update, provide the other Parents a reasonable opportunity to review and comment on such Draft Update, and will consider in good faith such comments.”
IV. Completion of Transaction Documents .
(a)    The first sentence of Section 5.15 of the Master Agreement is deleted in its entirety and replaced with the following: “During the period commencing on the date of this Agreement and ending (i) on May 31, 2013, for Incomplete Transaction Documents which are not Incomplete Ancillary Exhibits, and (ii) prior to the Closing, for Incomplete Ancillary Exhibits, the Parties will complete the forms of each of the Incomplete Transaction Documents, negotiating in good faith, in accordance with the terms of this Section 5.15.”
(b)    Section 5.15 of the Master Agreement is supplemented with the following subsection “(j)”: “The form of the Alliance Agreement will be modified by the Parents as they mutually determine in good faith is necessary solely to incorporate appropriate governance provisions relating to Oracle Puerto Rico, Sky Canada and Oracle Netherlands.”
V. Schedule 1.01(a)(i) (Watson Reorganization) . Schedule 1.01(a)(i) of the Disclosure Schedules is deleted in its entirety and replaced with the form of Schedule 1.01(a)(i) attached to this Amendment as Exhibit A.
VI. Schedule 1.01(a)(ii) (Iris Reorganization) . Schedule 1.01(a)(ii) of the Disclosure Schedules is deleted in its entirety and replaced with the form of Schedule 1.01(a)(ii) attached to this Amendment as Exhibit B.
VII. Definitions .
(c)    Article X is supplemented with the following: ““ Draft Update ” has the meaning set forth in Section 5.09(a).”
(d)    The definition of “Incomplete Ancillary Exhibits” in Article X is deleted in its entirety and replaced with the following: “” Incomplete Ancillary Exhibits ” means those items set forth in clauses (v) through (ix), and (xvi), of the definition of Incomplete Transaction Documents.”
(e)    The definition of “Incomplete Transaction Documents” in Article X is supplemented with the following clauses: “ (xv) the Alliance Agreement and (xvi) Schedules 1.2 and 9.1 of the IP License Agreements.”
VIII. Effect of Amendment . Except as specifically amended as set forth above, the Master Agreement shall continue in full force and effect. Nothing in this Amendment No. 1 shall be construed to amend, modify or waive any provision of the Master Agreement other than those specifically amended or modified as set forth above.
IX. Construction . The descriptive headings herein are inserted for convenience of reference only and are not intended to be a substantive part of or to affect the meaning or interpretation of this Amendment No. 1. Whenever required by the context, any pronoun used in this Amendment No. 1 will include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns, pronouns, and verbs will include the plural

CLI- 2104205v2
  

and vice versa. Reference to any agreement, document, or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof. The use of the words “include” or “including” in this Amendment No. 1 will be by way of example rather than by limitation. The use of the words “or,” “either” or “any” will not be exclusive. The Parties have participated jointly in the negotiation and drafting of this Amendment No. 1. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties, and no presumption or burden of proof will arise favoring or disfavoring any Parent by virtue of the authorship of any of the provisions of this Amendment No. 1.
X. Governing Law . Any Proceedings arising out of or relating to this Amendment No. 1 will be subject to Section 9.08 of the Master Agreement.
XI. Counterparts; Effectiveness . This Amendment No. 1 may be executed in multiple counterparts (any one of which need not contain the signatures of more than one Parent), each of which will be deemed to be an original but all of which taken together will constitute one and the same agreement. This Amendment No. 1, to the extent signed and delivered by means of a facsimile machine or other electronic transmission, will be treated in all manners and respects as an original agreement and will be considered to have the same binding legal effects as if it were the original signed version thereof delivered in person. At the request of any Parent, the other Parents will re-execute original forms thereof and deliver them to the requesting Parent. No Parent will raise the use of a facsimile machine or other electronic means to deliver a signature or the fact that any signature was transmitted or communicated through the use of facsimile machine or other electronic means as a defense to the formation of a Contract and each such Parent forever waives any such defense.


[Signature Page Follows]


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IN WITNESS WHEREOF, the Parents have caused this Amendment No. 1 to Master Agreement to be duly executed and sealed by their respective authorized officers on the day and year first above written.

CONAGRA FOODS, INC.

/s/ Bill J. Hahn                
Name: Bill J. Hahn
Title: Vice President of M&A


CARGILL, INCORPORATED

/s/ Kim Scott Portnoy            
Name: Kim Scott Portnoy
Title: Corporate Vice President


CHS INC.

/s/ Mark L. Palmquist            
Name: Mark L. Palmquist
Title: Executive Vice President and COO



CLI-2104205v2


EXHIBIT A

AMENDED AND RESTATED

Schedule 1.01(a)(i)
Watson Reorganization
1.
Watson Canada Holdings III (2006) Inc. converts to a Nova Scotia Unlimited Liability Corporation. Watson, Inc. contributes the stock of Watson Canada Holdings III (2006) ULC to Watson International, Inc.
2.
Watson International, Inc. contributes stock of Watson Canada Holdings III (2006) ULC to Watson International Luxembourg 1 S.à r.l.
3.
Watson International Luxembourg 1 S.à r.l. contributes the stock of Watson Canada Holdings III (2006) ULC to Watson International Luxembourg 20 S.à r.l.
4.
Watson Canada Holdings III (2006) ULC will complete and file IRS Form 8832, Entity Classification Election, to be treated as a disregarded entity for U.S. federal tax purposes.
5.
Watson International Luxembourg 20 S.à r.l. borrows from a Watson intercompany lender the USD equivalent of an amount equal to the sum of (a) the balance of the intercompany loan from Watson Limited to Watson Canada Holdings III (2006) ULC, which is approximately $[51.2] million as of March 4, 2013, and (b) Watson Canada Holdings III (2006) ULC’s proportionate share of the balance of the intercompany loan from Watson, Ltd. to Sky GP, the total balance being approximately $[9.2] million as of March 4, 2013.
6.
On the same day, Watson International Luxembourg 20 S.à r.l. makes a capital contribution equal to the USD amount in step 5 to Watson Canada Holdings III (2006) ULC in exchange for additional Watson Canada Holdings III (2006) ULC shares.
7.
On the same day, Watson Canada Holdings III (2006) ULC converts the USD amount at the spot rate to CAD and repays $[51.2] million CAD loan to Watson Limited, and Watson Canada Holdings III (2006) contributes an amount equal to its proportionate share of the $[9.2] million CAD loan to Sky GP as a contribution of capital. Sky GP then repays its $[9.2] million intercompany loan from Watson Limited.
8.
Sky GP liquidates and is dissolved and then Watson Canada Holdings III (2006) ULC and Iris Canada Milling ULC amalgamate.
9.
If the appropriate third-party consents have been obtained, Surviving ULC purchases the flour milling assets held by Watson Limited. Surviving ULC borrows cash proportionately from Watson and Iris Luxembourg entities or has cash on hand equal to the fair market value of the Watson Limited flour milling assets. If the appropriate third-party consents have not been obtained, then the flour milling assets held by Watson Limited will be treated as Shared Assets.
10.
Watson, Inc. contributes non-Sky LLC assets and assets that were previously leased to Sky LLC to a newly formed single member LLC, New Watson LLC.
11.
Watson, Inc. contributes remainder of outstanding short-term debt to capital of Sky LLC in exchange for additional Sky LLC interests.

