CONAGRA BRANDS INC

Conagra Brands, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(columnar dollars in millions except per share amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Condensed Consolidated Financial Statements of Conagra Brands, Inc. (the "Company", "Conagra Brands", "we", "us", or "our") have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the rules and regulations for reporting on Form10-Q. Accordingly, they donot include certain information and disclosures required for comprehensive financial statements. The unaudited financial information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented. During thesecond quarter of fiscal2024, we determined that certain assets and liabilities were held for sale. We have reclassified these assets and liabilities within our Condensed Consolidated Balance Sheets for all periods presented (see Note2). All other adjustments are of a normal recurring nature. The results of operations for any quarter or a partial fiscal year period arenot necessarily indicative of the results to be expected for other periods or the full fiscal year. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form10-K for the fiscal year ended* May 28, 2023*. There wereno significant changes to our accounting policies from those disclosed in Note1, "Summary of Significant Accounting Policies", to the Consolidated Financial Statements in that Form10-K.

Recently Adopted Accounting Pronouncements

In* September 2022,the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")2022-04, Supplier Finance Programs (Topic405-50) - Disclosure of Supplier Finance Program Obligations*, to add disclosure requirements related to supplier financing programs under Accounting Standards Codification405, Liabilities. The guidance requires entities that maintain supplier financing programs to provide information in their financial statements about their use of supplier finance programs and their effect on the entity's working capital, liquidity, and cash flows. Specifically, the amendment requires entities to disclose the key terms of their programs, amounts outstanding, balance sheet presentation, and a roll-forward of amounts outstanding during the annual period. Only the amount outstanding at the end of the period is required to be disclosed in interim periods. We adopted this ASU when it became effective in thefirst quarter of fiscal2024, except for the roll-forward requirement, which will be effective in fiscal2025. The adoption of this ASU didnot have a significant impact on our financial statements and related disclosures.

Recently Issued Accounting Pronouncements and Disclosure Rules

In* November 2023,the FASB issued ASU2023*-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosure requirements must be applied retrospectively to all prior periods presented in the financial statements. The effective date for the standard is for fiscal years beginning after* December 15, 2023and interim periods within fiscal years beginning after December 15, 2024.*Early adoption is permitted. We are in the process of analyzing the impact of the ASU on our related disclosures.

In* December**2023,* the FASB issued ASU2023-09, Improvements to Income Tax Disclosures, to provide more detailed income tax disclosure requirements. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as information on income taxes paid. The disclosure requirements will be applied on a prospective basis, with the option to apply it retrospectively. The effective date for the standard is for fiscal years beginning after* December 15, 2024.*Early adoption is permitted. We are in the process of analyzing the impact of the ASU on our related disclosures.

In* March 2024,the Securities and Exchange Commission ("SEC") issued final climate-related disclosure rules that will require disclosure of material climate-related risks and material direct greenhouse gas emissions from operations owned or controlled (Scope1*) and/or material indirect greenhouse gas emissions from purchased energy consumed in owned or controlled operations (Scope2). Additionally, the rules require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds. The disclosure requirements will begin phasing in for reports and registration statements including financial information with respect to annual periods beginning in calendar year2025 (the Company's fiscal year2026). We are in the process of analyzing the impact of the rules on our related disclosures.

2. ASSETS HELD FOR SALE

During thesecond quarter of fiscal2024, we initiated a plan to sell our ownership stake in Agro Tech Foods Limited, which is a majority-owned subsidiary that is consolidated within our International segment. On* February**29,* 2024, subsequent to the end of thethird quarter of fiscal2024, we entered into a definitive agreement to sell this business. The closing of the transaction is subject to certain closing conditions, including the receipt of any applicable regulatory approvals in addition to a mandatory tender offer to minority shareholders, and is expected to be completed by the end of calendar year2024. We expect to realize proceeds of approximately $78 million from the sale, which will be paid in the local currency (Indian Rupee). The assets and liabilities have been reclassified as assets and liabilities held for sale within our Condensed Consolidated Balance Sheets for all periods presented. In connection with this activity, we recognized an impairment charge of $34.2 million within selling, general and administrative ("SG&A") expenses in thesecond quarter of fiscal2024.

