UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-K
FORM 10-K
RANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED May 30, 2021
£TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number:001-01185
________________
GENERAL MILLS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 41-0274440 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
Number One General Mills Boulevard | ||
Minneapolis, Minnesota | 55426 | |
(Address of principal executive offices) | (Zip Code) | |
(763)764-7600
(763)764-7600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||
Common Stock, $.10 par value | GIS | New York Stock Exchange | ||||
1.000% Notes due | GIS23A | New York Stock Exchange | ||||
0.450% Notes due | GIS26 | New York Stock Exchange | ||||
1.500% Notes due | GIS27 | 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 ☑ RNo ☐£
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 ☑R
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 ☑ RNo ☐£
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 RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ RNo ☐£
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K 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 Form10-K or any amendment to this Form10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | £ | Non-accelerated filer
| Smaller reporting company | ||
£
|
Emerging growth company £
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐£
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. R
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).
Yes ☐ £No ☑R
Aggregate market value of Common Stock held bynon-affiliates of the registrant, based on the closing price of $53.65$60.13 per share as reported on the New York Stock Exchange on November 24, 201729, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter): $30,510.6$36,765.2 million.
Number of shares of Common Stock outstanding as of June 7, 2018: 593,367,84815, 2021: 607,210,408 (excluding 161,245,480147,402,920 shares held in the treasury).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its 20182021 Annual Meeting of Shareholders are incorporated by reference into Part III.
Table of Contents
Page | ||||||
Part I | ||||||
Item 1 | 4 | |||||
Item 1A | 9 | |||||
Item 1B | 14 | |||||
Item 2 | 15 | |||||
Item 3 | 15 | |||||
Item 4 | 15 | |||||
Part II | ||||||
Item 5 | 16 | |||||
Item | ||||||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||||
Item 7A | 41 | |||||
Item 8 | 43 | |||||
Item 9 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 94 | ||||
Item 9A | 94 | |||||
Item 9B | 94 | |||||
Part III | ||||||
Item 10 | 94 | |||||
Item 11 | 94 | |||||
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 95 | ||||
Item 13 | Certain Relationships and Related Transactions, and Director Independence | 95 | ||||
Item 14 | 95 | |||||
Part IV | ||||||
Item 15 | 96 | |||||
Item 16 | 99 | |||||
100 | ||||||
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PART I
ITEM 1 - Business
General Mills, Inc. was incorporated in Delaware in 1928. The terms “General Mills,” “Company,” “registrant,” “we,” “us,” and “our” mean General Mills, Inc. and all subsidiaries included in the Consolidated Financial Statements in Item 8 of this report unless the context indicates otherwise.
Certain terms used throughout this report are defined in a glossary in Item 8 of this report.
COMPANY OVERVIEW
We are a leading global manufacturer and marketer of branded consumer foods sold through retail stores. We also are a leading supplier of branded and unbranded food products to the North American foodservice and commercial baking industries. Following our acquisition of Blue Buffalo Pet Products, Inc. (Blue Buffalo) in fiscal 2018, weWe are also a leading manufacturer and marketer in the wholesome natural pet food category. We manufacture our products in 13 countries and market them in more than 100 countries. In addition to our consolidated operations, we have 50 percent interests in two strategic joint ventures that manufacture and market food products sold in more than 130120 countries worldwide.
On April 24, 2018, we acquired Blue Buffalo for an aggregate purchase price of $8.0 billion. We financed the transaction with a combination of $6.0 billion in debt, $1.0 billion in equity, and cash on hand. The consolidated results of Blue Buffalo will be reported as our Pet operating segment in future periods on aone-month lag. Accordingly, in fiscal 2018, our Consolidated Statements of Earnings do not include Pet operating segment results. For further information on the acquisition of Blue Buffalo, please see Note 3 to the Consolidated Financial Statements in Item 8 of this report.
We manage and review the financial results of our business under five operating segments: North America Retail; Convenience Stores & Foodservice; Europe & Australia; Asia & Latin America; and Pet. See Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in Item 7 of this report for a description of our segments and certain changes made to our segments in fiscal 2017. For financial information by segment and geographic area, please see Note 16 to the Consolidated Financial Statements in Item 8 of this report.segments.
We offer a variety of food products that provide great taste, nutrition, convenience, and value for consumers around the world, with a focusworld. Our business is focused on sixthe following large, global categories:
snacks, including grain, fruit and savory snacks, nutrition bars, and frozen hot snacks;
ready-to-eat cereal;
yogurt;
Other significant product categories include:cream;
Our Cereal Partners Worldwide (CPW) joint venture with Nestlé S.A. (Nestlé) competes in theready-to-eat cereal category in markets outside North America, and ourHäagen-Dazs Japan, Inc. (HDJ) joint venture competes in the super-premium ice cream category in Japan. For net sales contributed by each class of similar products, please see Note 1617 to the Consolidated Financial Statements in Item 8 of this report.
Customers.
The terms “General Mills,” “Company,” “registrant,” “we,” “us,” and “our” mean General Mills, Inc. and all subsidiaries included in the Consolidated Financial Statements in Item 8 of this report unless the context indicates otherwise.
Certain terms used throughout this report are defined in a glossary in Item 8 of this report.
Customers
Our primary customers are grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains,e-commerce retailers, commercial and noncommercial foodservice distributors and operators, restaurants, convenience stores, and pet specialty stores. We generally sell to these customers through our direct sales force. We use broker and distribution arrangements for certain products and to serve certain types of customers.customers and certain markets. For further information on our customer credit and product return practices, please refer to Note 2 to the Consolidated Financial Statements in Item 8 of this report. During fiscal 2018,2021, Walmart Inc. and its affiliates (Walmart) accounted for 2120 percent of our consolidated net sales and 3029 percent of net sales of our North America Retail segment. No other customer accounted for 10 percent or more of our consolidated net sales. For further information on significant customers, please refer to Note 78 to the Consolidated Financial Statements in Item 8 of this report.
Competition.
Competition
The packaged foodsand pet food categories are highly competitive, with numerous manufacturers of varying sizes in the United States and throughout the world. The categories in which we participate also are very competitive. Our principal competitors in these categories are manufacturers, as well as retailers with their own branded products. Competitors market and sell their products throughbrick-and-mortar stores ande-commerce. All of our principal competitors have substantial financial, marketing, and other resources. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, convenient ordering and delivery to the consumer, and the ability to identify and satisfy consumer preferences. Our principal strategies for competing in each of our segments include unique consumer insights, effective customer relationships, superior product quality, innovative advertising, product promotion, product innovation aligned with consumers’ needs, an efficient supply chain, and price. In most product categories, we compete not only with other widely advertised, branded products, but also with regional brands and with generic and private label products that are generally sold at lower prices. Internationally, we compete with both multi-national and local manufacturers, and each country includes a unique group of competitors.
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Raw materials, ingredients, and packaging.packaging
The principal raw materials that we use are grains (wheat, oats, and corn), dairy products, sugar, fruits, vegetable oils, meats, nuts, vegetables, and other agricultural products. We also use substantial quantities of carton board, corrugated, plastic and metal packaging materials, operating supplies, and energy. Most of these inputs for our domestic and Canadian operations are purchased from suppliers in the United States. In our other international operations, inputs that are not locally available in adequate supply may be imported from other countries. The cost of these inputs may fluctuate widely due to external conditions such as weather, climate change, product scarcity, limited sources of supply, commodity market fluctuations, currency fluctuations, trade tariffs, pandemics (including the COVID-19 pandemic), and changes in governmental agricultural and energy policies and regulations. We have some long-term fixed price contracts, but the majority of our inputs are purchased on the open market. We believe that we will be able to obtain an adequate supply of needed inputs. Occasionally and where possible, we make advance purchases of items significant to our business in order to ensure continuity of operations. Our objective is to procure materials meeting both our quality standards and our production needs at price levels that allow a targeted profit margin. Since these inputs generally represent the largest variable cost in manufacturing our products, to the extent possible, we often manage the risk associated with adverse price movements for some inputs using a variety of risk management strategies. We also have a grain merchandising operation that provides us efficient access to, and more informed knowledge of, various commodity markets, principally wheat and oats. This operation holds physical inventories that are carried at net realizable value and uses derivatives to manage its net inventory position and minimize its market exposures.
RESEARCH AND DEVELOPMENT
Our research and development resources are focused on new product development, product improvement, process design and improvement, packaging, and exploratory research in new business and technology areas. Research and development expenditures were $219 million in fiscal 2018, $218 million in fiscal 2017, and $222 million in fiscal 2016.
TRADEMARKS AND PATENTS
Our products are marketed under a variety of valuable trademarks. Some of the more important trademarks used in our global operations (set forth in italics in this report) includeAnnie’s, Betty Crocker,Bisquick,Blue Buffalo,BLUEBlue Basics,BLUEBlue Freedom,BLUE WildernessBugles,BuglesCascadianFarm,CascadianFarmCheerios,CheeriosChex,Chex,Cinnamon Toast Crunch,Cocoa Puffs,Cookie Crisp, EPIC,Fiber One,Food Should Taste Good,Fruit by the Foot,Fruit Gushers,FruitRoll-Ups,Gardetto’sGardetto's,Go-Gurt,Gold Medal,Golden Grahams,Häagen-Dazs,Helpers,Jeno’sJus-Rol,Jus-RolKitano,KitanoKix,Kix,La Salteña,Lärabar,Latina,Liberté,Lucky Charms,Muir Glen,Nature Valley,Oatmeal Crisp,Old El Paso,Oui,Pillsbury,Progresso,Raisin Nut Bran,Total,Totino’s,Trix,Wanchai Ferry,Wheaties,Wilderness, Yoki, andYoplait. We protect these marks as appropriate through registrations in the United States and other jurisdictions. Depending on the jurisdiction, trademarks are generally valid as long as they are in use or their registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks can also generally be renewed indefinitely for as long as the trademarks are in use.
Some of our products are marketed under or in combination with trademarks that have been licensed from others for both long-standing products (e.g.,Reese’s Puffs for cereal,Green Giantfor vegetables in certain countries, andCinnabon for refrigerated dough, frozen pastries, and baking products) and shorter term promotional products (e.g., fruit snacks sold under various third party equities).
Our cereal trademarks are licensed to CPW and may be used in association with theNestlétrademark. Nestlé licenses certain of its trademarks to CPW, including theNestlé andUncle Toby’s trademarks. TheHäagen-Dazs trademark is licensed royalty-free and exclusively to Nestlé and authorized sublicensees for ice cream and other frozen dessert products in the United States and Canada. TheHäagen-Dazs trademark is also licensed to HDJ.HDJ in Japan. The J. M. Smucker Company holdsPillsbury brand and the Pillsbury Doughboy character are subject to an exclusive, royalty-free license that was granted to use thePillsbury branda third party and thePillsbury Doughboy characterits successors in the dessert mix and baking mix categories in the United States and under limited circumstances in Canada and Mexico.
TheYoplait trademark and other related trademarks are owned by Yoplait Marques SNC, an entity in which we own a 50 percent interest. The Liberté trademark and other related trademarks are owned by Liberté Marques Sárl, an entity in which we own a 50 percent interest.These marks are licensed exclusively to Yoplait SAS, an entity in which we own a 51 percent interest. Yoplait SAS licenses these trademarks to its franchisees. TheLibertétrademark and other related trademarks are owned by Liberté Marques Sàrl, an entityfranchisees, including General Mills in which we own a 50 percent interest.the United States.
We continue our focus on developing and marketing innovative, proprietary products, many of which use proprietary expertise, recipes and formulations. We consider the collective rights under our various patents, which expire from time to time, a valuable asset, but we do not believe that our businesses are materially dependent upon any single patent or group of related patents.
SEASONALITY
SEASONALITY
In general, demand for our products is evenly balanced throughout the year. However, within our North America Retail segment demand for refrigerated dough, frozen baked goods, and baking products is stronger in the fourth calendar quarter. Demand forProgressosoup is higher during the fall and winter months. Internationally, within our Europe & Australia and Asia & Latin America segments, demand forHäagen-Dazsice cream is higher during the summer months and demand for baking mix and dough products increases during winter months. Due to the offsetting impact of these demand trends, as well as the different seasons in the northern and southern hemispheres, our international segments’ net sales are generally evenly balanced throughout the year.
BACKLOG5
Orders are generally filled within a few days of receipt and are subject to cancellation at any time prior to shipment. The backlog of any unfilled orders as of May 27, 2018, was not material.
WORKING CAPITAL
A description of our working capital is included in the Liquidity section of MD&A in Item 7 of this report. Our product return practices are described in Note 2 to the Consolidated Financial Statements in Item 8 of this report.
EMPLOYEES
As of May 27, 2018, we had approximately 40,000 full- and part-time employees.
QUALITY AND SAFETY REGULATION
The manufacture and sale of consumer and pet food products is highly regulated. In the United States, our activities are subject to regulation by various federal government agencies, including the Food and Drug Administration, Department of Agriculture, Federal Trade Commission, Department of Commerce, Occupational Safety and Health Administration, and Environmental Protection Agency, as well as various federal, state, and local agencies.agencies relating to the production, packaging, labelling, marketing, storage, distribution, quality, and safety of food and pet products and the health and safety of our employees. Our business is also regulated by similar agencies outside of the United States.
ENVIRONMENTAL MATTERS
As of May 27, 2018,30, 2021, we were involved with two active cleanup sitesresponse actions associated with the alleged or threatened release of hazardous substances or wastes located in Minneapolis, Minnesota and Moonachie, New Jersey.
Our operations are subject to the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act, and the Federal Insecticide, Fungicide, and Rodenticide Act, and all similar state, local, and foreign environmental laws and regulations applicable to the jurisdictions in which we operate.
Based on current facts and circumstances, we believe that neither the results of our environmental proceedings nor our compliance in general with environmental laws or regulations will have a material adverse effect upon our capital expenditures, earnings, or competitive position.
HUMAN CAPITAL MANAGEMENT
Recruiting, developing, engaging, and protecting our workforce is critical to executing our strategy and achieving business success. As of May 30, 2021, we had approximately 35,000 employees around the globe, with approximately 15,000 in the U.S. and approximately 20,000 located in our markets outside of the U.S. Our workforce is divided between approximately 13,000 employees dedicated to the production of our various products and approximately 22,000 non-production employees.
The efficient production of high-quality products and successful execution of our strategy requires a talented, skilled, and engaged team of employees. We work to equip our employees with critical skills and expand their contributions over time by providing a range of training and career development opportunities, including hands-on experiences via challenging work assignments and job rotations, coaching and mentoring opportunities, and training programs. To foster employee engagement and commitment, we follow a robust process to listen to employees, take action, and measure our progress with on-going employee conversations, transparent communications, and employee engagement surveys.
We believe that fostering a culture of inclusion and belonging strengthens our ability to recruit talent and allows all of our employees to thrive and succeed. We actively cultivate a culture that acknowledges, respects, and values all dimensions of diversity – including gender, race, sexual orientation, ability, backgrounds, and beliefs. Ensuring diversity of input and perspectives is core to our business strategy, and we are committed to recruiting, retaining, developing, and advancing a workforce that reflects the diversity of the consumers we serve. This commitment starts with our company leadership where women represent approximately 41 percent of our officer and director population, and approximately 19 percent of our officers and directors are racially or ethnically diverse. We embed our culture of inclusion and belonging into our day-to-day ways of working through a number of programs to foster discussion, build empathy, and increase understanding.
We are committed to maintaining a safe and secure workplace for our employees. We set specific safety standards to identify and manage critical risks. We use global safety management systems and employee training to ensure consistent implementation of safety protocols and accurate measurement and tracking of incidents. To provide a safe and secure working environment for our employees, we prohibit workplace discrimination, and we do not tolerate abusive conduct or harassment. Our attention to the health and safety of our workforce extends to the workers and communities in our supply chain. We believe that respect for human rights is fundamental to our strategy and to our commitment to ethical business conduct.
During the COVID-19 pandemic, we implemented an enterprise-wide response to ensure employee safety. In our manufacturing facilities, we enacted social distancing protocols, temperature checks, enhanced sanitation, mask use, and other protective equipment and practices. Our layered protections, combined with robust contact tracing and exclusion protocols, enabled the continued operation of our manufacturing and distribution facilities without significant disruption. During the pandemic, our office staff shifted primarily to working remotely as dictated by local conditions.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The section below provides information regarding our executive officers as of June 29, 2018:July 1, 2021.
Richard C. Allendorf, age 57,60, is Senior Vice President, General Counsel and Secretary. Mr. Allendorf joined General Mills in 2001 from The Pillsbury Company. He was promoted to Vice President, Deputy General Counsel in 2010, first overseeing the legal affairs of the U.S. Retail segment and Consumer Food Sales and then, in 2012, overseeing the legal affairs of the International segment and Global Ethics and Compliance. He was named to his present position in February 2015. Prior to joining General Mills, he practiced law with the Shearman and Sterling and Mackall, Crounse and Moore law firms. He was in finance with General Electric prior to his legal career.
William W. Bishop, Jr.
Jodi Benson, age 47,56, is Group President, Pet. Mr. BishopChief Innovation, Technology and Quality Officer. Ms. Benson joined General Mills in connection with2001 from The Pillsbury Company. She held a variety of positions before becoming the leader of our acquisition of Blue Buffalo in April 2018. PriorOne Global Dairy Platform from 2011 to joining General Mills, Mr. Bishop served as Chief Executive Officer of Blue Buffalo since January 2017. From 2003 until January 2017 Mr. Bishop served as Chief Operating Officer of Blue Buffalo andMarch 2016. She was named Vice President in 2012. Heco-founded Blue Buffalo in 2002. Hefor our International business segment from April 2016 to March 2017, and Vice President of the Global Innovation, Technology, and Quality Capabilities Group from April 2017 to July 2018. She was named to his presenther current position in AprilAugust 2018.
Kofi A. Bruce, age 48,51, is Vice President, Controller.Chief Financial Officer. Mr. Bruce joined General Mills in 2009 as Vice President, Treasurer after serving in a variety of senior management positions with Ecolab and Ford Motor Company. He served as Treasurer until 2010 when he was named Vice President, Finance for Yoplait. Mr. Bruce reassumed his role as Vice President, Treasurer from 2012 until July 2014 when he was named Vice President, Finance for Convenience Stores & Foodservice. He servedwas named Vice President, Controller in that role until he was namedAugust 2017, Vice President, Financial Operations in September 2019, and to his present position in August 2017.February 2020.
John R. Church,age 52,55, is Executive Vice President; Chief Supply Chain Officer and Global Business Solutions.Transformation & Enterprise Services Officer. Mr. Church joined General Mills in 1988 as a Product Developer in the Big G cereals division and held various positions before becoming Vice President, Engineering in 2003. In 2005, his role was expanded to include development of the Company’s strategy for the global sourcing of raw materials and manufacturing capabilities. He was named Vice President, Supply Chain Operations in 2007, Senior Vice President, Supply Chain in 2008, Executive Vice President, Supply Chain in July 2013, Chief Supply Chain and Global Business Solutions Officer in June 2017, and to his present position in June 2017.July 2021.
Peter C. Erickson
Paul J. Gallagher,age 57,53, is Executive Vice President, Innovation, Technology and Quality.Chief Supply Chain Officer. Mr. EricksonGallagher joined General Mills in 1994April 2019 as part of the Colombo yogurt acquisition. He has held various positions in Research & Development and became Vice President, Innovation, TechnologyNorth America Supply Chain from Diageo plc. He began his career at Diageo where he spent 25 years serving in a variety of leadership roles in manufacturing, procurement, planning, customer service, and Quality in 2003 and Senior Viceengineering before becoming President, Innovation, Technology and Quality in 2006.North America Supply from 2013 to March 2019. He was named to his presentcurrent position in July 2013. Mr. Erickson will be retiring from the Company on August 1, 2018.2021.
Jeffrey L. Harmening, age 51,54, is Chairman of the Board and Chief Executive Officer. Mr. Harmening joined General Mills in 1994 and served in various marketing roles in the Betty Crocker, Yoplait, and Big G cereal divisions. He was named Vice President, Marketing for CPW in 2003 and a Vice President of the Big G cereal division in 2007. In 2011, he was promoted to Senior Vice President for the Big G cereal division. Mr. Harmening was appointed Senior Vice President, Chief Executive Officer of CPW in 2012. Mr. Harmening returned from CPW in 2014 and was named Executive Vice President, Chief Operating Officer, U.S. Retail. He became President, Chief Operating Officer in July 2016. He was named Chief Executive Officer in June 2017 and Chairman of the Board in January 2018. Mr. Harmening is a director of The Toro Company.
