Notes to the unaudited pro forma condensed combined financial information.

Conagra’s Current Report on Form 8-K filed on June 27, 2018, including the exhibits thereto.

Audited financial statements of Conagra as of and for the fiscal year ended May 27, 2018, which are included in Conagra’s Annual Report on Form 10-K for the fiscal year ended May 27, 2018.

Audited financial statements of Pinnacle as of and for the fiscal year ended December 31, 2017, which are included in Pinnacle’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Unaudited financial statements of Conagra as of and for the thirteen weeks ended August 26, 2018 and August 27, 2017, which are included in Conagra’s Quarterly Report on Form 10-Q for the quarterly period ended August 26, 2018.

Unaudited financial statements of Pinnacle as of and for the three months ended April 1, 2018 and March 26, 2017, which are included in Pinnacle’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2018.

Unaudited financial statements of Pinnacle as of and for the six months ended July 1, 2018 and June 25, 2017, which are included in Pinnacle’s Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2018.

Conagra
Brands

Historical

Pinnacle

Historical

Current assets

Cash and cash equivalents

Receivables, less allowance for doubtful accounts

Inventories

Prepaid expenses and other current assets

Current assets held for sale

Total current assets

Property, plant and equipment, net

Goodwill

Brands, trademarks and other intangibles, net

Other assets

Noncurrent assets held for sale

Current liabilities

Notes payable

Current installments of long-term debt

Accounts payable

Accrued payroll

Other accrued liabilities

Total current liabilities

Senior long-term debt, excluding current installments

Subordinated debt

Other noncurrent liabilities

Total liabilities

Commitments and contingencies

Common stockholders’ equity

Common stock

Additional paid-in-capital

Retained earnings

Accumulated other comprehensive income (loss)

Less treasury stock, at cost

Total Conagra Brands, Inc. common stockholders’ equity

Noncontrolling interests

Total stockholders’ equity

Conagra
Brands

Historical

Pinnacle

Historical (n)

Net sales

Costs and expenses:

Cost of goods sold

Selling, general and administrative expense

Interest expense, net

Income (loss) from continuing operations before income taxes and equity method investment earnings

Income tax expense (benefit)

Equity method investment earnings

Income (loss) from continuing operations

Less: Net income attributable to noncontrolling interests

Net Income (loss) from continuing operations attributable to Conagra Brands, Inc.

Per share amounts:

Basic

Diluted

Average shares outstanding:

Basic

Diluted

Conagra
Brands

Historical

Pinnacle

Historical

Net sales

Costs and expenses:

Cost of goods sold

Selling, general and administrative expense

Pension and postretirement non-service income

Interest expense, net

Income (loss) from continuing operations before income taxes and equity method investment earnings

Income tax expense

Equity method investment earnings

Income (loss) from continuing operations

Less: Net income attributable to noncontrolling interests

Net Income (loss) from continuing operations attributable to Conagra Brands, Inc.

Per share amounts:

Basic

Diluted

Average shares outstanding:

Basic

Diluted

Estimated cash paid for outstanding Pinnacle common stock (1)

Estimated aggregate value of Conagra common stock issued for outstanding Pinnacle common stock (2)

Estimated consideration for Pinnacle’s equity awards (3)

Total estimated merger consideration

Represents the total assumed cash consideration paid to Pinnacle stockholders of $43.11 per share of Pinnacle common stock. For purposes of preparing this unaudited pro forma combined financial information, Conagra has assumed that funding for the merger comes from a combination of the existing available domestic cash of the combined business as of the closing of the merger, the net proceeds from the issuance of approximately 17.2 million shares of Conagra common stock prior to the closing of the merger, and a portion of the net proceeds of the debt to be issued by Conagra prior to the closing of the merger.

Represents 0.6494 shares of Conagra common stock for each share of Pinnacle common stock. Based on Pinnacle’s outstanding shares at October 3, 2018, Conagra estimates issuing approximately 77.4 million shares of Conagra common stock to Pinnacle stockholders at the effective time of the merger.

Represents estimated merger consideration payable to holders of Pinnacle’s outstanding equity awards. All outstanding vested Pinnacle stock options, valued at approximately $27 million, will be canceled in exchange for cash consideration at closing. All outstanding unvested Pinnacle equity awards, valued at approximately $100 million, will be converted into Conagra cash-settled stock appreciation rights or cash-settled restricted stock units, otherwise subject to substantially the same terms and conditions and will be liability-classified awards. Approximately $38 million of the fair value of Pinnacle’s unvested equity awards issued is attributable to pre-combination service and is considered as merger consideration. Conagra estimates that approximately $62 million of the unvested equity awards represents post-combination compensation expense to be recognized based on the vesting terms of the replacement awards which will be subject to further change based on changes in the fair value of Conagra common stock through the remaining service period. See footnote 3(a,i) for further information.