The assets and liabilities classified as held for sale reflected in our Condensed Consolidated Balance Sheets were as follows:

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3. RESTRUCTURING ACTIVITIES

See our Consolidated Financial Statements and related notes included in our Annual Report on Form10-K for the fiscal year ended* May 28, 2023* for additional information on our restructuring activities.

Conagra Restructuring Plan

In fiscal2019, senior management initiated a restructuring plan for costs incurred in connection with actions taken to improve SG&A expense effectiveness and efficiencies and to optimize our supply chain network (the "Conagra Restructuring Plan"). As of* February 25, 2024*, we had approved the incurrence of $228.8 million ($69.5 million of cash charges and $159.3 million of non-cash charges) for several projects associated with the Conagra Restructuring Plan. In thethird quarter andfirst three quarters of fiscal2024, we recognized charges of $1.5 million and $28.9 million, respectively, in connection with the Conagra Restructuring Plan. In thethird quarter andfirst three quarters of fiscal2023, we recognized charges of $1.6 million and $7.5 million, respectively, in connection with the Conagra Restructuring Plan. We have recognized cumulative charges of $181.8 million since the inception of this plan through* February 25, 2024*. We expect to incur costs related to the Conagra Restructuring Plan over a multi-year period.

During thefirst three quarters of fiscal2024, we recognized the following pre-tax expenses for the Conagra Restructuring Plan:

Included in the above results are $6.2 million of charges that have resulted or will result in cash outflows and $22.7 million in non-cash charges.

Liabilities recorded for the Conagra Restructuring Plan and changes therein for thefirst three quarters of fiscal2024 were as follows:

4. DEBT AND REVOLVING CREDIT FACILITY

Senior Notes

During thefirst quarter of fiscal2024, we repaid the entire outstanding $500.0 million aggregate principal amount of our 0.50% senior notes on their maturity date of* August 11, 2023.The repayment was primarily funded using the net proceeds from the issuance of $500.0 million aggregate principal amount of 5.30% senior notes due October 1, 2026.*

During thethird quarter of fiscal2023, we repaid the remaining outstanding $437.0 million aggregate principal amount of our 3.20% senior notes on their maturity date of* January 25, 2023.*

During thesecond quarter of fiscal2023, we repaid the entire outstanding $250.0 million aggregate principal amount of our 3.25% senior notes on their maturity date of* September 15, 2022.*

Term Loan

During thesecond quarter of fiscal2023, we borrowed the full $500.0 million aggregate principal amount available under our unsecured term loan (the "Term Loan") from a syndicate of financial institutions. During thesecond quarter of fiscal2024, we prepaid $250.0 million of the aggregate principal amount outstanding under the Term Loan. The remaining balance matures on* August 26, 2025.*

Revolving Credit Facility

At* February 25, 2024*, we had a revolving credit facility (the "Revolving Credit Facility") with a syndicate of financial institutions providing for a maximum aggregate principal amount outstanding at anyone time of $2.0 billion (subject to increase to a maximum aggregate principal amount of $2.5 billion with consent of the lenders). The Revolving Credit Facility matures on* August 26, 2027and is unsecured. The Company mayrequest the term of the Revolving Credit Facility be extended for additionalone*-year ortwo-year periods from the then-applicable maturity date on an annual basis. As of* February 25, 2024*, there wereno outstanding borrowings under the Revolving Credit Facility.

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Debt Covenants

The Revolving Credit Facility generally requires our ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") to interest expense to benot less than 3.0 to1.0 and our ratio of funded net debt to EBITDAnot to exceed 4.5 to1.0, with each ratio to be calculated on a rollingfour-quarter basis. As of* February 25, 2024*, we were in compliance with all financial covenants under the Revolving Credit Facility.

Commercial Paper

As of* February 25, 2024* and* May 28, 2023*, we had $116.0 million and $576.0 million, respectively, outstanding under our commercial paper program.