Christina Law
Dana M. McNabb,age 51, 45,is Senior Vice President; Group President, AsiaChief Strategy & Latin America.Growth Officer. Ms. LawMcNabb joined General Mills in 2012 as1999 and held a variety of marketing roles in Cereal, Snacks, Meals, and New Products before becoming Vice President; President, Asia, Middle EastMarketing for CPW in 2011 and Africa. Prior to joining General Mills, Ms. Law held various marketingVice President, Marketing for the Circle of Champions Business Unit in 2015. She became President, U.S. Cereal Operating Unit in December 2016, Group President, Europe & Australia in January 2020, and general management roles around the globe with Johnson & Johnson and Procter & Gamble. She was named to her currentpresent position in January 2017.July 2021.
Donal L. Mulligan
Jaime Montemayor, age 57, is ExecutiveChief Digital and Technology Officer. He spent 21 years at PepsiCo, Inc., serving in roles of increasing responsibility, including most recently as Senior Vice President and Chief Financial Officer. Mr. Mulligan joined General Mills in 2001Information Officer of PepsiCo’s Americas Foods segment from The Pillsbury Company. He served as Vice President, Financial Operations for our International division until 2004, when he was named Vice President, Financial Operations for Operations and Technology. Mr. Mulligan was appointed Treasurer in 20062013 to 2015, and Senior Vice President Financial Operationsand Chief Information Officer, Digital Innovation, Data and Analytics, PepsiCo from 2015 to 2016. Mr. Montemayor served as Chief Technology Officer of 7-Eleven Inc. from April 2017 until October 2017. He assumed his current role in 2007. He was elected to his present position in 2007. From 1987 to 1998, he held several international positions at PepsiCo, Inc.February 2020 after founding and YUM! Brands, Inc. Mr. Mulligan isoperating a director of Tennant Company.digital technology consulting company from November 2017 until January 2020.
Jon J. Nudi, age 48,51, is Group President, North America Retail. Mr. Nudi joined General Mills in 1993 as a Sales Representative and held a variety of roles in Consumer Foods Sales. In 2005, he moved into marketing roles in the Meals division and was elected Vice President in 2007. Mr. Nudi was named Vice President; President, Snacks, in 2010, Senior Vice President, President, Europe/Australasia in June 2014, and Senior Vice President; President, U.S. Retail in September 2016. He was named to his present position in January 2017.
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Shawn P. O’Grady, age 54,57, is Group President, Convenience Stores & Foodservice; Senior Vice President, Global Revenue Development.Foodservice. Mr. O’Grady joined General Mills in 1990 and held several marketing roles in the Snacks, Meals, and Big G cereal divisions. He was promoted to Vice President in 1998 and held marketing positions in the Betty Crocker and Pillsbury USA divisions. In 2004, he moved into Consumer Foods Sales, becoming Vice President, President, U.S. Retail Sales in 2007, Senior Vice President, President, Consumer
Foods Sales Division in 2010, and Senior Vice President, President, Sales & Channel Development in 2012. He was named to his current position in January 2017.
Ivan Pollard,
Mark A. Pallot, age 55,48, is Senior Vice President, Global Chief MarketingAccounting Officer. Mr. Pollard assumed his current rolePallot joined General Mills in July2007 and served asDirector, Financial Reporting until August 2017, when he joined General Mills from The Coca-Cola Company. At Coca-Cola, from 2011 to January 2014, Mr. Pollard served aswas named Vice President, Global Connections until heAssistant Controller. He was promotedelected to Senior Vice President, Strategic Marketing, a role he held until June 2017.his present position in February 2020. Prior to joining The Coca-Cola Company,General Mills, Mr. Pollard was a global partnerPallot held accounting and financial reporting positions at Naked Communications, a connections planning company. His prior communications planning experience included work at BMP, DDP Needham,Residential Capital, LLC, Metris, Inc., CIT Group Inc., and Wieden+Kennedy advertising agencies.Ernst & Young, LLP.
Bethany Quam, age 47,50, is Group President, Europe & Australia.Pet. Ms. Quam joined General Mills in 1993 and held a variety of positions before becoming Vice President, Strategic Planning in 2007. She was promoted to Vice President, Field Sales, Channels in 2012, Vice President; President, Convenience Stores & Foodservice in May 2014, and Senior Vice President; President, Europe & Australia in August 2016.2016, and Group President; Europe & Australia in January 2017. She was named to her current position in January 2017.October 2019.
Jacqueline Williams-Roll
Sean Walker,age 49,55, is Group President, Asia & Latin America and Europe & Australia. Mr. Walker joined General Mills in 1989 and held a variety of positions before becoming Vice President, President of Latin America in 2009. He was named Senior Vice President, President Latin America in 2012, Senior Vice President, Corporate Strategy in September 2016, and Group President, Asia & Latin America in February 2019. He was named to his current position in July 2021.
Jacqueline Williams-Roll, age 52, is Chief Human Resources Officer. Ms. Williams-Roll joined General Mills in 1995. She held human resources leadership roles in Supply Chain, Finance, Marketing, and Organization Effectiveness, and she also worked a large part of her career on businesses outside of the United States. She was named Vice President, Human Resources, International in 2010, and then promoted to Senior Vice President, Human Resources Operations in September 2013. She was named to her present position in September 2014. Prior to joining General Mills, she held sales and management roles with Jenny Craig International.
WEBSITE ACCESS
Our website is www.GeneralMills.com.Wehttps://www.generalmills.com.We make available, free of charge in the “Investors” portion of this website, annual reports on Form10-K, quarterly reports on Form10-Q, current reports on Form8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (1934 Act) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). All such filings are available on the SEC’s website at https://www.sec.gov. Reports of beneficial ownership filed pursuant to Section 16(a) of the 1934 Act are also available on our website.
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ITEM 1A - Risk Factors
Our business is subject to various risks and uncertainties. Any of the risks described below could materially, adversely affect our business, financial condition, and results of operations.
Business and Industry Risks
Global health developments and economic uncertainty resulting from the COVID-19 pandemic could materially and adversely affect our business, financial condition, and results of operations.
The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, businesses, including us, and the public at large to limit COVID-19’s spread have had, and we expect will continue to have, certain negative impacts on our business, financial condition, and results of operations including, without limitation, the following:
We have experienced, and may continue to experience, a decrease in sales of certain of our products in markets around the world that have been affected by the COVID-19 pandemic. In particular, sales of our products in the away-from-home food outlets across all our major markets have been negatively affected by reduced consumer traffic resulting from shelter-in-place regulations or recommendations and closings of restaurants, schools and cafeterias. If the COVID-19 pandemic persists or intensifies, its negative impacts on our sales, particularly in away-from-home food outlets, could be more prolonged and may become more severe.
Deteriorating economic and political conditions in our major markets affected by the COVID-19 pandemic, such as increased unemployment, decreases in disposable income, declines in consumer confidence, or economic slowdowns or recessions, could cause a decrease in demand for our products.
We have experienced minor temporary workforce disruptions in our supply chain as a result of the COVID-19 pandemic. We have implemented employee safety measures, based on guidance from the Centers for Disease Control and Prevention and World Health Organization, across all our supply chain facilities, including proper hygiene, social distancing, mask use, and temperature screenings. These measures may not be sufficient to prevent the spread of COVID-19 among our employees. Illness, travel restrictions, absenteeism, or other workforce disruptions could negatively affect our supply chain, manufacturing, distribution, or other business processes. We may face additional production disruptions in the future, which may place constraints on our ability to produce products in a timely manner or may increase our costs.
Changes and volatility in consumer purchasing and consumption patterns may increase demand for our products in one quarter, resulting in decreased consumer demand for our products in subsequent quarters. Short term or sustained increases in consumer demand at our retail customers may exceed our production capacity or otherwise strain our supply chain.
The failure of third parties on which we rely, including those third parties who supply our ingredients, packaging, capital equipment and other necessary operating materials, contract manufacturers, commercial transport, distributors, contractors, commercial banks, and external business partners, to meet their obligations to us, or significant disruptions in their ability to do so, may negatively impact our operations.
Significant changes in the political conditions in markets in which we manufacture, sell, or distribute our products (including quarantines, import/export restrictions, price controls, governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, and sale of our products) could adversely impact our operations and results.
Actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic may result in investigations, legal claims or litigation against us.
The categories in which we participate are very competitive, and if we arenot able to compete effectively, our results of operations could be adverselyaffected.
The consumer and pet food categories in which we participate are very competitive. Our principal competitors in these categories are manufacturers, as well as retailers with their own branded and private label products. Competitors market and sell their products throughbrick-and-mortar stores ande-commerce. All of our principal competitors have substantial financial, marketing, and other resources. In most product categories, we compete not only with other widely advertised branded products, but also with regional brands and with generic and private label products that are generally sold at lower prices. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, convenient ordering and delivery to the consumer, and the ability to identify and satisfy consumer preferences. If our large competitors were to seek an advantage through pricing or promotional changes, we could choose to do the same, which could adversely affect our margins and profitability. If we did not do the
same, our revenues and market share could be adversely affected. Our market share and revenue growth could also be adversely impacted if we are not successful in introducing innovative products in response to changing consumer demands or by new product introductions of our competitors. If we are unable to build and sustain
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brand equity by offering recognizably superior product quality, we may be unable to maintain premium pricing over generic and private label products.
We may be unable to maintain our profit margins in the face of a consolidating retail environment.
There has been significant consolidation in the grocery industry, resulting in customers with increased purchasing power. In addition, large retail customers may seek to use their position to improve their profitability through improved efficiency, lower pricing, increased reliance on their own brand name products, increased emphasis on generic and other economy brands, and increased promotional programs. If we are unable to use our scale, marketing expertise, product innovation, knowledge of consumers’ needs, and category leadership positions to respond to these demands, our profitability and volume growth could be negatively impacted. In addition, the loss of any large customer could adversely affect our sales and profits. In fiscal 2018,2021, Walmart accounted for 2120 percent of our consolidated net sales and 3029 percent of net sales of our North America Retail segment. In its fiscal year ended December 31, 2017, PetSmart (including Chewy.com as of June 1, 2017) and Petco accounted for 41 percent and 18 percent, respectively, of Blue Buffalo’s net sales. National pet superstore chains have experienced reduced store traffic. If national pet superstore chains continue to experience reduced store traffic, or experience any operational difficulties, our Pet segment operating results may be adversely affected. For more information on significant customers, please see Note 78 to the Consolidated Financial Statements in Item 8 of this report.
Price changes for the commodities we depend on for raw materials, packaging,and energy may adversely affect our profitability.
The principal raw materials that we use are commodities that experience price volatility caused by external conditions such as weather, climate change, product scarcity, limited sources of supply, commodity market fluctuations, currency fluctuations, trade tariffs, pandemics (such as the COVID-19 pandemic), and changes in governmental agricultural and energy policies and regulations. Commodity prices have become, and may continue to be, more volatile during the COVID-19 pandemic. Commodity price changes may result in unexpected increases in raw material, packaging, energy, and energytransportation costs. If we are unable to increase productivity to offset these increased costs or increase our prices, we may experience reduced margins and profitability. 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 ingredient and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), dairy products, natural gas, and diesel fuel. 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 outside 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 net realizable value. We may experience volatile earnings as a result of these accounting treatments.
If we are not efficient in our production, our profitability could suffer as a result of the highly competitive environment in which we operate.
Our future success and earnings growth depend in part on our ability to be efficient in the production and manufacture of our products in highly competitive markets. 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 or divestitures could adversely affect our profitability and weaken our competitive position. Many productivity initiatives involve complex reorganization of manufacturing facilities and production lines. Such manufacturing realignment may result in the interruption of production, which may negatively impact product volume and margins. We are currently pursuing several multi-year restructuring and cost savings initiatives designed to increase our efficiency and reduce expenses. If we are unable to execute those initiatives as planned, we may not realize all or any of the anticipated benefits, which could adversely affect our business and results of operations.
Disruption of our supply chain could adversely affect our business.
Our ability to make, move, and sell products is critical to our success. Damage or disruption to raw material supplies or our manufacturing or distribution capabilities due to weather, including any potential effects of climate change, natural disaster, fire, terrorism, cyber-attack, pandemic, strikes, import/export restrictions, or other factors could impair our ability to manufacture or sell our products. Many of our product lines are manufactured at a single location. Our suppliers’ policies and practices can damage our reputation and the quality and safety of 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 and results of operations, as well as require additional resources to restore our supply chain.
Concerns with the safety and quality of foodour products could cause consumers toavoid certain food products or ingredients.
We could be adversely affected if consumers in our principal markets lose confidence in the safety and quality of certain foodof our products or ingredients. Adverse publicity about these types of concerns, whether or not valid, may discourage consumers from buying our products or cause production and delivery disruptions.
If our products become adulterated, misbranded, or mislabeled, we might need to recall those items and may experience product liability claims if consumers or their pets are injured.
We may need to recall some of our products if they become adulterated, misbranded, or mislabeled. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the unavailability of product for a period of time. We could also suffer losses from a significant product liability judgment against us. A significant product recall or product liability case could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our products, which could have an adverse effect on our business results and the value of our brands.
We may be unable to anticipate changes in consumer preferences and trends,which may result in decreased demand for our products.
Our success depends in part on our ability to anticipate the tastes, eating habits, and purchasing behaviors of consumers and to offer products that appeal to their preferences in channels where they shop. Consumer preferences and category-level consumption may change from time to time and can be affected by a number of different trends and other factors. If we fail to anticipate, identify or react to these changes and trends, such as adapting to emerginge-commerce channels, or to introduce new and improved products on a timely basis, we may experience reduced demand for our products, which would in turn cause our revenues and profitability to suffer. Similarly, demand for our products could be affected by consumer concerns regarding the health effects of ingredients such as sodium, trans fats, genetically modified organisms, sugar, processed wheat, grain-free or legume-rich pet food, or other product ingredients or attributes.
We may be unable to grow our market share or add products that are in fastergrowing and more profitable categories.
The food industry’s growth potential is constrained by population growth. Our success depends in part on our ability to grow our business faster than populations are growing in the markets that we serve. One way to achieve that growth is to enhance our portfolio by adding innovative new products in faster growing and more profitable categories. Our future results will also depend on our ability to increase market share in our existing product categories. If we do not succeed in developing innovative products for new and existing categories, our growth may slow, whichand profitability could be adversely affect our profitability.affected.
Economic downturns could limit consumer demand for our products.
The willingness of consumers to purchase our products depends in part on local economic conditions. In periods of economic uncertainty, consumers may purchase more generic, private label, and other economy brands and may forego certain purchases altogether. In those circumstances, we could experience a reduction in sales of higher margin products or a shift in our product mix to lower margin offerings. In addition, as a result of economic conditions or competitive actions, we may be unable to raise our prices sufficiently to protect margins. Consumers may also reduce the amount of food that they consume away from home at customers that purchase products from our Convenience Stores & Foodservice segment. Any of these events could have an adverse effect on our results of operations.
Our results may be negatively impacted if consumers do not maintain their favorable perception of our brands.
Maintaining and continually enhancing the value of our many iconic brands is critical to the success of our business. The value of our brands is based in large part on the degree to which consumers react and respond positively to these brands. Brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products, our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, concerns about food safety, or our products becoming unavailable to consumers. Consumer demand for our products may also be impacted by changes in the level of advertising or promotional support. The use of social and digital media by consumers, us, and third parties increases the speed and extent that information or misinformation and
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opinions can be shared. Negative posts or comments about us, our brands, or our products on social or digital media could seriously damage our brands and reputation. If we do not maintain the favorable perception of our brands, our business results could be negatively impacted.
Operating Risks
If we are not efficient in our production, our profitability could suffer as aresult of the highly competitive environment in which we operate.
Our future success and earnings growth depend in part on our ability to be efficient in the production and manufacture of our products in highly competitive markets. 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 or divestitures could adversely affect our profitability and weaken our competitive position. Many productivity initiatives involve complex reorganization of manufacturing facilities and production lines. Such manufacturing realignment may result in the interruption of production, which may negatively impact product volume and margins. We periodically engage in restructuring and cost savings initiatives designed to increase our efficiency and reduce expenses. If we are unable to execute those initiatives as planned, we may not realize all or any of the anticipated benefits, which could adversely affect our business and results of operations.
Disruption of our supply chain could adversely affect our business.
Our ability to make, move, and sell products is critical to our success. Damage or disruption to raw material supplies or our manufacturing or distribution capabilities due to weather, climate change, natural disaster, fire, terrorism, cyber-attack, pandemics (such as the COVID-19 pandemic), governmental restrictions or mandates, strikes, import/export restrictions, or other factors could impair our ability to manufacture or sell our products. Many of our product lines are manufactured at a single location or sourced from a single supplier. The failure of third parties on which we rely, including those third parties who supply our ingredients, packaging, capital equipment and other necessary operating materials, contract manufacturers, commercial transport, distributors, contractors, and external business partners, to meet their obligations to us, or significant disruptions in their ability to do so, may negatively impact our operations. Our suppliers’ policies and practices can damage our reputation and the quality and safety of our products. 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 sales, financial condition, and results of operations. 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 location or supplier, could adversely affect our business and results of operations, as well as require additional resources to restore our supply chain.
Short term or sustained increases in consumer demand at our retail customers may exceed our production capacity or otherwise strain our supply chain. Our failure to meet the demand for our products could adversely affect our business and results of operations.
Our international operations are subject to political and economic risks.
In fiscal 2018, 292021, 26 percent of our consolidated net sales were generated outside of the United States. We are accordingly subject to a number of risks relating to doing business internationally, any of which could significantly harm our business. These risks include:
political and economic instability;
exchange controls and currency exchange rates;
tariffs on products and ingredients that we import and export;
nationalization or government control of operations;
compliance with anti-corruption regulations;
uncertainty relating to the impact of the United Kingdom’s exit from the European Union;
foreign tax treaties and policies; and
restriction on the transfer of funds to and from foreign countries, including potentially negative tax consequences.
Our financial performance on a U.S. dollar denominated basis is subject to fluctuations in currency exchange rates. These fluctuations could cause material variations in our results of operations. Our principal exposures are
to the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Mexican peso, and Swiss franc. From time to time, we enter into agreements that are intended to reduce the effects of our exposure to currency fluctuations, but these agreements may not be effective in significantly reducing our exposure.
New regulations or regulatory-based claims could adversely affect our business.
Our facilities and products are subjectA strengthening in the U.S. dollar relative to many laws and regulations administered byother currencies in 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 production, packaging, labelling, storage, distribution, quality, and safety of food products and the health and safety of our employees. Our failure to comply with such laws and regulations could subject us to lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our products. We advertise our products and could be the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations. We may also be subject to new laws or regulations restricting our right to advertise our products, including restrictions on the audience to whom products are marketed. Changescountries in laws or regulations that impose additional regulatory requirements on us could increase our cost of doing business or restrict our actions, causing our results of operations to be adversely affected.
We are subject to various federal, state, local, and foreign environmental laws and regulations. Our failure to comply with environmental laws and regulations could subject us to lawsuits, administrative penalties, and civil remedies. We are currently party to a variety of environmental remediation obligations. Due to regulatory complexities, uncertainties inherent in litigation, and the risk of unidentified contaminants on current and former properties of ours, the potential exists for remediation, liability, indemnification, and compliance costs to differ from our estimates. We cannot guarantee that our costs in relation to these matters, or compliance with environmental laws in general, will not exceed our established liabilities or otherwise have an adverse effect on our business and results of operations.
We have a substantial amount of indebtedness, which could limit financing and other options and in some cases adversely affect our ability to pay dividends.
As of May 27, 2018, we had total debt, redeemable interests, and noncontrolling interests of $16.9 billion. The agreements under which we have issued indebtedness do not prevent us from incurring additional unsecured indebtedness inoperate, such as has generally occurred during the future. Our level of indebtedness may limit our:
There are various financial covenants and other restrictions in our debt instruments and noncontrolling interests. If we fail to comply with any of these requirements, the related indebtedness (and other unrelated indebtedness) could become due and payable prior to its stated maturity and our ability to obtain additional or alternative financing may also be adversely affected.