Tangible assets acquired:

Inventories

Property, plant and equipment

Other current assets

Other assets

Total tangible assets acquired

Intangible assets acquired

Debt and capital lease obligations (including current portion)

Deferred tax liability related to acquired tangible and intangible assets

Other liabilities assumed, excluding debt

Total assets acquired in excess of liabilities assumed

Goodwill (1)

Estimated merger consideration

Goodwill represents the excess of merger consideration over the preliminary fair value of the underlying assets acquired and liabilities assumed. Among the factors that contributed to a purchase price in excess of the fair value of the assets acquired and liabilities assumed were the acquired workforce of experienced personnel and various sources of synergies, which include cost savings in merchandising, marketing, distribution and back office administrative functions.

As presented in the pro forma combined results

10% increase in common stock price

10% decrease in common stock price

The following table is an estimate of the total sources and uses of cash as a result of the merger and related financing transactions (subsequent to August 26, 2018):

(millions)

Debt financing, net of debt issuance costs and interest rate hedges

Estimated proceeds from issuance of Conagra common stock, net of transaction costs

Total sources of cash

Cash consideration of $43.11 per share of Pinnacle common stock

Retirement of Pinnacle debt existing at merger closing (as of July 1, 2018)

Refinancing of Conagra debt

Make-whole redemption premiums on Pinnacle debt repayments

Bridge facility fees

Cash paid to settle certain Pinnacle equity awards at closing

Transaction expenses

Cash and cash equivalents available for estimated future payments of commercial paper

Total uses of cash

Conagra intends to issue long-term debt to fund a portion of the merger, refinance certain Conagra debt and repay commercial paper, repay Pinnacle debt, and pay related fees and expenses. Debt issued and the calculation of pro forma interest expense for the periods presented is as follows:

(millions, except rate data)

Floating rate notes due 2020

Floating rate notes due 2021

Senior notes due 2021

Term loan due 2021

Term loan due 2023

Senior notes due 2024

Senior notes due 2025

Senior notes due 2028

Senior notes due 2038

Senior notes due 2048

Elimination of Pinnacle’s historical interest expense

Elimination of Conagra’s historical interest expense related to refinanced debt and amortization of bridge fees

Total pro forma adjustment to interest expense

Adjustment of Pinnacle debt to estimated fair value

Issuance of debt

Repayment of debt

Debt issuance costs related to financing

Net adjustments

The pro forma adjustment to income tax expense was calculated by applying Conagra’s statutory income tax rate of 30.38% and 24.56% for the year ended May 27, 2018 and the thirteen weeks ended August 26, 2018, respectively, to each pro forma adjustment to Income (loss) from continuing operations before income taxes and equity method investment earnings, except in the case of the pro forma adjustments to depreciation, amortization and interest expense which was done by reversing the tax impact of Pinnacle’s historical depreciation, amortization and interest expense based on its historical statutory income tax rate of 32.33% and 24.16% for the year ended May 27, 2018 and the thirteen weeks ended August 26, 2018, respectively, and adding back the tax impact of the estimated depreciation, amortization and interest expense in purchase accounting using Conagra’s statutory income tax rate of 30.38% and 24.56% for the year ended May 27, 2018 and the thirteen weeks ended August 26, 2018, respectively. Certain transaction costs incurred by Conagra and Pinnacle for the year ended May 27, 2018 and the thirteen weeks ended August 26, 2018 were not deductible for tax purposes. The historical statements of operations of Conagra and Pinnacle for the year ended May 27, 2018, include one-time benefits associated with US Tax Reform that have not been adjusted in the pro forma presentation.

Reflects the adjustment of Pinnacle finished goods inventory to estimated fair value.

Reflects the adjustment of Pinnacle plant assets to estimated fair value and the related decrease to depreciation expense totaling approximately $16 million ($9 million, net of tax) for the year ended May 27, 2018, and an increase of $1 million ($1 million, net of tax) for the thirteen weeks ended August 26, 2018.

The preliminary estimate of goodwill arising from the merger is approximately $5.7 billion. Of the goodwill to be acquired, approximately $254 million is deductible for income tax purposes.

The intangible assets of Pinnacle were increased by $2.2 billion to a total of approximately $4.7 billion, which includes indefinite-lived brand assets with a preliminary estimate of fair value of $4.0 billion and amortizable customer relationships with a preliminary estimate of fair value of approximately $700 million. The intangible asset related to customer relationships was determined to have an estimated useful life of 25 years and will be amortized on a straight-line basis over that period. The adjustment to estimated fair value resulted in incremental amortization expense of approximately $13 million ($9 million, net of tax) and $3 million ($2 million, net of tax) for the year ended May 27, 2018 and the thirteen weeks ended August 26, 2018, respectively.