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12.
Watson, Inc. and Watson International Luxembourg 20 S.à r.l. form Watson S.à r.l. Watson S.à r.l. will complete and file IRS Form 8832, Entity Classification Election, to be treated as a partnership for U.S. federal tax purposes.
13.
Watson, Inc. contributes equity of New Watson LLC and Watson International Luxembourg 20 S.à r.l. contributes the stock of Surviving ULC to Watson S.à r.l.


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EXHIBIT B

AMENDED AND RESTATED

Schedule 1.01(a)(ii)
Iris Reorganization
1.
Iris Canada, Inc. reorganizes as Iris Canada Milling, Inc. with Iris Canada, Inc. name and unrelated grain marketing activities transferred to a new Canadian corporation.
2.
Iris Inc. creates new Luxembourg holding company, Iris Lux Holdco, S.à r.l. that will be taxed as a corporation.
3.
Iris Inc. and Iris Lux Holdco, S.à r.l. form Iris Lux, S.à r.l. Iris Lux, S.à r.l. will complete and file IRS Form 8832, Entity Classification Election, to be treated as a partnership for U.S. federal tax purposes.
4.
Iris Canada Milling, Inc. converts to a Nova Scotia Unlimited Liability Corporation. Iris Inc. contributes the stock of Iris Canada Milling ULC to Iris Lux Holdco, S.à r.l.
5.
Iris Canada Milling ULC will complete and file IRS Form 8832, Entity Classification Election, to be treated as a disregarded entity for U.S. federal tax purposes.
6.
Iris Canada Milling ULC contributes an amount equal to its proportionate share of the $[9.2] million CAD loan to Sky GP as a contribution of capital. Sky GP then repays its $[9.2] million intercompany loan from Watson Limited.
7.
Sky GP liquidates and then Watson Canada Holdings III (2006) ULC and Iris Canada Milling ULC amalgamate.
8.
Surviving ULC purchases the flour milling assets held by Watson Limited. Surviving ULC borrows cash proportionately from Watson and Iris Luxembourg entities or has cash on hand equal to the fair market value of the Watson Limited flour milling assets. If the appropriate third-party consents have not been obtained, then the flour milling assets held by Watson Limited will be treated as Shared Assets.
9.
Iris Inc. contributes assets that were previously leased to Sky LLC to a newly formed single member LLC, New Iris LLC.
10.
Iris Inc. contributes cash to Sky LLC in an amount equal to its pro rata share of the outstanding short-term indebtedness of Sky LLC in exchange for additional Sky LLC interests. Sky LLC uses such contributions to reduce its short-term term indebtedness.
11.
Iris Inc. contributes equity of New Iris LLC and Iris Lux Holdco, S.à r.l. contributes the stock of Surviving ULC to Iris Lux S.à r.l. (Luxembourg).


CLI-2104205v2

Exhibit 2.2.2
ACKNOWLEDGMENT AND AMENDMENT NO. 2 TO MASTER AGREEMENT
This Acknowledgment and Amendment No. 2 to Master Agreement (together with the Exhibits hereto, this “ Acknowledgment ”) is made as of the 31 st day of May 2013, by and among ConAgra Foods, Inc., a Delaware corporation (“ Oracle ”), Cargill, Incorporated, a Delaware corporation (“ Watson ”) and CHS Inc., a Minnesota corporation (“ Iris ”), in connection with that certain Master Agreement, made as of the 4th day of March, 2013, as amended, (the “ Master Agreement ”), by and among Oracle, Watson, Iris and HM Luxembourg S.à r.l., a Luxembourg S.à r.l. (“ Newco ”). Oracle, Watson and Iris are each referred to herein individually as a “ Parent ” and collectively as the “ Parents .” Capitalized terms not otherwise defined herein will have the respective meanings assigned to them in the Master Agreement.
RECITALS
The Parents desire to memorialize the completion of certain, and extend the deadline for completion of other, forms of Incomplete Transaction Documents (other than the Incomplete Ancillary Exhibits) and to amend Exhibit E and Exhibit G-2 to the Master Agreement to provide for certain changes to the terms thereof, as further provided herein, and by their execution of this Acknowledgment the Parents intend for this Acknowledgment to be an amendment to the Master Agreement that is binding on all Parents and Newco.
Accordingly, the Parents agree and acknowledge as follows:
I. Identification of Shared Assets . In accordance with Section 1.03(a)(i) of the Master Agreement, attached at Annex I-A, I-B and I-C are the initial Shared Assets Schedules of Oracle, Watson and Iris, respectively.
II. Completion of Transaction Documents . The Parties hereby acknowledge that the forms of certain of the Incomplete Transaction Documents (other than the Incomplete Ancillary Exhibits) have been completed pursuant to Section 5.15 of the Master Agreement as follows:
(a) The forms of the operating agreements for Oracle Holdco, Watson Holdco and Iris Holdco are set forth at Annex II-A-1, II-A-2, and II-A-3, respectively;
(b) The form of the Oracle Netherlands Charter is set forth at Annex II-B;
(c) The form of the Oracle Puerto Rico Charter is set forth at Annex II-C;
(d) The form of the Sky Canada Charter is set forth at Annex II-D;
(e) The forms of the Watson Contribution Agreement and Iris Contribution Agreement are set forth at Annex II-E-1 and II-E-2, respectively;
(f) The form of the Watson Transition Services Agreement is set forth at Annex II-F;
(g) The form of the Watson Purchase and Sale Agreement (Customer Relationships and Licenses) is set forth at Annex II-G; and
(h) The form of the Oracle Puerto Rico pre-Closing operating agreement is set forth at Annex II-H.
III. Amendment of Exhibits .
(a)     Exhibit E to the Master Agreement is hereby amended and restated in its entirety as set forth on Annex III-A hereto.