Our ability to make scheduled payments on or to refinance our debt and other obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business, and other factors beyond our control.
Global capital and credit market issues couldCOVID-19 pandemic to-date, would negatively affect our liquidity, increase our costs of borrowing, and disrupt the operations of our suppliers and customers.
We depend on stable, liquid, and well-functioning capital and credit markets to fund our operations. Although we believe that our operating cash flows, financial assets, access to capital and credit markets, and revolving credit agreements will permit us to meet our financing needs for the foreseeable future, there can be no assurance that future volatility or disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing. We also utilize interest rate derivatives to reduce the volatility of our financing costs. If we are not effective in hedging this volatility, we may experience an increase in our costs of borrowing. Our business could also be negatively impacted if our suppliers or customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.
Volatility in the securities markets, interest rates, and other factors could substantially increase our defined benefit pension, other postretirement benefit, and postemployment benefit costs.
We sponsor a number of defined benefit plans for employees in the United States, Canada, and various foreign locations, including defined benefit pension, retiree health and welfare, severance, and other postemployment plans. Our major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of securities and other investments. 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 net periodic benefit cost and future funding requirements of the plans. A significant increase in our obligations or future funding requirements could have a negative impact on ourreported results of operations and cash flows from operations.financial results due to currency translation losses and currency transaction losses.
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Our business operations could be disrupted if our information technology systems fail to perform adequately or are breached.
Information technology serves an important role in the efficient and effective operation of our business. We rely on information technology networks and systems, including the internet, to process, transmit, and store electronic information to manage a variety of business processes and to comply with regulatory, legal, and tax requirements. Our information technology systems and infrastructure are critical to effectively manage our key business processes including digital marketing, order entry and fulfillment, supply chain management, finance, administration, and other business processes. These technologies enable internal and external communication among our locations, employees, suppliers, customers, and others and include the receipt and storage of personal information about our employees, consumers, and proprietary business information. Our information technology systems, some of which are dependent on services provided by third parties, may be vulnerable to damage, interruption, or shutdown due to any number of causes such as catastrophic events, natural disasters, fires, power outages, systems failures, telecommunications failures, security breaches, computer viruses, hackers, employee error or malfeasance, and other causes. Increased cyber-security threats pose a potential risk to the security and viability of our information technology systems, as well as the confidentiality, integrity, and availability of the data stored on those systems. The failure of our information technology systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies, data loss, legal claims or proceedings, regulatory penalties, and the loss of sales and customers. Any interruption of our information technology systems could have operational, reputational, legal, and financial impacts that may have a material adverse effect on our business.
A change in the assumptions regarding the future performance of our businesses or a different weighted-average cost of capital used to value our reporting units or our indefinite-lived intangible assets could negatively affect our consolidated results of operations and net worth.
As of May 27, 2018, we had $20.9 billion of goodwill and indefinite-lived intangible assets. Goodwill for each of our reporting units is tested for impairment annually and whenever events or changes in circumstances indicate
that impairment may have occurred. We compare the carrying value of the reporting unit, including goodwill, to the fair value of the reporting unit. If the fair value of the reporting unit is less than the carrying value of the reporting unit, including goodwill, impairment has occurred. Our estimates of fair value are determined based on a discounted cash flow model. Growth rates for sales and profits are determined using inputs from our long-range planning process. We also make estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors. Our Latin America and U.S. Yogurt reporting units have experienced declining business performance and we continue to monitor these businesses. While we currently believe that our goodwill is not impaired, different assumptions regarding the future performance of our businesses could result in significant impairment losses.
We evaluate the useful lives of our intangible assets, primarily intangible assets associated with theBlue Buffalo,Pillsbury,Totino’s,Progresso,Yoplait,Old ElPaso,Yoki,Häagen-Dazs,and Annie’sbrands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.
Our indefinite-lived intangible assets are also tested for impairment annually and whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Our estimate of the fair value of the brands is based on a discounted cash flow model using inputs including projected revenues from our long-range plan, assumed royalty rates which could be payable if we did not own the brands, and a discount rate. OurYoki, Mountain High, Progresso, Food Should Taste Good,and Green Giantbrands have experienced declining business performance, and we will continue to monitor these businesses. For further information on goodwill and intangible assets, please refer to Note 6 to the Consolidated Financial Statements in Item 8 of this report.
We may fail to realize all of the anticipated benefits of the Blue Buffalo acquisition or those benefits may take longer to realize than expected.
Our ability to realize the anticipated benefits of the Blue Buffalo acquisition will depend, to a large extent, on our ability to integrate Blue Buffalo, which is a complex, costly and time-consuming process. We have never operated in the pet food sector and our lack of experience in this sector may hinder our ability to manage Blue Buffalo successfully following the acquisition.
The integration process may disrupt our business and, if implemented ineffectively, could restrict the realization of the full expected benefits. The failure to meet the challenges involved in the integration process and to realize the anticipated benefits of the Blue Buffalo acquisition could cause an interruption of, or a loss of momentum in, our operations and could adversely affect our business, financial condition and results of operations.
In addition, the integration of Blue Buffalo may result in material unanticipated problems, expenses, liabilities, competitive responses, and loss of customers and other business relationships. Additional integration challenges include:
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues, and diversion of management’s time and energy, which could adversely affect our business, financial condition, and results of operations and result in us becoming subject to litigation. In addition, even if Blue Buffalo is integrated successfully, the full anticipated benefits of the acquisition may not be realized, including the synergies, cost savings or sales or growth opportunities that are anticipated. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in the integration process. All of these factors could cause reductions in our earnings per share and decrease or delay the expected accretive effect of the acquisition. As a result, it cannot be assured that the Blue Buffalo acquisition will result in the realization of the full or any anticipated benefits.
Blue Buffalo may underperform relative to our expectations.
The business and financial performance of Blue Buffalo are subject to certain risks and uncertainties. We may not be able to maintain the growth rate, levels of revenue, earnings, or operating efficiency that we and Blue Buffalo have achieved or might achieve separately. Our failure to do so could have a material adverse effect on our financial condition and results of operations.
Our failure to successfully integrate other acquisitions into our existing operations could adversely affect our financial results.
From time to time, we evaluate potential acquisitions or joint ventures that would further our strategic objectives. Our success depends, in part, upon our ability to integrate acquired and existing operations. If we are unable to successfully integrate acquisitions, our financial results could suffer. Additional potential risks associated with acquisitions include additional debt leverage, the loss of key employees and customers of the acquired business, the assumption of unknown liabilities, the inherent risk associated with entering a geographic area or line of business in which we have no or limited prior experience, failure to achieve anticipated synergies, and the impairment of goodwill or other acquisition-related intangible assets.
None.
Legal and Regulatory Risks
If our products become adulterated, misbranded, or mislabeled, we mightneed to recall those items and may experience product liability claims ifconsumers or their pets are injured.
We may need to recall some of our products if they become adulterated, misbranded, or mislabeled. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the unavailability of product for a period of time. We could also suffer losses from a significant product liability judgment against us. A significant product recall or product liability case could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our products, which could have an adverse effect on our business results and the value of our brands.
New regulations or regulatory-based claims could adversely affect our business.
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 production, packaging, labelling, storage, distribution, quality, and safety of food products and the health and safety of our employees. Our failure to comply with such laws and regulations could subject us to lawsuits, administrative penalties, and civil remedies, including fines, injunctions, and recalls of our products. We advertise our products and could be the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations. We may also be subject to new laws or regulations restricting our right to advertise our products, including restrictions on the audience to whom products are marketed. Changes in laws or regulations that impose additional regulatory requirements on us could increase our cost of doing business or restrict our actions, causing our results of operations to be adversely affected.
Significant COVID-19 related changes in the political conditions in markets in which we manufacture, sell or distribute our products (including quarantines, import/export restrictions, price controls, governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products) could adversely impact our operations and results.
We are subject to various federal, state, local, and foreign environmental laws and regulations. Our failure to comply with environmental laws and regulations could subject us to lawsuits, administrative penalties, and civil remedies. We are currently party to a variety of environmental remediation obligations. Due to regulatory complexities, uncertainties inherent in litigation, and the risk of unidentified contaminants on current and former properties of ours, the potential exists for remediation, liability, indemnification, and
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compliance costs to differ from our estimates. We cannot guarantee that our costs in relation to these matters, or compliance with environmental laws in general, will not exceed our established liabilities or otherwise have an adverse effect on our business and results of operations.
Financial and Economic Risks
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 ingredient and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), dairy products, natural gas, and diesel fuel. 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 outside 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 net realizable value. We may experience volatile earnings as a result of these accounting treatments.
Economic downturns could limit consumer demand for our products.
The willingness of consumers to purchase our products depends in part on local economic conditions. In periods of economic uncertainty, consumers may purchase more generic, private label, and other economy brands and may forego certain purchases altogether. In those circumstances, we could experience a reduction in sales of higher margin products or a shift in our product mix to lower margin offerings. In addition, as a result of economic conditions or competitive actions, we may be unable to raise our prices sufficiently to protect margins. Consumers may also reduce the amount of food that they consume away from home at customers that purchase products from our Convenience Stores & Foodservice segment. Any of these events could have an adverse effect on our results of operations.
We have a substantial amount of indebtedness, which could limit financing and other options and in some cases adversely affect our ability to pay dividends.
As of May 30, 2021, we had total debt, redeemable interests, and noncontrolling interests of $13.5 billion. The agreements under which we have issued indebtedness do not prevent us from incurring additional unsecured indebtedness in the future. Our level of indebtedness may limit our:
ability to obtain additional financing for working capital, capital expenditures, or general corporate purposes, particularly if the ratings assigned to our debt securities by rating organizations were revised downward; and
flexibility to adjust to changing business and market conditions and may make us more vulnerable to a downturn in general economic conditions.
There are various financial covenants and other restrictions in our debt instruments and noncontrolling interests. If we fail to comply with any of these requirements, the related indebtedness, and other unrelated indebtedness, could become due and payable prior to its stated maturity and our ability to obtain additional or alternative financing may also be adversely affected.
Our ability to make scheduled payments on or to refinance our debt and other obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business, and other factors beyond our control.
Global capital and credit market issues could negatively affect our liquidity,increase our costs of borrowing, and disrupt the operations of our suppliersand customers.
We depend on stable, liquid, and well-functioning capital and credit markets to fund our operations. Although we believe that our operating cash flows, financial assets, access to capital and credit markets, and revolving credit agreements will permit us to meet our financing needs for the foreseeable future, there can be no assurance that future volatility or disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing. We also utilize interest rate derivatives to reduce the volatility of our financing costs. If we are not effective in hedging this volatility, we may experience an increase in our costs of borrowing. Our business could also be negatively impacted if our suppliers or customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.
The COVID-19 pandemic has increased volatility and pricing in the capital markets. We may not have access to preferred sources of liquidity when needed or on terms we find acceptable, and our borrowing costs could increase. An economic or credit crisis could occur and impair credit availability and our ability to raise capital when needed. A disruption in the financial markets may have a
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negative effect on our derivative counterparties and could impair our banking or other business partners, on whom we rely for access to capital and as counterparties to our derivative contracts.
From time to time, we issue variable rate securities based on interbank offered rates (IBORs) and enter into interest rate swaps that contain a variable element based on an IBOR. There is currently uncertainty whether certain IBORs will continue to be available after 2021. If certain IBORs cease to be available, we may need to amend affected agreements, and we cannot predict what alternative index would be negotiated with our counterparties and security holders. As a result, our interest expense could increase and our available cash flow for general corporate requirements may be adversely affected.
Volatility in the securities markets, interest rates, and other factors could substantially increase our defined benefitpension, other postretirement benefit, and postemployment benefit costs.
We sponsor a number of defined benefit plans for employees in the United States, Canada, and various foreign locations, including defined benefit pension, retiree health and welfare, severance, and other postemployment plans. Our major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of securities and other investments. 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 net periodic benefit cost and 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.
A change in the assumptions regarding the future performance of our businesses or a different weighted-average cost of capital used to value our reporting units or our indefinite-lived intangible assets could negatively affect our consolidated results of operations and net worth.
As of May 30, 2021, we had $20.7 billion of goodwill and indefinite-lived intangible assets. Goodwill for each of our reporting units is tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. We compare the carrying value of the reporting unit, including goodwill, to the fair value of the reporting unit. If the fair value of the reporting unit is less than the carrying value of the reporting unit, including goodwill, impairment has occurred. Our estimates of fair value are determined based on a discounted cash flow model. Growth rates for sales and profits are determined using inputs from our long-range planning process. We also make estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors. If current expectations for growth rates for sales and profits are not met, or other market factors and macroeconomic conditions that could be affected by the COVID-19 pandemic or otherwise were to change, then our reporting units could become significantly impaired. Our Europe & Australia reporting unit had experienced declining business performance, and we continue to monitor this business. While we currently believe that our goodwill is not impaired, different assumptions regarding the future performance of our businesses could result in significant impairment losses.
We evaluate the useful lives of our intangible assets, primarily intangible assets associated with the Blue Buffalo, Pillsbury, Totino’s, Progresso, Yoplait, Old El Paso, Yoki, Häagen-Dazs, and Annie’s brands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.
Our indefinite-lived intangible assets are also tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. Our estimate of the fair value of the brands is based on a discounted cash flow model using inputs including projected revenues from our long-range plan, assumed royalty rates which could be payable if we did not own the brands, and a discount rate. If current expectations for growth rates for sales and margins are not met, or other market factors and macroeconomic conditions that could be affected by the COVID-19 pandemic or otherwise were to change, then our indefinite-lived intangible assets could become significantly impaired. Our Progresso, Green Giant, and EPIC brands had experienced declining business performance, and we continue to monitor these businesses.
For further information on goodwill and intangible assets, please refer to Note 6 to the Consolidated Financial Statements in Item 8 of this report.
ITEM 1B - Unresolved Staff Comments
None.
14
ITEM 2 - Properties
We own our principal executive offices and main research facilities, which are located in the Minneapolis, Minnesota metropolitan area. We operate numerous manufacturing facilities and maintain many sales and administrative offices, warehouses, and distribution centers around the world.
As of May 27, 2018,30, 2021, we operated 5246 facilities for the production of a wide variety of food products. Of these facilities, 2724 are located in the United States (1 of which is leased), 4 in the Greater China region, 21 in the Asia/Middle East/Africa Region, 2 in Canada (1 of which is leased), 3 in Canada (2 of which are leased), 98 in Europe/Australia, and 7 in Latin America and Mexico. The following is a list of the locations of our principal production facilities, which primarily support the segment noted:
North America Retail | ||||
• St. Hyacinthe, Canada | • Irapuato, Mexico | • Buffalo, New York | ||
• Covington, Georgia | • Reed City, Michigan | • Cincinnati, Ohio | ||
• Belvidere, Illinois | • Fridley, Minnesota | • Wellston, Ohio | ||
• Geneva, Illinois | • Hannibal, Missouri | • Murfreesboro, Tennessee | ||
• Cedar Rapids, Iowa | • Albuquerque, New Mexico | • Milwaukee, Wisconsin |
Convenience Stores & Foodservice | ||||
• Chanhassen, Minnesota | • Joplin, Missouri |
Europe & Australia | ||||
• Rooty Hill, Australia | • Le Mans, France | • Inofita, Greece | ||
• Arras, France | • Moneteau, France | • San Adrian, Spain | ||
• Labatut, France | • Vienne, France |
Asia & Latin America | ||||
• Cambara, Brazil | • Recife, Brazil | • Nashik, India | ||
• Campo Novo do Pareceis, Brazil | • Guangzhou, China | |||
• Nova Prata, Brazil | • Nanjing, China | |||
• Paranavai, Brazil | • Sanhe, China | |||
• Pouso Alegre, Brazil | • Shanghai, China |
Pet | ||||
• Joplin, Missouri | • Richmond, Indiana |
Convenience Stores & Foodservice
Europe & Australia
Asia & Latin America
Pet
We operate numerous grain elevators in the United States in support of our domestic manufacturing activities. We also utilize approximately 1315 million square feet of warehouse and distribution space, nearly all of which is leased, that primarily supports our North America Retail segment. We own and lease a number of dedicated sales and administrative offices around the world, totaling approximately 3 million square feet. We have additional warehouse, distribution, and office space in our plant locations.
As part of ourHäagen-Dazs business in our Europe & Australia and Asia & Latin America segments, we operate 507466 (all leased) and franchise 372392 branded ice cream parlors in various countries around the world, all outside of the United States and Canada.
ITEM 3 - Legal Proceedings
We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. In our opinion, there were no claims or litigation pending as of May 30, 2021, that were reasonably likely to have a material adverse effect on our consolidated financial position or results of operations. See the information contained under the section entitled “Environmental Matters” in Item 1 of this report for a discussion of environmental matters in which we are involved.
We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. In our opinion, there were no claims or litigation pending as of May 27, 2018, that were reasonably likely to have a material adverse effect on our consolidated financial position or results of operations. See the information contained under the section entitled “Environmental Matters” in Item 1 of this report for a discussion of environmental matters in which we are involved.
ITEM 4 - Mine Safety Disclosures
None.
None.
15
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 under the symbol “GIS.” On June 7, 2018,15, 2021, there were approximately 30,00026,000 record holders of our common stock. Information regarding the market prices for our common stock and dividend payments for the two most recent fiscal years is set forth in Note 18 to the Consolidated Financial Statements in Item 8 of this report.
