• charges totaling $9 million ($8 million after-tax) for costs under our restructuring plans.

Reported within Discontinued Operations
• a gain of $488 million ($299 million after-tax) on the sale of the trading and merchandising business.

Garner, North Carolina Accident
On June 9, 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, and the packaging area of the plant is expected to be out of service for the foreseeable future. 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.
We maintain comprehensive property (including business interruption), workers' compensation, and general liability insurance policies with very significant loss limits that we believe will provide substantial and broad coverage for the currently foreseeable losses arising from this accident.

The costs incurred and insurance recoveries recognized, to date, are reflected in our condensed consolidated financial statements, as follows:

                                                         Consumer
Thirteen Weeks Ended August 30, 2009                      Foods           Corporate          Total
Cost of Goods Sold:
Inventory write-downs and related costs                 $      6.2        $      0.0        $   6.2

Selling, general and administrative expenses:
Fixed asset impairments, clean-up costs, etc.           $     29.9        $      0.5        $  30.4
Insurance recoveries recognized                              (33.7 )             0.0          (33.7 )

Total selling, general and administrative expenses      $     (3.8 )      $      0.5        $  (3.3 )


Net Loss                                                $      2.4        $     0.5         $   2.9

We are currently unable to access the portion of the facility that was damaged in the explosion. As a result, we are unable to ascertain whether or not certain equipment located in the facility, with a book value of approximately $12 million, is impaired. We may be required to recognize further impairment charges for some, or all, of this amount when we are able to access the site and ascertain the status of the equipment. We expect to be able to ascertain the status of the equipment in the second half of fiscal 2010. We expect to be reimbursed by our insurers for the cost of replacing these assets in the event that they are determined to be impaired.
At August 30, 2009, we reflected approximately $34 million of expected insurance recoveries within accounts receivable in our condensed consolidated balance sheet. Subsequent to our first quarter of fiscal 2010, we received payment advances from the insurers of approximately $39 million for our initial insurance claims for this matter. Based on management's current assessment of production options, the expected level of insurance proceeds, and the estimated potential amount of losses and impact on the Slim Jim® brand, we do not believe that the accident will have a material adverse effect on our results of operations, financial condition, or liquidity. Sweet Potato Investment
In August 2009, we announced plans to build a new, state-of-the-art, environmentally friendly processing plant near Delhi, Louisiana, designed primarily to process high-quality sweet potatoes from the region into fries and related products. The new plant is scheduled to open in November 2010. Segment Review
We report our operations in two reporting segments: Consumer Foods and Commercial Foods.
Consumer Foods
The Consumer Foods reporting segment includes branded and private label 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.
During the first quarter of fiscal 2010, we completed the transition of the direct management of the Consumer Foods reporting segment from the Chief Executive Officer to the recently appointed Consumer Foods President position. In conjunction with this organizational change, beginning with the first quarter of fiscal 2010 we have aligned our segment reporting to be consistent with the manner in which our operating results are presented to, and reviewed by, our Chief Executive Officer. All prior periods have been recast to reflect these changes.
In June 2009, we completed the divestiture of the Fernando's® foodservice brand for proceeds of approximately $6.4 million. We reflect the results of these operations as discontinued operations for all periods presented. The assets and liabilities of the divested Fernando's® business have been reclassified as assets and liabilities held for sale within our consolidated balance sheets for all periods presented.
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, a variety of vegetable products, seasonings, blends, and flavors, which are sold under brands such as ConAgra Mills®, Lamb Weston®, Gilroy Foods & FlavorsTM, and Spicetec®.

During the first quarter of fiscal 2010, we transferred the management of the Alexia®frozen food operations from the Consumer Foods segment to the Commercial Foods segment. Segment results have been recast to reflect this change. Presentation of Derivative Gains (Losses) in Segment Results In fiscal 2009, following the sale of our trading and merchandising operations and related organizational changes, we transferred the management of commodity hedging activities (except for those related to our milling operations) to a centralized procurement group. Beginning in the first quarter of fiscal 2009, we began to reflect realized and unrealized gains and losses from derivatives (except for those related to our milling operations) used to hedge anticipated commodity consumption in earnings immediately within general corporate expenses. The gains and losses are reclassified to segment operating results in the period in which the underlying item being hedged is recognized in cost of goods sold. Prior to the first quarter of fiscal 2009, these derivative gains and losses were recorded immediately in our segment results as a component of cost of goods sold regardless of when the item being hedged impacted earnings. We believe this change results in better segment management focus on key operational initiatives and improved transparency to derivative gains and losses.
Foreign currency derivatives used to manage foreign currency risk are not designated for hedge accounting treatment. We believe that these derivatives provide economic hedges of the foreign currency risk of certain forecasted transactions. As such, these derivatives 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 currency risk of our foreign operations for the first quarter of fiscal 2010 and 2009, under this methodology:

                                                                          Thirteen weeks ended
                                                                    August 30,           August 24,
                                                                       2009                 2008
Net derivative losses incurred                                      $     (17.1 )       $      (33.5 )
Less: Net derivative losses allocated to reporting segments                (9.5 )               (0.5 )

Net derivative losses recognized in general corporate expenses      $      (7.6 )       $      (33.0 )


Net derivative losses allocated to Consumer Foods                   $      (5.8 )       $       (0.9 )
Net derivative gains (losses) allocated to Commercial Foods                (3.7 )                0.4

Net derivative losses included in segment operating profit          $      (9.5 )       $       (0.5 )

Based on our forecasts of the timing of recognition of the underlying hedged items, we expect to reclassify losses of $9.3 million and $3.6 million to segment operating results in fiscal 2010 and 2011, respectively. Amounts allocated, or to be allocated, to segment operating results during fiscal 2010 and 2011 include $5.3 million of losses incurred during fiscal 2009 which had not been allocated to segment operating results. Net Sales

            ($ in millions)                      Net Sales
            Reporting Segment               Thirteen weeks ended
                                  August 30,       August 24,       % Inc /
                                     2009             2008           (Dec)
            Consumer Foods       $      1,860     $      1,849             1 %
            Commercial Foods            1,101            1,207            (9 )%

            Total                $      2,961     $      3,056            (3 )%

Net sales for the first quarter of fiscal 2010 were $2.96 billion, a decrease of $95 million, or 3%, from the first quarter of fiscal 2009. The decrease in net sales for the first quarter of fiscal 2010 was largely due to lower sales in the flour milling business in our Commercial Foods segment. This was largely driven by decreases in wheat costs.
Consumer Foods net sales for the first quarter of fiscal 2010 were $1.86 billion, an increase of 1%, compared to the first quarter of fiscal 2009. Results reflected net pricing and mix improvement of 3%, partially offset by a decline in volume of approximately 1%. The decline in volume reflects an approximately 2% negative impact due to the inability to supply certain Slim Jim® products following the June 9, 2009 Garner, North Carolina plant accident. Volume declines also reflect an approximately 1% negative impact due to our elimination of certain low-margin SKUs and our decision to reduce our presence in certain low-margin channels and

geographic markets. The strengthening of the U.S. dollar relative to foreign currencies resulted in a reduction of net sales of approximately 1% as compared to the first quarter of fiscal 2009.
Sales of Healthy Choice® and Marie Callender's® frozen meals increased by 26% and 15%, respectively, in the first quarter of fiscal 2010, as compared to the first quarter of fiscal 2009, driven by the introduction of new products and related marketing programs. Sales of products associated with some of our other most significant brands, including Hebrew National®, Hunt's®, Orville Redenbachers®, Reddi-wip®, Snack Pak®, and Wesson®, grew in the first quarter of fiscal 2010. Sales of Slim Jim® meat snack products declined by 58% in the first quarter of fiscal 2010, as compared to the first quarter of fiscal 2009, due to the accident at our Garner production facility. Sales of Banquet® frozen meals declined by 6% in the first quarter of fiscal 2010, as compared to the first quarter of fiscal 2009, as volume declines more than offset increased pricing. Other significant brands whose products experienced sales declines in the first quarter of fiscal 2010 include ACT II®, Chef Boyardee®, Egg Beaters®, Libby's®, PAM®, and Peter Pan®.
Commercial Foods net sales were $1.10 billion for the first quarter of fiscal 2010, a decrease of $106 million, or 9%, compared to the first quarter of fiscal 2009. Results for the first quarter of fiscal 2010 reflected the pass-through of lower wheat prices by the segment's flour milling operations, resulting in a reduction of net sales of $115 million. Results also reflect higher selling prices in our Lamb Weston® specialty potato products business, partially offset by reduced volume in the specialty potato and foods and flavors businesses, reflecting the difficult economic environment in the foodservice channel. Net sales from Lamb Weston BSW, a business acquired in the second quarter of fiscal 2009, were $18 million in the first quarter of fiscal 2010.
Selling, General and Administrative Expenses (Includes general corporate expenses)
Selling, general and administrative expenses totaled $426 million for the first quarter of fiscal 2010, an increase of $58 million, or 16%, as compared to the same period of the prior year. Selling, general and administrative expenses for the first quarter of fiscal 2010 included the following:
• an increase in incentive compensation expense of $25 million,