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(b)     Exhibit G-2 to the Master Agreement is hereby amended and restated in its entirety as set forth on Annex III-B hereto.
IV. Completion of Transaction Documents .
(c)    The first sentence of Section 5.15 of the Master Agreement is deleted in its entirety and replaced with the following: “During the period commencing on the date of this Agreement and ending (i) on May 31, 2013, for Incomplete Transaction Documents (other than the Watson Purchase and Sale Agreement (Hourly Pension Plan and Collective Agreements), the IP License Agreement, the Watson License-In Agreement and the Watson License-Out Agreement) which are not Incomplete Ancillary Exhibits, (ii) on July 24, 2013, for the Watson Purchase and Sale Agreement (Hourly Pension Plan and Collective Agreements), the IP Matters Agreement, the Watson License-In Agreement and the Watson License-Out Agreement, and (iii) prior to the Closing, for Incomplete Ancillary Exhibits, the Parties will complete the forms of each of the Incomplete Transaction Documents, negotiating in good faith, in accordance with the terms of this Section 5.15.”
V. Effect of Amendment . Except as specifically amended as set forth above, the Master Agreement shall continue in full force and effect. Nothing in this Acknowledgment shall be construed to amend, modify or waive any provision of the Master Agreement other than those specifically amended or modified as set forth above.
VI. Construction . The descriptive headings herein are inserted for convenience of reference only and are not intended to be a substantive part of or to affect the meaning or interpretation of this Acknowledgment. Whenever required by the context, any pronoun used in this Acknowledgment will include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns, pronouns, and verbs will include the plural and vice versa. Reference to any agreement, document, or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof. The use of the words “include” or “including” in this Acknowledgment will be by way of example rather than by limitation. The use of the words “or,” “either” or “any” will not be exclusive. The Parties have participated jointly in the negotiation and drafting of this Acknowledgment. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties, and no presumption or burden of proof will arise favoring or disfavoring any Parent by virtue of the authorship of any of the provisions of this Acknowledgment.
VII. Governing Law . Any Proceedings arising out of or relating to this Acknowledgment will be subject to Section 9.08 of the Master Agreement.
VIII. Counterparts; Effectiveness . This Acknowledgment may be executed in multiple counterparts (any one of which need not contain the signatures of more than one Parent), each of which will be deemed to be an original but all of which taken together will constitute one and the same agreement. This Acknowledgment, to the extent signed and delivered by means of a facsimile machine or other electronic transmission, will be treated in all manners and respects as an original agreement and will be considered to have the same binding legal effects as if it were the original signed version thereof delivered in person. At the request of any Parent, the other Parents will re-execute original forms thereof and deliver them to the requesting Parent. No Parent will raise the use of a facsimile machine or other electronic means to deliver a signature or the fact that any signature was transmitted or communicated through the use of facsimile machine or other electronic means as a defense to the formation of a Contract and each such Parent forever waives any such defense.


[Signature Page Follows]


CLI-2113409v5

IN WITNESS WHEREOF, the Parents have caused this Acknowledgment and Amendment No. 2 to Master Agreement to be duly executed and sealed by their respective authorized officers on the day and year first above written.

CONAGRA FOODS, INC.

/s/ Bill Hahn                
Name: Bill Hahn
Title: VP of M&A


CARGILL, INCORPORATED

/s/ Kim Scott Portnoy            
Name: Kim Scott Portnoy
Title: Corporate Vice President


CHS INC.

/s/ Mark L. Palmquist            
Name: Mark L. Palmquist
Title: Executive Vice President and COO




CLI-2113409v5
Annex 3


Exhibit 10.4.4

AMENDMENT FOUR
CONAGRA FOODS, INC. AMENDED AND RESTATED
VOLUNTARY DEFERRED COMPENSATION PLAN
(January 1, 2009 Restatement)
This Amendment Four to the ConAgra Foods, Inc. Amended and Restated Voluntary Deferred Compensation Plan (the “Plan”) is adopted by ConAgra Foods, Inc. (the “Company”) and is effective on the execution date below.
RECITALS
1.     Initial capitalized terms that are not otherwise defined herein shall have the meaning ascribed to such terms in the Plan.
2.    The Company desires to amend the Plan to permit Employer contributions.
AMENDMENT
1.    Section 1.5 is deleted in its entirety, and subsequent Sections are renumbered accordingly:
    
2.    The first paragraph of Section 3.2 is revised as follows:

3.2.     Employer Matching Contributions . Effective January 1, 2014, the Employer will credit, at the end of each Plan Year, an eligible Participant’s Account with Employer Matching Contributions equal to a dollar for dollar match, limited to 6% of compensation earned by the Participant and paid by the Employer in excess of the Code Section 401(a)(17) limitation. The amount of each Employer Matching Contribution shall be automatically reduced by any applicable Federal Insurance Contributions Act tax (or other applicable tax) at the time such contribution is made. Examples: (1) If a Participant receives total cash compensation of $300,000 in 2014, and she deferred $20,000 for 2014, she would receive an Employer Matching Contribution (assuming the Code Section 401(a)(17) limitation for 2014 is $255,000) of $2,700 (6% of $45,000); (2) If the Participant, in the first example, only deferred $900 for 2014, she would receive an Employer Matching Contribution of $900 (2% of $45,000).