Interest Expense

Net interest expense consisted of:

5. FINANCING ARRANGEMENTS

Supplier Financing Arrangements

In order to manage our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms. A number of factors* mayimpact our future payment terms, including our relative creditworthiness, overall market liquidity, and changes in interest rates and other general economic conditions. Certain suppliers have access tothird*-party services that allow them to view our scheduled payments online and finance advances on our scheduled payments at the sole discretion of the supplier and thethird-party. Our current payment terms with these suppliers, which we deem to be commercially reasonable, range up to 120 days. We haveno direct financial relationship with the financial institutions, and we have pledgedno assets in connection with our accounts payable programs. All amounts due to participating suppliers are paid to thethird party on the original invoice due dates, regardless of whether a particular invoice was sold. Supplier participation in these agreements is voluntary. As of* February 25, 2024* and* May 28, 2023*, $321.3 million and $355.1 million, respectively, of our total accounts and other payables were payable to suppliers who utilized thesethird-party services. The associated payments are included in net cash flows from operating activities within our Condensed Consolidated Statements of Cash Flows.

We have also concluded that certain obligations to our suppliers, including amounts due and scheduled payment terms, are impacted by thesethird-party service programs and these arrangements are classified as notes payable within our Condensed Consolidated Balance Sheets. The proceeds and payments associated with short-term borrowings are reflected as financing activities within our Condensed Consolidated Statements of Cash Flows. As of* February 25, 2024* and* May 28, 2023*, we had approximately $50.3 million and $62.5 million, respectively, of short-term borrowings related to these arrangements.

Non-cash Lease Arrangements

In thefirst quarter of fiscal2024, we took control of athird-party distribution facility that was assessed to be a finance lease. At lease commencement, the term of the lease was 20 years with a discount rate of 5.42%. As a result, we recorded a $165.3 million finance lease right-of-use asset reflected in property, plant and equipment along with a corresponding finance lease obligation reflected in long-term debt (including current installments) within our Condensed Consolidated Balance Sheets.

6. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The change in the carrying amount of goodwill for thefirst three quarters of fiscal2024, excluding amounts classified as held for sale (see Note2), was as follows:

Other identifiable intangible assets, excluding amounts classified as held for sale, were as follows:

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During thefirst quarter of fiscal2023, management reorganized its reporting structure for certain brands withintwo reporting units in our Refrigerated & Frozen segment. The change in management reporting required us to reassign assets and liabilities, including goodwill, between the reporting units, complete a goodwill impairment test both prior to and subsequent to the change, and evaluate other assets in the reporting units for impairment, including indefinite-lived intangibles (brand names and trademarks). The fair value of our indefinite-lived intangibles was determined using the "relief from royalty" methodology. As a result of our impairment tests, we recognized goodwill impairment charges within SG&A expenses of $141.7 million within our Sides, Components, Enhancers reporting unit in thefirst quarter of fiscal2023. In addition, we recognized an impairment charge within SG&A expenses of $244.0 million related to ourBirds Eye® brand name in thefirst quarter of fiscal2023.

Amortizing intangible assets carry a remaining weighted average life of approximately 18 years. Amortization expense was $13.4 million and $40.2 million for thethird quarter andfirst three quarters of fiscal2024, respectively, and $13.8 million and $43.3 million for thethird quarter andfirst three quarters of fiscal2023, respectively. Based on amortizing assets recognized in our Condensed Consolidated Balance Sheet as of* February 25, 2024*, amortization expense is estimated to average $44.8 million for each of the nextfive years.

7. DERIVATIVE FINANCIAL INSTRUMENTS

See our Consolidated Financial Statements and related notes included in our Annual Report on Form10-K for the fiscal year ended* May 28, 2023*, for additional information on our derivative activities.

Derivatives Designated as Cash Flow Hedges

During thefirst quarter of fiscal2019, we entered into deal-contingent forward starting 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 Pinnacle Foods Inc. We settled these contracts during thesecond quarter of fiscal2019 and deferred a $47.5 million gain in accumulated other comprehensive income that is being amortized as a reduction of interest expense over the lives of the related debt instruments. The unamortized amount at* February 25, 2024* was $28.8 million.