• an increase in health insurance costs of $6 million,

• an increase in advertising and promotion expenses of $5 million, and

• a net benefit of $3 million, representing costs associated with the accidental explosion at our Garner, North Carolina facility, more than offset by insurance recoveries.

Selling, general and administrative expenses in the first quarter of fiscal 2009 included:
• a $19 million gain on the disposition of the Pemmican® business,

• charges of approximately $9 million related to the execution of our restructuring plans, and

• a gain of $5 million on the sale of a facility in our Commercial Foods segment.

Operating Profit (Earnings before general corporate expenses, interest expense, net, income taxes, and equity method investment earnings)

                ($ in millions)                Operating Profit
                Reporting Segment            Thirteen weeks ended
                                     August 30,     August 24,      % Inc
                                        2009           2008         (Dec)
                Consumer Foods      $        250   $         186        34 %
                Commercial Foods             141             134         5 %

Consumer Foods operating profit for the first quarter of fiscal 2010 was $250 million, an increase of $64 million, or 34%, compared to the first quarter of fiscal 2009. Gross profits were $81 million higher for the first quarter of fiscal 2010 than for the first quarter of fiscal 2009, driven by the impact of higher net sales, discussed above, lower commodity input costs (particularly in our edible oils business), and the benefit of supply chain cost savings initiatives. Consumer Foods selling, general and administrative expenses were higher in the first quarter of fiscal 2010 than in the first quarter of fiscal 2009 due, in part, to a $6 million increase in incentive compensation expenses and a $4 million increase in advertising and promotion expenses. The Consumer Foods segment recognized a $19 million gain on the sale of the Pemmican® brand and incurred costs of $8 million in connection with our restructuring plans in the first quarter of fiscal 2009. The accident at the Garner, North Carolina production facility in the first quarter of fiscal 2010 resulted in charges totaling $37 million for the impairment of property, plant and equipment, inventory write-offs, workers' compensation, site clean-up, and other related costs. The impact of these charges was offset by insurance recoveries of $34 million for the involuntary conversion of assets. Gross profits from Slim Jim®branded products were $2 million and $13 million in the first quarter of fiscal 2010 and 2009, respectively, reflecting the impact of the accident. The strengthening of the U.S. dollar relative to foreign currencies resulted in a reduction of operating profit of approximately $15 million as compared to the first quarter of fiscal 2009.
For the first quarter of fiscal 2010, operating profit for the Commercial Foods segment was $141 million, an increase of $7 million, or 5%, from the first quarter of fiscal 2009. Gross profits in the Commercial Foods segment were $18 million higher for the first quarter