3.    The first paragraph of Section 3.3 is revised as follows:

3.3.     Employer Non-elective Contributions . The Employer will credit to each actively employed Participant’s Account, at the end of each Plan Year ( i.e., such amount will be credited as of December 31 of each Plan Year), with Employer Non-elective Contributions equal to three percent (3%) of an eligible Participant’s normal compensation and short term incentive in excess of the Code Section 401(a)(17) limitation in effect for such Plan Year; provided, however, that an Employer Non-elective Contribution equal to nine percent (9%) of an eligible Participant’s normal compensation and short term incentive in excess of the applicable Code Section 401(a)(17) limitation will instead be made for the 2013 Plan Year and such amount will be credited to Participants’ Accounts as of December 31, 2013. If a Participant is hired after December 31, 2013, and not permitted to make Compensation Deferral Contributions in the first year of hire, an Employer Non-elective Contribution equal to nine percent (9%) of such Participant’s normal compensation and short term incentive in excess of the applicable Code Section 401(a)(17) limitation will be made for such Participant in his/her first Plan Year of participation, and such amount will be credited to the Participant’s Account as of the end of such first Plan Year.

The amount of each Employer Non-elective Contribution shall be automatically reduced by any applicable Federal Insurance Contributions Act tax (or other applicable tax) at the time such contribution is made. Compensation, for purposes of calculating Employer Non-elective Contributions, shall be defined in the same manner as the term “Pay” is defined in the ConAgra Foods, Inc. Pension Plan for Salaried Employees (#009).

4.    Article IV is revised in its entirety to read as follows:

ARTICLE IV

VESTING

4.1.     Compensation Deferral Contributions . Each Participant shall have a fully 100% vested and nonforfeitable interest in his or her Compensation Deferral Contributions at all times.
4.2.     Employer Contributions . Unless the Employer determines otherwise with respect to a Participant, each Participant shall have a fully 100% vested and nonforfeitable interest in his or her Employer Matching Contributions and Employer Non-elective Contributions when such contributions are credited to Participants’ Accounts.
    
IN WITNESS WHEREOF, this Amendment Four is executed this _ 21 _ day of__ May ___, 2013, but effective as of the date set forth herein.
CONAGRA FOODS, INC.

By: /s/ Nicole B. Theophilus    
Name: Nicole B. Theophilus
Position: SVP Human Resources


    


Exhibit 10.10.6

RESTRICTED STOCK UNIT AGREEMENT
CONAGRA FOODS 2009 STOCK PLAN (Ralcorp Transaction)

This Restricted Stock Unit Agreement, hereinafter referred to as the “Agreement” is made on the 26th day of February, 2013 between ConAgra Foods, Inc., a Delaware corporation (“ConAgra Foods”), and the undersigned employee of the Company (“Participant”).

1.
Award Grant. ConAgra Foods hereby grants Restricted Stock Units ("RSUs", and each such unit an “RSU”) to the Participant under the ConAgra Foods 2009 Stock Plan (the “Plan”), as follows:

Participant :    

Employee ID:     

Number of RSUs :    

Date of Grant:     

Vesting Date :     (“Vesting Date”)
The Vesting Date is subject to modification for early Vesting upon termination as provided in Paragraph 3.

Dividends: Dividend equivalents on the RSUs will not be paid or accumulated.

IN WITNESS WHEREOF, ConAgra Foods and the Participant have caused this Agreement to be executed effective as of the date first written above. ConAgra Foods and the Participant acknowledge that this Agreement includes six pages including this first page. The Participant acknowledges reading and agreeing to all six pages and that in the event of any conflict between the terms of this Agreement and the terms of the Plan, the Plan shall control.


CONAGRA FOODS, INC.                  PARTICIPANT
By:                                       
Date                              Date                 


– RSU Award Agreement ConAgra Foods 2009Stock Plan     1


2. Definitions. Capitalized terms used herein without definition have the meaning set forth in the Plan. The following terms shall have the respective meanings set forth below:

(a) “Continuous Employment ” shall mean the absence of any interruption or termination of employment with the Company and the performance of substantial services. Continuous Employment shall not be considered interrupted or terminated in the case of sick leave, long term disability, military leave or any other leave of absence approved by the Company unless and until there is a Separation from Service as provided in Section 2(b) below.
(b) “ Separation from Service, ” “termination of employment” and similar terms means the date that the Participant “separates from service” within the meaning of Section 409A of the Code. Generally, a Participant separates from service if and only if the Participant dies, retires, or otherwise has a termination of employment with the Company, determined in accordance with Section 409A of the Code and the following:
(i)
Leaves of Absence . The employment relationship is treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or, if longer, so long as the Participant retains a right to reemployment with the Company under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Company. If the period of leave exceeds six months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six month period. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a twenty nine month period of absence shall be substituted for such six month period.
(ii)
Dual Status . Generally, if a Participant performs services both as an employee and an independent contractor, such Participant must separate from service both as an employee, and as an independent contractor pursuant to standards set forth in Treasury Regulations, to be treated as having a separation from service. However, if a Participant provides services to the Company as an employee and as a member of the Board, and if any plan in which such person participates as a Board member is not aggregated with this Agreement pursuant to Treasury Regulation Section 1.409A-1(c)(2)(ii), then the services provided as a director are not taken into account in determining whether the Participant has a separation from service as an employee for purposes of this Agreement.
(iii)
Termination of Employment . Whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the Company and the Participant reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Participant would perform after such date (whether as an employee or as an independent contractor except as provided in (ii) above) would permanently decrease to no more than twenty (20) percent of the average level of bona fide services performed (whether as an employee or an independent contractor, except as provided in (ii) above) over the immediately preceding thirty-six month period (or the full period of services to the Company if the Participant has been providing services to the Company less than thirty-six months). For periods during which a Participant is on a paid bona fide leave of absence and has not otherwise terminated employment as described above, for purposes of this paragraph (iii) the Participant is treated as providing bona fide services at a level equal to the level of services that the Participant would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which a Participant is on an unpaid bona fide leave of

– RSU Award Agreement ConAgra Foods 2009Stock Plan     2


absence and has not otherwise terminated employment are disregarded for purposes of this paragraph (iii) (including for purposes of determining the applicable thirty-six month (or shorter) period).
As used in connection with the definition of “Separation from Service,” Company includes ConAgra Foods and any other entity that with ConAgra Foods constitutes a controlled group of corporations (as defined in section 414(b) of the Code), or a group of trades or businesses (whether or not incorporated) under common control (as defined in section 414(c) of the Code), substituting 25% for the 80% ownership level for purposes of both 414(b) and (c).