Economic Hedges of Forecasted Cash Flows

Many of our derivatives donot qualify for, and we donot 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. In the event that management determines a particular derivative entered into as an economic hedge of a forecasted commodity purchase has ceased to function as an economic hedge, we cease recognizing further gains and losses on such derivatives in corporate expense and begin recognizing such gains and losses within segment operating results immediately.

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:

The fair values of our derivative positions werenot material as of* February 25, 2024* and were Level1 or Level2 assets or liabilities in the fair value hierarchy (see Note15 for further information). We havenot significantly changed our valuation techniques from prior periods.

The location and amount of gains (losses) from derivativesnot designated as hedging instruments in our Condensed Consolidated Statements of Earnings were as follows:

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As of* February 25, 2024*, our open commodity contracts had a notional value (defined as notional quantity times market value per notional quantity unit) of $85.5 million for purchase contracts and $0.7 for sales contracts. As of* May 28, 2023*, our open commodity contracts had a notional value of $134.6 million for purchase contracts. The notional amount of our foreign currency forward contracts as of* February 25, 2024* and* May 28, 2023* was $92.2 million and $87.3 million, respectively.

8. SHARE-BASED PAYMENTS

For thethird quarter andfirst three quarters of fiscal2024, we recognized total stock-based compensation expense (including restricted stock units and performance shares) of$15.2 million and $18.7 million, respectively. For thethird quarter andfirst three quarters of fiscal2023, we recognized total stock-based compensation expense of $9.8 million and $68.8 million, respectively. In thefirst three quarters of fiscal2024, we granted 1.9 million restricted stock units at a weighted average grant date price of $32.53 per share unit and 0.9 million performance shares at a weighted average grant date price of $32.57 per share.

Performance shares are granted to selected executives and other key employees with vesting contingent upon meeting various Company-wide performance goals. The performance goal for thethree-year performance period ending in fiscal2024 (the*"2024* performance period") is based on our diluted earnings per share ("EPS") compound annual growth rate ("CAGR"), subject to certain adjustments, measured over the defined performance period. The performance goals for thethree-year performance periods ending in fiscal2025 (the*"2025* performance period") and2026 (the*"2026* performance period") are based on our net sales and diluted EPS growth, subject to certain adjustments, measured over the defined performance period, with each year of the performance period weightedone-third. For each of the2024 performance period,2025 performance period, and2026 performance period, the awards actually earned will range from zero totwo hundred percent of the targeted number of performance shares for such performance period. Dividend equivalents are paid on the portion of performance shares actually earned at our regular dividend rate in additional shares of common stock.

Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in our performance share plan, any shares earned will be distributed after the end of the performance period, and generally only if the participant continues to be employed with the Company through the date of distribution. For awards where performance against the performance target hasnot been certified, the value of the performance shares is adjusted based upon the market price of our common stock and current forecasted performance against the performance targets at the end of each reporting period and amortized as compensation expense over the vesting period. Forfeitures are accounted for as they occur.

9. EARNINGS PER SHARE

Basic earnings per share is calculated on the basis of weighted average outstanding shares of common stock. Diluted earnings per share is computed on the basis of basic weighted average outstanding shares of common stock adjusted for the dilutive effect of stock options, restricted stock unit awards, and other dilutive securities.

The following table reconciles the income and average share amounts used to compute both basic and diluted earnings per share:

For thethird quarter andfirst three quarters of fiscal2024, there were 1.3 million and 1.1 million stock options outstanding, respectively, that were excluded from the computation of diluted weighted average shares because the effect was antidilutive. For thethird quarter andfirst three quarters of fiscal2023, there were 0.2 million and 0.6 million stock options outstanding, respectively, that were excluded from the computation.

10. INVENTORIES

The major classes of inventories were as follows:

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11. INCOME TAXES

In thethird quarter of fiscal2024 and2023, we recognized income tax expense of $95.9 million and $100.1 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income, inclusive of equity method investment earnings) was 23.7% and 22.6% for thethird quarter of fiscal2024 and2023, respectively. In thefirst three quarters of fiscal2024 and2023, we recognized income tax expense of $297.1 million and $237.0 million, respectively. The effective tax rate was 24.5% and 26.8% for thefirst three quarters of fiscal2024 and2023, respectively.