The following table sets forth information with respect to shares of our common stock that we purchased during the fiscal quarter ended May 27, 2018:30, 2021:
Period | Total Number of Shares | Average Price Paid Per Share | Total Number of Shares Purchased as | Maximum Number of Shares that may yet be Purchased Under the Program (b) | ||||||||||||
February 26, 2018- |
| |||||||||||||||
April 1, 2018 | 250 | $ | 50.57 | 250 | 39,525,004 | |||||||||||
April 2, 2018- | ||||||||||||||||
April 29, 2018 | 9,437 | 45.06 | 9,437 | 39,515,567 | ||||||||||||
April 30, 2018- | ||||||||||||||||
May 27, 2018 | - | - | - | 39,515,567 | ||||||||||||
Total | 9,687 | $ | 45.20 | 9,687 | 39,515,567 |
(a)The total number of shares purchased includes shares of common stock withheld for the payment of withholding taxes upon the distribution of deferred option units. (b)On May 6, 2014, our Board of Directors approved an authorization for the repurchase of up to 100,000,000 shares of our common stock. Purchases can be made in the open market or in privately negotiated transactions, including the use of call options and other derivative instruments, Rule 10b5-1 trading plans, and accelerated repurchase programs. The Board did not specify an expiration date for the authorization. 16 ITEM 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations EXECUTIVE OVERVIEW We are a global packaged foods company. We develop distinctive value-added food products and market them under unique brand names. We work continuously to improve our core products and to create new products that meet consumers’ evolving needs and preferences. In addition, we build the equity of our brands over time with strong consumer-directed marketing, innovative new products, and effective merchandising. We believe our brand-building approach is the key to winning and sustaining leading share positions in markets around the globe. Our fundamental financial goal is to generate competitively differentiated returns for our shareholders over the long term. We believe achieving that goal requires us to generate a consistent balance of net sales growth, margin expansion, cash conversion, and cash return to shareholders over time. Our long-term growth objectives are to deliver the following performance on average over time: 2 to 3 percent annual growth in organic net sales; mid-single-digit annual growth in adjusted operating profit; mid- to high-single-digit annual growth in adjusted diluted earnings per share (EPS); free cash flow conversion of at least 95 percent of adjusted net earnings after tax; and cash return to shareholders of 80 to 90 percent of free cash flow, including an attractive dividend yield. We are executing our Accelerate strategy to drive sustainable, profitable growth and top-tier shareholder returns over the long term. The strategy focuses on four pillars to create competitive advantages and win: boldly building brands, relentlessly innovating, unleashing our scale, and being a force for good. We are prioritizing our core markets, global platforms, and local gem brands that have the best prospects for profitable growth and we are committed to reshaping our portfolio with strategic acquisitions and divestitures to further enhance our growth profile. We expect that changes in consumer behaviors driven by the COVID-19 pandemic will result in ongoing elevated consumer demand for food at home, relative to pre-pandemic levels. These changes include more time spent working from home and increased consumer appreciation for cooking and baking. We plan to capitalize on these opportunities, addressing evolving consumer needs through our leading brands, innovation, and advantaged capabilities to generate profitable growth. In fiscal 2021, we executed well amid the uncertain environment caused by the pandemic, delivering strong growth in organic net sales, adjusted operating profit, and adjusted diluted EPS. We achieved each of the three priorities we established at the beginning of the year: We competed effectively, everywhere we play, highlighted by market share gains across each of our five global platforms: cereal, pet food, ice cream, snack bars, and Mexican food. Our positive market share performance amid pandemic-driven elevated demand for food at home helped drive organic net sales growth in our North America Retail, Europe & Australia, and Asia & Latin America segments. Conversely, lower away-from-home food demand stemming from the pandemic resulted in a decline in organic net sales for our Convenience Stores & Foodservice segment. For our Pet segment, which was largely unaffected by the pandemic, we were able to generate organic net sales growth despite the comparison against an extra month of results in the prior year. We drove efficiency to fuel investment in our brands and capabilities. We generated strong levels of Holistic Margin Management (HMM) cost savings and were able to meaningfully increase our investment in brand building activities and in strategic capabilities such as E-commerce, Digital, Data & Analytics, and Strategic Revenue Management. We reduced our debt leverage and increased our financial flexibility. As a result of our continued cash discipline, we were able to reduce our debt and generate a reduction in our leverage ratio. Due to our improved balance sheet position, we were able to resume dividend growth and share repurchase activity during fiscal 2021. We also announced important transactions during fiscal 2021 intended to reshape our portfolio for growth, in line with our Accelerate strategy. In March 2021, we announced the proposed sale of our European Yoplait operations to Sodiaal, in exchange for full ownership of the Canadian Yoplait business and a reduced royalty rate for the use of the Yoplait and Liberté brands in the United States and Canada. The proposed transaction would be anticipated to close by the end of calendar 2021, subject to appropriate labor consultations, regulatory filings, and other customary closing conditions. In May 2021, we reached a definitive agreement to acquire Tyson Foods’ pet treats business for $1.2 billion in cash. The acquisition is expected to close in the first quarter of fiscal 2022, subject to regulatory approval and other customary closing conditions. 17 Our consolidated net sales for fiscal 2021 rose 3 percent to $18.1 billion. On an organic basis, net sales increased 4 percent compared to year-ago levels. Operating profit of $3.1 billion increased 6 percent. Adjusted operating profit of $3.2 billion increased 2 percent on a constant-currency basis. Diluted EPS of $3.78 was up 6 percent compared to fiscal 2020 results. Adjusted diluted EPS of $3.79 increased 4 percent on a constant-currency basis (See the “Non-GAAP Measures” section below for a description of our use of measures not defined by generally accepted accounting principles (GAAP)). Net cash provided by operations totaled $3.0 billion in fiscal 2021 representing a conversion rate of 127 percent of net earnings, including earnings attributable to redeemable and noncontrolling interests. This cash generation supported capital investments totaling $531 million, and our resulting free cash flow was $2.4 billion at a conversion rate of 103 percent of adjusted net earnings, including earnings attributable to redeemable and noncontrolling interests. We returned cash to shareholders through dividends totaling $1.2 billion and share repurchases totaling $301 million, and we reduced total debt outstanding by $928 million. Our ratio of net debt-to-operating cash flow was 3.7 in fiscal 2021, and our net debt-to-adjusted earnings before net interest, income taxes, depreciation and amortization (net debt-to-adjusted EBITDA) ratio was 2.9 (See the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). A detailed review of our fiscal 2021 performance compared to fiscal 2020 appears below in the section titled “Fiscal 2021 Consolidated Results of Operations.” A detailed review of our fiscal 2020 performance compared to our fiscal 2019 performance is set forth in Part II, Item 7 of our Form 10-K for the fiscal year ended May 31, 2020 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Fiscal 2020 Results of Consolidated Operations,” which is incorporated herein by reference. In fiscal 2022, we expect to continue to compete effectively in a dynamic environment, work aggressively to navigate a turbulent cost environment, and successfully execute our portfolio and organization reshaping actions. We expect the largest factors impacting our performance will be the relative balance of at-home versus away-from-home consumer food demand and the inflationary cost environment, both of which remain uncertain. We expect at-home food demand will decline year over year across most of our core markets, though will remain above pre-pandemic levels. Conversely, we expect away-from-home food demand to continue to recover, though not fully to pre-pandemic levels. With roughly 85 percent of our net sales representing at-home food occasions, we expect these dynamics to result in lower aggregate consumer demand in our categories in fiscal 2022 compared to fiscal 2021 levels. Total input cost inflation is expected to be approximately 7 percent of cost of goods sold in fiscal 2022. We are addressing the inflationary environment with strong HMM cost savings expected to total roughly 4 percent of cost of goods sold and with positive net price realization generated through our Strategic Revenue Management capability. Based on these assumptions, our key full-year fiscal 2022 targets are summarized below: Organic net sales are expected to decline 1 to 3 percent, which is generally in line with the expected level of aggregate category demand in fiscal 2022. Constant-currency adjusted operating profit is expected to decline 2 to 4 percent from the base of $3.2 billion reported in fiscal 2021. Constant-currency adjusted diluted EPS are expected to range between flat and down 2 percent from the base of $3.79 earned in fiscal 2021. Relative to pre-pandemic levels in fiscal 2019, the midpoints of these fiscal 2022 guidance ranges equate to 3-year compound annual growth rates of approximately 2 percent for organic net sales, approximately 2 percent for constant-currency adjusted operating profit, and approximately 5 percent for constant-currency adjusted diluted EPS. Free cash flow conversion is expected to be approximately 95 percent of adjusted after-tax earnings. See the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP. Certain terms used throughout this report are defined in a glossary in Item 8 of this report. FISCAL 2021 CONSOLIDATED RESULTS OF OPERATIONS Fiscal 2021 had 52 weeks compared to 53 weeks in fiscal 2020. Fiscal 2020 included 13 months of Pet operating segment results as we changed the Pet operating segment’s reporting period from an April fiscal year end to a May fiscal year end to match our fiscal calendar. In fiscal 2021, net sales increased 3 percent compared to fiscal 2020 and organic net sales increased 4 percent compared to last year. Operating profit margin of 17.3 percent was up 50 basis points from year-ago levels primarily driven by favorable net price realization and mix, a favorable change to the mark-to-market valuation of certain commodity positions and grain inventories, and favorable net corporate investment activity, partially offset by higher input costs, higher restructuring charges, and the loss on the sale of our 18 Laticínios Carolina business in Brazil. Adjusted operating profit margin increased 10 basis points to 17.4 percent, primarily driven by favorable net price realization and mix and lower selling, general, and administrative (SG&A) expenses, partially offset by higher input costs. Diluted earnings per share of $3.78 increased 6 percent compared to fiscal 2020. Adjusted diluted earnings per share of $3.79 increased 4 percent on a constant-currency basis (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). A summary of our consolidated financial results for fiscal 2021 follows:
Consolidated net sales were as follows:
The 3 percent increase in net sales in fiscal 2021 reflects favorable net price realization and mix and favorable foreign currency exchange. Components of organic net sales growth are shown in the following table:
Organic net sales in fiscal 2021 increased 4 percent compared to fiscal 2020, driven by an increase in contributions from organic volume growth and favorable organic net price realization and mix. Cost of sales increased $182 million in fiscal 2021 to $11,679 million. The increase was primarily driven by a $366 million increase attributable to product rate and mix and a $43 million increase due to higher volume. We recorded a $139 million net decrease in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories in fiscal 2021, compared to a net increase of $25 million in fiscal 2020 (please see Note 8 to the Consolidated Financial Statements in Item 8 of this report for additional information). In fiscal 2021, we recorded $2 million of restructuring charges in cost of sales, compared to $26 million of restructuring charges and $2 million of restructuring initiative project-related costs in fiscal 2020 (please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information). In fiscal 2020, we recorded a $19 million charge related to a product recall in our international Green Giant business. In fiscal 2020, we recorded an $18 million increase in certain compensation and benefits expenses. 19 Gross margin increased 5 percent in fiscal 2021 versus fiscal 2020. Gross margin as a percent of net sales increased 80 basis points to 35.6 percent compared to fiscal 2020. SG&A expenses decreased $72 million to $3,080 million in fiscal 2021 compared to fiscal 2020. The decrease in SG&A expenses primarily reflects favorable net corporate investment activity and decreased administrative expenses, partially offset by higher media and advertising expenses. SG&A expenses as a percent of net sales in fiscal 2021 decreased 90 basis points compared to fiscal 2020. Divestiture loss totaled $54 million in fiscal 2021 due to the sale of our Laticínios Carolina business in Brazil (please see Note 3 of the Consolidated Financial Statements in Item 8 of this report). Restructuring, impairment, and other exit costs totaled $170 million in fiscal 2021 compared to $24 million in fiscal 2020. In fiscal 2021, we approved restructuring actions designed to better align our organizational structure and resources with strategic initiatives. As a result, we recorded $157 million of charges in fiscal 2021. We also recorded $11 million of charges related to Asia & Latin America segment route-to-market and supply chain optimization actions in fiscal 2021. We did not undertake any new restructuring actions in fiscal 2020. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report for additional information. Benefit plan non-service income totaled $133 million in fiscal 2021 compared to $113 million in fiscal 2020, primarily reflecting lower interest costs, partially offset by lower expected returns on plan assets (please see Note 2 to the Consolidated Financial Statements in Item 8 of this report for additional information). Interest, net for fiscal 2021 totaled $420 million, $46 million lower than fiscal 2020, primarily driven by lower rates and lower average debt balances. Our effective tax rate for fiscal 2021 was 22.0 percent compared to 18.5 percent in fiscal 2020. The 3.5 percentage point increase was primarily due to the net benefit related to the reorganization of certain wholly owned subsidiaries in fiscal 2020, the non-deductible loss associated with the sale of our Laticínios Carolina business in Brazil in fiscal 2021, and certain nonrecurring discrete tax benefits in fiscal 2020. Our adjusted effective tax rate was 21.1 percent in fiscal 2021 compared to 20.7 percent in fiscal 2020 (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). After-tax earnings from joint ventures increased 29 percent to $118 million in fiscal 2021 compared to fiscal 2020, primarily driven by higher net sales at CPW and HDJ. On a constant-currency basis, after-tax earnings from joint ventures increased 26 percent (see the “Non-GAAP Measures” section below for a description of our use of measures not defined by GAAP). The components of our joint ventures’ net sales growth are shown in the following table:
Net earnings attributable to redeemable and noncontrolling interests decreased 79 percent to $6 million primarily due to the redeemable interest’s 49 percent share of the loss on sale of the Laticínios Carolina business in Brazil. Average diluted shares outstanding increased by 6 million in fiscal 2021 from fiscal 2020 primarily due to option exercises. RESULTS OF SEGMENT OPERATIONS Our businesses are organized into five operating segments: North America Retail; Europe & Australia; Convenience Stores & Foodservice; Pet, and Asia & Latin America. Fiscal 2020 includes 13 months of Pet operating segment results as we changed the Pet operating segment’s reporting period from an April fiscal year end to a May fiscal year end to match our fiscal calendar. 20 The following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal 2021 and fiscal 2020:
Segment operating profit as reviewed by our executive management excludes unallocated corporate items, net gain/loss on divestitures, and restructuring, impairment, and other exit costs that are centrally managed. NORTH AMERICA RETAIL SEGMENT Our North America Retail operating segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, and e-commerce grocery providers. Our product categories in this business segment are ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, snack bars, fruit snacks, savory snacks, and a wide variety of organic products including ready-to-eat cereal, frozen and shelf-stable vegetables, meal kits, fruit snacks, snack bars, and refrigerated yogurt. North America Retail net sales were as follows:
Note: Table may not foot due to rounding. (a)Measured in tons based on the stated weight of our product shipments. The 2 percent increase in North America Retail net sales for fiscal 2021 was primarily driven by favorable net price realization and mix and an increase in contributions from volume growth. The 53rd week in fiscal 2020 contributed 2 percentage points of net sales decline in fiscal 2021, reflecting 2 percentage points of decline from volume. 21 The components of North America Retail organic net sales growth are shown in the following table:
Note: Table may not foot due to rounding. (a)Measured in tons based on the stated weight of our product shipments. North America Retail organic net sales increased 4 percent in fiscal 2021 compared to fiscal 2020, primarily driven by an increase in contributions from organic volume growth and favorable organic net price realization and mix. Net sales for our North America Retail operating units are shown in the following table:
(a)On a constant currency basis, Canada operating unit net sales increased 3 percent in fiscal 2021. See the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP. Segment operating profit of $2,623 million in fiscal 2021 essentially matched fiscal 2020 levels, as higher input costs were offset by favorable net price realization and mix and an increase in contributions from volume growth. Segment operating profit was flat on a constant-currency basis in fiscal 2021 compared to fiscal 2020 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP). EUROPE & AUSTRALIA SEGMENT Our Europe & Australia operating segment reflects retail and foodservice businesses in the greater Europe and Australia regions. Our product categories include refrigerated yogurt, meal kits, snack bars, super-premium ice cream, refrigerated and frozen dough products, shelf stable vegetables, and dessert and baking mixes. Revenues from franchise fees are reported in the region or country where the franchisee is located. Europe & Australia net sales were as follows:
Note: Table may not foot due to rounding. (a)Measured in tons based on the stated weight of our product shipments. The 8 percent increase in Europe & Australia net sales in fiscal 2021 was primarily driven by favorable foreign currency exchange and favorable net price realization and mix, partially offset by a decrease in contributions from volume growth. The 53rd week in fiscal 2020 contributed 2 percentage points of net sales decline in fiscal 2021, reflecting 2 percentage points of decline from volume. 22 The components of Europe & Australia organic net sales growth are shown in the following table:
Note: Table may not foot due to rounding The 3 percent increase in Europe & Australia organic net sales growth in fiscal 2021 was primarily driven by favorable organic net price realization and mix. Segment operating profit increased 33 percent to $151 million in fiscal 2021 compared to $114 million in 2020, primarily driven by favorable net price realization and mix, partially offset by higher input costs. Segment operating profit increased 24 percent on a constant-currency basis in fiscal 2021 compared to fiscal 2020 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP). CONVENIENCE STORES & FOODSERVICE SEGMENT Our major product categories in our Convenience Stores & Foodservice operating segment are ready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, baking mixes, and bakery flour. Many products we sell are branded to the consumer and nearly all are branded to our customers. We sell to distributors and operators in many customer channels including foodservice, convenience stores, vending, and supermarket bakeries in the United States. Convenience Stores & Foodservice net sales were as follows:
Note: Table may not foot due to rounding. (a)Measured in tons based on the stated weight of our product shipments. Convenience Stores & Foodservice net sales decreased 4 percent in fiscal 2021 primarily driven by a decrease in contributions from volume growth. The 53rd week in fiscal 2020 contributed 1 percentage point of net sales decline in fiscal 2021, reflecting 1 percentage point of decline from volume. The components of Convenience Stores & Foodservice organic net sales growth are shown in the following table:
Note: Table may not foot due to rounding (a)Measured in tons based on the standard weight of our product shipments The 3 percent decrease in Convenience Stores & Foodservice organic net sales growth in fiscal 2021 was primarily driven by a decrease in contributions from organic volume growth and unfavorable organic net price realization and mix. Segment operating profit decreased 9 percent to $306 million in fiscal 2021, compared to $337 million in fiscal 2020, primarily driven by higher input costs, unfavorable net price realization and mix, and a decrease in contributions from volume growth. PET SEGMENT Our Pet operating segment includes pet food products sold primarily in the United States in national pet superstore chains, e-commerce retailers, grocery stores, regional pet store chains, mass merchandisers, and veterinary clinics and hospitals. Our product categories include dog and cat food (dry foods, wet foods, and treats) made with whole meats, fruits, and vegetables and other high-quality natural ingredients. Our tailored pet product offerings address specific dietary, lifestyle, and life-stage needs and span different product types, diet types, breed sizes for dogs, lifestages, flavors, product functions and textures, and cuts for wet foods. Fiscal 2021 included 12 months of results. Fiscal 2020 included 13 months of Pet operating segment results as we changed the Pet operating segment’s reporting period from an April fiscal year end to a May fiscal year end to match our fiscal calendar. Pet net sales were as follows:
Note: Table may not foot due to rounding. (a)Measured in tons based on the stated weight of our product shipments. Pet net sales increased 2 percent in fiscal 2021 compared to fiscal 2020, primarily driven by an increase in contributions from volume growth. The components of Pet organic net sales growth are shown in the following table:
Note: Table may not foot due to rounding. (a)Measured in tons based on the stated weight of our product shipments. The 2 percent increase in Pet organic net sales growth in fiscal 2021 was primarily driven by an increase in contributions from organic volume growth. Pet operating profit increased 6 percent to $415 million in fiscal 2021, compared to $391 million in fiscal 2020, primarily driven by an increase in contributions from volume growth, lower SG&A expenses, and favorable net price realization and mix, partially offset by higher input costs. Segment operating profit increased 6 percent on a constant-currency basis in fiscal 2021 compared to fiscal 2020 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP). ASIA & LATIN AMERICA SEGMENT Our Asia & Latin America operating segment consists of retail and foodservice businesses in the greater Asia and South America regions. Our product categories include super-premium ice cream and frozen desserts, meal kits, dessert and baking mixes, snack bars, salty snacks, refrigerated and frozen dough products, and wellness beverages. We also sell super-premium ice cream and frozen desserts directly to consumers through owned retail shops. Our Asia & Latin America segment also includes products manufactured in the United States for export, mainly to Caribbean and Latin American markets, as well as products we manufacture for sale to our international joint ventures. Revenues from export activities and franchise fees are reported in the region or country where the end customer or franchisee is located. 24 Asia & Latin America net sales were as follows:
Note: Table may not foot due to rounding. (a)Measured in tons based on the stated weight of our product shipments. Asia & Latin America net sales increased 10 percent in fiscal 2021 compared to fiscal 2020, primarily driven by an increase in contributions from volume growth and favorable net price realization and mix, partially offset by unfavorable foreign currency exchange. The 53rd week in fiscal 2020 contributed 2 percentage points of net sales decline in fiscal 2021, reflecting 2 percentage points of decline in volume. The components of Asia & Latin America organic net sales growth are shown in the following table:
Note: Table may not foot due to rounding. (a)Measured in tons based on the stated weight of our product shipments. The 15 percent increase in Asia & Latin America organic net sales in fiscal 2021 was primarily driven by an increase in contributions from organic volume growth and favorable organic net price realization and mix. Segment operating profit increased $67 million to $86 million in fiscal 2021, compared to $19 million in fiscal 2020, primarily driven by favorable net price realization and mix, an increase in contributions from volume growth, and favorable foreign currency exchange, partially offset by higher input costs. UNALLOCATED CORPORATE ITEMS Unallocated corporate items include corporate overhead expenses, variances to planned domestic employee benefits and incentives, contributions to the General Mills Foundation, asset and liability remeasurement impact of hyperinflationary economies, restructuring initiative project-related costs, and other items that are not part of our measurement of segment operating performance. This includes gains and losses from the mark-to-market valuation of certain commodity positions until passed back to our operating segments in accordance with our policy as discussed in Note 8 to the Consolidated Financial Statements in Item 8 of this report. In fiscal 2021, unallocated corporate expense decreased $297 million to $212 million compared to $509 million last year. In fiscal 2021, we recorded a $139 million net decrease in expense related to mark-to-market valuation of certain commodity positions and grain inventories, compared to a $25 million net increase in expense in the prior year. In addition, we recorded $2 million of restructuring charges in cost of sales in fiscal 2021, compared to $26 million of restructuring charges and $2 million of restructuring initiative project-related costs in cost of sales in fiscal 2020. We also recorded a $4 million favorable adjustment related to a product recall in our international Green Giant business in fiscal 2021, compared to a $19 million charge in fiscal 2020. In fiscal 2021, we recorded $76 million of net gains related to valuation adjustments and the gain on sale of certain corporate investments, compared to $8 million of net losses related to valuation adjustments and the loss on sale of certain corporate investments in fiscal 2020. In fiscal 2021, we recorded $10 million of transaction costs related to our non-binding memorandum of understanding to sell our 51 percent controlling interest in our European Yoplait business and our planned acquisition of Tyson Foods’ pet treats business. In addition, we recorded a $9 million gain related to a Brazil indirect tax item in fiscal 2021. 25 IMPACT OF INFLATION We experienced input cost inflation of 4 percent in fiscal 2021 and 4 percent in fiscal 2020, primarily on commodity inputs. We expect input cost inflation of approximately 7 percent in fiscal 2022. We attempt to minimize the effects of inflation through HMM, strategic revenue management, planning, and operating practices. Our risk management practices are discussed in Item 7A of this report. LIQUIDITY AND CAPITAL RESOURCES The primary source of our liquidity is cash flow from operations. Over the most recent two-year period, our operations have generated $6.6 billion in cash. A substantial portion of this operating cash flow has been returned to shareholders through dividends and share repurchases. We also use cash from operations to fund our capital expenditures and acquisitions. We typically use a combination of cash, notes payable, and long-term debt, and occasionally issue shares of common stock, to finance significant acquisitions. Our sources of liquidity were not materially impacted from the COVID-19 pandemic. As of May 30, 2021, we had $687 million of cash and cash equivalents held in foreign jurisdictions. In anticipation of repatriating funds from foreign jurisdictions, we record local country withholding taxes on our international earnings, as applicable. We may repatriate our cash and cash equivalents held by our foreign subsidiaries without such funds being subject to further U.S. income tax liability. Earnings prior to fiscal 2018 from our foreign subsidiaries remain permanently reinvested in those jurisdictions. Cash Flows from Operations