(c) “ Specified Employee ” is as defined under Section 409A of the Code and Treasury Regulation Section 1.409A-1(i).
(d) “ Successors ” shall mean the beneficiaries, executors, administrators, heirs, successors and assigns of a person.
3. RSU Vesting .

(a) Continuous Employment . Subject to the Plan and this Agreement, if the Participant has been in Continuous Employment through the Vesting Date as set forth on Page 1, then the Company will issue to Participant one share of Stock on the Vesting Date for each RSU subject to the Vesting Date.
(b) Termination of Employment . If, prior to the Vesting Date set forth on Page 1, the Participant’s employment with the Company shall terminate by reason of:
(i)
Death; Involuntary Termination Due to Disability; Position Elimination or Reduction in Force (each as defined in the Company's sole discretion): all RSUs granted pursuant to this Agreement shall become 100% vested and the Vesting Date shall be a date not later than thirty days after death, involuntary termination due to disability, position elimination or reduction in force, subject to any deferral on payment required by Section 409A of the Code or other applicable law.
(ii)
Voluntary Not for Cause or Involuntary Not for Cause : all RSUs for which the Vesting Date has not occurred shall immediately be forfeited without further consideration to the Participant, except in the case of involuntarily termination as set forth in (i) above.     
(iii)
For Cause Prior to the Vesting Date : all RSUs for which the Vesting Date has not occurred shall immediately be forfeited without further consideration to the Participant.
(c) Payment of Taxes Upon Settlement . As a condition of the issuance of shares of Stock upon settlement of RSUs hereunder, the Participant agrees to remit to the Company at the time of settlement any taxes required to be withheld by the Company under Federal, State or local law as a result of the settlement of the RSUs. As a condition of the issuance of shares of Stock upon settlement of RSUs hereunder, the Participant agrees that the Company will deduct from the total shares vested a sufficient number of shares to satisfy the minimum statutory withholding amount permissible. In addition, the Participant may deliver previously acquired shares of Stock held by the Participant for at least six months in order to satisfy additional tax withholding above the minimum statutory tax withholding amount permissible, provided, however, the Participant shall not be entitled to deliver such additional shares if it would cause adverse accounting consequences for the Company.
(d) Specified Employee . Notwithstanding anything (including any provision of the Agreement or Plan) to the contrary, if a Participant is a Specified Employee and if the RSUs are subject to Section 409A of the Code, payment to the Participant on account of a Separation from Service shall, to the extent required to comply with Treasury Regulation Section 1.409A-3(i)(2), be made to the Participant on the earlier of (a) the Participant’s death or (b) the first business day (or within 30 days after such first business day) that is more than six months after the date of Separation from Service. In the Company’s sole and absolute discretion, interest may be paid due to such delay. Further, any interest will be calculated in the manner determined by the Company in its sole and absolute discretion

– RSU Award Agreement ConAgra Foods 2009Stock Plan     3


in a manner that qualifies any interest as reasonable earnings under Section 409A of the Code.  Dividend equivalents will not be paid with respect to any dividends that would have been paid during the delay if the Stock had been issued.
4. Non-Transferability of RSUs. The RSUs may not be assigned, transferred, pledged or hypothecated in any manner (otherwise than by will or the laws of descent or distribution) nor may the Participant enter into any transaction for the purpose of, or which has the effect of, reducing the market risk of holding the RSUs by using puts, calls or similar financial techniques. The RSUs subject to this Agreement may be settled during the lifetime of the Participant only with the Participant. The terms of this Agreement, shall be binding upon the Successors of the Participant.

5. Stock Subject to the RSUs . The Company will not be required to issue or deliver any certificate or certificates for shares to be issued hereunder until such shares have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange on which outstanding shares of the same class are then listed and until the Company has taken such steps as may, in the opinion of counsel for the Company, be required by law and applicable regulations, including the rules and regulations of the Securities and Exchange Commission, and state securities laws and regulations, in connection with the issuance of such shares, and the listing of such shares on each such exchange. The Company will use its best efforts to comply with any such requirements.

6. Rights as Stockholder . The Participant or his/her Successors shall have no rights as stockholder with respect to any RSUs or underlying shares covered by this Agreement until the Participant or his/her Successors shall have become the beneficial owner of such shares, and, except as provided in Section 7 of this Agreement, no adjustment shall be made for dividends or distributions or other rights in respect of such shares for which the record date is prior to the date on which the Participant or his/her Successors shall have become the beneficial owner thereof.


7. Adjustments Upon Changes in Capitalization; Change in Control . In the event of any change in corporate capitalization, corporate transaction, sale or disposition of assets or similar corporate transaction or event involving ConAgra Foods as described in Section 5.4 of the Plan, the Committee shall make equitable adjustment in the number and type of shares subject to this Agreement, provided, however, that no fractional share shall be issued upon subsequent settlement of the RSUs. No adjustment shall be made if such adjustment is prohibited by Section 5.4 of the Plan (relating to Section 409A of the Code). In the event of a “Change of Control" (as defined in the Plan) all of the RSUs shall become immediately vested as provided pursuant to Section 11.5 of the Plan, and the date of the Change of Control shall be the Vesting Date.