The effective tax rate in thethird quarter of fiscal2024 reflected a tax benefit related to certain changes in estimates upon completing our fiscal2023 federal tax return.

The effective tax rate in thefirst three quarters of fiscal2024 reflected the above cited item, as well as the impact of an impairment of goodwill that is non-deductible for tax purposes, and tax expense associated withno longer asserting permanent reinvestment of a foreign subsidiary when we reclassified certain assets and liabilities to held for sale. During thefirst three quarters of fiscal2024, goodwill impairment charges totaling $20.7 million were recognized withno associated tax benefit.

The effective tax rate in thethird quarter of fiscal2023 reflected a tax benefit from statute lapses on state tax issues that were previously reserved and a benefit related to certain changes in estimates.

The effective tax rate in thefirst three quarters of fiscal2023 reflected the above-cited items, as well as additional tax expense from disallowed deductions related to incentive compensation plans resulting from an increased level of estimated achievement on performance targets and stock price, a benefit from the adjustment of certain foreign taxes that were previously accrued, and the impact of an impairment of goodwill that was largely non-deductible for tax purposes. During thefirst three quarters of fiscal2023, goodwill impairment charges totaling $141.7 million were recognized with an associated tax benefit of $2.7 million.

The amount of gross unrecognized tax benefits for uncertain tax positions was $25.4 million as of* February 25, 2024* and $23.7 million as of* May 28, 2023*. These amounts include the issue of certain elections made in connection with our fiscal2021 federal tax return which remains under review with the U.S. Internal Revenue Service. The gross unrecognized tax benefits excluded related liabilities for gross interest and penalties of $6.4 million and $5.6 million as of* February 25, 2024* and* May 28, 2023*, respectively.

The net amount of unrecognized tax benefits at* February 25, 2024* and* May 28, 2023* that, if recognized, would favorably impact the Company's effective tax rate was $22.7 million and $21.3 million, respectively.

We estimate that it is reasonably possible that the amount of gross unrecognized tax benefits will decrease by up to $13.4 million over the nexttwelve months due to various audit settlements and the expiration of statutes of limitations.

We have previously made the assessment that the current earnings of certain foreign subsidiaries werenot indefinitely reinvested or that we couldnot remit to the U.S. parent in a tax-neutral transaction. Accordingly, we had recorded a deferred tax liability of $16.2 million on approximately $324.6 million of cumulative earnings at* February 25, 2024*. The deferred tax liability relates to local withholding taxes that will be owed when this cash is distributed. The undistributed historic earnings in our foreign subsidiaries through* May 30, 2021are considered to be indefinitely reinvested or can be remitted in a tax-neutral transaction. Accordingly, we havenot* recorded a deferred tax liability related to these undistributed historic earnings.

On* August 16, 2022,the Inflation Reduction Act of2022* was signed into law. We have determined that we arenot subject to the corporate alternative minimum tax at this time.

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12. CONTINGENCIES

Litigation Matters

We are a party to certain litigation matters as a result of our acquisition of Beatrice Company ("Beatrice") in fiscal1991, including litigation proceedings related to lead-based paint and pigment businesses divested by Beatrice prior to our acquisition. These lawsuits have generally sought damages for personal injury, property damage, economic loss, and governmental expenditures allegedly caused by the use of lead-based paint. We have denied liability, both on the merits of the claims and on the basis that we donot believe we are the successor to any such liability. Inone such action in California, we agreed to pay $101.7 million, inseven annual installments from fiscal2020 through fiscal2026 (of which $73.0 million had been paid as of* February 25, 2024),pursuant to a2019* settlement, which settlement also included a default guarantee for up to $15.0 million in payments to be made by co-defendant, NL Industries, Inc. We had accrued $28.8 million ($11.7 million within other accrued liabilities and $17.1 million within other noncurrent liabilities) as of* February**25,* 2024 and $40.7 million ($11.8 million within other accrued liabilities and $28.9 million within other noncurrent liabilities) as of* May 28, 2023* for this matter.