of fiscal 2010 than for the first quarter of fiscal 2009, largely driven by improved margins in the flour milling business. Improved gross profits in the specialty potato products business were offset by reduced gross profits in the specialty vegetables and flavorings business. Commercial Foods operating profit in the first quarter of fiscal 2009 included a gain of $5 million from the sale of a production facility.
Interest Expense, Net
Net interest expense was $42 million and $50 million for the first quarter of fiscal 2010 and 2009, respectively. The decrease reflected $20 million and $14 million of interest income in the first quarter of fiscal 2010 and 2009, respectively, principally from the payment-in-kind notes received in connection with the disposition of the trading and merchandising business on June 23, 2008. Income Taxes
In the first quarter of fiscal 2010 and 2009, our income tax expense was $91 million and $66 million, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income from continuing operations, inclusive of equity method investment earnings) was approximately 35% and 38% for the first quarter of fiscal 2010 and 2009, respectively. Income tax expense for the first quarter of fiscal 2009 reflected the impact of divestitures of international subsidiaries, a change in deferred tax items related to the divestiture of the trading and merchandising business, and a reduction in income tax contingency reserves.
Equity Method Investment Earnings
Equity method investment earnings were $9 million and $1 million for the first quarter of fiscal 2010 and 2009, respectively. Increased equity method investment earnings were the result of more profitable operations of potato processing ventures.
Discontinued Operations
Our discontinued operations generated an after-tax loss of $1 million and after-tax earnings of $335 million in the first quarter of fiscal 2010 and 2009, respectively.
In June 2008, we completed the sale of the trading and merchandising operations and recognized an after-tax gain on the disposition of approximately $299 million in the first quarter of fiscal 2009.
The trading and merchandising operations generated after-tax earnings of $36 million during the first quarter of fiscal 2009, prior to the divestiture. Earnings Per Share
Our diluted earnings per share in the first quarter of fiscal 2010 were $0.37. Our diluted earnings per share in the first quarter of fiscal 2009 were $0.94, including $0.23 per diluted share from continuing operations and $0.71 per diluted share from discontinued operations. See "Items Impacting Comparability" above as several other significant items affected the comparability of year-over-year results of operations.
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. We currently 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 noncurrent assets.
Commercial paper borrowings (usually less than 30 days maturity) are reflected in our consolidated balance sheets within notes payable. At August 30, 2009, we had a $1.5 billion multi-year revolving credit facility with a syndicate of financial institutions that matures in December 2011. The multi-year facility has historically been used solely as a back-up facility for our commercial paper program. As of August 30, 2009, there were no outstanding borrowings under the credit facility. Borrowings under the multi-year facility bear interest at or below prime rate and may be prepaid without penalty. The multi-year revolving credit facility requires us to repay borrowings if our consolidated funded debt exceeds 65% of the consolidated capital base, or if fixed charges coverage, each as defined in the applicable agreements, is less than 1.75 to 1.0. As of the end of the first quarter of fiscal 2010, we were in compliance with the credit agreement's financial covenants.

As of the end of the first quarter of fiscal 2010, 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 facilities, 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. 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. During the first quarter of fiscal 2009, we executed an accelerated share repurchase program, which resulted in the repurchase of approximately 38.4 million shares of our stock for $900 million. We received an additional 5.6 million shares in the fourth quarter of fiscal 2009 at no additional cost to us. At August 30, 2009, our current share repurchase authorization was essentially exhausted. During the first quarter of fiscal 2009, we sold our trading and merchandising operations for proceeds of:
1) approximately $2.2 billion in cash, net of transaction costs, 2) $550 million (original principal amount) of payment-in-kind debt securities issued by the purchaser which was recorded at an initial estimated fair value of $479 million,
3) a short-term receivable of $37 million due from the purchaser (which was subsequently collected), and 4) a four-year warrant to acquire approximately 5% of the issued common equity of the parent company of the divested operations, which has been recorded at an estimated fair value of $1.8 million. The Notes, which are classified as other assets, had a carrying value of $542 million at August 30, 2009. The short term receivable was paid in full in December 2008. On September 25, 2009, our board of directors approved an increase in our quarterly dividend to $0.20 per share from the previous level of $0.19 per share. Cash Flows
During the first quarter of fiscal 2010, we generated $47 million of cash, which was the net impact of $263 million generated from operating activities, $114 million used in investing activities, and $103 million used in financing activities.
Cash generated from operating activities of continuing operations totaled approximately $264 million in the first quarter of fiscal 2010, as compared to $198 million generated in the first quarter of fiscal 2009, largely due to the increase in income from continuing operations. Cash used in operating activities of discontinued operations was approximately $2 million in the first quarter of fiscal 2010, as compared to $636 million in the first quarter of fiscal 2009, as we used a significant amount of cash to fund working capital needs in the trading and merchandising business immediately prior to its divestiture. Cash used in investing activities from continuing operations totaled $121 million in the first quarter of fiscal 2010, versus cash used in investing activities of $94 million in the first quarter of fiscal 2009. Investing activities of continuing operations in the first quarter of fiscal 2010 consisted primarily of capital expenditures of $119 million. Investing activities of continuing operations in the first quarter of fiscal 2009 consisted of capital expenditures of $106 million and investments of $30 million for the purchase of businesses and intangible assets, partially offset by $29 million from the sale of a business. We generated $2.25 billion of cash from investing activities of discontinued operations in the first quarter of fiscal 2009 from the disposition of the trading and merchandising business. . . .