“ Change of Control ” shall occur upon any of the following dates:
(a)    The date individuals who constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least fifty percent (50%) of the members of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board;
(b)     The date of consummation of a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of ConAgra Foods immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities;
(c)    The date of liquidation or dissolution of ConAgra Foods; or

– RSU Award Agreement ConAgra Foods 2009Stock Plan     4


(d)    The date that any one person, or more than one person acting as a group who is not related to the Company within the meaning of Treasury Regulation Section 1.409A-3(i)((vii)(B), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 80 percent of the total gross fair market value of all of the assets of the corporation immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this Section, “more than one person acting as a group” is determined under Treasury regulation Section 1.409A-3(i)(5)(v)(B). If a person owns stock in both entities that enter into a merger, consolidation, purchase or acquisition of stock, such shareholder is considered to be acting as a group with other shareholders in a corporation only with respect to the ownership in that corporation before the transaction giving rise to the change and not with respect to the ownership interest in the other corporation. In no event shall a change of control occur under circumstances that would not constitute a “change in the ownership of a corporation,” a “change in effective control of a corporation,” or a “change in the ownership of a substantial portion of a corporation’s assets,” as those terms are defined in regulations and other applicable guidance issued under section 409A of the Code.
8. Notices. Each notice relating to this Agreement shall be deemed to have been given on the date it is received. Each notice to the Company shall be addressed to its principal Office in Omaha, Nebraska, Attention: Compensation. Each notice to the Participant or any other person or persons entitled to shares issuable upon settlement of the RSUs shall be addressed to the Participant’s address and may be in written or electronic form. Anyone to whom a notice may be given under this Agreement may designate a new address by giving notice to the effect.

9. Benefits of Agreement, This Agreement shall inure to the benefit of and be binding upon each successor of the Company. All obligations imposed upon the Participant and all rights granted to the Company under this Agreement shall be binding upon the Participant's Successors. This Agreement shall be the sole and exclusive source of any and all rights which the Participant or his/her Successors may have in respect to the Plan or this Agreement.

10. Resolution of Disputes. Any dispute or disagreement which should arise under or as a result of or in any way related to the interpretation, construction or application of this Agreement will be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive for all purposes. This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the state of Delaware.



11. Section 409A Compliance. This Agreement is intended to comply with Section 409A of the Code and any regulations or notices provided thereunder. The Company reserves the unilateral right to amend this Agreement on written notice to the Participant in order to comply with such section. It is intended that all compensation and benefits payable or provided to Participant under this Agreement shall, to the extent required to comply with Section 409A of the Code, fully comply with the provisions of Section 409A of the Code and the Treasury Regulations relating thereto so as not to subject Participants to the additional tax, interest or penalties which may be imposed under Section 409A of the Code. None of the Company, its contractors, agents and employees, the Board and each member of the Board shall be liable for any consequences of any failure to follow the requirements of Section 409A of the Code or any guidance or regulations thereunder, unless such failure was the direct result of an action or failure to act that was undertaken by the Company in bad faith.


– RSU Award Agreement ConAgra Foods 2009Stock Plan     5


12. Amendment . Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the Participant under this Agreement without the Participant's consent.


– RSU Award Agreement ConAgra Foods 2009Stock Plan     6

Exhibit 10.21


Personal & Confidential

May 16, 2013

Paul Maass
2115 S. 189 th Circle
Omaha, NE 68130

Dear Paul:

With your increased responsibilities as President, Commercial Foods, it is my pleasure to provide you with details of your new compensation, effective May 2, 2013:

1)
Annual Salary: $600,000, payable bi-weekly at a rate of $23,076.92

2)
Annual Incentive : You will continue to participate in the ConAgra Foods Management Incentive Plan and in future fiscal years, in accordance with the plan’s provisions. Your targeted incentive opportunity will continue to be 100% of your annual base salary and be prorated at your new base salary as of your effective date for FY2013.

3)
Restricted Stock Units: The Human Resources Committee of the Board of Directors has approved a grant of 15,000 restricted stock units (RSUs), subject to the provisions of the ConAgra Foods, Inc. 2009 Stock Plan. These RSUs are scheduled to fully vest on the third anniversary of the grant date (May 15, 2013), pursuant to the terms of the plan. Dividend equivalents are not earned or paid during the restriction period.

4)
Long Term Incentive: You will continue to be eligible to participate in the company’s executive long term incentive program at the Tier 2 participation level. The program is made up of performance shares and non-qualified stock options, at an estimated value of $1,600,000 (or the equivalent grant for this level of participation), as determined each year in the discretion of the Human Resources Committee of the Board of Directors. The stock awards will be granted under and are subject to the ConAgra Foods, Inc. 2009 Stock Plan (or a successor plan) and the award agreements provided.

5)
Stock Ownership Guidelines : ConAgra Foods believes that senior management stock ownership demonstrates our commitment to our stockholders. You will continue to be subject to the company’s stock ownership policy for senior executives as adopted by the Human Resources


Committee of the Board of Directors from time to time. Your ownership requirement continues to be at least four times (4x) your annual base salary.

Page 2


I look forward to your favorable response, which you can indicate by signing and returning a copy of this letter.

Sincerely,

/s/ Gary Rodkin

Gary Rodkin
Chief Executive Officer
ConAgra Foods, Inc.


Enclosures

Offer Acceptance

I accept this offer of employment. In so doing, I understand and agree that my employment with ConAgra Foods is at will, that I am not employed for any specified duration, and that my employment may be terminated by myself, or ConAgra Foods at any time, with or without cause and with or without notice.

_ /s/ Paul Maass _____________________________________ May 16, 2013 _____________________
Signature                              Date