We are a party to a number of matters asserting product liability claims against the Company related to certainPam® and other cooking spray products. These lawsuits generally seek damages for personal injuries allegedly caused by defects in the design, manufacture, or safety warnings of the cooking spray products. On* October 31, 2023,a jury entered a verdict against the Company for $3.1 million in compensatory damages and $4.0 million in punitive damages inone* of these lawsuits, captionedReese v. Conagra Brands, Inc., et al. (“Reese”). We have appealed the judgment in theReese lawsuit. We have put the Company's insurance carriers on notice of these matters regarding our cooking spray products. While we cannot predict with certainty the results of these or any other legal proceedings, the Company believes adequate provision has been made in its Condensed Consolidated Financial Statements for all probable and reasonably estimable losses for the litigation related to the cooking spray products based on information available to us at the time of our evaluation.

We are a party to various other lawsuits such as putative class action lawsuits challenging various product claims made in the Company's product labeling and matters challenging the Company's wage and hour practices. While we cannot predict with certainty the results of these or any other legal proceedings, we donot expect these matters to have a material adverse effect on our financial condition, results of operations, or business.

Our accrual for all litigation matters, including those matters described above that are probable and estimable, was $68.0 million ( $25.0 million within other accrued liabilities and $43.0 million within other noncurrent liabilities) as of* February 25, 2024* and $51.3 million ( $22.4 million within other accrued liabilities and $28.9 million within other noncurrent liabilities) as of* May 28, 2023*.

Environmental Matters

SEC regulations require us to disclose certain information about environmental proceedings if a governmental authority is a party to such proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will exceed a stated threshold. Pursuant to the SEC regulations, the Company uses a threshold of $1.0 million for purposes of determining whether disclosure of any such proceedings is required.

We are a party to certain environmental proceedings relating to businesses divested by Beatrice prior to our acquisition in fiscal1991, including litigation and administrative proceedings involving Beatrice's possible status as a potentially responsible party at approximately35 Superfund, proposed Superfund, or state-equivalent sites (the "Beatrice sites"). The Beatrice sites consist of locations previously owned or operated by predecessors of Beatrice that used or produced petroleum, pesticides, fertilizers, dyes, inks, solvents, polychlorinated biphenyls, acids, lead, sulfur, tannery wastes, and/or other contaminants. Reserves for these Beatrice environmental proceedings 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 accrual for Beatrice-related environmental matters totaled $38.4 million ($1.5 million within other accrued liabilities and $36.9 million within other noncurrent liabilities) as of* February 25, 2024* and $40.1 million ($1.5 million within other accrued liabilities and $38.6 million within other noncurrent liabilities) as of* May 28, 2023,*a majority of which relates to the Superfund and state-equivalent sites referenced above.

Guarantees and Other Contingencies

In certain limited situations, we will guarantee an obligation of an unconsolidated entity. As of* February 25, 2024,we continued to guarantee an obligation of the Lamb Weston business pursuant to a guarantee arrangement that existed prior to the spinoff of the Lamb Weston business (the "Spinoff"), remained in place following completion of the Spinoff, and will remain in place until such guarantee obligation is substituted for guarantees issued by Lamb Weston. Pursuant to the separation and distribution agreement, dated as of November 8, 2016 (the "Separation Agreement"), between us and Lamb Weston, this guarantee arrangement is deemed a liability of Lamb Weston that was transferred to Lamb Weston as part of the Spinoff. Accordingly, under the Separation Agreement, in the event that we are required to make any payments as a result of this guarantee arrangement, Lamb Weston is obligated to indemnify us for any such liability, reduced by any insurance proceeds received by us. Lamb Weston is a party to an agricultural sublease agreement with athird* party for certain farmland through2025 (subject, at Lamb Weston's option, to extension forone additional five-year period). Under the terms of the sublease agreement, Lamb Weston is required to make certain rental payments to the sublessor. We have guaranteed to the sublessor Lamb Weston's performance and the payment of all amounts (including indemnification obligations) owed by Lamb Weston under the sublease agreement, up to a maximum of $75.0 million. We believe the farmland associated with this sublease agreement is readily marketable for lease to other area farming operators. As such, we believe that any financial exposure to the Company, in the event that we were required to perform under the guarantee, would be largely mitigated.