During fiscal 2021, cash provided by operations was $2,983 million compared to $3,676 million in the same period last year. The $693 million decrease was primarily driven by a $950 million change in current assets and liabilities, partially offset by a $148 million change in deferred income taxes and a $135 million increase in net earnings. The $950 million change in current assets and liabilities was primarily driven by a $458 million change in inventory balances and a $296 million change in other current liabilities, primarily driven by changes in income taxes payable, incentive accruals, and trade and advertising accruals. We strive to grow core working capital at or below the rate of growth in our net sales. For fiscal 2021, core working capital increased 6 percent, compared to a net sales increase of 3 percent. As of May 30, 2021, our core working capital balance was a net liability of $194 million compared to a net liability of $206 million in fiscal 2020. The $12 million change was primarily due to lower inventory balances in fiscal 2020 driven by the surge in at-home demand at the outset of the pandemic, partially offset by an increase in accounts payable in fiscal 2021 due to increased costs incurred to service demand. In fiscal 2020, core working capital decreased $591 million, compared to a net sales increase of 5 percent. 26 Cash Flows from Investing Activities
In fiscal 2021, we used $513 million of cash through investing activities compared to $486 million in fiscal 2020. We invested $531 million in land, buildings, and equipment in fiscal 2021, an increase of $70 million from fiscal 2020. We expect capital expenditures to be approximately 3.5 percent of reported net sales in fiscal 2022. These expenditures will fund initiatives that are expected to fuel growth, support innovative products, and continue HMM initiatives throughout the supply chain. Cash Flows from Financing Activities
Financing activities used $2.7 billion of cash in fiscal 2021 compared to $1.9 billion in fiscal 2020. We had $961 million of net debt repayments in fiscal 2021 compared to $917 million of net debt repayments in fiscal 2020. In addition, we paid a participation incentive of $201 million related to a debt exchange in fiscal 2021. For more information on our debt issuances and payments, please refer to Note 9 to the Consolidated Financial Statements in Item 8 of this report. During fiscal 2021, we received $74 million of net proceeds from common stock issued on exercised options compared to $263 million in fiscal 2020. During fiscal 2021, we repurchased 5 million shares of our common stock for $301 million. Share repurchases in fiscal 2020 were insignificant. Dividends paid in fiscal 2021 totaled $1,246 million, or $2.02 per share. Dividends paid in fiscal 2020 totaled $1,196 million, or $1.96 per share. Selected Selected cash flows from our joint ventures are set forth in the following table:
27 The following table
To ensure availability of funds, we maintain bank credit lines and have commercial paper programs available to us in the United States and Europe. In response to uncertainty surrounding the availability and cost of commercial paper borrowings as a result of the COVID-19 pandemic, we issued $750 million of fixed-rate notes in April 2020 and reduced our borrowings under commercial paper programs. As the COVID-19 pandemic evolves, we will continue to evaluate its impact to our sources of liquidity. We also have uncommitted and asset-backed credit lines that support our foreign operations. We have material contractual obligations that arise in the normal course of business and we believe that cash flows from operations will be adequate to meet our liquidity and capital needs for at least the next 12 months. Certain of our long-term debt agreements, our credit facilities, and our noncontrolling interests contain restrictive covenants. As of May 30, 2021, we were in compliance with all of these covenants. We have $2,464 million of long-term debt maturing in the next 12 months that is classified as current, including €200 million of 2.2 percent fixed-rate notes due June 2021, €500 million of 0.0 percent fixed-rate notes due August 2021, €500 million of 0.0 percent fixed-rate notes due November 2021, and $1 billion of 3.15 percent fixed-rate notes due December 2021. We believe that cash flows from operations, together with available short- and long-term debt financing, will be adequate to meet our liquidity and capital needs for at least the next 12 months. As of May 30, 2021, our total debt, including the impact of derivative instruments designated as hedges, was 88 percent in fixed-rate and 12 percent in floating-rate instruments, compared to 87 percent in fixed-rate and 13 percent in floating-rate instruments on May 31, 2020. Our net debt to operating cash flow ratio increased to 3.7 in fiscal 2021 from 3.2 in fiscal 2020, primarily driven by a decrease in cash provided by operations. Our net debt-to-adjusted EBITDA ratio declined to 2.9 in fiscal 2021 from 3.2 in fiscal 2020 (see the “Non-GAAP Measures” section below for our use of this measure not defined by GAAP). We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl. Sodiaal International (Sodiaal) holds the remaining interests in each of these entities. We consolidate these entities into our consolidated financial statements. We record Sodiaal’s 50 percent interest in Yoplait Marques SNC and Liberté Marques Sàrl as noncontrolling interests, and its 49 percent interest in Yoplait SAS as a redeemable interest on our Consolidated Balance Sheets. These euro- and Canadian dollar-denominated interests are reported in U.S. dollars on our Consolidated Balance Sheets. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up to three times before December 2024. As of May 30, 2021, the redemption value of the redeemable interest was $605 million which approximates its fair value. In March 2021, we entered into a non-binding memorandum of understanding to sell our 51 percent controlling interest in our European Yoplait business to Sodiaal. As part of the proposed transaction, we would obtain Sodiaal’s 49 percent ownership interest in our Canadian yogurt business, making the Canadian yogurt business a wholly owned subsidiary. The proposed transaction would be anticipated to close in fiscal 2022, subject to labor consultations, regulatory filings, and other customary closing conditions. The third-party holder of the General Mills Cereals, LLC (GMC) Class A Interests receives quarterly preferred distributions from available net income based on the application of a floating preferred return rate to the holder’s capital account balance established in the most recent mark-to-market valuation (currently $252 million). On June 1, 2021, the floating preferred return rate on GMC’s Class A Interests was reset to the sum of three-month LIBOR plus 160 basis points. The preferred return rate is adjusted every three years through a negotiated agreement with the Class A Interest holder or through a remarketing auction. We have an option to purchase the Class A Interests for consideration equal to the then current capital account value, plus any unpaid preferred return and the prescribed make-whole amount. If we purchase these interests, any change in the third-party holder’s capital account from its original value will be charged directly to retained earnings and will increase or decrease the net earnings used to calculate EPS in that period. 28 CRITICAL ACCOUNTING ESTIMATES For a complete description of our significant accounting policies, please see Note 2 to the Consolidated Financial Statements in Item 8 of this report. Our critical accounting estimates are those that have a meaningful impact on the reporting of our financial condition and results of operations. These estimates include our accounting for revenue recognition, valuation of long-lived assets, intangible assets, redeemable interest, stock-based compensation, income taxes, and defined benefit pension, other postretirement benefit, and postemployment benefit plans. Considerations related to the COVID-19 pandemic The continuing impact that the recent COVID-19 pandemic will have on our consolidated results of operations is uncertain. We saw increased orders from retail customers across all geographies in response to increased consumer demand for food at home. We also experienced a COVID-19-related decrease in consumer traffic in away-from-home food outlets. In fiscal 2022, we expect at-home food demand will decline year over year across most of our core markets though will remain above pre-pandemic levels. Conversely, we expect away-from home food demand to continue to recover, though not fully to pre-pandemic levels. We expect one of the largest factors impacting our performance will be relative balance of at-home versus away-from-home consumer food demand, primarily driven by the level of virus control in markets around the world, which remains uncertain. We have considered the potential impacts of the COVID-19 pandemic in our significant accounting estimates as of May 30, 2021, and will continue to evaluate the nature and extent of the impact to our business and consolidated results of operations. Revenue Recognition Our revenues are reported net of variable consideration and consideration payable to our customers, including trade promotion, consumer coupon redemption and other reductions to the transaction price, including estimated allowances for returns, unsalable product, and prompt pay discounts. Trade promotions are recorded using significant judgment of estimated participation and performance levels for offered programs at the time of sale. Differences between the estimated and actual reduction to the transaction price are recognized as a change in estimate in a subsequent period. Our accrued trade and coupon promotion liabilities were $508 million as of May 30, 2021, and $471 million as of May 31, 2020. Because these amounts are significant, if our estimates are inaccurate we would have to make adjustments in subsequent periods that could have a significant effect on our results of operations. Valuation of Long-Lived Assets We estimate the useful lives of long-lived assets and make estimates concerning undiscounted cash flows to review for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Fair value is measured using discounted cash flows or independent appraisals, as appropriate. Intangible Assets Goodwill and other indefinite-lived intangible assets are not subject to amortization and are tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. Our estimates of fair value for goodwill impairment testing are determined based on a discounted cash flow model. We use inputs from our long-range planning process to determine growth rates for sales and profits. We also make estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors. We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Intangible assets that are deemed to have finite lives are amortized on a straight-line basis over their useful lives, generally ranging from 4 to 30 years. Our estimate of the fair value of our brand assets is based on a discounted cash flow model using inputs which include projected revenues from our long-range plan, assumed royalty rates that could be payable if we did not own the brands, and a discount rate. As of May 30, 2021, we had $21 billion of goodwill and indefinite-lived intangible assets. While we currently believe that the fair value of each intangible exceeds its carrying value and that those intangibles will contribute indefinitely to our cash flows, materially different assumptions regarding future performance of our businesses or a different weighted-average cost of capital could result in material impairment losses and amortization expense. We performed our fiscal 2021 assessment of our intangible assets as of the first day of the second quarter of fiscal 2021, and we determined there was no impairment of our intangible assets as their related fair values were substantially in excess of the carrying values. While having significant coverage as of our fiscal 2021 assessment date, the Europe & Australia reporting unit and the Progresso, Green Giant, and EPIC brand intangible assets had risk of decreasing coverage. We will continue to monitor these businesses for potential impairment. 29 Redeemable Interest The significant assumptions used to estimate the redemption value of the redeemable interest include projected revenue growth and profitability from our long-range plan, capital spending, depreciation and taxes, foreign currency exchange rates, and a discount rate. As of May 30, 2021, the redemption value of the redeemable interest was $605 million. Stock-based Compensation The valuation of stock options is a significant accounting estimate that requires us to use judgments and assumptions that are likely to have a material impact on our financial statements. Annually, we make predictive assumptions regarding future stock price volatility, employee exercise behavior, dividend yield, and the forfeiture rate. For more information on these assumptions, please see Note 12 to the Consolidated Financial Statements in Item 8 of this report. The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:
The risk-free interest rate for periods during the expected term of the options is based on the U.S. Treasury zero-coupon yield curve in effect at the time of grant. An increase in the expected term by 1 year, leaving all other assumptions constant, would increase the grant date fair value by less than 1 percent. If all other assumptions are held constant, a one percentage point increase in our fiscal 2021 volatility assumption would increase the grant date fair value of our fiscal 2021 option awards by 7 percent. To the extent that actual outcomes differ from our assumptions, we are not required to true up grant-date fair value-based expense to final intrinsic values. Historical data has a significant bearing on our forward-looking assumptions. Significant variances between actual and predicted experience could lead to prospective revisions in our assumptions, which could then significantly impact the year-over-year comparability of stock-based compensation expense. Any corporate income tax benefit realized upon exercise or vesting of an award in excess of that previously recognized in earnings (referred to as a windfall tax benefit) is presented in the Consolidated Statements of Cash Flows as an operating cash flow. The actual impact on future years’ cash flows will depend, in part, on the volume of employee stock option exercises during a particular year and the relationship between the exercise-date market value of the underlying stock and the original grant-date fair value previously determined for financial reporting purposes. Realized windfall tax benefits and shortfall tax deficiencies related to the exercise or vesting of stock-based awards are recognized in the Consolidated Statement of Earnings. Because employee stock option exercise behavior is not within our control, it is possible that significantly different reported results could occur if different assumptions or conditions were to prevail. Income Taxes We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the period of such change. For more information on income taxes, please see Note 15 to the Consolidated Financial Statements in Item 8 of this report. Defined Benefit Pension, Other Postretirement Benefit, and Postemployment Benefit Plans We have defined benefit pension plans covering many employees in the United States, Canada, Switzerland, France, and the United Kingdom. We also sponsor plans that provide health care benefits to many of our retirees in the United States, Canada, and Brazil. Under certain circumstances, we also provide accruable benefits, primarily severance, to former and inactive employees in the United States, Canada, and Mexico. Please see Note 14 to the Consolidated Financial Statements in Item 8 of this report for a description of our defined benefit pension, other postretirement benefit, and postemployment benefit plans. We recognize benefits provided during retirement or following employment over the plan participants’ active working lives. Accordingly, we make various assumptions to predict and measure costs and obligations many years prior to the settlement of our obligations. Assumptions that require significant management judgment and have a material impact on the measurement of our net 30 periodic benefit expense or income and accumulated benefit obligations include the long-term rates of return on plan assets, the interest rates used to discount the obligations for our benefit plans, and health care cost trend rates. Expected Rate of Return on Plan Assets Our expected rate of return on plan assets is determined by our asset allocation, our historical long-term investment performance, our estimate of future long-term returns by asset class (using input from our actuaries, investment services, and investment managers), and long-term inflation assumptions. We review this assumption annually for each plan; however, our annual investment performance for one particular year does not, by itself, significantly influence our evaluation. Our historical investment returns (compound annual growth rates) for our United States defined benefit pension and other postretirement benefit plan assets were 11.4 percent, 10.8 percent, 9.3 percent, 8.0 percent, and 8.3 percent for the 1, 5, 10, 15, and 20 year periods ended May 30, 2021. On a weighted-average basis, the expected rate of return for all defined benefit plans was 5.72 percent for fiscal 2021, 6.95 percent for fiscal 2020, and 7.25 percent for fiscal 2019. For fiscal 2022, we increased our weighted-average expected rate of return on plan assets for our principal defined benefit pension and other postretirement plans in the United States to 5.96 percent due to expected long-term asset returns. Lowering the expected long-term rate of return on assets by 100 basis points would increase our net pension and postretirement expense by $72 million for fiscal 2022. A market-related valuation basis is used to reduce year-to-year expense volatility. The market-related valuation recognizes certain investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Our outside actuaries perform these calculations as part of our determination of annual expense or income. Discount Rates We estimate the service and interest cost components of the net periodic benefit expense for our United States and most of our international defined benefit pension, other postretirement benefit, and postemployment benefit plans utilizing a full yield curve approach by applying the specific spot rates along the yield curve used to determine the benefit obligation to the relevant projected cash flows. Our discount rate assumptions are determined annually as of May 31 for our defined benefit pension, other postretirement benefit, and postemployment benefit plan obligations. We work with our outside actuaries to determine the timing and amount of expected future cash outflows to plan participants and, using the Aa Above Median corporate bond yield, to develop a forward interest rate curve, including a margin to that index based on our credit risk. This forward interest rate curve is applied to our expected future cash outflows to determine our discount rate assumptions. Our weighted-average discount rates were as follows:
Lowering the discount rates by 100 basis points would increase our net defined benefit pension, other postretirement benefit, and postemployment benefit plan expense for fiscal Health Care Cost Trend Rates We review our health care cost trend rates annually. Our review is based on data we collect about our health care claims experience and information provided by our actuaries. This information includes recent plan experience, plan design, overall industry experience 31 and projections, and assumptions used by other similar organizations. Our initial health care cost trend rate is adjusted as necessary to remain consistent with this review, recent experiences, and short-term expectations. Our initial health care cost trend rate assumption is 6.3 percent for retirees age 65 and over and 6.0 percent for retirees under age 65 at the end of fiscal 2021. Rates are graded down annually until the ultimate trend rate of 4.5 percent is reached in 2029 for all retirees. The trend rates are applicable for calculations only if the retirees’ benefits increase as a result of health care inflation. The ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inflation plus an appropriate health care cost premium. Assumed trend rates for health care costs have an important effect on the amounts reported for the other postretirement benefit plans. Any arising health care claims cost-related experience gain or loss is recognized in the Financial Statement Impact In fiscal 2021, we recorded net defined benefit pension, other postretirement benefit, and postemployment benefit plan expense of $4 million compared to $2 million of income in fiscal 2020 and $24 million of expense in fiscal 2019. As of May
Actual future net defined benefit pension, other postretirement benefit, and postemployment benefit plan income or expense will depend on investment performance, changes in future discount rates, changes in health care cost trend rates, and other factors related to the populations participating in these plans. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 2020, the Financial Accounting Standards Board (FASB) issued optional accounting guidance for a limited period of time to ease the potential burden in accounting for reference rate reform. The new standard provides expedients and exceptions to existing accounting requirements for contract modifications and hedge accounting related to transitioning from discontinued reference rates, such as LIBOR, to alternative reference rates, if certain criteria are met. The new accounting requirements can be applied as of the beginning of the interim period including March 12, 2020, or any date thereafter, through December 31, 2022. We are in the process of reviewing our contracts and arrangements that will be affected by a discontinued reference rate and are analyzing the impact of this guidance on our results of operations and financial position. NON-GAAP MEASURES We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information to investors and include these measures in other communications to investors. For each of these non-GAAP financial measures, we are providing below a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why we believe the non-GAAP measure provides useful information to investors, and any additional material purposes for which our management or Board of Directors uses the non-GAAP measure. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure. Several measures below are presented on an adjusted basis. The adjustments are either items resulting from infrequently occurring events or items that, in management’s judgment, significantly affect the year-to-year assessment of operating results. Organic Net Sales Growth Rates We provide organic net sales growth rates for our consolidated net sales and segment net sales. This measure is used in reporting to our Board of Directors and executive management and as a component of the measurement of our performance for incentive compensation purposes. We believe that organic net sales growth rates provide useful information to investors because they provide transparency to underlying performance in our net sales by excluding the effect that foreign currency exchange rate fluctuations, as well as acquisitions, divestitures, and a 53rd week, when applicable, have on year-to-year comparability. A reconciliation of these measures to reported net sales growth rates, the relevant GAAP measures, are included in our Consolidated Results of Operations and Results of Segment Operations discussions in the MD&A above. 32 Adjusted Operating Profit Growth on a Constant-currency Basis This measure is used in reporting to our Board of Directors and executive management and as a component of the measurement of our performance for incentive compensation purposes. We believe that this measure provides useful information to investors because it is the operating profit measure we use to evaluate operating profit performance on a comparable year-to-year basis. Additionally, the measure is evaluated on a constant-currency basis by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange rates. Our adjusted operating profit growth on a constant-currency basis is calculated as follows:
Note: Table may not foot due to rounding. (a)Restructuring charges related to actions designed to better align our organizational structure and resources with strategic initiatives, Asia & Latin America route-to-market and supply chain optimization actions, and previously announced restructuring actions in fiscal 2021. Restructuring and project-related charges for previously announced restructuring actions in fiscal 2020. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report. (b)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report. (c)Valuation adjustments and the gain on sale of certain corporate investments in fiscal 2021. Valuation adjustments and the loss on sale of certain corporate investments in fiscal 2020. (d)Divestiture loss from the sale of our Laticínios Carolina business in Brazil. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report. (e)Transaction costs related to our non-binding memorandum of understanding to sell our 51 percent controlling interest in our European Yoplait business and transaction costs related to our planned acquisition of Tyson Foods’ pet treats business. (f)Gain related to Brazil indirect tax item. (g)Net product recall adjustment related to our international Green Giant business in fiscal 2021. Product recall costs related to our international Green Giant business in fiscal 2020. 33 Adjusted Diluted EPS and Related Constant-currency Growth Rate This measure is used in reporting to our Board of Directors and executive management. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate earnings performance on a comparable year-to-year basis. The reconciliation of our GAAP measure, diluted EPS, to adjusted diluted EPS and the related constant-currency growth rate follows:
Note: Table may not foot due to rounding. (a)Restructuring charges related to actions designed to better align our organizational structure and resources with strategic initiatives, Asia & Latin America route-to-market and supply chain optimization actions, and previously announced restructuring actions in fiscal 2021. Restructuring charges for previously announced restructuring actions in fiscal 2020. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report. (b)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report. (c)Valuation adjustments and the gain on sale of certain corporate investments. (d)Our 51 percent share of the divestiture loss from the sale of our Laticínios Carolina business in Brazil. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report. (e)Tax item related to amendments to reorganize certain U.S. retiree health and welfare benefit plans in fiscal 2021. Discrete tax benefit related to the reorganization of certain wholly owned subsidiaries in fiscal 2020. Please see Note 15 to the Consolidated Financial Statements in Item 8 of this report. (f)Transaction costs related to our non-binding memorandum of understanding to sell our 51 percent controlling interest in our European Yoplait business and our planned acquisition of Tyson Foods’ pet treats business. (g)Gain related to Brazil indirect tax item. (h)Product recall costs related to our international Green Giant business in fiscal 2020. (i)CPW restructuring charges related to previously announced restructuring actions. See our reconciliation below of the effective income tax rate as reported to the adjusted effective income tax rate for the tax impact of each item affecting comparability. 34 Free Cash Flow Conversion Rate We believe this measure provides useful information to investors because it is important for assessing our efficiency in converting earnings to cash and returning cash to shareholders. The calculation of free cash flow conversion rate and net cash provided by operating activities conversion rate, its equivalent GAAP measure, follows:
Note: Table may not foot due rounding. (a)Restructuring charges related to actions designed to better align our organizational structure and resources with strategic initiatives, Asia & Latin America route-to-market and supply chain optimization actions, and previously announced restructuring actions. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report. (b)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report. (c)Valuation adjustments and the gain on sale of certain corporate investments. (d)Divestiture loss from the sale of our Laticínios Carolina business in Brazil. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report. (e)Tax item related to amendments to reorganize certain U.S. retiree health and welfare benefit plans. (f)Transaction costs related to our non-binding memorandum of understanding to sell our 51 percent controlling interest in our European Yoplait business and our planned acquisition of Tyson Foods’ pet treats business. (g)Gain related to Brazil indirect tax item. (h)Net product recall adjustment related to our international Green Giant business. (i)CPW restructuring charges related to previously announced restructuring actions. See our reconciliation below of the effective income tax rate as reported to the adjusted effective income tax rate for the tax impact of each item affecting comparability. 35 Net Debt-to-Adjusted Earnings before Net Interest, Income Taxes, Depreciation and Amortization (EBITDA) Ratio We believe that this measure provides useful information to investors because it is an indicator of our ability to incur additional debt and to service our existing debt. The reconciliation of adjusted EBITDA to net earnings, including earnings attributable to redeemable and noncontrolling interests, its GAAP equivalent, as well as the calculation of the net debt-to-adjusted EBITDA ratio are as follows:
Note: Table may not foot due to rounding. (a)Notes payable and long-term debt, including current portion. (b)Restructuring charges related to actions designed to better align our organizational structure and resources with strategic initiatives, Asia & Latin America route-to-market and supply chain optimization actions, and previously announced restructuring actions in fiscal 2021. Restructuring and project-related charges for previously announced restructuring actions in fiscal 2020. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report. (c)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report. (d)Valuation adjustments and the gain on sale of certain corporate investments in fiscal 2021. Valuation adjustments and the loss on sale of certain corporate investments in fiscal 2020. (e)Divestiture loss from the sale of our Laticínios Carolina business in Brazil. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report. (f)Transaction costs related to our non-binding memorandum of understanding to sell our 51 percent controlling interest in our European Yoplait business and our planned acquisition of Tyson Foods’ pet treats business. (g)Gain related to Brazil indirect tax item. (h)Net product recall adjustment related to our international Green Giant business in fiscal 2021. Product recall costs related to our international Green Giant business in fiscal 2020. 36 Adjusted Operating Profit as a Percent of Net Sales (Adjusted Operating Profit Margin) We believe this measure provides useful information to investors because it is important for assessing our operating profit margin on a comparable year-to-year basis. Our adjusted operating profit margins are calculated as follows:
Note: Table may not foot due to rounding. (a)Restructuring charges related to actions designed to better align our organizational structure and resources with strategic initiatives, Asia & Latin America route-to-market and supply chain optimization actions, and previously announced restructuring actions in fiscal 2021. Restructuring and project-related charges for previously announced restructuring actions in fiscal 2020. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report. (b)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report. (c)Valuation adjustments and the gain on sale of certain corporate investments in fiscal 2021. Valuation adjustments and the loss on sale of certain corporate investments in fiscal 2020. (d)Divestiture loss from the sale of our Laticínios Carolina business in Brazil. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report. (e)Transaction costs related to our non-binding memorandum of understanding to sell our 51 percent controlling interest in our European Yoplait business and our planned acquisition of Tyson Foods’ pet treats business. (f)Gain related to Brazil indirect tax item. (g)Net product recall adjustment related to our international Green Giant business in fiscal 2021. Product recall costs related to our international Green Giant business in fiscal 2020. 37 Adjusted Effective Income Tax Rates We believe this measure provides useful information to investors because it presents the adjusted effective income tax rate on a comparable year-to-year basis. Adjusted effective income tax rates are calculated as follows:
Note: Table may not foot due to rounding. (a)Earnings before income taxes and after-tax earnings from joint ventures. (b)Restructuring charges related to actions designed to better align our organizational structure and resources with strategic initiatives, Asia & Latin America route-to-market and supply chain optimization actions, and previously announced restructuring actions in fiscal 2021. Restructuring and project-related charges for previously announced restructuring actions in fiscal 2020. Please see Note 4 to the Consolidated Financial Statements in Item 8 of this report. (c)Net mark-to-market valuation of certain commodity positions recognized in unallocated corporate items. Please see Note 8 to the Consolidated Financial Statements in Item 8 of this report. (d)Valuation adjustments and the gain on sale of certain corporate investments in fiscal 2021. Valuation adjustments and the loss on sale of certain corporate investments in fiscal 2020. (e)Divestiture loss from the sale of our Laticínios Carolina business in Brazil. Please see Note 3 to the Consolidated Financial Statements in Item 8 of this report. (f)Tax item related to amendments to reorganize certain U.S. retiree health and welfare benefit plans in fiscal 2021. Discrete tax benefit related to the reorganization of certain wholly owned subsidiaries in fiscal 2020. Please see Note 15 to the Consolidated Financial Statements in Item 8 of this report. (g)Transaction costs related to our non-binding memorandum of understanding to sell our 51 percent controlling interest in our European Yoplait business and our planned acquisition of Tyson Foods’ pet treats business. (h)Gain related to Brazil indirect tax item. (i)Net product recall adjustment related to our international Green Giant business in fiscal 2021. Product recall costs related to our international Green Giant business in fiscal 2020. 38 Constant-currency After-Tax Earnings from Joint Ventures Growth Rate We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our joint ventures by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets. After-tax earnings from joint ventures growth rate on a constant-currency basis are calculated as follows:
Net Sales Growth Rate for Canada Operating Unit on a Constant-currency Basis We believe this measure of our Canada operating unit net sales provides useful information to investors because it provides transparency to the underlying performance for the Canada operating unit within our North America Retail segment by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets. Net sales growth rate for our Canada operating unit on a constant-currency basis is calculated as follows:
We believe that this measure provides useful information to investors because it provides transparency to underlying performance of our segments by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given volatility in foreign currency exchange markets. Our segments’ operating profit growth rates on a constant-currency basis are calculated as follows:
Forward-Looking Financial Measures Our fiscal 2022 outlook for organic net sales growth, constant-currency adjusted operating profit, adjusted diluted EPS, and free cash flow are non-GAAP financial measures that exclude, or have otherwise been adjusted for, items impacting comparability, including the effect of foreign currency exchange rate fluctuations, restructuring charges and project-related costs, acquisition transaction and integration costs, acquisitions, divestitures, and mark-to-market effects. We are not able to reconcile these forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures without unreasonable efforts because we are unable to predict with a reasonable degree of certainty the actual impact of changes in foreign currency exchange rates and commodity prices or the timing or impact of acquisitions, divestitures, and restructuring actions throughout fiscal 2022. The unavailable information could have a significant impact on our fiscal 2022 GAAP financial results. 39 For fiscal 2022, we currently expect: foreign currency exchange rates (based on a blend of forward and forecasted rates and hedge positions) and divestitures completed prior to fiscal 2022 to have an immaterial impact on net sales growth; foreign currency exchange rates to have an immaterial impact on adjusted operating profit and adjusted diluted EPS growth; and restructuring charges and project-related costs related to actions previously announced to total approximately $10 million to $60 million. Our fiscal 2022 guidance does not incorporate the potential impacts of any acquisitions and divestitures that have not yet been completed. 40 CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and assumptions. We also may make written or oral forward-looking statements, including statements contained in our filings with the SEC and in our reports to shareholders. The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “plan,” “project,” or similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those currently anticipated or projected. We wish to caution you not to place undue reliance on any such forward-looking statements. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that could affect our financial performance and could cause our actual results in future periods to differ materially from any current opinions or statements. Our future results could be affected by a variety of factors, such as: the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of the COVID-19 pandemic; competitive dynamics in the consumer foods industry and the markets for our products, including new product introductions, advertising activities, pricing actions, and promotional activities of our competitors; economic conditions, including changes in inflation rates, interest rates, tax rates, or the availability of capital; product development and innovation; consumer acceptance of new products and product improvements; consumer reaction to pricing actions and changes in promotion levels; acquisitions or dispositions of businesses or assets, changes in capital structure; changes in the legal and regulatory environment, including tax legislation, labeling and advertising regulations, and litigation; impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; changes in accounting standards and the impact of significant accounting estimates; product quality and safety issues, including recalls and product liability; changes in consumer demand for our products; effectiveness of advertising, marketing, and promotional programs; changes in consumer behavior, trends, and preferences, including weight loss trends; consumer perception of health-related issues, including obesity; consolidation in the retail environment; changes in purchasing and inventory levels of significant customers; fluctuations in the cost and availability of supply chain resources, including raw materials, packaging, energy, and transportation; effectiveness of restructuring and cost saving initiatives; volatility in the market value of derivatives used to manage price risk for certain commodities; benefit plan expenses due to changes in plan asset values and discount rates used to determine plan liabilities; failure or breach of our information technology systems; foreign economic conditions, including currency rate fluctuations; and political unrest in foreign markets and economic uncertainty due to terrorism or war. You should also consider the risk factors that we identify in Item 1A of this report, which could also affect our future results. We undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events. ITEM
We are exposed to market risk stemming from changes in interest and foreign exchange rates and commodity and equity prices. Changes in these factors could cause fluctuations in our earnings and cash flows. In the normal course of business, we actively manage our exposure to these market risks by entering into various hedging transactions, authorized under established policies that place VALUE AT RISK The estimates in the table below are intended to measure the maximum potential fair value we could lose in one day from adverse changes in market interest rates, foreign exchange rates, commodity prices, and equity prices under normal market conditions. A Monte Carlovalue-at-risk (VAR) methodology was used to quantify the market risk for our exposures. The models assumed normal market conditions and used a 95 percent confidence level. The VAR calculation used historical interest and foreign exchange rates, and commodity and equity prices from the past year to estimate the potential volatility and correlation of these rates in the future. The market data were drawn from the 41 our derivatives would be generally offset by an increase or decrease in the fair value of the underlying exposure. The positions included in the calculations were: debt; investments; interest rate swaps; foreign exchange forwards; commodity swaps, futures, and options; and equity instruments. The calculations do not include the underlying foreign exchange and commodities or equity-related positions that are offset by these market-risk-sensitive instruments. The table below presents the estimated maximum potential VAR arising from aone-day loss in fair value for our interest rate, foreign currency, commodity, and equity market-risk-sensitive instruments outstanding as of May
42 ITEM 8 - Financial Statements and Supplementary Data REPORT OF MANAGEMENT RESPONSIBILITIES The management of General Mills, Inc. is responsible for the fairness and accuracy of the consolidated financial statements. The statements have been prepared in accordance with accounting principles that are generally accepted in the United States, using management’s best estimates and judgments where appropriate. The financial information throughout this Annual Report on Form 10-K is consistent with our consolidated financial statements. Management has established a system of internal controls that provides reasonable assurance that assets are adequately safeguarded and transactions are recorded accurately in all material respects, in accordance with management’s authorization. We maintain a strong audit program that independently evaluates the adequacy and effectiveness of internal controls. Our internal controls provide for appropriate separation of duties and responsibilities, and there are documented policies regarding use of our assets and proper financial reporting. These formally stated and regularly communicated policies demand highly ethical conduct from all employees. The Audit Committee of the Board of Directors meets regularly with management, internal auditors, and our independent registered public accounting firm to review internal control, auditing, and financial reporting matters. The independent registered public accounting firm, internal auditors, and employees have full and free access to the Audit Committee at any time. The Audit Committee reviewed and approved the Company’s annual financial statements. The Audit Committee recommended, and the Board of Directors approved, that the consolidated financial statements be included in the Annual Report. The Audit Committee also appointed KPMG LLP to serve as the Company’s independent registered public accounting firm for fiscal 2022. /s/ J. L. Harmening/s/ K. A. Bruce J. L. HarmeningK. A. Bruce Chief Executive OfficerChief Financial Officer June 30, 2021 43 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of General Mills, Inc. and subsidiaries (the Company) as of May 30, 2021 and May In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 30, 2021 and May 31, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended May 30, 2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 30, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Change in Accounting Principle As discussed in note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of May 27, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842), and related amendments. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, 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 Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting 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 44 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. Critical Audit Matter The criticalaudit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of goodwill and brand intangible assets As discussed in Note 6 to the consolidated financial statements, the goodwill and brands and other indefinite-lived intangibles balances as of May 30, 2021 were $14,062.4 million and $6,628.1 million, respectively. The impairment tests for these assets, which are performed annually and whenever events or changes in circumstances indicate that impairment may have occurred, require the Company to estimate the fair value of the reporting units to which goodwill is assigned as well as the brands and other indefinite-lived intangible assets. The fair value estimates are derived from discounted cash flow analyses that require the Company to make judgments about highly subjective matters, including future operating results, including revenue growth rates and operating margins, and an estimate of the discount rates and royalty rates. We identified the assessment of the valuation of certain goodwill and brand intangible assets as a critical audit matter. There was a significant degree of judgment required in evaluating audit evidence, which consists primarily of forward-looking assumptions about future operating results, specifically the revenue growth rates and operating margins, royalty rates and subjective inputs used to estimate the discount rates. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of internal controls related to the valuation of goodwill and brand intangible assets. This included controls related to the assumptions about future operating results and the discount and royalty rates used to measure the reporting units and brands intangible fair values. We performed sensitivity analyses over the revenue growth rates, operating margins, brand royalty rates and discount rates to assess the impact
/s/ KPMG LLP We have served as the Company’s auditor since 1928. Minneapolis, Minnesota June 30, 2021 45
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50 Notes to Consolidated Financial Statements GENERAL MILLS, INC. AND SUBSIDIARIES
Basis of
Our fiscal year ends on the last Sunday in May. Fiscal years 2021 and Certain reclassifications to our previously reported financial
Change in Reporting Period As part of a
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents We consider all investments purchased with an original maturity of three months or less to be cash equivalents.
Inventories All inventories in the United States other than grain are valued at the lower of cost, using thelast-in,first-out (LIFO) method, or market. Grain inventories are valued at net realizable value, and all related cash contracts and derivatives are valued at fair value, with all net changes in value recorded in earnings currently. Inventories outside of the United States are generally valued at the lower of cost, using thefirst-in,first-out (FIFO) method, or net realizable value. Shipping costs associated with the distribution of finished product to our customers are recorded as cost of sales, and are recognized when the related finished product is shipped to and accepted by the customer. Land, Buildings, Equipment, and Depreciation Land is recorded at historical cost. Buildings and equipment, including capitalized interest and internal engineering costs, are recorded at cost and depreciated over estimated useful lives, primarily using the straight-line method. Ordinary maintenance and repairs are charged to cost of sales. Buildings are usually depreciated over 40 years, and equipment, furniture, and software are usually depreciated over 3 to 10 years. Fully depreciated assets are retained in buildings and equipment until disposal. When an item is sold or retired, the accounts are relieved of its cost and related accumulated depreciation and the resulting gains and losses, if any, are recognized in earnings. As of May Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset group are less than the carrying amount of the asset group. Asset groups have identifiable cash flows and are largely independent of other asset groups. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Fair value is measured using a discounted cash flow model or independent appraisals, as appropriate. Goodwill and Other Intangible Assets Goodwill is not subject to amortization and is tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. 51 impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value up to the total amount of goodwill allocated to the reporting unit. Our estimates of fair value are determined based on a discounted cash flow model. Growth rates for sales and profits are determined using inputs from our long-range planning process. We also make estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors. We evaluate the useful lives of our other intangible assets, mainly brands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Intangible assets that are deemed to have Our indefinite-lived intangible assets, mainly intangible assets primarily associated with theBlue Buffalo, Pillsbury,Totino’s, Our finite-lived intangible assets, primarily acquired franchise agreements and customer relationships, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset are less than the carrying amount of the asset. Assets generally have identifiable cash flows and are largely independent of other assets. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset over its fair value. Fair value is measured using a discounted cash flow model or other similar valuation model, as appropriate. Leases We determine whether an arrangement is a lease at inception. When our lease arrangements include lease and non-lease components, we account for lease and non-lease components (e.g. common area maintenance) separately based on their relative standalone prices. Any lease arrangements with an initial term of 12 months or less are not recorded on our Consolidated Balance Sheet, and we recognize lease costs for these lease arrangements on a straight-line basis over the lease term. Many of our lease arrangements provide us with options to exercise one or more renewal terms or to terminate the lease arrangement. We include these options when we are reasonably certain to exercise them in the lease term used to establish our right of use assets and lease liabilities. Generally, our lease agreements do not include an option to purchase the leased asset, residual value guarantees, or material restrictive covenants. We have certain lease arrangements with variable rental payments. Our lease arrangements for our Häagen-Dazs retail shops often include rental payments that are based on a percentage of retail sales. We have other lease arrangements that are adjusted periodically based on an inflation index or rate. The future variability of these payments and adjustments are unknown, and therefore they are not included as minimum lease payments used to determine our right of use assets and lease liabilities. Variable rental payments are recognized in the period in which the obligation is incurred. As most of our lease arrangements do not provide an implicit interest rate, we apply an incremental borrowing rate based on the information available at the commencement date of the lease arrangement to determine the present value of lease payments. Investments in Unconsolidated Joint Ventures Our investments in companies over which we have the ability to exercise significant influence are stated at cost plus our share of undistributed earnings or losses. We receive royalty income from certain joint ventures, incur various expenses (primarily research and development), and record the tax impact of certain joint venture operations that are structured as partnerships. In addition, we make advances to our joint ventures in the form of loans or capital investments. We also sell certain raw materials, semi-finished goods, and finished goods to the joint ventures, generally at market prices. In addition, we assess our investments in our joint ventures if we have reason to believe an impairment may have occurred including, but not limited to, as a result of ongoing operating losses, projected decreases in earnings, increases in the 52 Redeemable Interest We have a 51 percent controlling interest in Yoplait SAS, a consolidated entity. Sodiaal International (Sodiaal) holds the remaining 49 percent interest in Yoplait SAS. Sodiaal has the ability to put all or a portion of its redeemable interest to us at fair value once per year, up to three times before December 2024. This put option requires us to classify Sodiaal’s interest as a redeemable interest outside of equity on our Consolidated Balance Sheets for as long as the put is exercisable by Sodiaal. When the put is no longer exercisable, the redeemable interest will be reclassified to noncontrolling interests on our Consolidated Balance Sheets. We adjust the value of the redeemable interest through additionalpaid-in capital on our Consolidated Balance Sheets quarterly to the redeemable interest’s redemption value, which approximates its fair value. Revenue Recognition Our revenues primarily result from contracts with customers, which are generally short-term and have a single performance obligation – the delivery of product. We recognize
Environmental Costs Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed. Liabilities for anticipated remediation costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies or our commitment to a plan of action. Advertising Production Costs We expense the production costs of advertising the first time that the advertising takes place. Research and Development All expenditures for research and development (R&D) are charged against earnings in the period incurred. R&D includes expenditures for new product and manufacturing process innovation, and the annual expenditures are comprised primarily of internal salaries, wages, consulting, and supplies attributable to R&D activities. Other costs include depreciation and maintenance of research facilities, including assets at facilities that are engaged in pilot plant activities. Foreign Currency Translation For all significant foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated at theperiod-end exchange rates. Income statement accounts are translated using the average exchange rates prevailing during the period. Translation adjustments are reflected within accumulated other comprehensive loss (AOCI) in stockholders’ equity. Gains and losses from foreign currency transactions are included in net earnings for the period, except for gains and losses on investments in subsidiaries for which settlement is not planned for the foreseeable future and foreign exchange gains and losses on instruments designated as net investment hedges. These gains and losses are recorded in AOCI. Derivative Instruments All derivatives are recognized on our Consolidated Balance Sheets at fair value based on quoted market prices or our estimate of their fair value, and are recorded in either current or noncurrent assets or liabilities based on their maturity. Changes in the fair values of derivatives are recorded in net earnings or other comprehensive income, based on whether the instrument is designated and effective as a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in AOCI are 53 reclassified to earnings in the period the hedged item affects earnings. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCI are reclassified to earnings at that time. Stock-based Compensation We generally measure compensation expense for grants of restricted stock units and performance share units using the value of a share of our stock on the date of grant. We estimate the value of stock option grants using a Black-Scholes valuation model. Certain equity-based compensation plans contain provisions that accelerate vesting of awards upon retirement, termination, or death of eligible employees and directors. We consider a stock-based award to be vested when the employee’s or director’s retention of the award is no longer contingent on providing subsequent service. Accordingly, the related compensation cost is generally recognized immediately for awards granted to retirement-eligible individuals or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated vesting period. We report the benefits of tax deductions in excess of recognized compensation cost as an operating cash flow. Defined Benefit Pension, Other Postretirement Benefit, and Postemployment Benefit Plans We sponsor several domestic and foreign defined benefit plans to provide pension, health care, and other welfare benefits to retired employees. Under certain circumstances, we also provide accruable benefits, primarily severance, to former or inactive employees in the United States, Canada, and Mexico. We recognize an obligation for any of these benefits that vest or accumulate with service. Postemployment benefits that do not vest or accumulate with service (such as severance based solely on annual pay rather than years of service) are charged to expense when incurred. Our postemployment benefit plans are unfunded. We recognize the underfunded or overfunded status of a defined benefit pension plan as an asset or liability and recognize changes in the funded status in the year in which the changes occur through AOCI.