cc:    Nicole Theophilus


Exhibit 10.25

Non-Employee Director Compensation Program for the 2013 Plan Year
The following compensation program is available to non-employee directors for the plan year that runs from the first day of fiscal 2013 to the last day of fiscal 2013 (the “ 2013 Plan Year ”).
Retainers and Fees for Non-Employee Directors Other than the Chairman
•
An annual Board membership retainer of $85,000 shall be paid to each non-employee director (other than the Chairman of the Board).
◦
Payments for the 2013 Plan Year will be made in advance in four equal installments on the first trading day of each of the following months: June 2012, September 2012, December 2012, and March 2013.
◦
The first trading day of each of June 2012, September 2012, December 2012, and March 2013, is referred to herein as a “ Payable Date ”.
•
An annual Committee Chair retainer of $15,000 shall be paid to the Chair of each standing committee (other than the Executive Committee).
o
Payments for the 2013 Plan Year will be made in advance in four equal installments on each applicable Payable Date.
•
In the event that a director’s attendance is required at more than 24 Board and committee meetings during the 2013 Plan Year, meeting fees in the amount of $1,500 shall be paid to each non-employee director (other than the Chairman) for each Board and committee meeting attended and at which a director’s attendance was required in excess of 24 meetings for such Plan Year; fees will be aggregated and payment will be made in arrears on the applicable Payable Date.
•
Directors who join the Board or who are elected to a Chairmanship after the start of a quarter will receive a prorated retainer for that quarter based on the actual number of days served. The prorated quarterly payment will be paid on the next Payable Date, along with the installment due on that date.
Equity Awards for Non-Employee Directors Other than the Chairman
•
Each non-employee director (other than the Chairman of the Board) shall receive a grant of restricted stock units (the “ RSUs ”) with a value equal to $125,000 for each plan year in which she or he serves. The number of RSUs granted shall be equivalent to $125,000 divided by the average of the closing stock price of ConAgra Foods, Inc. common stock on the NYSE for the thirty (30) trading days prior to (and not including) the date of grant and rounding to the nearest share. The RSUs will be granted upon the terms and conditions approved by the Board and consistent with the ConAgra Foods 2009 Stock Plan.
◦
The grant date for the 2013 Plan Year shall be May 29, 2012, the first trading day of fiscal 2013.
•
RSUs will vest one year from the date of grant (100%), subject to continued service during the entire term. Vesting will be accelerated in the event of death or permanent disability or, in the event the director is no longer serving one year from the date of grant, vesting will be prorated 25% for each fiscal quarter during which the director served on the first day of the fiscal quarter. Should a director be newly appointed after the annual equity grant is made, then a prorata portion of the Board’s annual equity grant will be granted in connection with appointment based on the number of months remaining for the applicable Plan Year.
Chairman’s Compensation
•
For the 2013 Plan Year, in lieu of the cash and equity compensation described above and payable to other non-employee directors, the Chairman shall receive a grant of RSUs with a value equal to $375,000. The number

        

of RSUs granted shall be equivalent to $375,000 divided by the average of the closing stock price of ConAgra Foods, Inc. common stock on the NYSE for the thirty (30) trading days prior to (and not including) the date of grant and rounding to the nearest share. The RSUs will be granted upon the terms and conditions approved by the Board and consistent with the ConAgra Foods 2009 Stock Plan. The grant date for the 2013 Plan Year shall be May 29, 2012, the first trading day of fiscal 2013.
RSU Terms
•
Director RSUs will vest one year from the date of grant (100%), subject to continued service during the entire term. Vesting will be accelerated in the event of death or permanent disability or, in the event the director is no longer serving one year from the date of grant (as a director or in the Chairman role), vesting will be prorated 25% for each fiscal quarter during which the director served on the first day of the fiscal quarter. Should a director be newly appointed after the annual equity grant is made, then a prorata portion of the Board’s annual equity grant will be granted in connection with appointment based on the number of months remaining for the applicable Plan Year.
Other Programs: The following additional programs are available
•
Non-Employee Directors’ Medical Plan : Non-employee directors are eligible to participate in the medical plan in accordance with the plan’s terms, with premiums paid by the directors.
•
Directors’ Deferred Compensation Plan : Non-employee directors may elect to defer payment of their cash or stock compensation into the non-qualified deferred compensation plan for non-employee directors in accordance with the plan’s terms.
•
ConAgra Foods Matching Gifts Program : ConAgra Foods will match up to $10,000 of each non-employee director’s gift(s) to eligible charitable organization(s) during the 2013 Plan Year.
•
Directors’ Charitable Award Program : Directors first elected to the Board prior to 2003 continue to have grandfathered participation in the Directors’ Charitable Award Program (which was discontinued in 2003).

        


Exhibit 12
ConAgra Foods, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
($ in millions)



 
2013
 
2012
 
2011
 
2010
 
2009
Earnings:
 
 
 
 
 
 
 
 
 
Income from continuing operations before income taxes and equity method investment earnings
$
1,148.8

 
$
625.2

 
$
1,226.1

 
$
900.5

 
$
771.9

Add (deduct):
 
 
 
 
 
 
 
 
 
Fixed charges
338.7

 
258.2

 
273.5

 
301.6

 
314.1

Distributed income of equity method investees
26.4

 
27.4

 
13.3

 
30.6

 
41.4

Capitalized interest
(6.1
)
 
(5.6
)
 
(11.6
)
 
(12.2
)
 
(3.1
)
Earnings available for fixed charges (a)
$
1,507.8

 
$
905.2

 
$
1,501.3

 
$
1,220.5

 
$
1,124.3

 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
Interest expense
$
278.6

 
$
208.0

 
$
219.7

 
$
246.0

 
$
264.3

Capitalized interest
6.1

 
5.6

 
11.6

 
12.2

 
3.1

One third of rental expense (1)
54.0

 
44.6

 
42.2

 
43.4

 
46.7

Total fixed charges (b)
$
338.7

 
$
258.2

 
$
273.5

 
$
301.6

 
$
314.1

 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges (a/b)
4.5

 
3.5

 
5.5

 
4.0

 
3.6


(1) Considered to be representative of interest factor in rental expense.



Exhibit 21



SUBSIDIARIES OF CONAGRA FOODS, INC.
ConAgra Foods, Inc. is the parent corporation owning, directly or indirectly, 100% of the voting securities (unless otherwise noted) of the following subsidiaries principally engaged in the production and distribution of food products (unless otherwise noted) as of May 26, 2013:
Subsidiary
Jurisdiction of Formation
American Italian Pasta Company
Delaware
Bremner Food Group, Inc.
Nevada
BFG Canada Limited
Canada
ConAgra Foods Canada, Inc. / Aliments ConAgra Canada, Inc. (owns 100% of one Canadian corporation)
Canada
ConAgra Foods Enterprise Services, Inc.
Delaware
ConAgra Foods Export Company, Inc.
Delaware
ConAgra Foods Food Ingredients Company, Inc.
Delaware
ConAgra Foods Lamb Weston, Inc. (owns 100% of one domestic corporation, 100% of one domestic limited liability company, 82% of one domestic limited liability company, 49.99% of one domestic limited liability company and 36% of one domestic limited liability company)
Delaware
ConAgra Foods Packaged Foods, LLC
Delaware
ConAgra Foods RDM, Inc. (owns 100% of one foreign entity)
Delaware
ConAgra Foods Sales, Inc.
Delaware
ConAgra Grocery Products Company, LLC (owns 100% of three domestic corporations, 77% of one domestic corporation, 50% of one foreign entity, and 1% or less of four foreign entities)
Delaware
ConAgra International, Inc. (owns 100% of three foreign entities, 98% of one foreign entity, 66% of one foreign entity, 54% of one foreign entity, 34% of one foreign entity, 23% of one domestic corporation, and less than 1% of three foreign entities)
Delaware
ConAgra Limited/ConAgra Limitée (owns 100% of one Canadian corporation)
Canada
Cottage Bakery, Inc.
California
IAPC Holdings B.V.
Netherlands