Deferred tax liabilities were adjusted on a pro forma basis for the following:

Increase in fair value of inventory, property, plant and equipment, and identifiable intangible assets

Net adjustment to fair value of Pinnacle equity awards

Increase in fair value of debt acquired

Net adjustment to fair value of Interest Rate Swaps

Total adjustments to deferred tax liabilities

Represents the portion of the fair-value-based measure of unvested Pinnacle equity awards attributed to pre-combination service. All outstanding unvested Pinnacle equity awards will be converted into Conagra cash-settled stock appreciation rights or cash-settled restricted stock units, otherwise subject to substantially the same terms and conditions. Approximately $26 million of these awards will vest within one year and are classified within Accrued payroll. The remaining awards, valued at approximately $12 million, are classified within Other noncurrent liabilities.

Other accrued liabilities were adjusted to record the tax effects related to various adjustments and to remove $58 million of unrealized losses on the Interest Rate Swaps recorded as of August 26, 2018 as discussed in footnote 3(b).

Interest Rate Swaps (as of August 26, 2018)

Tax effects of:

Repayment of debt

Bridge facility fees

Additional transaction costs

Settlement of certain Pinnacle equity awards at closing

Net adjustments

Reflects the elimination of Pinnacle’s historical common stock, Additional paid-in-capital, Accumulated other comprehensive income (loss), and Treasury stock. Also reflects the following:

the issuance of 77.4 million shares of its common stock from treasury to Pinnacle shareholders as part of the overall merger consideration. The estimated aggregate value of $2.59 billion is based on the Conagra common stock closing price on the NYSE of $33.43 per share on October 3, 2018,

the issuance of approximately 17.2 million shares of new Conagra common stock resulting in estimated net proceeds of approximately $555 million after transaction costs. The estimates are based on a Conagra common stock NYSE closing price of $33.43 per share on October 3, 2018, and

the estimated impact of the Interest Rate Swaps, as discussed in footnote 3(b).

Elimination of Pinnacle’s historical accounts

Issuance of common stock to Pinnacle shareholders

Issuance of new common stock

Interest Rate Swaps, net of tax

Net adjustments

Reflects the elimination of Pinnacle’s historical Retained earnings and the payment of the remaining portion of estimated total bridge facility fees and transaction costs. The detail of the pro forma adjustments made were as follows:

Elimination of Pinnacle’s historical account

Bridge facility fees, net of tax⁽¹⁾

Transaction costs, net of tax⁽²⁾

Net adjustments

Reflects the portion of fees to be paid related to a bridge facility to fund the merger and related costs that had not been incurred as of August 26, 2018. Total bridge facility fees are approximately $46 million ($35 million, net of tax). Of this amount, $32 million ($25 million, net of tax) was incurred prior to August 26, 2018, and was deferred within Prepaid and other current assets, to be amortized within interest expense over the commitment period. Amortization of $6 million was eliminated from interest expense in the pro forma results of operations for the thirteen weeks ended August 26, 2018.

Reflects the portion of transaction costs (including legal, consulting, regulatory, filing, and other fees directly related to the merger) that had not been incurred as of August 26, 2018. Total transaction costs are approximately $128 million ($108, net of tax), of which $4 million and $18 million had been incurred as of May 27, 2018 and August 26, 2018, respectively.

Conagra and Pinnacle incurred transaction costs of approximately $4 million and $18 million during the year ended May 27, 2018 and the thirteen weeks ended August 26, 2018, respectively, in connection with the merger. These costs have been eliminated from the pro forma results of operations, as they do not represent ongoing cost of the combined business.

The development of Pinnacle historical financial statements to conform with Conagra’s fiscal year is presented in the following table.

Year ended

December 31,
2017

Net sales

Costs and expenses:

Cost of goods sold

Selling, general and administrative expense

Interest expense, net

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

Income tax expense (benefit)

Net income

Earnings:

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

Add (deduct):

Fixed charges

Distributed income of equity method investees

Capitalized interest

Earnings available for fixed charges (a)

Fixed charges:

Interest expense

Capitalized interest

One third of rental expense ⁽¹⁾

Total fixed charges (b)

Ratio of earnings to fixed charges (a/b)

Earnings:

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

Add (deduct):

Fixed charges

Distributed income of equity method investees

Capitalized interest

Earnings available for fixed charges (a)

Fixed charges:

Interest expense

Capitalized interest

One third of rental expense (1)

Total fixed charges (b)

Ratio of earnings to fixed charges (a/b)

Considered to be representative of interest factor in rental expense.