Use of Estimates Preparing our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates include our accounting for
New Accounting Standards
In the first quarter of fiscal
In the
In the first quarter of fiscal In the 54 contain leases and carrying forward the historical classification In the first quarter of fiscal In the first quarter of fiscal 2019, we adopted new accounting requirements for the
NOTE 3. Acquisition and
During the fourth quarter of fiscal During the fourth quarter of fiscal 2021, we entered into a definitive agreement to acquire Tyson Foods’ pet treats business for $1.2 billion in cash. We expect to close on the acquisition in the first quarter of fiscal 2022. We intend to fund the acquisition with cash and short-term debt. During the third quarter of fiscal 2019, we sold our
NOTE 4. RESTRUCTURING, IMPAIRMENT, AND OTHER EXIT COSTS
ASSET In fiscal In fiscal 2019, we recorded a $14.8 million charge in restructuring, impairment, and other exit costs related to the impairment of certain manufacturing assets in our North America Retail and Asia & Latin America segments. RESTRUCTURING INITIATIVES We view our restructuring activities as actions that help us meet our long-term growth 55
In
In
The charges associated with restructuring Certain actions are subject to union negotiations and We paid net $21.8 million of cash related to restructuring actions in fiscal 2021. We paid net In fiscal 2020, we did not undertake any new restructuring actions and recorded Charges recorded in fiscal
Restructuring and
56 The roll forward of our restructuring and other exit cost reserves, included in other current liabilities, is as follows:
The charges recognized in the roll forward of our reserves for restructuring and other exit costs do not include items charged directly to expense (e.g., asset impairment charges, the gain or loss on the sale of restructured assets, and thewrite-off of spare parts) and other periodic exit costs recognized as incurred, as those items are not reflected in our restructuring and other exit cost reserves on our Consolidated Balance Sheets. NOTE 5. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES We have a 50 percent We also have a 50 percent Results from our CPW and HDJ joint ventures are reported for the 12 months ended March 31. Joint venture related balance sheet activity is as follows:
Joint venture earnings and cash flow activity is as follows:
57 Summary combined financial information for the joint ventures on a 100 percent basis is as follows:
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS The components of goodwill and other intangible assets are as follows:
Based on the carrying value of finite-lived intangible assets as of May
58 The changes in the carrying amount of goodwill for fiscal
The changes in the carrying amount of other intangible assets for fiscal
Our annual goodwill and indefinite-lived intangible assets impairment test was performed on the first day of the second quarter of fiscal
While having significant coverage as of our fiscal
We did not identify any indicators of In fiscal 2019, NOTE 7. LEASES Our lease portfolio primarily consists of operating lease arrangements for certain warehouse and distribution space, office space, retail shops, production facilities, rail cars, production and distribution equipment, automobiles, and office equipment. Our lease costs associated with finance leases and sale-leaseback transactions and our lease income associated with lessor and sublease arrangements are not material to our Consolidated Financial Statements. 59 Components of our lease cost are as follows:
Rent expense under all operating leases from continuing operations was $184.9 million Maturities of our operating and finance lease obligations by fiscal year are as follows:
The lease payments presented in the The weighted-average remaining lease term and weighted-average discount rate for our operating leases are as follows:
Supplemental operating cash flow information and non-cash activity related to
NOTE FINANCIAL INSTRUMENTS The carrying values of cash and cash equivalents, receivables, accounts payable, other current liabilities, and notes payable approximate fair value. Marketable securities are carried at fair value. As of May
60 There were 0 realized Scheduled maturities of our marketable securities are as follows:
As of May As of May 30, 2021, we The fair value and carrying amounts of long-term debt, including the current portion, were RISK MANAGEMENT ACTIVITIES As a part of our ongoing operations, we are exposed to market risks such as changes in interest and foreign currency exchange rates and commodity and equity prices. To manage these risks, we may enter into various derivative transactions (e.g., futures, options, and swaps) pursuant to our established policies. COMMODITY PRICE RISK Many commodities we use in the production and distribution of our products are exposed to market price risks. We utilize derivatives to manage price risk for our principal ingredients and energy costs, including grains (oats, wheat, and corn), oils (principally soybean), dairy products, natural gas, and diesel fuel. Our primary objective when entering into these derivative contracts is to achieve certainty with regard to the future price of commodities purchased for use in our supply chain. We manage our exposures through a combination of purchase orders, long-term contracts with suppliers, exchange-traded futures and options, andover-the-counter options and swaps. We offset our exposures based on current and projected market conditions and generally seek to acquire the inputs at as close as possible to or below our planned We use derivatives to manage our exposure to changes in commodity prices. We do not perform the assessments required to achieve hedge accounting for commodity derivative positions. Accordingly, the changes in the values of these derivatives are recorded currently in cost of sales in our Consolidated Statements of Earnings. Although we do not meet the criteria for cash flow hedge accounting, we believe that these instruments are effective in achieving our objective of providing certainty in the future price of commodities purchased for use in our supply chain. Accordingly, for purposes of measuring segment operating performance these gains and losses are reported in unallocated corporate items outside of segment operating results until such time that the exposure we are managing affects earnings. At that time we reclassify the gain or loss from unallocated corporate items to segment operating profit, allowing our operating segments to realize the economic effects of the derivative without experiencing any resultingmark-to-market volatility, which remains in unallocated corporate items. 61 Unallocated corporate items for fiscal
As of May INTEREST RATE RISK We are exposed to interest rate volatility with regard to future issuances of fixed-rate debt, and existing and future issuances of floating-rate debt. Primary exposures include U.S. Treasury rates, LIBOR, Euribor, and commercial paper rates in the United States and Europe. We use interest rate swaps, forward-starting interest rate swaps, and treasury locks to hedge our exposure to interest rate changes, to reduce the volatility of our financing costs, and to achieve a desired proportion of fixed rate versus floating-rate debt, based on current and projected market conditions. Generally under these swaps, we agree with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed upon notional principal amount. Floating Interest Rate Exposures —Floating-to-fixed interest rate swaps are accounted for as cash flow hedges, as are all hedges of forecasted issuances of debt. Effectiveness is assessed based on either the perfectly effective hypothetical derivative method or changes in the present value of interest payments on the underlying debt. Effective gains and losses deferred to AOCI are reclassified into earnings over the life of the associated debt. Fixed Interest Rate Exposures —Fixed-to-floating interest rate swaps are accounted for as fair value hedges with effectiveness assessed based on changes in the fair value of the underlying debt and derivatives, using incremental borrowing rates currently available on loans with similar terms and maturities. In advance of planned debt financing,
In advance of planned debt financing, in the During the third quarter of fiscal During the 62 As of May
The following table summarizes the notional amounts and weighted-average interest rates of our interest rate derivatives. Average floating rates are based on rates as of the end of the reporting period.
The floating rate swap contracts outstanding as of May FOREIGN EXCHANGE RISK Foreign currency fluctuations affect our net investments in foreign subsidiaries and foreign currency cash flows related to third party purchases, intercompany loans, product shipments, and foreign-denominated debt. We are also exposed to the translation of foreign currency earnings to the U.S. dollar. Our principal exposures are to the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese renminbi, euro, Japanese yen, Mexican peso, and Swiss franc. We primarily use foreign currency forward contracts to selectively hedge our foreign currency cash flow exposures. We also generally swap our foreign-denominated commercial paper borrowings and nonfunctional currency intercompany loans back to U.S. dollars or the functional currency of the entity with foreign exchange exposure. The gains or losses on these derivatives offset the foreign currency revaluation gains or losses recorded in earnings on the associated borrowings. We generally do not hedge more than 18 months in advance. As of May We also have EQUITY INSTRUMENTS Equity price movements affect our compensation expense as certain investments made by our employees in our deferred compensation plan are revalued. We use equity swaps to manage this risk. As of May 63 FAIR VALUE MEASUREMENTS AND FINANCIAL STATEMENT PRESENTATION The fair values of our assets, liabilities, and derivative positions recorded at fair value and their respective levels in the fair value hierarchy as of May
(a)These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash and cash equivalents.
(d)Based on prices of futures exchanges and recently reported transactions in the marketplace. (e)Based on prices of common stock, mutual fund net asset values, and bond matrix pricing.
64
(a)These contracts and investments are recorded as prepaid expenses and other current assets, other assets, other current liabilities or other liabilities, as appropriate, based on whether in a gain or loss position. Certain marketable investments are recorded as cash and cash equivalents. (b)Based on LIBOR and swap rates. As of May 31, 2020, the carrying amount of hedged debt designated as the hedged item in a fair value hedge was $670.9 million and was classified on the Consolidated Balance Sheet within long-term debt. As of May 31, 2020, the cumulative amount of fair value hedging basis adjustments was $4.8 million. (c)Based on observable market transactions of spot currency rates and forward currency prices. (d)Based on prices of futures exchanges and recently reported transactions in the marketplace. (e)Based on prices of common stock and bond matrix pricing. We did not significantly change our valuation techniques from prior periods. 65 Information related to our cash flow hedges, fair value hedges, and other derivatives not designated as hedging instruments for the fiscal years ended May
(a)(Loss) gain reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts. For the fiscal year ended May 30, 2021, the amount of loss reclassified from AOCI into cost of sales was $9.3 million and the amount of loss reclassified from AOCI into SG&A was $0.5 million. For the fiscal year ended May 31, 2020, the amount of gain reclassified from AOCI into cost of sales was $5.1 million and the amount of loss reclassified from AOCI into SG&A was $0.5 million. (b)Loss recognized in earnings is reported in interest, net for interest rate contracts, in cost of sales for commodity contracts, and in SG&A expenses for equity contracts and foreign exchange contracts (c)Gain (loss) recognized in earnings is related to the ineffective portion of the hedging relationship, reported in SG&A expenses for foreign exchange contracts and interest, net for interest rate contracts. No amounts were reported as a result of being excluded from the assessment of hedge effectiveness. 66 The following tables reconcile the net fair values of assets and liabilities subject to offsetting arrangements that are recorded in our Consolidated Balance Sheets to the net fair values that could be reported in our Consolidated Balance Sheets:
(a)Includes related collateral offset in our Consolidated Balance Sheets. (b)Net fair value as recorded in our Consolidated Balance Sheets. (c)Fair value of assets that could be reported net in our Consolidated Balance Sheets. (d)Fair value of liabilities that could be reported net in our Consolidated Balance Sheets. (e)Fair value of assets and liabilities reported on a gross basis in our Consolidated Balance Sheets. AMOUNTS RECORDED IN ACCUMULATED OTHER COMPREHENSIVE LOSS As of May
The net amount ofpre-tax gains and losses in AOCI as of May CREDIT-RISK-RELATED CONTINGENT FEATURES Certain of our derivative instruments contain provisions that require us to maintain an investment grade credit rating on our debt from each of the major credit rating agencies. If our debt were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on May 67 CONCENTRATIONS OF CREDIT AND COUNTERPARTY CREDIT RISK During fiscal
No customer other than Walmart accounted for 10 percent or more of our consolidated net sales. We enter into interest rate, foreign exchange, and certain commodity and equity derivatives, primarily with a diversified group of highly rated counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and, by policy, 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; however, we have not incurred a material loss. We also enter into commodity futures transactions through various regulated exchanges. The amount of loss due to the credit risk of the counterparties, should the counterparties fail to perform according to the terms of the contracts, is We offer certain suppliers access to NOTE
NOTES PAYABLE The components of notes payable and their respective weighted-average interest rates at the end of the periods were as follows:
To ensure availability of funds, we maintain bank credit lines 68 The following table details thefee-paid committed and uncommitted credit lines we had available as of May
In The credit facilities contain covenants, including a requirement to maintain a fixed charge coverage ratio of at least 2.5 times. We were in compliance with all credit facility covenants as of May
LONG-TERM DEBT In In the third quarter of fiscal 2021, we completed an offer to exchange certain series of outstanding notes for a combination of newly issued notes and cash. Holders exchanged $603.9 million of notes previously issued with rates between 4.15 percent and 5.4 percent for $605.2 million of newly issued 3.0 percent fixed-rate notes due February 1, 2051 and $201.4 million of cash, representing a participation incentive. In the second quarter of fiscal 2021, we issued
In
Subsequent to the end of fiscal 2021, we repaid €200.0 million of 2.2 percent fixed-rate notes due June 24, 2021 using proceeds from the issuance of €50.0 million of 2.2 percent fixed-rate notes due November 29, 2021 and borrowings under a committed credit facility. In In
In the second quarter of fiscal 2020, we repaid $500.0 million of 2.2 percent fixed-rate notes with proceeds from commercial paper. 69 A summary of our long-term debt is as follows:
Principal payments due on long-term debt and
Certain of our long-term debt agreements contain restrictive covenants. As of May As of May NOTE Our principal redeemable and noncontrolling interests relate to our Yoplait SAS, Yoplait Marques SNC, Liberté Marques Sàrl, and General Mills Cereals, LLC (GMC) subsidiaries. 70 We have a 51 percent controlling interest in Yoplait SAS and a 50 percent interest in Yoplait Marques SNC and Liberté Marques On the acquisition dates, we recorded the $281.4 million fair value of Sodiaal’s 50 percent euro-denominated interest in Yoplait Marques SNC and 50 percent Canadian dollar-denominated interest in Liberté Marques We paid dividends of A subsidiary of Yoplait SAS has entered into an exclusive milk supply agreement for its European operations with Sodiaal at market-determined prices through The holder of the GMC Class A Interests receives quarterly preferred distributions from available net income based on the application of a floating preferred return rate to the holder’s capital account balance established in the most recentmark-to-market valuation (currently $251.5 million). On June 1, For financial reporting purposes, the assets, liabilities, results of operations, and cash flows of ournon-wholly owned consolidated subsidiaries are included in our Consolidated Financial Statements. The third-party investor’s share of the net earnings of these subsidiaries is reflected in net earnings attributable to redeemable and noncontrolling interests in our Consolidated Statements of Earnings. Our noncontrolling interests contain restrictive covenants. As of May NOTE Cumulative preference stock of 5.0 million shares, without par value, is authorized but unissued. On May 6, 2014, our Board of Directors authorized the repurchase of up to 100 million shares of our common stock. Purchases under the authorization can be made in the open market or in privately negotiated transactions, including the use of call options and other derivative instruments, Rule10b5-1 trading plans, and accelerated repurchase programs. The authorization has no specified termination date.
Share repurchases were as follows:
71 The following
(a)Loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts.
(a)Loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts. (b)Loss reclassified from AOCI into earnings is reported in benefit plan non-service income. Please refer to Note 2.