Gelit S.r.l.
Italy
Lamb Weston Sales, Inc.
Delaware
Linette Quality Chocolates, Inc.
Georgia
Lovin Oven, LLC
California
Mattnick Insurance Company
Missouri
Medallion Foods, Inc.
Arkansas
Nutcracker Brands, Inc.
Delaware
Pasta Lensi, S.r.l.
Italy
Petri Baking Products, Inc.
Delaware
Ralcorp Holdings, Inc.
Delaware
Ralcorp Frozen Bakery Products, Inc.
Missouri
RH Financial Corporation
Nevada
The Carriage House Companies, Inc.
Delaware
Western Waffles Corp.
Canada
0808414 B.C. Limited
Canada

The corporations listed above are included in the consolidated financial statements, which are a part of this report.



Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
ConAgra Foods, Inc.:

We consent to the incorporation by reference in the registration statement No. 333-177140 on Form S-3 and registration statements Nos. 333-70476, 333-46962, 333-46960, 333-44426, 333-78063, 333-64633, 33-50113, 33-48295, 33-28079, 2-81244, 2-96891, 33-15815, 333-17573, 33-52330, 333-17549, 33-63061, 33-37293, 333-00997, 333-162180, 333-162137, and 333-162136 on Form S-8 of ConAgra Foods, Inc. and subsidiaries (the Company) of our reports dated July 19, 2013, with respect to the consolidated balance sheets of the Company as of May 26, 2013 and May 27, 2012, and the related consolidated statements of earnings, comprehensive income, common stockholders’ equity, and cash flows for each of the years in the three-year period ended May 26, 2013, the related consolidated financial statement schedule for each of the years in the three-year period ended May 26, 2013, and the effectiveness of internal control over financial reporting as of May 26, 2013, which reports appear in the Annual Report on Form 10-K of ConAgra Foods, Inc. for the fiscal year ended May 26, 2013.

Our report dated July 19, 2013 on the effectiveness of internal control over financial reporting as of May 26, 2013 contains an explanatory paragraph that states that the Company acquired Ralcorp Holdings, Inc. (Ralcorp) in fiscal 2013 and that management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting associated with total assets of $8.18 billion and total net sales of $1.25 billion included in the consolidated financial statements of the Company as of and for the year ended May 26, 2013. Our audit of internal control over financial reporting also excluded an evaluation of the internal control over financial reporting of Ralcorp.
 


/s/ KPMG LLP

Omaha, Nebraska
July 19, 2013



Exhibit 24

POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as his Attorney-in-Fact in his name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in his capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Mogens C. Bay         
Mogens C. Bay



POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as his Attorney-in-Fact in his name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in his capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Stephen G. Butler         
Stephen G. Butler



POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as his Attorney-in-Fact in his name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in his capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Steven F. Goldstone         
Steven F. Goldstone



POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as her Attorney-in-Fact in her name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in her capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Joie A. Gregor         
Joie A. Gregor



POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as his Attorney-in-Fact in his name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in his capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Rajive Johri         
Rajive Johri



POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as his Attorney-in-Fact in his name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in his capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Richard H. Lenny         
Richard H. Lenny



POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as her Attorney-in-Fact in her name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in her capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Ruth Ann Marshall         
Ruth Ann Marshall



POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as his Attorney-in-Fact in his name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in his capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Gary M. Rodkin         
Gary M. Rodkin



POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as his Attorney-in-Fact in his name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in his capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Andrew J. Schindler         
Andrew J. Schindler



POWER OF ATTORNEY

The undersigned Director of ConAgra Foods, Inc., a Delaware corporation, hereby constitutes and appoints each of John F. Gehring, Robert G. Wise, and Colleen R. Batcheler as his Attorney-in-Fact in his name, place and stead, to execute ConAgra Foods’ Annual Report on Form 10-K for the fiscal year ended May 26, 2013, together with any and all subsequent amendments thereof, in his capacity as a Director and hereby ratifies all that any one or more of said Attorneys-in-Fact may do by virtue thereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of July, 2013.

/s/ Kenneth E. Stinson         
Kenneth E. Stinson


Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Gary M. Rodkin, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended May 26, 2013 of ConAgra Foods, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 

Date: July 19, 2013
 
 
 
/s/ GARY M. RODKIN
 
Gary M. Rodkin
 
Chief Executive Officer
 

Exhibit 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, John F. Gehring, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended May 26, 2013 of ConAgra Foods, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 

Date: July 19, 2013
 
 
 
/s/ JOHN F. GEHRING
 
John F. Gehring
 
Executive Vice President and Chief Financial Officer
 



Exhibit 32.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:
I, Gary M. Rodkin, Chief Executive Officer of ConAgra Foods, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that ConAgra Foods, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 26, 2013 (the "Annual Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and that the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of ConAgra Foods, Inc. as of the dates and for the periods presented therein.
 
July 19, 2013
 
 
 
/s/ GARY M. RODKIN
 
Gary M. Rodkin
 
Chief Executive Officer
 
I, John F. Gehring, Executive Vice President and Chief Financial Officer of ConAgra Foods, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that ConAgra Foods, Inc.'s Annual Report on Form 10-K for the fiscal year ended May 26, 2013 (the "Annual Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and that the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of ConAgra Foods, Inc. as of the dates and for the periods presented therein.
 
July 19, 2013
 
 
 
/s/ JOHN F. GEHRING
 
John F. Gehring
 
Executive Vice President and Chief Financial Officer
 
A signed original of this written statement required by Section 906 has been provided to ConAgra Foods, Inc. and will be retained by ConAgra Foods, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.