We also guarantee a lease resulting from an exited facility. As of* February 25, 2024*, the remaining term of this arrangement didnot exceed three years and the maximum amount of guaranteed future payments was $6.7 million.

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General

After taking into account liabilities recognized for all of the foregoing matters, management believes the ultimate resolution of such matters shouldnot have a material adverse effect on our financial condition, results of operations, or liquidity; however, it is reasonably possible that a change of the estimates of any of the foregoing matters* may*occur in the future that could have a material adverse effect on our financial condition, results of operations, or liquidity.

Costs of legal services associated with the foregoing matters are recognized within SG&A expenses as services are provided.

13. PENSION AND POSTRETIREMENT BENEFITS

We have defined benefit retirement plans ("pension 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 to qualifying U.S. employees.

During thesecond quarter of fiscal2024, the Company provided a voluntary lump-sum settlement offer to certain vested participants in the salaried and hourly pension plans in order to reduce a portion of the pension obligation. During thethird quarter of fiscal2024, approximately $135 million was distributed from the pension plan assets in connection with this offer. The lump-sum settlement did exceed our service and interest cost for our hourly pension plans, which required a remeasurement in thethird quarter of fiscal2024. In connection with the remeasurement, we updated the effective discount rate assumption for the impacted pension plan obligations from 5.52% to 5.20%, as of* December 31, 2023.The settlement and related remeasurement resulted in the recognition of an immaterial settlement loss, reflected in pension and postretirement non-service expense (income), as well as a loss in other comprehensive income (loss) totaling $6.8 million in thethird* quarter of fiscal2024.

Components of pension and postretirement plan costs (benefits) are:

The Company uses a split discount rate (spot-rate approach) for the U.S. plans and certain foreign plans. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation of pension service and interest cost.

The weighted-average discount rates for service and interest costs under the spot-rate approach used for pension cost as of* May 29, 2023were 5.64% and 5.44%, respectively. The weighted-average discount rates for service and interest costs subsequent to December 31, 2023*were 5.60% and 5.41%, respectively.

During thethird quarter andfirst three quarters of fiscal2024, we contributed $3.2 million and $9.2 million, respectively, to our pension plans and contributed $1.7 million and $4.7 million, respectively, to our postretirement plans. Based upon the current funded status of the plans and the current interest rate environment, we anticipate making further contributions of approximately $2.9 million to our pension plans during the remainder of fiscal2024. We anticipate making further contributions of approximately $2.5 million to our postretirement plans during the remainder of fiscal2024. These estimates are based on ERISA guidelines, current tax laws, plan asset performance, and liability assumptions, which are subject to change.

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14. STOCKHOLDERS' EQUITY

The following table presents a reconciliation of our stockholders' equity accounts for thethirty-nine weeks ended* February 25, 2024*:

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The following table presents a reconciliation of our stockholders' equity accounts for thethirty-nine weeks ended* February 26, 2023*:

The following table details the accumulated balances for each component of other comprehensive loss, net of tax:

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The following tables summarize the reclassifications from accumulated other comprehensive income (loss) into income:

1Amounts in parentheses indicate income recognized in the Condensed Consolidated Statements of Earnings.

15. FAIR VALUE MEASUREMENTS

Financial Accounting Standards Board guidance establishes athree-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. Thethree levels of inputs used to measure fair value are as follows:

Level1 — Unadjusted quoted prices in active markets for identical assets or liabilities,

Level2 — Observable inputs other than those included in Level1, such as quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets, and

Level3 — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing the asset or liability.

The fair values of our Level2 derivative instruments were determined using valuation models that use market observable inputs including both forward and spot prices for currencies and commodities. Derivative assets and liabilities included in Level2 primarily represent commodity and foreign currency option and forward contracts.