72
(a)Gain reclassified from AOCI into earnings is reported in interest, net for securities. (b)Loss reclassified from AOCI into earnings is reported in interest, net for interest rate swaps and in cost of sales and SG&A expenses for foreign exchange contracts. (c)Loss reclassified from AOCI into earnings is reported in benefit plan non-service income. Please refer to Note 2. In fiscal Accumulated other comprehensive loss balances, net of tax effects, were as follows:
NOTE We use broad-based stock plans to help ensure that management’s interests are aligned with those of our shareholders. As of May 73 Stock Options The estimated fair values of stock options granted and the assumptions used for the Black-Scholes option-pricing model were as follows:
We estimate the fair value of each option on the grant date using a Black-Scholes option-pricing model, which requires us to make predictive assumptions regarding future stock price volatility, employee exercise behavior, dividend yield, and the forfeiture rate. We estimate our future stock price volatility using the historical volatility over the expected term of the option, excluding time periods of volatility we believe a marketplace participant would exclude in estimating our stock price volatility. We also have considered, but did not use, implied volatility in our estimate, because trading activity in options on our stock, especially those with tenors of greater than 6 months, is insufficient to provide a reliable measure of expected volatility. Our expected term represents the period of time that options granted are expected to be outstanding based on historical data to estimate option exercises and employee terminations within the valuation model. Separate groups of employees have similar historical exercise behavior and therefore were aggregated into a single pool for valuation purposes. The weighted-average expected term for all employee groups is presented in the table above. The risk-free interest rate for periods during the expected term of the options is based on the U.S. Treasuryzero-coupon yield curve in effect at the time of grant. Any corporate income tax benefit realized upon exercise or vesting of an award in excess of that previously recognized in earnings (referred to as a windfall tax benefit) is presented in our Consolidated Statements of Cash Flows as an operating cash flow. Realized windfall tax benefits and shortfall tax deficiencies related to the exercise or vesting of stock-based awards are recognized in the Consolidated Statement of Earnings. We recognized windfall tax benefits from stock-based payments in income tax expense in our Consolidated Statements of Earnings of $12.4 million in fiscal 2021, $27.3 million in fiscal 2020, and $24.5 million in fiscal 2019. Options may be priced at 100 percent or more of the fair market value on the date of grant, and generally vest four years after the date of grant. Options generally expire within 10 years and one month after the date of grant. Information on stock option activity follows:
Stock-based compensation expense related to stock option awards was 74 Net cash proceeds from the exercise of stock options less shares used for minimum withholding taxes and the intrinsic value of options exercised were as follows:
Restricted Stock, Restricted Stock Units, and Performance Share Units Stock and units settled in stock subject to a restricted period and a purchase price, if any (as determined by the Compensation Committee of the Board of Directors), may be granted to key employees under the 2017 Plan. Restricted stock and restricted stock units generally vest and become unrestricted four years after the date of grant. Performance share units are earned primarily based on our future achievement of three-year goals for average organic net sales growth and cumulative free cash flow. Performance share units are settled in common stock and are generally subject to a Information on restricted stock unit and performance share unit activity follows:
The total grant-date fair value of restricted stock unit awards that vested was As of May Stock-based compensation expense related to restricted stock units and performance share units was 75 NOTE Basic and diluted EPS were calculated using the following:
(a)Incremental shares from stock options, restricted stock units, and performance share units are computed by the treasury stock method. Stock options, restricted stock units, and performance share units excluded from our computation of diluted EPS because they were not dilutive were as follows:
NOTE Defined Benefit Pension Plans We have defined benefit pension plans covering many employees in the United States, Canada, Switzerland, France, and the United Kingdom. Benefits for salaried employees are based on length of service and final average compensation. Benefits for hourly employees include various monthly amounts for each year of credited service. Our funding policy is consistent with the requirements of applicable laws. We made
Other Postretirement Benefit Plans We also sponsor plans that provide health care benefits to many of our retirees in the United States, Canada, and Brazil. The In fiscal 2021, we approved amendments to reorganize certain U.S. retiree health and welfare benefit plans. The General Mills Retiree Health Plan for Union Employees was divided into two plans, with participants under age 65 remaining within its coverage, and participants age 65 and over covered by The General Mills Retiree Health Plan for Union Employees (65+). The General Mills Retiree Health Plan for Union Employees (65+) will allow certain participants to purchase individual health insurance policies on a private health care exchange effective January 1, 2022. Additionally, the Employees’ Benefit Plan of General Mills was merged into the General Mills Retiree Health Plan for Union Employees. Separate benefit structures and plan provisions continue to apply to eligible participants of these merged plans. A portion of the General Mills Retiree Health Plan for Union Employees overfunded plan assets were segregated to offset the cost of the Employees’ Benefit Plan of General Mills health and welfare benefits. The segregation of assets is reported as a negative employer contribution in the change in other postretirement benefit plan assets. The amendments facilitate targeted investment strategies that reflect each plan’s unique liability characteristics. In fiscal 2021, we announced changes to the design of our health care coverage for certain eligible retirees to allow participants to purchase individual health insurance policies on a private health care exchange effective January 1, 2022. These changes will provide certain eligible retirees with greater flexibility in choosing health care coverage that best fits their needs. 76 Health Care Cost Trend Rates Assumed health care cost trends are as follows:
We review our health care cost trend rates annually. Our review is based on data we collect about our health care claims experience and information provided by our actuaries. This information includes recent plan experience, plan design, overall industry experience and projections, and assumptions used by other similar organizations. Our initial health care cost trend rate is adjusted as necessary to remain consistent with this review, recent experiences, and short-term expectations. Our initial health care cost trend rate assumption is
Postemployment Benefit Plans Under certain circumstances, we also provide accruable benefits, primarily severance, to former or inactive employees in the United States, Canada, and Mexico. We recognize an obligation for any of these benefits that vest or accumulate with service. Postemployment benefits that do not vest or accumulate with service (such as severance based solely on annual pay rather than years of service) are charged to expense when incurred. Our postemployment benefit plans are unfunded.
Summarized financial information about defined benefit pension, other postretirement benefit, and postemployment benefit plans is presented below:
(a)Plan assets and obligations are measured as of May 31, 2021 and May 31, 2020.
During fiscal 2021, the increase in defined benefit pension benefit obligations was primarily driven by actuarial losses due to a decrease in the discount rate. The decrease in other postretirement obligations was primarily driven by the reorganization of certain U.S. retiree health and welfare benefit plans. During fiscal 2020, the increase in defined benefit pension benefit obligations was primarily driven by actuarial losses due to a decrease in the discount rate and an update in mortality rates. The decrease in other postretirement obligations was primarily driven by a decrease in expected future claims, partially offset by losses due to a decrease in the discount rate. As of May 30, 2021, other postretirement benefit plans had benefit obligations of $412.4 million that exceeded plan assets of $310.1 million. As of May 31, 2020, other postretirement benefit plans had benefit obligations of $479.4 million that exceeded plan assets of $248.0 million. Postemployment benefit plans are not funded and had benefit obligations of $151.7 million and $150.3 million as of May 30, 2021 and May 31, 2020, respectively. The accumulated benefit obligation for all defined benefit pension plans was 78 Amounts recognized in AOCI as of May
Plans with accumulated benefit obligations in excess of plan assets as of May 30, 2021 and May 31, 2020 are as follows:
Components of net periodic benefit expense are as follows:
Weighted-average assumptions used to determine fiscalyear-end benefit obligations are as follows:
79 Weighted-average assumptions used to determine fiscal year net periodic benefit expense are as follows:
Discount Rates
We estimate the service and interest cost components of the net periodic benefit expense for our United States and most of our international defined benefit pension, other postretirement benefit, and postemployment benefit
80 Fair Value of Plan Assets The fair values of our pension and postretirement benefit plans’ assets and their respective levels in the fair value hierarchy
(a)Primarily publicly traded common stock for purposes of total return and to maintain equity exposure consistent with policy allocations. Investments include: United States and international equity securities, mutual funds, and equity futures valued at closing prices from national exchanges, and commingled funds valued at unit values provided by the investment managers, which are based on the fair value of the underlying investments. (b)Primarily government and corporate debt securities and futures for purposes of total return, managing fixed income exposure to policy allocations, and duration targets. Investments include: fixed income securities and bond futures generally valued at closing prices from national exchanges, fixed income pricing models, and independent financial analysts; and fixed income commingled funds valued at unit values provided by the investment managers, which are based on the fair value of the underlying investments. (c)Publicly traded common stocks in energy, real estate, and infrastructure for the purpose of total return. Investments include: energy, real estate, and infrastructure securities generally valued at closing prices from national exchanges, and commingled funds valued at unit values provided by the investment managers, which are based on the fair value of the underlying investments. (d)Insurance and annuity contracts to provide a stable stream of income for pension retirees. Fair values are based on the fair value of the underlying investments and contract fair values established by the providers. (e)Primarily private investments and common collective trusts that are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy. There were no material changes in our level 3 investments in fiscal Expected Rate of Return on Plan Assets Our expected rate of return on plan assets is determined by our asset allocation, our historical long-term investment performance, our estimate of future long-term returns by asset class (using input from our actuaries, investment services, and investment managers), and long-term inflation assumptions. We review this assumption annually for each plan; however, our annual investment performance for one particular year does not, by itself, significantly influence our evaluation. 81 Weighted-average asset allocations
The investment objective for our defined benefit pension and other postretirement benefit plans is to secure the benefit obligations to participants at a reasonable cost to us. Our goal is to optimize the long-term return on plan assets at a moderate level of risk. The defined benefit pension plan and other postretirement benefit plan portfolios are broadly diversified across asset classes. Within asset classes, the portfolios are further diversified across investment styles and investment organizations. For the U.S. defined benefit pension plans, the long-term investment policy allocation is: Contributions and Future Benefit Payments We do not expect to be required to make contributions to our defined benefit pension, other postretirement benefit, and postemployment benefit plans in fiscal
Defined Contribution Plans The General Mills Savings Plan is a defined contribution plan that covers domestic salaried, hourly, nonunion, and certain union employees. This plan is a 401(k) savings plan that includes a number of investment funds, including a Company stock fund and an Employee Stock Ownership Plan (ESOP). We sponsor another money purchase plan for certain domestic hourly employees with net assets of We match a percentage of employee contributions to the General Mills Savings Plan. The Company match is directed to investment options of the participant’s choosing. The number of shares of our common stock allocated to participants in the ESOP was The Company stock fund and the ESOP collectively held 82 NOTE The components of earnings before income taxes andafter-tax earnings from joint ventures and the corresponding income taxes thereon are as follows:
The following table reconciles the United States statutory income tax rate with our effective income tax rate:
(a)During fiscal 2020, we recorded a $53.1 million decrease to our deferred income tax liabilities associated with the reorganization of certain wholly owned subsidiaries.
(b)During fiscal 2019, we recorded a discrete benefit related to a capital loss carryback of $72.9 million. 83 The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:
We have established a valuation allowance against certain of the categories of deferred tax assets described above as current evidence does not suggest we will realize sufficient taxable income of the appropriate character (e.g., ordinary income versus capital gain income) within the carryforward period to allow us to realize these deferred tax benefits.
As of May
Information about our tax loss
84 Our foreign loss carryforwards
On March 11, 2021,
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act and related notices included several significant provisions, including delaying certain payroll tax As of May
We are subject to federal income taxes in the United States as well as various state, local, and foreign jurisdictions. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our liabilities for income taxes reflect the most likely outcome. We adjust these liabilities, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position would usually require the use of cash. The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing The Internal Revenue Service (IRS) is currently auditing our federal tax returns for fiscal 2016, 2018, and 2019. Several state and foreign examinations are currently in progress. We do not expect these examinations to result in a material impact on our results of operations or financial position.
During fiscal 2017, the Brazilian tax authority, Secretaria da Receita Federal do Brasil (RFB), concluded audits of our 2012 and 2013 tax return years. These audits included a review of our determinations of amortization of certain goodwill arising from the acquisition of We apply amore-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the period of such change. 85 The following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for fiscal
As of May We report accrued interest and penalties related to unrecognized tax benefit liabilities in income tax expense. For fiscal NOTE
As of May During the second quarter of fiscal 2020, we received notice from the tax authorities of the State of São Paulo, Brazil regarding our compliance with its state sales tax requirements. As a result, we have been assessed additional state sales taxes, interest, and penalties. We believe that we have meritorious defenses against this claim and will vigorously defend our position. As of May 30, 2021, we are unable to estimate any possible loss and have not recorded a loss contingency for this matter. NOTE We operate in the packaged foods industry. Our North America Retail operating segment reflects business with a wide variety of grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, ande-commerce grocery providers. Our product categories in this business segment areready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, Our Europe & Australia operating segment reflects retail and foodservice businesses in the greater Europe and Australia regions. Our product categories include refrigerated yogurt, Our major product categories in our Convenience Stores & Foodservice operating segment areready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, baking mixes, and 86 Our
Our Asia & Latin America operating segment consists of retail and foodservice businesses in the greater Asia and South America regions. Our product categories include super-premium ice cream and frozen desserts, meal kits, dessert and baking mixes, snack bars, salty snacks, refrigerated and frozen dough products,
Operating profit for these segments excludes unallocated corporate items, gain or loss on divestitures, and restructuring, impairment, and other exit costs. Unallocated corporate items include corporate overhead expenses, variances to planned Our operating segment results were as follows:
87 Net sales for our North America Retail operating units were as follows:
Net sales by class of similar products were as follows:
The following
88 NOTE The components of certain Consolidated Balance Sheet accounts are as follows:
89
Certain Consolidated Statements of Earnings amounts are as follows:
The components of interest, net are as follows:
Certain Consolidated Statements of Cash Flows amounts are as follows:
90 NOTE Summarized quarterly data for fiscal
In the fourth quarter of fiscal 2021, we approved restructuring actions designed to better align our organizational structure and resources with strategic initiatives and recorded $157.3 million of charges. We recorded During the 91 Glossary
Adjusted Adjusted EBITDA. The calculation of earnings before income taxes and after-tax earnings from joint ventures, net interest, Adjusted operating Adjusted operating profit margin. Operating profit adjusted for certain items affecting year-to-year comparability, divided by net sales.
Constant currency.Financial results translated to United States dollars using constant foreign currency exchange rates based on the rates in effect for the comparable prior-year Core working capital.Accounts receivable plus inventories less accounts payable, all as of the last day of our fiscal year. COVID-19. Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus. In March 2020, the World Health Organization declared COVID-19 a global pandemic. Derivatives.Financial instruments such as futures, swaps, options, and forward contracts that we use to manage our risk arising from changes in commodity prices, interest rates, foreign exchange rates, and equity prices. Earnings before interest, taxes, depreciation and amortization (EBITDA). The calculation of earnings before income taxes and after-tax earnings from joint ventures, net interest, depreciation and amortization. Euribor.European Interbank Offered Rate. Fair value hierarchy.For purposes of fair value measurement, we categorize assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or Level 1:Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2:Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. Level 3:Unobservable inputs reflecting management’s assumptions about the
Free cash flow.Net cash provided by operating activities less purchases of land, buildings, and equipment. Free cash flow conversion rate.Free cash flow divided by our net earnings, including earnings attributable to redeemable and noncontrolling interests adjusted for certain items affecting GDP. Gross domestic product. Generally accepted accounting principles (GAAP).Guidelines, procedures, and practices that we are required to use in recording and reporting accounting information in our financial statements. Goodwill.The difference between the purchase price of acquired companies plus the fair value of any Gross margin. Net sales less cost of sales. 92 Hedge accounting.Accounting for qualifying hedges that allows changes in a hedging instrument’s fair value to offset corresponding changes in the hedged item in the same reporting Holistic Margin Management (HMM). Company-wide initiative to use productivity savings, mix management, and price realization to offset input cost inflation, protect margins, and generate funds to reinvest in sales-generating activities. Interest bearing instruments.Notes payable, long-term debt, including current portion, cash and cash equivalents, and certain interest bearing investments classified within prepaid expenses and other current assets and other assets. LIBOR.London Interbank Offered Rate. Mark-to-market.The act of determining a value for financial instruments, commodity contracts, and related assets or liabilities based on the current market price for that item. Net debt. Long-term debt, current portion of long-term debt, and notes payable, less cash and cash equivalents. Net debt-to-adjusted EBITDA ratio. Net debt divided by Adjusted EBITDA. Net mark-to-market valuation of certain commodity positions.Realized and unrealized gains and losses on derivative contracts that will be allocated to segment operating profit when the exposure we are hedging affects earnings. Net price realization.The impact of list and promoted price changes, net of trade and other price promotion costs. Net realizable value.The estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Noncontrolling interests.Interests of consolidated subsidiaries held by third parties. Notional principal amount.The principal amount on which fixed-rate or floating-rate interest payments are calculated. OCI.Other comprehensive income (loss). Operating cash flow conversion rate.Net cash provided by operating activities, divided by net earnings, including earnings attributable to redeemable and noncontrolling interests. Operating cash flow to net debt ratio.Net debt divided by cash provided by operating Organic net sales growth. Net sales growth adjusted for foreign currency translation, as well as acquisitions, divestitures, and a 53rd week impact, when applicable. Project-related costs. Costs incurred related to our restructuring initiatives not included in restructuring charges. Redeemable interest.Interest of consolidated subsidiaries held by a third party that can be redeemed outside of our control and therefore cannot be classified as a noncontrolling interest in equity. Reporting unit.An operating segment or a business one level below an operating segment.
Strategic Revenue Management (SRM).A company-wide capability focused on generating sustainable benefits from net price realization and mix by identifying and executing against specific opportunities to apply tools including pricing, sizing, mix management, and promotion optimization across each of our businesses. Supply chain input costs.Costs incurred to produce and deliver product, including costs for ingredients and conversion, inventory management, logistics, and warehousing. Total debt.Notes payable and long-term debt, including current portion. Translation adjustments.The impact of the conversion of our foreign affiliates’ financial statements to United States dollars for the purpose of consolidating our financial statements. 93 Variable interest entities (VIEs).A legal structure that is used for business purposes that either (1) does not have equity investors that have voting rights and share in all the entity’s profits and losses or (2) has equity investors that do not provide sufficient financial resources to support the entity’s activities. Working capital.Current assets and current liabilities, all as of the last day of our fiscal year. ITEM 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. ITEM 9A - Controls and Procedures We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule13a-15(e) under the 1934 Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of May submit under the 1934 Act is (1) recorded, processed, summarized, and reported within the time periods specified in applicable rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting (as defined in Rule13a-15(f) under the 1934 Act) during our fiscal quarter ended May MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of General Mills, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule13a-15(f) under the 1934 Act. The Company’s internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements. Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of May
Based on our assessment using the criteria set forth by COSO inInternal Control – Integrated Framework (2013), management concluded that our internal control over financial reporting was effective as of May KPMG LLP, our independent registered public accounting firm, has issued a report on the effectiveness of the Company’s internal control over financial reporting.
/s/ J. L. Harmening/s/ K. A. Bruce J. L. HarmeningK. A. Bruce Chief Executive OfficerChief Financial Officer June Our independent registered public accounting firm’s attestation report on our internal control over financial reporting is included in the “Report of Independent Registered Public Accounting Firm” in
None. PART III ITEM 10 - Directors, Executive Officers and Corporate Governance The information contained in the sections entitled “Proposal Number 94 Information regarding our executive officers is set forth in Item 1 of this report. The information regarding our Audit Committee, including the members of the Audit Committee and audit committee financial experts, set forth in the section entitled “Board Committees and Their Functions” contained in our definitive Proxy Statement for our We have adopted a Code of Conduct applicable to all employees, including our principal executive officer, principal financial officer, and principal accounting officer. A copy of the Code of Conduct is available on our website at https://www.generalmills.com.We intend to post on our website any amendments to our Code of Conduct and any waivers from our Code of Conduct for principal officers. ITEM 11 - Executive Compensation The information contained in the sections entitled “Executive Compensation,” “Director Compensation,” and “Overseeing Risk Management” in our definitive Proxy Statement for our ITEM 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information contained in the section entitled “Ownership of General Mills Common Stock by Directors, Officers and Certain Beneficial Owners” in our definitive Proxy Statement for our
Equity Compensation Plan Information The following table provides certain information as of May
(a)Only includes the weighted-average exercise price of outstanding options, whose weighted-average term is 5.26 years. (c)Includes 109,604 restricted stock units that have vested and been deferred. These awards were made in lieu of salary increases and certain other compensation and benefits. We granted these awards under our 1998 Employee Stock Plan, which provided for the issuance of stock options, restricted stock, and restricted stock units to attract and retain employees and to align their interests with those of shareholders. We discontinued the 1998 Employee Stock Plan in September 2003, and no future awards may be granted under that plan. (d)Includes stock options, restricted stock, restricted stock units, shares of unrestricted stock, stock appreciation rights, and performance awards that we may award under our 2017 Stock Compensation Plan, which had 23,482,523 shares available for grant at May 30, 2021. ITEM 13 - Certain Relationships and Related Transactions, and Director Independence The information set forth in the section entitled “Board Independence and Related Person Transactions” contained in our definitive Proxy Statement for our ITEM 14 - Principal Accounting Fees and Services The information contained in the section entitled “Independent Registered Public Accounting Firm Fees” in our definitive Proxy Statement for our 95 PART IV ITEM 15 – Exhibits and Financial Statement Schedules 1.Financial Statements: The following financial statements are included in Item 8 of this report: Consolidated Statements of Earnings for the fiscal years ended May Consolidated Statements of Comprehensive Income for the fiscal years ended May Consolidated Balance Sheets as of May Consolidated Statements of Cash Flows for the fiscal years ended May Consolidated Statements of Total Equity and Redeemable Interest for the fiscal years ended May Notes to Consolidated Financial Statements. Report of Management Responsibilities. Report of Independent Registered Public Accounting Firm. 2.Financial Statement Schedule: For the fiscal years ended May II – Valuation and Qualifying Accounts 96 3.Exhibits:
97 98
_____________ *Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15 of Form 10-K. +Confidential information has been omitted from the exhibit and filed separately with the SEC pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. Pursuant to Item 601(b)(4)(iii) of RegulationS-K, copies of certain instruments defining the rights of holders of our long-term debt are not filed and, in lieu thereof, we agree to furnish copies to the SEC upon request. ITEM 16 - Form Not 99 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GENERAL MILLS, INC. Date:June 30, 2021 By/s/ Mark A. Pallot Name:Mark A. Pallot Title:Vice President, Chief Accounting Officer 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 and on the dates indicated.
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