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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* February 25, 2024*:

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 28, 2023*:

Certain assets and liabilities, including long-lived assets, goodwill, asset retirement obligations, and equity investments are measured at fair value on a nonrecurring basis using Level3 inputs.

In thesecond quarter of fiscal2024, we recognized an impairment charge totaling $34.2 million in our International segment. The impairment was measured based upon the estimated sales price of the disposal group (see Note2).

In thefirst quarter of fiscal2024, we recognized charges for the impairment of certain long-lived assets based upon a discounted cash flow valuation model and included in restructuring activities (see Note3). Impairments totaled $0.6 million in our Grocery & Snacks segment and $14.1 million in our International segment.

In thethird quarter of fiscal2023, we recognized a charge of $3.9 million within SG&A expenses related to the reduction in fair value of a convertible note receivable. The fair value was measured using the best estimate of the present value of cash flows expected to be collected.

In thefirst quarter of fiscal2023, we recognized a charge for the impairment of an indefinite-lived brand of $244.0 million in our Refrigerated & Frozen segment. The fair value of this brand was estimated using the "relief from royalty" method (see Note6).

During thefirst quarter of fiscal2023, goodwill impairment charges totaling $141.7 million were recognized within our Refrigerated & Frozen segment. The fair value of the goodwill was measured using a discounted cash flow valuation model specific to the Sides, Components and Enhancers reporting unit (see Note6).

In thefirst quarter of fiscal2023, we recognized impairment charges totaling $0.5 million in our Grocery & Snacks segment, $5.7 million in our Refrigerated & Frozen segment, and $20.5 million in our Foodservice segment. The fair value was measured based upon the estimated sales price of a disposal group thatno longer met the held for sale criteria as of thesecond quarter of fiscal2023.

The carrying amount of long-term debt (including current installments) was $8.51 billion and $8.60 billion as of* February 25, 2024* and* May 28, 2023*, respectively. Based on current market rates, the fair value of this debt (level2 liabilities) at* February 25, 2024* and* May 28, 2023* was estimated at $8.29 billion and $8.31 billion, respectively.

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16. BUSINESS SEGMENTS AND RELATED INFORMATION

We reflect our results of operations infour reporting segments: Grocery & Snacks, Refrigerated & Frozen, International, and Foodservice.

The Grocery & Snacks reporting segment principally includes branded, shelf-stable food products sold in various retail channels in the United States.

The Refrigerated & Frozen reporting segment principally includes branded, temperature-controlled food products sold in various retail channels in the United States.

The International reporting segment principally includes branded food products, in various temperature states, sold in various retail and foodservice channels outside of the United States.

The Foodservice reporting segment includes branded and customized food products, including meals, entrees, sauces and a variety of custom-manufactured culinary products packaged for sale to restaurants and other foodservice establishments primarily in the United States.

We donot aggregate operating segments when determining our reporting segments.

Operating profit for each of the segments is based on net sales less all identifiable operating expenses. General corporate expense; pension and postretirement non-service expense (income); interest expense, net; income taxes; and equity method investment earnings have been excluded from segment operations.

The following table presents further disaggregation of our net sales:

To be consistent with the manner in which we present certain disaggregated net sales information to investors, we have categorized certain net sales of our segments as "Staples", which includes all of our U.S. domestic retail refrigerated products and other shelf-stable grocery products. Management continues to regularly review financial results and make decisions about allocating resources based upon thefour reporting segments outlined above.

Assets by Segment

The majority of our manufacturing assets are shared across multiple reporting segments. Output from these facilities used by each reporting segment can change over time. Also, working capital balances arenot tracked by reporting segment. Therefore, it is impracticable to allocate those assets to the reporting segments, as well as disclose total assets by segment. Total depreciation expense was $82.4 million and $251.5 million for thethird quarter andfirst three quarters of fiscal2024, respectively. Total depreciation expense was $77.7 million and $233.7 million for thethird quarter andfirst three quarters of fiscal2023, respectively.

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